x
|
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
¨
|
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
DAIS ANALYTIC CORPORATION
|
New York
|
14-1760865
|
|
(State or other jurisdiction of
incorporation or organization)
|
(IRS Employer
Identification No.)
|
Large accelerated filer
|
¨
|
Accelerated filer
|
¨
|
Non-accelerated filer
|
¨
|
Smaller reporting company
|
x
|
Page No.
|
|||||
Part I. Financial Information | |||||
Item Item 1.
|
Financial Statements
|
||||
Balance Sheets June 30, 2011 (Unaudited) and December 31, 2010
|
3
|
||||
Statements of Operations three and six months ended June 30, 2011 and 2010 (Unaudited)
|
4
|
||||
Statement of Stockholders’ Deficit six months ended June 30, 2011 (Unaudited)
|
5
|
||||
Statements of Cash Flows six months ended June 30, 2011 and 2010 (Unaudited)
|
6
|
||||
Notes to Financial Statements (Unaudited)
|
7
|
||||
Item Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operation
|
21
|
|||
Item Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
30
|
|||
Item Item 4.
|
Controls and Procedures
|
30
|
|||
Part II. Other Information | |||||
Item 1.
|
Legal Proceedings
|
31
|
|||
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
31
|
|||
Item 3.
|
Default Upon Senior Securities
|
31
|
|||
Item 4.
|
Reserved
|
31
|
|||
Item 5.
|
Other Information
|
31
|
|||
Item 6.
|
Exhibits
|
32
|
|||
Signatures
|
33
|
June 30,
2011
|
December 31,
2010
|
|||||||
(unaudited)
|
||||||||
Assets
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
841,797
|
$
|
304,656
|
||||
Accounts receivable, net of allowance for doubtful accounts of $18,650 and $0 at June 30, 2011 and December 31, 2010, respectively
|
807,967
|
828,632
|
||||||
Other receivables
|
69,526
|
59,526
|
||||||
Inventory
|
371,970
|
294,069
|
||||||
Deferred offering costs
|
547,376
|
175,000
|
||||||
Debt issue costs
|
49,807
|
—
|
||||||
Prepaid expenses and other current assets
|
57,916
|
83,136
|
||||||
Total current assets
|
2,746,359
|
1,745,019
|
||||||
Property and equipment, net
|
144,914
|
147,911
|
||||||
Other assets:
|
||||||||
Deposits
|
2,280
|
3,280
|
||||||
Patents, net of accumulated amortization of $120,890 and $112,240 at June 30, 2011 and December 31, 2010, respectively
|
79,309
|
74,363
|
||||||
Total other assets
|
81,589
|
77,643
|
||||||
$
|
2,972,862
|
$
|
1,970,573
|
|||||
Liabilities and Stockholders’ Deficit
|
||||||||
Current liabilities:
|
||||||||
Accounts payable, including related party payables of $434,437 and $151,440 at June 30, 2011 and December 31, 2010, respectively
|
$
|
877,239
|
$
|
620,196
|
||||
Accrued compensation and related benefits
|
1,405,606
|
1,426,022
|
||||||
Accrued expenses, other
|
268,374
|
241,861
|
||||||
Current portion of deferred revenue
|
590,541
|
647,804
|
||||||
Current portion of convertible notes payable
|
—
|
50,000
|
||||||
Current portion of notes payable, related party
|
624
|
1,620,624
|
||||||
Current portion of convertible notes payable, related party net of unamortized discount of $1,049,432 and $0 at June 30, 2011 and December 31, 2010, respectively
|
1,450,568
|
—
|
||||||
Total current liabilities
|
4,592,952
|
4,606,507
|
||||||
|
||||||||
Long-term liabilities:
|
||||||||
Warrant liability
|
4,616,255
|
3,958,318
|
||||||
Deferred revenue, less current portion
|
86,840
|
127,840
|
||||||
Total long-term liabilities
|
4,703,095
|
4,086,158
|
||||||
Stockholders’ deficit:
|
||||||||
Preferred stock; $0.01 par value; 10,000,000 shares authorized; 0 shares issued and outstanding
|
—
|
—
|
||||||
Common stock; $0.01 par value; 200,000,000 shares authorized; 36,352,277 and 33,563,428 shares issued and 36,095,064 and 33,306,215 shares outstanding at June 30, 2011 and December 31, 2010, respectively
|
363,523
|
335,635
|
||||||
Capital in excess of par value
|
32,713,926
|
29,852,347
|
||||||
Accumulated deficit
|
(38,128,522
|
)
|
(35,637,962
|
)
|
||||
(5,051,073
|
)
|
(5,449,980
|
)
|
|||||
Treasury stock at cost, 257,213 shares
|
(1,272,112
|
)
|
(1,272,112
|
)
|
||||
Total stockholders’ deficit
|
(6,323,185
|
)
|
(6,722,092
|
)
|
||||
$
|
2,972,862
|
$
|
1,970,573
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(restated)
|
(restated)
|
|||||||||||||||
Revenue:
|
||||||||||||||||
Sales
|
$
|
1,103,579
|
$
|
989,642
|
$
|
1,941,773
|
$
|
1,376,424
|
||||||||
License fees
|
20,500
|
20,500
|
41,000
|
41,030
|
||||||||||||
1,124,079
|
1,010,142
|
1,982,773
|
1,417,454
|
|||||||||||||
Cost of goods sold
|
806,674
|
550,196
|
1,507,564
|
871,522
|
||||||||||||
Gross profit
|
317,405
|
459,946
|
475,209
|
545,932
|
||||||||||||
Expenses:
|
||||||||||||||||
Research and development expenses, net of government grant proceeds of $126,109, $0, 287,473 and $0, respectively
|
11,119
|
—
|
13,155
|
—
|
||||||||||||
Selling, general and administrative
|
792,606
|
1,029,394
|
1,714,903
|
1,588,914
|
||||||||||||
803,725
|
1,029,394
|
1,728,058
|
1,588,914
|
|||||||||||||
Loss from operations
|
(486,320
|
)
|
(569,448
|
)
|
(1,252,849
|
)
|
(1,042,982
|
)
|
||||||||
Other expense (income):
|
||||||||||||||||
Change in fair value of warrant liability
|
(1,694,170
|
)
|
(1,835,094
|
)
|
657,937
|
(327,066
|
)
|
|||||||||
Interest expense
|
416,899
|
55,233
|
580,438
|
101,736
|
||||||||||||
Interest income
|
(634
|
)
|
—
|
(664
|
)
|
—
|
|
|||||||||
(1,277,905
|
)
|
(1,779,861
|
)
|
1,237,711
|
(225,330
|
)
|
||||||||||
Net income (loss)
|
$
|
791,585
|
$
|
1,210,413
|
|
$
|
(2,490,560
|
)
|
$
|
(817,652
|
)
|
|||||
Net income (loss) per common share, basic
|
$
|
0.02
|
|
$
|
0.04
|
|
$
|
(0.07
|
)
|
$
|
(0.03
|
)
|
||||
Net income (loss) per common share, diluted
|
$
|
0.02
|
|
$
|
0.03
|
|
$
|
(0.07
|
)
|
$
|
(0.03
|
)
|
||||
Weighted average number of common shares, basic
|
35,089,169
|
29,800,194
|
34,335,348
|
29,577,797
|
||||||||||||
Weighted average number of common shares, diluted
|
56,239,845
|
40,245,491
|
34,335,348
|
29,577,797
|
Common Stock
|
Capital in
Excess of
|
Accumulated
|
Treasury
|
Total
Stockholders’
|
||||||||||||||||||||
Shares
|
Amount
|
Par Value
|
Deficit
|
Stock
|
Deficit
|
|||||||||||||||||||
Balance, December 31, 2010
|
33,563,428
|
$
|
335,635
|
$
|
29,852,347
|
$
|
(35,637,962
|
)
|
$
|
(1,272,112
|
)
|
$
|
(6,722,092
|
)
|
||||||||||
Issuance of common stock for services
|
121,346
|
1,213
|
41,608
|
—
|
—
|
42,821
|
||||||||||||||||||
Stock based compensation
|
—
|
—
|
630,096
|
—
|
—
|
630,096
|
||||||||||||||||||
Warrant issued with convertible note payable, related party
|
—
|
—
|
435,240
|
—
|
—
|
435,240
|
||||||||||||||||||
Beneficial conversion feature on convertible notes payable, related party
|
—
|
—
|
1,064,760
|
—
|
—
|
1,064,760
|
||||||||||||||||||
