dlyt_10q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended September 30, 2013
 
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from ___________ to ___________
 
Commission File No. 000-53554
 
DAIS ANALYTIC CORPORATION
(Exact name of Registrant as specified in its charter)
 
New York   14-1760865
(State or other jurisdiction of incorporation or organization)   (IRS Employer Identification No.)
 
11552 Prosperous Drive, Odessa, FL 33556
(Address of principal executive offices) (Zip Code)
 
Registrant’s telephone number, including area code: (727) 375-8484
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes x No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o No  x
 
There were 59,859,034 shares of the Registrant’s $0.01 par value common stock outstanding as of November 14, 2013.
 


 
 

 

Dais Analytic Corporation
INDEX
 
      Page No.  
         
Part I. Financial Information
         
Item 1.
Financial Statements
     
         
 
Balance Sheets as of September 30, 2013 (Unaudited) and December 31, 2012
    3  
           
 
Statements of Operations for the three and nine months ended September 30, 2013 and 2012 (Unaudited)
    4  
           
 
Statement of Stockholders’ Deficit for the nine months ended September 30, 2013 (Unaudited)
    5  
           
 
Statements of Cash Flows for the nine months ended September 30, 2013 and 2012 (Unaudited)
    6  
           
 
Notes to Financial Statements (Unaudited)
    7  
           
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
    18  
           
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
    25  
           
Item 4.
Controls and Procedures
    25  
           
Part II. Other Information
           
Item 1.
Legal Proceedings
    26  
           
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
    26  
           
Item 3.
Default Upon Senior Securities
    26  
           
Item 4.
Mine Safety Disclosures
    26  
           
Item 5.
Other Information
    26  
           
Item 6.
Exhibits
    27  
           
Signatures
    28  
 
 
2

 
 
DAIS ANALYTIC CORPORATION
BALANCE SHEETS
 
   
September 30,
   
December 31,
 
   
2013
   
2012
 
ASSETS
 
(unaudited)
       
             
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 41,250     $ 294,150  
Accounts receivable, net (including related party receivables of $121,643 and $0 at September 30, 2013 and December 31, 2012, respectively)
    200,103       512,842  
Other receivables
    50,876       -  
Inventory
    217,243       292,443  
Prepaid expenses and other current assets
    53,072       45,945  
Total Current Assets
    562,544       1,145,380  
                 
Property and equipment, net
    73,184       95,557  
                 
OTHER ASSETS:
               
Deposits
    2,280       2,280  
Patents, net of accumulated amortization of $165,099 and $170,548 at September 30, 2013 and December 31, 2012, respectively
    134,158       107,230  
Total Other Assets
    136,438       109,510  
                 
TOTAL ASSETS
  $ 772,166     $ 1,350,447  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
                 
CURRENT LIABILITIES:
               
Accounts payable, including related party payables of $110,657 and $82,195 at September 30, 2013 and December 31, 2012, respectively
  $ 527,367     $ 559,946  
Accrued compensation and related benefits
    -       10,000  
Accrued expenses, other
    122,660       140,975  
Current portion of deferred revenue
    122,352       189,094  
Total Current Liabilities
    772,379       900,015  
                 
LONG-TERM LIABILITIES:
               
Accrued compensation and related benefits
    1,592,654       1,484,739  
Deferred revenue, net of current portion
    1,803,445       1,894,627  
Total Long-Term Liabilities
    3,396,099       3,379,366  
                 
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; 60,116,247 and 55,274,817 shares issued and 59,859,034 and 55,017,604 shares outstanding, respectively
    601,164       552,749  
Common stock payable
    -       19,255  
Capital in excess of par value
    36,943,124       35,723,001  
Accumulated deficit
    (39,668,488 )     (37,951,827 )
      (2,124,200 )     (1,656,822 )
Treasury stock at cost, 257,213 shares
    (1,272,112 )     (1,272,112 )
Total Stockholders' Deficit
    (3,396,312 )     (2,928,934 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
  $ 772,166     $ 1,350,447  
 
 
3

 
 
DAIS ANALYTIC CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
 
   
For the Three Months Ended
September 30,
   
For the Nine Months Ended
September 30,
 
   
2013
   
2012
   
2013
   
2012
 
                         
REVENUE:
                       
Sales
  $ 300,709     $ 828,969     $ 1,348,281     $ 2,476,467  
License fees
    57,086       20,500       157,924       61,500  
      357,795       849,469       1,506,205       2,537,967  
                                 
COST OF GOODS SOLD
    229,595       518,166       1,061,763       1,707,554  
                                 
GROSS MARGIN
    128,200       331,303       444,442       830,413  
                                 
OPERATING EXPENSES
                               
Research and development expenses, net of government grant proceeds of
                               
$91,310, $0, $91,310 and $67,240, respectively
    94,638       192,749       421,360       427,743  
Selling, general and administrative expenses
    373,737       418,696       1,757,974       1,383,106  
Impairment of fixed assets
    -       62,288       -       62,288  
TOTAL OPERATING EXPENSES
    468,375       673,733       2,179,334       1,873,137  
                                 