Issuance of common stock in exchange for settlement of debt
|
2,667,503
|
26,675
|
666,875
|
—
|
—
|
693,550
|
||||||||||||||||||
Revaluation of common stock issued to vendors for services
|
—
|
—
|
23,000
|
—
|
—
|
23,000
|
||||||||||||||||||
Net loss
|
—
|
—
|
—
|
(2,490,560
|
)
|
—
|
(2,490,560
|
)
|
||||||||||||||||
Balance, June 30, 2011
|
36,352,277
|
$
|
363,523
|
$
|
32,713,926
|
$
|
(38,128,522
|
)
|
$
|
(1,272,112
|
)
|
$
|
(6,323,185
|
)
|
For the Six Months Ended
June 30,
|
||||||||
2011
|
2010
|
|||||||
(restated)
|
||||||||
Operating activities
|
||||||||
Net loss
|
$
|
(2,490,560
|
)
|
$
|
(817,652
|
)
|
||
Adjustments to reconcile net loss to net cash used by operating activities:
|
||||||||
Depreciation and amortization
|
25,393
|
2,153
|
||||||
Amortization of discount and beneficial conversion feature on notes payable
|
450,568
|
—
|
||||||
Issuance of common stock, stock options and stock warrants for services and amortization of common stock issued for services
|
87,937
|
163,164
|
||||||
Stock based compensation
|
630,096
|
478,548
|
||||||
Change in fair value of warrant liability
|
657,937
|
(327,066
|
)
|
|||||
Increase in allowance for doubtful accounts
|
18,450
|
—
|
||||||
(Increase) decrease in:
|
||||||||
Accounts receivable
|
2,215
|
|
(999,829
|
)
|
||||
Other receivables
|
(10,000
|
)
|
—
|
|||||
Inventory
|
(77,901
|
)
|
(96,982
|
)
|
||||
Prepaid expenses and other current assets
|
4,104
|
|
(6,415
|
)
|
||||
Increase (decrease) in:
|
||||||||
Accounts payable and accrued expenses
|
357,106
|
51,279
|
||||||
Accrued compensation and related benefits
|
(20,416
|
)
|
56,667
|
|||||
Deferred revenue
|
(98,263
|
)
|
312,428
|
|||||
Net cash used by operating activities
|
(463,334
|
)
|
(1,183,705
|
)
|
||||
Investing activities
|
||||||||
Increase in patent costs
|
(13,596
|
)
|
—
|
|||||
Purchase of property and equipment
|
(13,746
|
)
|
(10,484
|
)
|
||||
Net cash used by investing activities
|
(27,342
|
)
|
(10,484
|
)
|
||||
Financing activities
|
||||||||
Proceeds from issuance of notes payable, related party
|
1,500,000
|
620,000
|
||||||
Payments on notes payable
|
(50,000
|
)
|
(100,000
|
)
|
||||
Payments for debt issue costs and deferred offering costs
|
(422,183
|
)
|
—
|
|||||
Net cash provided by financing activities
|
1,027,817
|
520,000
|
||||||
Net increase (decrease) in cash and cash equivalents
|
537,141
|
(674,189
|
)
|
|||||
Cash and cash equivalents, beginning of period
|
304,656
|
1,085,628
|
||||||
Cash and cash equivalents, end of period
|
$
|
841,797
|
$
|
411,439
|
||||
Supplemental cash flow information:
|
||||||||
Cash paid during the year for interest
|
$
|
34,158
|
$
|
—
|
||||
Supplemental disclosure of non-cash investing and financing activities:
|
||||||||
Application of proceeds due and payable under note, including accrued interest, to purchase 2,667,503 shares of common stock at $0.26 per share
|
$
|
693,550
|
$
|
—
|
||||
Issuance of note payable with a beneficial conversion feature
|
$
|
1,064,760
|
$
|
—
|
||||
Issuance of note payable with a discount equivalent to the relative fair value of the accompanying warrant
|
$
|
435,240
|
$
|
—
|
||||
Issuance of 375,000 shares of common stock in conversion of notes payable
|
$
|
—
|
$
|
75,000
|
1.
|
Background Information
|
2.
|
Going Concern
|
3.
|
Significant Accounting Policies
|
Six Months
Ended June 30,
2011
|
Six Months
Ended June 30,
2010
|
|||||||
Dividend rate
|
0
|
%
|
0
|
%
|
||||
Risk free interest rate
|
2.70 – 2.93
|
%
|
2.38% - 2.59
|
%
|
||||
Expected term
|
6.5 years
|
5 – 10 years
|
||||||
Expected volatility
|
101 - 103
|
%
|
96% - 107
|
%
|
•
|
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.
|
Fair Value Measurements
|
||||||||||||||||
Total carrying
value
|
Quoted prices in
active markets
(Level 1)
|
Significant other
observable
inputs
(Level 2)
|
Significant
unobservable
inputs
(Level 3)
|
|||||||||||||
Warrant liability
|
$
|
4,616,255
|
—
|
—
|
$
|
4,616,255
|
Warrant Liability
|
||||
Balance at December 31, 2010
|
$
|
3,958,318
|
||
Changes in fair value
|
657,937
|
|||
Balance at June 30, 2011
|
$
|
4,616,255
|
|
For the Three Months Ended
|
For the Six Months Ended
|
||||||||||||||
|
June 30, 2011
|
June 30, 2010
|
June 30, 2011
|
June 30, 2010
|
||||||||||||
Numerator:
|
|
(1) | (2) | |||||||||||||
Net income (loss) to common shareholders
|
|
$
|
791,585
|
$
|
1,210,413
|
$
|
(2,490,560
|
)
|
$
|
(817,652
|
)
|
|||||
Interest on convertible debentures
|
|
62,500
|
|
5,625
|
|
—
|
|
—
|
|
|||||||
|
||||||||||||||||
Net income (loss) available to common stockholders
|
|
$
|
854,085
|
$
|
1,216,038
|
$
|
(2,490,560
|
)
|
$
|
(817,652
|
)
|
|||||
|
||||||||||||||||
Denominator:
|
|
|||||||||||||||
Weighted average basic shares outstanding
|
|
35,089,169
|
|
29,800,194
|
|
34,335,348
|
|
29,577,797
|
|
|||||||
Effect of dilutive securities:
|
||||||||||||||||
Convertible debt
|
10,363,542
|
981,090
|
—
|
—
|
||||||||||||
Stock options
|
|
4,085,153
|
|
4,617,032
|
|
—
|
|
—
|
|
|||||||
Stock warrants
|
|
6,701,980
|
|
4,847,175
|
|
—
|
|
—
|
|
|||||||
|
||||||||||||||||
Weighted average fully diluted shares outstanding
|
|
56,239,845
|
|
40,245,491
|
|
34,335,348
|
|
29,577,797
|
|
|||||||
|
||||||||||||||||
Net income (loss) per common share—Basic
|
|
$
|
0.02
|
$
|
0.04
|
$
|
(0.07
|
)
|
$
|
(0.03
|
)
|
|||||
Net income (loss) per common share—Diluted
|
|
$
|
0.02
|
$
|
0.03
|
$
|
(0.07
|
)
|
$
|
(0.03
|
)
|
(1)
|
For the three months ended June 30, 2011, 13,185,937 stock options and 22,065,661 warrants were excluded as their exercise price was higher than the Company's average stock price for the quarter.
|
(2)
|
For the three months ended June 30, 2010, 10,473,225 stock options and 18,480,428 warrants were excluded as their exercise price was higher than the Company's average stock price for the quarter.
|
4.
|
Notes Payable
|
June 30,
2011
|
December 31,
2010
|
|||||||
Convertible note payable; interest at 9%; collateralized by the Company’s patents and patent applications
|
$
|
—
|
$
|
50,000
|
||||
Convertible note payable, related party; interest at 10% per annum; due in full March 22, 2012
|
1,000,000
|
1,000,000
|
||||||
Secured convertible note payable, related party; interest at 10% per annum; due March 22, 2012
|
1,500,000
|
—
|
||||||
Note payable, related party; 10% interest; unsecured; paid in full
|
—
|
620,000
|
||||||
Note payable; related party
|
624
|
624
|
||||||
2,500,624
|
1,670,624
|
|||||||
Less unamortized discount
|
(1,049,432
|
)
|
—
|
|||||
Less amounts currently due, net of unamortized discount
|
1,451,192
|
1,670,624
|
||||||
Long-term portion
|
$
|
—
|
$
|
—
|
5.
|
Related Party Transactions
|
6.
|
Stock Options and Warrants
|
Common
Shares
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining
Contractual Term
(in years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||
Outstanding at December 31, 2010
|
14,897,757
|
$
|
0.25
|
7.19
|
$
|
946,754
|
||||||||||
Granted
|
2,510,000
|
$
|
0.33
|
|||||||||||||
Expired/Forfeited
|
(136,667
|
)
|
$
|
0.11
|
||||||||||||
Outstanding at June 30, 2011
|
17,271,090
|
$
|
0.32
|
7.04
|
$
|
1,406,643
|
||||||||||
Exercisable at June 30, 2011
|
15,958,937
|
$
|
0.32
|
6.86
|
$
|
1,326,355
|
Number of
Options
|
Weighted
Average
Grant Date
Fair Value
|
|||||||
Nonvested options - December 31, 2010
|
1,063,194
|
$
|
0.25
|
|||||
Granted
|
2,510,000
|
$
|
0.27
|
|||||
Vested
|
(2,261,041
|
)
|
$
|
0.24
|
||||
Nonvested options – June 30, 2011
|
1,312,153
|
$
|
0.24
|
Warrants
|
Remaining
Number
Outstanding
|
Weighted Average
Remaining Life
(Years)
|
Weighted Average
Exercise Price
|
|||||||||
Warrants-Daily Financing
|
197,055
|
.49
|
$
|
0.55
|
||||||||
Warrants-Additional Financing
|
428,637
|
1.21
|
$
|
0.40
|
||||||||
Warrants-Robb Trust Note
|
50,000
|
.93
|
$
|
0.55
|
||||||||
Warrants-Financings (2007, 2008 and 2011)
|
18,750,000
|
2.19
|
$
|
0.29
|
||||||||
Warrants-Placement Agent Warrants
|
793,641
|
1.76
|
$
|
0.25
|
||||||||
Warrants-Tangredi
|
3,000,000
|
1.76
|
$
|
0.36
|
||||||||
Warrants-Ehrenberg
|
250,000
|
2.10
|
$
|
0.30
|
||||||||
Warrants-Consulting Agreements
|
825,000
|
3.28
|
$
|
0.31
|
||||||||
Warrants-Note Conversions
|
2,302,538
|
2.93
|
$
|
0.39
|
||||||||
Warrants-Stock Purchases
|
1,720,770
|
4.00
|
$
|
0.40
|
||||||||
Warrants-Mandelbaum
|
50,000
|
2.84
|
$
|
0.19
|
||||||||
Warrants-Services
|
400,000
|
3.56
|
$
|
0.50
|
||||||||
Tota
|
28,767,641
|
7.
|
Commitments and Contingencies
|
8.
|
Genertec Agreement
|
9.
|
CAST Systems Control Technology
|
10.
|
Derivative Financial Instruments
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Exercise price
|
$
|
0.25
|
$
|
0.25
|
$
|
0.25
|
$
|
0.25
|
||||||||
Market value of stock at end of period
|
$
|
0.37
|
|
$
|
0.30
|
|
$
|
0.37
|
|
$
|
0.30
|
|
||||
Expected dividend rate
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
||||||||
Expected volatility
|
164
|
%
|
123% - 137
|
%
|
164% - 173
|
%
|
119% - 137
|
%
|
||||||||
Risk-free interest rate
|
0.19% – 0.45
|
%
|
0.81% – 1.00
|
%
|
0.19% – 1.25
|
%
|
.81% – 1.60
|
%
|
Total Liabilities
As previously
Reported
|
Change
|
Total Liabilities
As Restated
|
Stockholders’ Deficit
As previously
Reported
|
Change
|
Stockholders’ Deficit
As Restated
|
|||||||||||||||||||
March 31, 2010
|
$
|
5,117,253
|
$
|
6,085,147
|
$
|
11,202,400
|
$
|
(3,058,161
|
)
|
$
|
(6,085,147
|
)
|
$
|
(9,143,308
|
)
|
|||||||||
June 30, 2010
|
$
|
5,165,059
|
$
|
4,250,053
|
$
|
9,415,112
|
$
|
(3,094,998
|
)
|
$
|
(4,250,053
|
)
|
$
|
(7,345,051
|
)
|
|||||||||
September 30, 2010
|
$
|
5,147,657
|
$
|
4,861,284
|
$
|
10,008,941
|
$
|
(3,428,140
|
)
|
$
|
(4,861,284
|
)
|
$
|
(8,289,424
|
)
|
Other Inc
(Exp)
As previously
Reported
|
Change
|
Other Inc (Exp)
As Restated
|
Net Loss
As
previously
Reported
|
Change
|
Net (Loss)
Income
As Restated
|
EPS
As previously
Reported
|
EPS
As Restated
|
|||||||||||||||||||||||||
For the Three Months Ended:
|
||||||||||||||||||||||||||||||||
March 31, 2010
|
$
|
(46,504
|
)
|
$
|
(1,508,027
|
)
|
$
|
(1,554,531
|
)
|
$
|
(520,038
|
)
|
$
|
(1,508,027
|
)
|
$
|
(2,028,065
|
)
|
$
|
(0.02
|
)
|
$
|
(0.07
|
)
|
||||||||
June 30, 2010
|
$
|
(55,233
|
)
|
$
|
1,835,094
|
$
|
1,779,861
|
$
|
(624,681
|
)
|
$
|
1,835,094
|
$
|
1,210,413
|
$
|
(0.02
|
)
|
$
|
0.04
|
|||||||||||||
September 30, 2010
|
$
|
(55,933
|
)
|
$
|
(611,231
|
)
|
$
|
(667,164
|
)
|
$
|
(555,692
|
)
|
$
|
(611,231
|
)
|
$
|
(1,166,923
|
)
|
$
|
(0.02
|
)
|
$
|
(0.04
|
)
|
11.
|
Subsequent Events
|
•
|
A change in key suppliers or the prices that they charge for the fundamental components of our ConsERV™ products;
|
||
•
|
An increase in the labor resources needed to expand the production of our ConsERV™ products;
|
•
|
Commercialization of new product applications of our polymer technology;
|
||
•
|
Continued technological improvements in key materials or configuration(s) to reduce our ‘per unit’ cost structure; and
|
•
|
Additional outsourcing of our manufacturing and assembly processes with strategic partners to reduce our ‘per unit’ cost structure.
|
•
|
Additional expenses as a result of being a reporting company including, but not limited to, director and officer insurance, director fees, SEC reporting and compliance expenses, transfer agent fees, additional staffing, professional fees and similar expenses;
|
||
•
|
Additional infrastructure needed to support the expanded commercialization of our ConsERV™ 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 fair value of new share-based awards, which is based on various assumptions including, among other things, the volatility of our stock price
|
Three Months Ended June 30,
|
||||||||
2011
|
2010
|
|||||||
restated | ||||||||
Revenues
|
$
|
1,124,079
|
$
|
1,010,142
|
||||
Percentage of revenues
|
100.0
|
%
|
100.0
|
%
|
||||
Cost of goods sold
|
$
|
806,674
|
$
|
550,196
|
||||
Percentage of revenues
|
71.8
|
%
|
54.5
|
%
|
||||
Research and development expenses, net grant revenue
|
$
|
11,119
|
$
|
-
|
||||
Percentage of revenues
|
1.0
|
%
|
0.0
|
%
|
||||
Selling, general and administrative expenses
|
$
|
792,606
|
$
|
1,029,394
|
||||
Percentage of revenues
|
70.5
|
%
|
101.9
|
%
|
||||
Interest expense
|
$
|
416,899
|
$
|
55,233
|
||||
Percentage of revenues
|
37.1
|
%
|
5.5
|
%
|
||||
Change in fair value of warrant liability (gain)
|
$
|
(1,694,170
|
)
|
$
|
(1,835,094
|
)
|
||
Percentage of revenues
|
150.7
|
%
|
181.7
|
%
|
||||
Net income
|
$
|
791,585
|
|
$
|
1,210,413
|
|
||
Percentage of revenues
|
70.4
|
%
|
119.8
|
%
|
Six Months Ended June 30,
|
||||||||
2011
|
2010
|
|||||||
restated | ||||||||
Revenues
|
$
|
1,982,773
|
$
|
1,417,454
|
||||
Percentage of revenues
|
100.0
|
%
|
100.0
|
%
|
||||
Cost of goods sold
|
$
|
1,507,564
|
$
|
871,522
|
||||
Percentage of revenues
|
76.0
|
%
|
61.5
|
%
|
||||
Research and development expenses, net grant revenue
|
$
|
13,155
|
$
|
-
|
||||
Percentage of revenues
|
0.7
|
%
|
0.0
|
%
|
||||
Selling, general and administrative expenses
|
$
|
1,714,903
|
$
|
1,588,914
|
||||
Percentage of revenues
|
86.5
|
%
|
112.1
|
%
|
||||
Interest expense
|
$
|
580,438
|
$
|
101,736
|
||||
Percentage of revenues
|
29.3
|
%
|
7.2
|
%
|
||||
Change in fair value of warrant liability (gain)
|
$
|
657,937
|
$
|
(327,066
|
)
|
|||
Percentage of revenues
|
33.2
|
%
|
23.1
|
%
|
||||
Net loss
|
$
|
2,490,560
|
|
$
|
817,652
|
|
||
Percentage of revenues
|
125.6
|
%
|
57.7
|
%
|
1.