LOSS FROM OPERATIONS
    (340,175 )     (342,430 )     (1,734,892 )     (1,042,724 )
                                 
OTHER EXPENSE (INCOME)
                               
Change in fair value of warrant liability
    -       (108,633 )     -       (1,608,486 )
Amortization of discount on convertible note payable
    -       -       -       358,555  
Other income
    (13,200 )     -       (18,200 )     -  
Interest expense
    31       94,893       -       254,208  
Interest income
    -       -       (31 )     (65 )
TOTAL OTHER EXPENSE (INCOME)
    (13,169 )     (13,740 )     (18,231 )     (995,788 )
                                 
NET LOSS
  $ (327,006 )   $ (328,690 )   $ (1,716,661 )   $ (46,936 )
                                 
NET LOSS PER COMMON SHARE, BASIC
  $ (0.01 )   $ (0.01 )   $ (0.03 )   $ (0.00 )
NET LOSS PER COMMON SHARE, DILUTED
  $ (0.01 )   $ (0.01 )   $ (0.03 )   $ (0.00 )
                                 
WEIGHTED AVERAGE NUMBER OF
                               
COMMON  SHARES OUTSTANDING, BASIC AND FULLY DILUTED
    58,309,755       37,774,817       56,510,360       37,774,817  

 
4

 
 
DAIS ANALYTIC CORPORATION
 
STATEMENTS OF STOCKHOLDERS' DEFICIT (UNAUDITED)
 
               
Common
   
Capital in
               
Total
 
   
Common Stock
   
Stock
   
Excess of
   
Accumulated
   
Treasury
   
Stockholders'
 
   
Shares
   
Amount
   
Payable
   
Par Value
   
Deficit
   
Stock
   
Deficit
 
                                           
Balance, December 31, 2012
    55,274,817     $ 552,749     $ 19,255     $ 35,723,001     $ (37,951,827 )   $ (1,272,112 )   $ (2,928,934 )
                                                         
Issuance of common stock for cash
    4,841,430       48,415       (19,255 )     435,729       -       -       464,889  
                                                         
Stock based compensation
    -       -       -       784,394       -       -       784,394  
                                                         
Net loss
    -       -       -       -       (1,716,661 )     -       (1,716,661 )
                                                         
Balance, September 30, 2013
    60,116,247     $ 601,164     $ -     $ 36,943,124     $ (39,668,488 )   $ (1,272,112 )   $ (3,396,312 )

 
5

 
 
DAIS ANALYTIC CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
 
   
For the Nine Months Ended
September 30,
 
   
2013
   
2012
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss   $ (1,716,661 )     (46,936 )
Adjustments to reconcile net loss to net cash and cash equivalents
               
used by operating activities:
               
Depreciation and amortization
    44,936       46,550  
Stock based compensation expense
    784,394       111,149  
Change in fair value of warrant liability
    -       (1,608,486 )
Increase (decrease) in allowance for doubtful accounts
    62,636       (22,195 )
Impairment of equipment
    -       62,288  
Write off of deferred offering costs
    -       55,164  
Amortization of deferred loan costs
    -       30,224  
Amortization of discount on convertible note payable
    -       358,555  
(Increase) decrease in:
               
Accounts receivable
    250,103       270,616  
Other receivables
    (50,876 )     53,806  
Inventory
    75,200       91,802  
Prepaid expenses and other assets
    (7,127 )     (51,515 )
Increase (decrease) in:
               
Accounts payable and accrued expenses
    (50,894 )     279,678  
Accrued compensation and related benefits
    97,915       11,251  
Deferred revenue
    (157,924 )     (277,959 )
Net cash used by operating activities
    (668,298 )     (636,008 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Increase in patent costs
    (43,680 )     (24,739 )
Purchase of property and equipment
    (5,811 )     (6,000 )
Net cash used by investing activities
    (49,491 )     (30,739 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from issuance of notes payable, related party
    -       2,050,000  
Payments on notes payable, related party
    -       (1,565,000 )
Issuance of common stock
    464,889       -  
Net cash provided by financing activities
    464,889       485,000  
                 
Net decrease in cash and cash equivalents
    (252,900 )     (181,747 )
                 
Cash and cash equivalents, beginning of period
    294,150       262,740  
                 
Cash and cash equivalents, end of period
  $ 41,250     $ 80,993  
                 
SUPPLEMENTAL CASH FLOW INFORMATION:
               
Cash paid for interest
  $ -     $ 210,066  
NON-CASH FINANCING AND INVESTING ACTIVITIES:
               
Revaluation of common stock issued for services
  $ -     $ 105,000  
Loan costs paid with note payable, related party
  $ -     $ 15,000  
 
 
6

 
 
Dais Analytic Corporation
Notes to Financial Statements Three
and Nine Months Ended September 30,
2013 (Unaudited)
 
1. Background Information
 
Dais Analytic Corporation, a New York corporation, (the “Company”) 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.
 