|
We are currently holding preliminary discussions with parties who are interested in licensing, purchasing the rights to, or establishing a joint venture to commercialize, certain applications of our technology.
|
|
2.
|
We are seeking growth capital from certain strategic and/or government (grant) related sources. In addition to said capital, 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 our products. As part of this step we will attempt to take advantage of key programs associated with the recently enacted American Recovery and Reinvestment Act of 2009.
|
Six Months Ended June 30,
|
||||||||
2011
|
2010
|
|||||||
restated | ||||||||
Cash flows used in operating activities
|
$
|
(463,334
|
)
|
$
|
(1,183,705
|
)
|
||
Cash flows used in investing activities
|
(27,342
|
)
|
(10,484
|
)
|
||||
Cash flows provided by financing activities
|
1,027,817
|
520,000
|
||||||
Net increase (decrease) in cash and cash equivalents
|
$
|
537,141
|
$
|
(674,189
|
)
|
ITEM 6.
|
||
4.36
|
Fifth Amendment to Unsecured Promissory Note from RBC Capital Markets – Custodian for Leonard Samuels IRA, dated April 29, 2011 (incorporated by reference to Form 10-Q as filed on May 16, 2011)
|
|
4.37
|
Amendment to 2007 Warrant by and between Dais Analytic Corporation and RBC Capital Markets- Custodian for Leonard Samuels IRA dated May 12, 2011 (incorporated by reference to Form 10-Q as filed on May 16, 2011)
|
|
4.38
|
Amendment to 2009 Warrant by and between Dais Analytic Corporation and RBC Capital Markets- Custodian for Leonard Samuels IRA dated May 12, 2011 (incorporated by reference to Form 10-Q as filed on May 16, 2011)
|
4.39
|
Stock Purchase Warrant by and between Dais Analytic Corporation and RBC Capital Markets- Custodian for Leonard Samuels IRA dated May 12, 2011 (incorporated by reference to Form 10-Q as filed on May 16, 2011)
|
|
4.40
|
Stock and Warrant Purchase Agreement dated May 12, 2011 (incorporated by reference to Form 10-Q as filed on May 16, 2011)
|
|
31.1
|
Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
|
|
31.2
|
Certification of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
|
|
32.1
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32.2
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 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
|
DAIS ANALYTIC CORPORATION | ||||
(Registrant) | ||||
/s/ TIMOTHY N. TANGREDI
|
Dated: |
August 10, 2011
|
||
Timothy N. Tangredi
|
|
|||
President and Chief Executive Officer
|
|
|||
(Principal Executive Officer) | ||||
/s/ JUDITH C. NORSTRUD
|
Dated: | August 10, 2011 | ||
Judith C. Norstrud
|
||||
Chief Financial Officer and Treasurer
|
||||
(Principal Financial and Accounting Officer)
|
Date: August 10, 2011
|
/s/ Timothy N. Tangredi
|
||
Timothy N. Tangredi
|
|||
President, Chief Executive Officer and Principal Executive Officer
|
Date: August 10, 2011
|
/s/ Judith C. Norstrud
|
||
Judith C. Norstrud
|
|||
Chief Financial Officer, Treasurer and Principal Financial Officer
|
Date: August 10, 2011
|
/s/ Timothy N. Tangredi
|
||
Timothy N. Tangredi
|
|||
President, Chief Executive Officer and Principal Executive Officer
|
Date: August 10, 2011
|
/s/ Judith C. Norstrud
|
||
Judith C. Norstrud
|
|||
Chief Financial Officer, Treasurer and Principal Financial Officer
|
Balance Sheets (Parenthetical) (USD $)
|
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
Stockholders' deficit: | Â | Â |
Preferred stock par value | $ 0.01 | $ 0.01 |
Preferred stock shares authorized | 10,000,000 | 10,000,000 |
Preferred stock shares issued | 0 | 0 |
Preferred stock shares outstanding | 0 | 0 |
Common stock par value | $ 0.01 | $ 0.01 |
Common stock shares authorized | 200,000,000 | 200,000,000 |
Common stock shares issued | 36,352,277 | 33,563,428 |
Common stock shares outstanding | 36,095,064 | 33,306,215 |
Statements of Operations (Unaudited) (USD $)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
|
Sales | $ 1,103,579 | $ 989,642 | $ 1,941,773 | $ 1,376,424 |
License fees | 20,500 | 20,500 | 41,000 | 41,030 |
Total | 1,124,079 | 1,010,142 | 1,982,773 | 1,417,454 |
Cost of goods sold | 806,674 | 550,196 | 1,507,564 | 871,522 |
Gross profit | 317,405 | 459,946 | 475,209 | 545,932 |
Expenses: | Â | Â | Â | Â |
Research and development expenses, net of government grant proceeds of $126,109, $0, 287,473 and $0, respectively | 11,119 | 13,155 | ||
Selling, general and administrative | 792,606 | 1,029,394 | 1,714,903 | 1,588,914 |
Total | 803,725 | 1,029,394 | 1,728,058 | 1,588,914 |
Loss from operations | (486,320) | (569,448) | (1,252,849) | (1,042,982) |
Other expense (income): | Â | Â | Â | Â |
Change in fair value of warrant liability | (1,694,170) | (1,835,094) | 657,937 | (327,066) |
Interest expense | 416,899 | 55,233 | 580,438 | 101,736 |
Interest income | (634) | (664) | ||
Total | (1,277,905) | (1,779,861) | 1,237,711 | (225,330) |
Net income (loss) | $ 791,585 | $ 1,210,413 | $ (2,490,560) | $ (817,652) |
Net income (loss) per common share, basic | $ 0.02 | $ 0.04 | $ (0.07) | $ (0.03) |
Net income (loss) per common share, diluted | $ 0.02 | $ 0.03 | $ (0.07) | $ (0.03) |
Weighted average number of common shares, basic | 35,089,169 | 29,800,194 | 34,335,348 | 29,577,797 |
Weighted average number of common shares, diluted | 56,239,845 | 40,245,491 | 34,335,348 | 29,577,797 |
Document and Entity Information (USD $)
|
6 Months Ended | |
---|---|---|
Jun. 30, 2011
|
Aug. 01, 2011
|
|
Entity Registrant Name | DAIS ANALYTIC CORPORATION | Â |
Entity Central Index Key | 0001125699 | Â |
Document Type | 10-Q | Â |
Document Period End Date | Jun. 30, 2011 | |
Amendment Flag | true | Â |
Amendment Description | This amendment is being filed to correct the XBRL exhibit filing. | Â |
Current Fiscal Year End Date | --12-31 | Â |
Is Entity a Well-known Seasoned Issuer? | No | Â |
Is Entity a Voluntary Filer? | No | Â |
Is Entity's Reporting Status Current? | Yes | Â |
Entity Filer Category | Smaller Reporting Company | Â |
Entity Public Float | Â | $ 5,064,271 |
Entity Common Stock, Shares Outstanding | Â | 36,095,064 |
Document Fiscal Period Focus | Q2 | Â |
Document Fiscal Year Focus | 2011 | Â |
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Stock Options and Warrants
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note 6.Stock Options and Warrants |
Options In June 2000 and November 2009, our Board of Directors adopted, and our shareholders approved, the 2000 Incentive Compensation Plan (2000 Plan) and the 2009 Long-Term Incentive Plan (2009 Plan), respectively (together the Plans). The Plans provide for the granting of options to qualified employees of the Company, independent contractors, consultants, directors and other individuals. The Companys Board of Directors approved and made available 15,000,000 shares of common stock to be issued pursuant to the 2009 Plan. The Plans permit grants of options to purchase common shares authorized and approved by the Companys Board of Directors.
The average fair value of options granted at market during six months ended June 30, 2011 and 2010 was $0.27 and $0.24 per option, respectively. There were no options exercised during the six months ended June 30, 2011 and 2010.
The following summarizes the information relating to outstanding stock options activity with employees during 2011 and 2010:
Stock compensation expense was approximately $238,500 and $630,100 for the three and six months ended June 30, 2011, respectively, and approximately $397,700 and $478,500 for the three and six months ended June 30, 2010, respectively. The total fair value of shares vested during the six months ended June 30, 2011 and 2010 was approximately $527,200 and $30,800, respectively.
As of June 30, 2011, there was approximately $319,000 of unrecognized employee stock-based compensation expense related to non vested stock options, of which $82,000, $160,000 and $77,000 is expected to be recognized for the remainder of the fiscal year ending December 31, 2011, and for the fiscal years ending 2012 and 2013, respectively.
The following table represents our non-vested share-based payment activity with employees for the six months ended June 30, 2011:
Warrants At June 30, 2011, the Company had outstanding warrants to purchase the Companys common stock which were issued in connection with multiple financing arrangements and consulting agreements. Information relating to these warrants is summarized as follows:
Common Stock Issued For Services The Company issued 103,846 shares of common stock during the six months ended June 30, 2011 valued at $36,346 for legal services provided from January 1, 2011 through June 30, 2011. For the three and six months ended June 30, 2011, the Company has recorded $18,173 and $36,346, respectively, as legal expense related to these services in its statements of operations.
The Company entered into an agreement for consulting services in April 2010. The term of the agreement is for seventeen months and calls for the Company to issue the consultant 100,000 shares of common stock upon execution of the agreement and an additional 100,000 shares of common stock after six months of service. The agreement also calls for a monthly cash payment of $6,000 for the first six months and $7,500 per month for the remainder of the agreement. The Company has fair valued the initial 100,000 shares of common stock at $53,000 and the additional 100,000 shares of common stock at $36,000 and is expensing the fair value of those shares over life of the agreement. For the three and six months ended June 30, 2011, the Company has recorded $3,667 and $29,000 as consulting expense on its statements of operations.
On November 4, 2010, the Company entered into an agreement for legal services relating to our pending public offering in exchange for 375,000 shares of Common Stock valued at $165,000. This cost is included in deferred offering costs in the accompanying balance sheet. |
Subsequent Events
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6 Months Ended |
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Jun. 30, 2011
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Note 11. Subsequent Events |
No other material subsequent events have occurred since June 30, 2011 that requires recognition or disclosure in these financial statements. |
Going Concern
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6 Months Ended |
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Jun. 30, 2011
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Note 2. Going Concern |
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the three and six months ended June 30, 2011, the Company incurred net income of $791,585 and net loss of $2,490,560, respectively. As of June 30, 2011, the Company has an accumulated deficit of $38,128,522, negative working capital of $1,846,593 and a stockholders deficit of $6,323,185. In view of these matters, there is substantial doubt that the Company will continue as a going concern. The recoverability of recorded property and equipment, intangible assets, and other asset amounts shown in the accompanying financial statements is dependent upon the Companys ability to continue as a going concern and to achieve a level of profitability. The Company intends on financing its future activities and its working capital needs largely from the sale of public equity securities and possible exercise of warrants with some additional funding from other traditional financing sources, including term notes and proceeds from licensing agreements until such time that funds provided by operations are sufficient to fund working capital requirements. However, there can be no assurance that the Company will be successful in its efforts. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. |
Genertec Agreement
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6 Months Ended |
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Jun. 30, 2011
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Note 8. Genertec Agreement |
On August 21, 2009, we entered into an Exclusive Distribution Agreement with Genertec, under which we are to supply and Genertec is to distribute, on an exclusive basis, three of our nanotechnology-based membrane products and related products in Great China, including mainland China, Hong Kong, Macau and Taiwan. The agreement provides that during the initial term of the agreement, Genertec will order and purchase these products in the aggregate amount of Two Hundred Million U.S. Dollars. A minimum quantity of said products is to be purchased by Genertec during each contract year of the initial term. In the event Genertec fails to purchase the minimum amount of products in any given year, we may convert the exclusivity provided to Genertec to a non-exclusive or terminate the agreement. Genertec has agreed to engage and appoint authorized person(s) or firm(s), to install, engineer, perform maintenance, sell and use the products within the defined distribution area and neither Genertec nor its designated buyer is permitted to alter, decompile or modify our products in any way. As consideration for entering into this agreement, Genertec agreed to pay us a deposit in monthly installments beginning in September 2009 and continuing through April 2010. All such payments are to be applied to products purchased by Genertec. During the initial term of the agreement, the parties are to negotiate in good faith a royalty bearing license agreement whereby Genertec may be granted a license to manufacture certain portions of the our products in the designated territory. The initial term of the agreement shall be for a period of five (5) years, commencing on August 21, 2009, unless earlier terminated. Unless notice of termination is delivered to the respective parties 180 days prior to the expiration of the initial term, the Agreement will automatically renew for consecutive one year periods. We may terminate this agreement in the event: (1) Genertec fails to pay the deposit as indicated, (2) Genertec does not purchase the minimum amount of our designated products during any contract year, (3) breach by Genertec of its obligations under the Agreement, or (4) at our discretion immediately upon the transfer of fifty percent (50%) or more of either the assets of the voting stock of Genertec to any third party. Genertec may not assign the Agreement to any party without our prior written consent. As of June 30, 2011, the Company has $406,356 in accounts receivable and $500,000 in deferred revenue to be applied against future orders. Genertec Americas partners in China have received the product and are continuing to perform tests; however there have been delays in completing this testing process. As a result, Genertec America has not yet begun to order product from the Company under this agreement. The Company is currently meeting with Genertec to resolve the payment of the receivable and expects that the amounts will be collected. |
CAST Systems Control Technology
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6 Months Ended |
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Jun. 30, 2011
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Note 9. CAST Systems Control Technology |
In April 2010, the Company entered into a technical and sales agreement with CAST Systems Control Technology Co., Ltd. (CAST) and Genertec with a value of up to approximately $48 million U.S. Dollars over a twelve month period. Under the terms of the Agreement, the Company will supply to CAST, through Genertec, key system components of its nanotechnology clean water process. The Agreement is conditioned upon the Company obtaining a letter of credit from Genertec in the amount as agreed to by the parties on or before April 13, 2010. As of the date of this filing, the Company has received the required letter of credit from Genertec. This Agreement, the terms of which are disclosed in the Companys Current Report on Form 8-K, filed on April 9, 2010, is made pursuant to and in support of the $200 million distribution agreement made between the Company and Genertec on August 21, 2009, granting Genertec the exclusive right to obtain, distribute and market the Companys nanotechnology-based membrane and related products in China, including mainland China, Hong Kong, Macau and Taiwan, the terms of which are summarized above and more fully disclosed in the Companys Current Report on Form 8-K, filed August 27, 2009. For the year ended December 31, 2010, the Company has sold one unit under this agreement and recognized $300,000 in revenue which has been billed and $254,000 of which has been collected. The Company expects the remainder of the $300,000 receivable to be collected in 2011. |
Commitments and Contingencies
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Jun. 30, 2011
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Note 7.Commitments and Contingencies |
The Company has employment agreements with some of its key employees and executives. These agreements provide for minimum levels of compensation during current and future years. In addition, these agreements call for grants of stock options and for payments upon termination of the agreements.
The Company entered into an amended and restated employment agreement with Mr. Timothy N. Tangredi, our President, Chief Executive Officer, and director, dated as of May 23, 2011. Mr. Tangredis employment agreement provides for an initial term of three years with the term extending on the second anniversary thereof for an additional one year period and on each subsequent anniversary of the agreement for an additional year period. Mr. Tangredis initial base salary is $170,000, with an increase to $210,000 per annum or a higher sum as our board of directors may set after the date on which we obtain $10 million or more in equity or debt financing. If our market capitalization at the end of the calendar year is more than two times greater than the year before Mr. Tangredi is to receive a cash payment of 0.25% of the difference in capitalization from last year to the current year. Additionally, at the discretion of our board of directors and its compensation committee, Mr. Tangredi may be eligible for an annual bonus which amount, if any, will not be below 75% of his effective base salary and not exceeding 200% of his then effective base salary; provided that, under certain extraordinary circumstances, Mr. Tangredi may be eligible for an annual bonus greater than 200% of his then effective base salary. Mr. Tangredi is entitled to medical, disability and life insurance, as well as 4 weeks of vacation annually, an automobile allowance of $800 per month, reimbursement of all reasonable business expenses, automobile insurance and maintenance and up to $7,500 for one executive conference or educational venue.
For each product for which we commence commercial sale or licensing during the term and receives more than $1 million of revenue during any 12 month period, Mr. Tangredi, in addition to any other compensation which he may receive under the agreement, shall be granted options to purchase a minimum of 200,000 shares of our common stock at an exercise price equal to either (i) the lower of: (a) $.50 per share or (b) the fair market value per share of the stock on the date of grant as determined in good faith by the Compensation Committee of the Board of Directors, if we have not conducted a secondary public offering prior to the date of grant, or (ii) at an exercise price equal to 75% of the market price of the common stock, if we have completed a secondary public offering of our common stock prior to the date of grant (with the market price to be the average of the closing sale prices during the five trading days immediately preceding the date of grant of the option).
In the event that the fair market value of our common stock (the average of the closing prices of the common stock for any five consecutive trading days, as reported by the principal exchange or other stock market on which the common stock is then traded) equals or exceeds 200% of the price at which we sell common stock in a secondary public offering (the Target Value) at any time during the term of the agreement, Mr. Tangredi shall be granted options to purchase 500,000 shares of common stock at an exercise price equal to 75% of the Target Value, on terms identical to the options provided for above.
In April 2011, the Company entered into an employment agreement with the Companys General Counsel, Patricia Tangredi. The employment term is for four years with automatic renewals. The agreement includes an annual base salary of $120,000 with an increase to $150,000 upon completion of a successful Initial Public Offering of at least $10 million. The agreement also provides for a minimum of 50,000 options to be awarded annually along with other standard employment benefits.
On September 17, 2010, the U.S. Department of Energy approved a grant of up to $681,322 to the Company for the funding of a project to scale up, in size and field trial, a novel dehumidification system similar to the Companys NanoAir prototype, that is operated by directly manipulating water vapor using a selectively permeable membrane made of a nano-structure solid polymer. The grant is conditioned upon the Company contributing $171,500 of the proposed total project cost of $852,822. The Company will receive the grant amount upon submission of reimbursement request for allowable expenses. As of June 30, 2011, the Company has incurred $229,049 in expenses and recognized the same amount as revenue related to this grant award.
In December 2010, Pasco County Florida approved a grant of $254,500 to the Company for the funding of the NanoAir product into commercialization. The grant from Pasco County requires us to pay the county 2% of the gross sales of products using a certain unique pump assembly for 5 years or for a total of $1,000,000 whichever comes first. As of June 30, 2011, the Company has incurred $57,262 in expenses and recognized the same amount as revenue related to this grant award.
The Company is not currently a party to any pending legal proceedings. In the ordinary course of business the Company may become a party to various legal proceedings generally involving contractual matters, infringement actions, product liability claims and other matters. |
Significant Accounting Policies
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Jun. 30, 2011
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Note 3. Significant Accounting Policies |
In the opinion of management, all adjustments necessary for a fair statement of (a) the results of operations for the three and six month periods ended June 30, 2011 and 2010, (b) the financial position at June 30, 2011 and December 31, 2010, and (c) cash flows for the six month periods ended June 30, 2011 and 2010, have been made.
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.
Accounts receivable - The Company regularly reviews accounts receivable for any bad debts based on an analysis of the Companys collection experience, customer credit worthiness, and current economic trends. At June 30, 2011, the days sales outstanding were 76, as compared to 93 at December 31, 2010. Based on managements review of accounts receivable, an allowance of $18,450 is considered adequate at June 30, 2011, based on an analysis of accounts receivable balances and no allowance for doubtful accounts was considered necessary at December 31, 2010.
Inventory - Inventory consists primarily of raw materials and is stated at the lower of cost, determined by first-in, first-out method, or market. Market is determined based on the net realizable value, with appropriate consideration given to obsolescence, excessive levels, deterioration and other factors.
Revenue recognition - Generally, the Company recognizes revenue for its products upon shipment to customers, provided no significant obligations remain and collection is probable. This policy applies to all of our customers, including Genertec America (a distribution agreement) and CAST Systems Control Technology Co. (an agreement for the purchase of specific goods). During the six months ended June 30, 2011 and 2010, four and five customers accounted for approximately 52% and 55% of revenues, respectively.
Our ConsERV product typically carries a warranty of two years for all parts contained therein with the exception of the energy recovery ventilator core which typically carries a 10 year warranty. The warranty includes replacement of defective parts. The Company has recorded an accrual of approximately $15,000 for future warranty expenses at June 30, 2011.
Revenue derived from the sale of licenses is deferred and recognized as revenue on a straight-line basis over the life of the license, or until the license arrangement is terminated. The Company recognized revenue of approximately $20,500 and $41,000 from license agreements for the three and six months ended June 30, 2011 and 2010, respectively.
Employee stock-based compensation - The Company recognizes all share-based awards 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).
The fair value of each award is estimated at the grant date using the Black-Scholes option model with the following assumptions for awards granted during the six months ended June 30, 2011 and 2010:
The basis for the above assumptions are as follows: the dividend rate is based upon the Companys history of dividends; the risk-free interest rate for periods within the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant; the expected term was calculated based on the Companys historical pattern of options granted and the period of time they are expected to be outstanding; and expected volatility was calculated by review of a peer companys historical activity. The Company used a peer companys historical activity due to the limited trading volume and historical information of the Companys own common stock.
Forfeitures of unvested options are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Based on historical experience of forfeitures, the Company estimated forfeitures at 0% for each of the six month periods ended June 30, 2011 and 2010, respectively.
Non-employee stock-based compensation - The Companys accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of EITF 96-18, Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring , or in Conjunction with Selling Goods or Services, now ASC 505 and EITF 00-18 Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other Than Employees, now ASC 505. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendors performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. Stock-based compensation related to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services, whichever is more readily determinable in accordance with ASC 718. The fair value of common stock issued for services is based on the closing stock price on the date the common stock was issued. During the six months ended June 30, 2011, the Company issued 121,346 shares of common stock valued at $42,821 for services rendered. During the six months ended June 30, 2010, the Company issued 186,000 shares of common stock valued at $175,111 for services rendered.
Research and development expenses and grant proceeds - Expenditures for research, development and engineering of products are expensed as incurred. For the three months ended June 30, 2011 and 2010, the Company incurred research and development costs of approximately $137,200 and $0, respectively. For the six months ended June 30, 2011 and 2010, the Company incurred research and development costs of approximately $300,600 and $0, respectively. The Company accounts for proceeds received from government grants for research as a reduction in research and development costs. For the three and six months ended June 30, 2011, the Company recorded approximately $126,100 and $287,500, respectively, in grant proceeds against research and development expenses on the statement of operations. No such grant proceeds were recognized for the three and six months ended June 30, 2010.
Government grants - Grants are recognized when there is reasonable assurance that the grant will be received and that any conditions associated with the grant will be met. When grants are received related to Property and Equipment, the Company reduces the basis of the assets resulting in lower depreciation expense over the life of the associated asset. Grants received related to expenses are reflected as a reduction of the associated expense in the period in which the expense is incurred.
Financial instruments - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entitys 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. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2011. The Company uses the market approach to measure fair value for its Level 1 financial assets and liabilities, which include cash equivalents of $736,506 at June 30, 2011. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities.
The respective carrying value of certain on-balance sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include cash, accounts receivable, other receivables, accounts payable, accrued compensation and accrued expenses. The fair value of the Companys notes payable is estimated based on current rates that would be available for debt of similar terms which is not significantly different from its stated value.
The Companys financial liabilities measured at fair value consisted of the following as of June 30, 2011:
A reconciliation of the beginning and ending fair values of financial instruments valued using significant unobservable inputs (Level 3) is presented as follows:
Income taxes - Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are computed on the basis of differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based upon enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company accounts for tax uncertainties under the provisions of FASB ASC 740-10 Uncertainty in Income Taxes (ASC 740-10). The Company has not recognized a liability as a result of the implementation of ASC 740-10. A reconciliation of the beginning and ending amount of unrecognized tax benefits has not been provided since there is no unrecognized benefit since the date of adoption. The Company has not recognized interest expense or penalties as a result of the implementation of ASC 740-10. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
Earnings (Loss) per share - Basic earnings (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 earnings (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 and the conversion of notes payable to common stock. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered antidilutive and thus are excluded from the calculation. At June 30, 2011 and 2010, the Company had 52,026,555 and 38,043,167 potentially dilutive common shares, respectively, which were not included in the computation of loss per share.
The following sets forth the computation of basic and diluted net earnings (loss) per common share for three and six months ended June 30, 2011 and 2010:
(1) For the three months ended June 30, 2011, 13,185,937 stock options and 22,065,661 warrants were excluded as their exercise price was higher than the Company's average stock price for the quarter. (2) For the three months ended June 30, 2010, 10,473,225 stock options and 18,480,428 warrants were excluded as their exercise price was higher than the Company's average stock price for the quarter. Derivative financial instruments - The Company does 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 or not 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 the Company 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.
Reclassifications - Certain reclassifications have been made to the financial statements as of and for the periods ended December 31, 2010 and June 30, 2010 to conform to the presentation as of and for the three and six months ended June 30, 2011.
Recent accounting pronouncements In April 2011, the FASB issued ASU 2011-02, A Creditors Determination of Whether a Restructuring Is a Troubled Debt Restructuring. This new guidance requires a creditor performing an evaluation of whether a restructuring constitutes a troubled debt restructuring, to separately conclude that both (i) the restructuring constitutes a concession and (ii) the debtor is experiencing financial difficulties. This standard clarifies the guidance on a creditors evaluation of whether it has granted a concession as well as the guidance on a creditors evaluation of whether a debtor is experiencing financial difficulties. The update also requires entities to disclose additional quantitative activity regarding troubled debt restructurings of finance receivables that occurred during the period, as well as additional information regarding troubled debt restructurings that occurred within the previous twelve months and for which there was a payment default during the current period. The new accounting guidance is effective beginning July 1, 2011, and should be applied retrospectively to January 1, 2011. The Company does not anticipate the adoption of this update to have a material impact on the Companys financial statements.
Other recent accounting pronouncements issued by the FASB (including EITF), the AICPA and the SEC did not have, or are not expected to have a material impact on the Companys present or future financial statements.
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Notes Payable
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Jun. 30, 2011
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Note 4. Notes Payable | Notes payable consist of the following:
Notes Payable In December 2009, we secured a 10% loan in the principal amount of $1,000,000 from an investor. Pursuant to the terms of the note, we are to pay the holder simple interest at the rate of ten percent per annum commencing on the date of issuance with all interest and principal due and payable in cash on or before June 17, 2010. The notes maturity date was extended to April 30, 2011. On March 22, 2011, the Company entered into a Securities Amendment and Exchange Agreement and an Amended and Restated Convertible Promissory Note (Convertible Note, collectively Exchange Agreements) with this investor. Pursuant to the terms and subject to the conditions set forth in the Exchange Agreements, the Company and the Investor amended and restated the $1,000,000 unsecured promissory note to, among other things, add a conversion option and extend the maturity date to March 22, 2012 (as amended and restated, the 2011 Convertible Note). Interest in the amount of 10% per annum, commencing on December 17, 2009 and calculated on a 365 day year, and the principal amount of $1,000,000 will be due in full on March 22, 2012. Subject to the terms and conditions of the 2011 Convertible Note, including limitations on conversion, the outstanding principal and interest under the 2011 Convertible Note will automatically convert into shares of the Companys common stock at the then-effective conversion price upon the closing of a qualified firm commitment underwritten public offering or may be voluntarily converted by the investor at anytime during the debt term. The initial conversion price is $0.26 per share. Any principal or interest which is not converted will be repaid by the Company at the earlier of a qualified offering, (as defined in the 2011 Convertible Note which is filed as an exhibit to the Form 8K filed with the Securities and Exchange Commission on March 28, 2011), or March 22, 2012. Pursuant to and during the term of the 2011 Convertible Note, the Company will not issue or allow to exist any obligation for borrowed money, except for subordinate indebtedness in payment and priority, trade payables incurred in the ordinary course of business, purchase money secured indebtedness for equipment or inventory, unsecured and subordinate, or unsecured and subordinate working capital guarantees provided by, the Export Import Bank of the United States (the EXIM Bank), and indebtedness evidenced by the promissory note dated February 19, 2010 issued to RBC Capital Markets- Custodian of Leonard Samuels IRA (as amended) in the principal amount of $620,000.
On March 22, 2011, in connection with the above Exchange Agreements, the Company entered into amendments to existing warrant agreements with the investor to extend the terms of the existing Stock Purchase Warrants, dated on or about December 31, 2007 and March 12, 2009, respectively, to March 22, 2016 and to provide for cashless exercise unless such warrant shares are registered for resale under a registration statement. In addition, on March 22, 2011, the Company issued an additional Stock Purchase Warrant to the investor to purchase 1,000,000 shares of the Companys common stock at $0.45 per share, exercisable commencing on the earliest of the consummation of the qualified offering (as defined in the Exchange Agreements), the date of conversion of the Convertible Note in full, or the date of conversion of the Convertible Note by the investor in the greatest number of shares of the Companys common stock not to exceed 9.99% beneficial ownership of Company outstanding common stock and terminating on March 22, 2016.
The 2011 Convertible Note is a hybrid financial instruments that blends characteristics of both debt and equity securities. The note embodies settlement alternatives to the holder providing for either redemption of principal and interest in cash (forward component) or conversion into the Companys common stock (embedded conversion feature). The forward component was valued using the present value of discounted cash flows arising from the contractual principal and interest payment terms and the embedded conversion feature was valued using the Monte Carlo simulation method. The fair value of the 2011 Convertible Note was estimated to be $1,964,905 on the date of the exchange, which resulted in a loss on extinguishment of debt of $964,905. Further, in accordance with ASC 470-20-25 and ASC 470-50-40, the net premium of $964,905 associated with the 2011 Convertible Note was reclassified to capital in excess of par value under the presumption that such net premium represented a capital contribution. Consequently, the 2011 Convertible Note is being carried at face value. The fair value of the additional warrant to purchase 1,000,000 shares and the value associated with the previously issued warrants that were amended was determined to be $716,890 using the Black-Scholes option model and is included in the aggregate loss on extinguishment of $1,681,795. Since the loan is held by a related party, the loss on extinguishment has been treated as a capital transaction and, as a result, this transaction had no effect on capital in excess of par value.
Also, on March 22, 2011, the Company entered into a 10% Note and Warrant Purchase Agreement, Secured Convertible Promissory Note and Patent Security Agreement (Financing Agreements) with the investor. Pursuant to the terms and subject to the conditions set forth in the Financing Agreements, the investor has provided a bridge loan in the amount of $1,500,000 (Loan) to the Company, which is secured by all patents, patent applications and similar protections of the Company and all rents, royalties, license fees and accounts with respect to such intellectual property assets (collateral). Pursuant to the Secured Convertible Promissory Note (Secured Note), interest in the amount of 10% per annum, calculated on a 365 day year, and the principal amount of $1,500,000 is due and payable on March 22, 2012, but repayment is accelerated upon a qualified offering (as defined in the note). In the event of such qualified offering, and subject to the terms and conditions of the Secured Note, the outstanding principal and interest under the Secured Note will automatically convert, subject to the limitations on conversion described in the note, into shares of the Companys common stock at the then-effective conversion price upon the closing of such qualified offering. The initial conversion price is $0.26 per share. Any principal or interest which is not converted will be repaid by the Company at the earlier of a qualified offering or March 22, 2012. No cash fees were paid to any party to the transaction in exchange for lending the money.
On March 22, 2011, in connection with the above Financing Agreements, the Company issued a Stock Purchase Warrant to the investor to purchase 3,000,000 shares of the Companys common stock at $0.45 per share, exercisable until March 22, 2016. The warrant was fair valued on the date of issuance, which amounted to $1,204,787. The warrant value was recorded as a debt discount based on the relative fair value of the warrant to the total proceeds received, which amounted to $435,240. The warrant was fair valued using the Black-Scholes-Merton valuation model. In addition, the debt contained a beneficial conversion feature, which was valued at the date of issuance at $1,762,163; however, since this amount is in excess of the net value of the debt less the warrant discount, the beneficial conversion feature will be limited to $1,064,760 and recorded as a discount on the loan. The total debt discount of $1,500,000 is being amortized using the effective interest method over the 12-month term of the Secured Note. For the six and three months ended June 30, 2011, the Company recognized $450,568 and $332,749, respectively, in additional interest expense representing amortization of this debt discount.
Pursuant to and during the term of the Secured Note, the Company will not issue or permit to exist any obligation for borrowed money, except for trade payables incurred in the ordinary course of business, purchase money secured indebtedness for equipment or inventory, unsecured and subordinate indebtedness to, or unsecured and subordinate working capital guarantees provided by, the EXIM Bank, the promissory note dated February 19, 2010 issued to RBC Capital Markets- Custodian of Leonard Samuels IRA (as amended) in the principal amount of $620,000, the Amended and Restated Convertible Promissory Note, dated March 22, 2011, issued to the investor in the principal amount of $1,000,000 and other unsecured indebtedness for borrowed money in an amount not to exceed $750,000.
Pursuant to the Patent Security Agreement issued in connection with the Note and Warrant Purchase of March 22, 2011, the Company shall not, without the investors prior consent, sell, dispose or otherwise transfer all or any portion of the collateral, except for license grants in the ordinary course of business. In addition, the Company will take all actions reasonably necessary to prosecute to allowance applications for patents and maintain all patents, and to seek to recover damages for infringement, misappropriation or dilution of the Collateral with limited exceptions.
In connection with such qualified offering, and subject to the terms and conditions of the Convertible Note, the Company will use reasonable efforts to include the investors securities in such offering. Pursuant to the terms and conditions of the Exchange Agreements, the investor will not, if requested in writing by the underwriter, sell, offer to sell or otherwise transfer or dispose of (other than to affiliates) any securities of the Company held by it for a period of 180 days from the date of the final prospectus relating to such qualified offering, except for certain limited sales as more fully described in the Exchange Agreements.
As previously noted, on February 19, 2010, the Company issued an unsecured promissory note from RBC Capital Markets- Custodian of Leonard Samuels IRA in the principal amounts of $620,000. Pursuant to the terms of the note, the Company is to pay the holder simple interest at the rate ten percent per annum commencing on the date of issuance with all interest and principal due and payable in cash on or before August 10, 2010, which has been extended to May 31, 2011. After receipt of proceeds on the foregoing loans, we may not incur more than $500,000 in debt without the holders prior approval and said additional debt may not be senior to these promissory notes without holders permission. During the term of the note, the note holder has the right to participate, by investing additional funds the total amount of which may not exceed the outstanding balance of the holders note, in any subsequent financings undertaken by the Company. Any such participation shall be upon the same terms as provided for in the subsequent financing. If an event of default were to occur and said default is not cured within the allotted period, the holders may declare all principal and accrued and unpaid interest due and payable without presentment, demand, protest or notice. Further, in addition to all remedies available under law, each holder may in the event of a default opt to convert the principal and interest outstanding under its note into any debt or equity security which Company issued after the date of its note and prior to the date of full payment of its note in accordance with the same terms as the subsequent financing. On May 12, 2011, the investor elected to apply all of the proceeds due and payable under the promissory note, including all accrued interest, to the purchase of the Companys Common Stock. Pursuant to this transaction, the investor subscribed for and received 2,667,503 shares of Common Stock at a purchase price of $0.26 per share resulting in an aggregate purchase price of $693,550. As part of the purchase, the investor also received a five-year warrant to purchase 962,500 shares of Common Stock, at an exercise price of $0.45 per share. The warrant is immediately exercisable and subject to adjustment for standard anti-dilution events, including but not limited to stock dividends, split-up, reclassification or combination of Companys shares, exchange of stock for other Company stock, or certain capital reorganizations or reclassification of the capital stock or consolidation, merger or sale of substantially all Companys assets. In addition, as part of this transaction, the warrants issued to this investor on December 20, 2007 and December 31, 2007 were amended to include a cashless exercise provision.
The number of shares issued was based upon an agreed-upon per share price of $0.26, which was below the underlying fair value of the Companys common stock on May 12, 2011 of $0.40 resulting in a loss on extinguishment of debt of $373,450. The fair value of the five year warrant that was issued was determined to be $310,652 using the Black-Scholes option model and is included in the aggregate loss on extinguishment of $684,102. Since the investor is a related party, the loss on extinguishment has been recorded as a capital transaction and, as a result, had no effect on capital in excess of par.
Accrued interest on the above outstanding notes was $194,521 and $157,683 at June 30, 2011 and December 31, 2010, respectively.
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Related Party Transactions
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6 Months Ended |
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Jun. 30, 2011
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Note 5.Related Party Transactions | Timothy Tangredi, the Companys Chief Executive Officer and Chairman, is a founder and a member of the Board of Directors of Aegis Biosciences, LLS (Aegis). Aegis, created in 1995, is a licensee of the Companys nano-structured intellectual property and materials in the biomedical and healthcare fields. Mr. Tangredi spends approximately one to two days per month on Aegis business and is compensated by Aegis for his time and contribution(s). We granted Aegis two exclusive, world-wide licenses, the first in 1995 and the second in 2005. Pursuant to these licenses, Aegis has the right to use and sell products containing our polymer technologies in biomedical and healthcare applications. The first license was entered into in 1995 has been amended twice. In 2005, we agreed to accept $150,000 as payment in full of all royalties and no further license revenue will be forthcoming. The second license allows Aegis the use of our intellectual property in the field of healthcare. A one-time payment of $50,000 was made under this license in 2005. In addition, under the second license Aegis is to make royalty payments of 1.5% of the net sales price it receives with respect to any personal hygiene product, surgical drape or clothing products (the latter when employed in medical and animal related fields) and license revenue it receives should Aegis grant a sublicense to a third party. To date Aegis has sold no such products nor has it received any licensing fees requiring a royalty payment be made to us. All obligations for such payments will end on the earlier of June 2, 2015 or upon the aggregate of all sums paid to us by Aegis under the agreement reaching $1 million. The term of each respective license runs for the duration of the patented technology.
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 $3,800 per month. The Company recognized rent expense of approximately $11,400 and $22,800 each of the three and six months ended June 30, 2011 and 2010. At June 30, 2011 and December 31, 2010, $45,779 and $151,440, respectively, were included in accounts payable for amounts owed to these stockholders for rent.
The Company also has accrued compensation due to the Chief Executive Officer and two other employees for deferred salaries earned and unpaid as of June 30, 2011 and December 31, 2010 of $1,405,606 and $1,426,022, respectively.
The Company has contracted with Richardson and Patel LLP, a stockholder, for legal services rendered in connection with the Form S-1 Offering. As of June 30, 2011, the Company has included approximately $388,000 in accounts payable. 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.
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Background Information
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6 Months Ended |
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Jun. 30, 2011
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Note 1.Background Information |
The accompanying financial statements of Dais Analytic Corporation (the Company) are unaudited, but in the opinion of management, reflect all adjustments necessary to fairly state the Companys 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 the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted although the Company generally believes that the disclosures are adequate to 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, 2010 included in the Companys Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2011. The results of operations for the three and six month periods ended June 30, 2011 are not necessarily indicative of the results that may be expected for any future quarters or for the entire year ending December 31, 2011.
Dais Analytic Corporation, a New York corporation, has developed and is commercializing applications using its nano-structure polymer technology. The first commercial product is an energy recovery ventilator (ERV) (cores and systems) for use in commercial Heating, Ventilating, and Air Conditioning (HVAC) applications. In addition to direct sales, the Company licenses its nano-structured polymer technology to strategic partners in the aforementioned application and is in various stages of development with regard to other applications employing its base technologies. The Company was incorporated in April 1993 with its corporate headquarters located in Odessa, Florida. |
Derivative Financial Instruments
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Note 10. Derivative Financial Instruments | In September 2008, the FASB ratified the consensus reached on EITF Issue No. 07-5, Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entitys Own Stock (EITF 07-5) (codified as ASC 815-40-15-5). This EITF provides guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entitys own stock. The EITF applies to any freestanding financial instrument or embedded feature that has all the characteristics of a derivative under ASC 815-10-15-13 through 15-130, Accounting for Derivative Instruments and Hedging Activities, for purposes of determining whether that instrument or embedded feature qualifies for the first part of the scope exception. The EITF also applies to any freestanding financial instrument that is potentially settled in an entitys own stock, regardless of whether the instrument has all the characteristics of a derivative under ASC 815-10-13 through 15-130, for purposes of determining whether the instrument is within the scope of EITF No. 00-19 Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock (EITF 00-19) (codified as ASC subtopic 815-40). EITF No. 07-5 was effective beginning the first quarter of fiscal 2009.
Due to certain adjustments that may be made to the exercise price of the warrants issued in December 2007, January 2008 and August 2008 if the Company issues or sells shares of its common stock at a price which is less than the then current warrant exercise price, these warrants have been classified as a liability as opposed to equity in accordance with the Derivatives and Hedging Topic of the FASB ASC 815-10-15 as it was determined that these warrants were not indexed to the Companys stock. As a result, the fair market value of these warrants was remeasured on January 1, 2009 and marked to market at each subsequent financial reporting period. The change in fair value of the warrants is recorded in the statements of operations and is estimated using the Black-Scholes option-pricing model with the following assumptions:
All warrants issued by the Company other than the above noted warrants are classified as equity.
During the fourth quarter of the year ended December 31, 2010, the Company applied the guidance of Accounting Standards Codification 815-40 (ASC 815-40) and recorded a $618,801 gain on the fair value of the warrant liability for the year then ended. The warrants had been issued in December 2007, January 2008 and August 2008, in connection with convertible promissory notes and were originally accounted for as an equity instrument. Accordingly, the Company has restated its financial statements to reflect the proper accounting treatment. If the Company would have recorded these warrants as a derivative liability upon initial adoption of ASC 815-40, the Company would have recorded the following amounts in its balance sheets and income statements in the periods indicated:
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