The accompanying financial statements of the Company are unaudited, but in the opinion of management, reflect all adjustments necessary to fairly state the Company’s financial position, results of operations, stockholders’ deficit and cash flows as of and for the dates and periods presented. The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information.
 
The unaudited financial statements and notes are presented as permitted by Form 10-Q. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted although the Company generally believes that the disclosures are adequate to ensure that the information presented is not misleading. The accompanying financial statements and notes should be read in conjunction with the audited financial statements and notes of the Company for the fiscal year ended December 31, 2012 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2013. The results of operations for the three and nine month periods ended September 30, 2013 are not necessarily indicative of the results that may be expected for any future quarters or for the entire year ending December 31, 2013.
 
2. Going Concern
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred significant losses since inception. As of September 30, 2013, the Company has an accumulated deficit of $39,668,488, negative working capital of $209,835 and a stockholders’ deficit of $3,396,312. The Company used $668,298 and $636,008 of cash in operations during the nine months ended September 30, 2013 and 2012, respectively, which was funded by net proceeds from product sales and equity financings. There is no assurance that such equity financing will be available in the future. In view of these matters, there is substantial doubt that the Company will continue as a going concern. The Company is currently pursuing the following sources of short and long-term working capital:
 
 
1.
We are currently holding preliminary discussions with parties who are interested in becoming distribution partners for current or future products, by licensing or purchasing the rights to distribute the Company’s products, or providing equity or debt financing to further the Company’s business model outside of the Company’s current core market in North and South America.

 
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 anticipated faster channel penetration for the Company’s products.
 
 
7

 
 
The Company’s ability to continue as a going concern is highly dependent on our ability to obtain additional sources of cash flow sufficient to fund our working capital requirements. However, there can be no assurance that the Company will be successful in its efforts to secure such cash flow. Any failure by us to timely procure licensing or royalty fees, additional financing or investment adequate to pay our outstanding debt and fund our ongoing operations, including planned product development initiatives and commercialization efforts, will have material adverse consequences on our financial condition, results of operations and cash flows.
 
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.
 
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 nine month periods ended September 30, 2013 and 2012, (b) the financial position at September 30, 2013 and December 31, 2012, and (c) cash flows for the nine month periods ended September 30, 2013 and 2012, 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.
 
Cash and cash equivalents - Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances. All non-interest bearing cash balances were fully insured at December 31, 2012 due to a temporary federal program in effect from December 31, 2010 through December 31, 2012. Under the program, there is no limit to the amount of insurance for eligible accounts. Beginning 2013, insurance coverage reverted to $250,000 per depositor at each financial institution. The Company's non-interest bearing cash balances were fully insured at September 30, 2013.
 
Accounts receivable - Accounts receivable consist primarily of receivables from the sale of our ERV products. The Company regularly reviews accounts receivable for any bad debts based on an analysis of the Company’s collection experience, customer credit worthiness, and current economic trends. Based on management’s review of accounts receivable, we have recorded an allowance for doubtful accounts of $65,212 and $2,576 at September 30, 2013 and December 31, 2012, respectively. At September 30, 2013, three customers accounted for approximately 99.9% of the balance of accounts receivable.
 
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.
 
Property and equipment - Property and equipment are recorded at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets ranging from 5 to 7 years. Gains and losses upon disposition are reflected in the statement of operations in the period of disposition. Maintenance and repair expenditures are charged to expense as incurred. Property and equipment are evaluated for impairment when events change or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
 
 
8

 
 
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 15 years. Patent amortization expense was approximately $5,500 and $7,700 for the three months ended September 30, 2013 and 2012, respectively. Patent amortization expense was approximately $16,800 and $19,500 for the nine months ended September 30, 2013 and 2012, respectively. Total patent amortization expense for the next five years is estimated to be approximately $22,400 per year.
 
Long-lived assets - Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. The Company periodically evaluates whether events and circumstances have occurred that indicate possible impairment. When impairment indicators exist, the Company uses market quotes, if available or an estimate of the future undiscounted net cash flows of the related asset or asset group over the remaining life in measuring whether or not the asset values are recoverable. There have been no significant impairments of long-lived assets during the three and nine month periods ended September 30, 2013.
 
Revenue recognition - Generally, the Company recognizes revenue for its products upon shipment to customers, provided no significant obligations remain and collection is probable. During the nine months ended September 30, 2013 two customers accounted for approximately 86% (79% of revenue is from a related party) and during the nine months ended September 30, 2012, four customers accounted for approximately 63% of revenues.

In certain instances, our ConsERV product carries a warranty for two years for all parts contained therein with the exception of the energy recovery ventilator core which, in such circumstances, may carry a 10 year warranty. The warranty includes replacement of defective parts. The Company has recorded an accrual of approximately $93,000 for future warranty expenses at September 30, 2013 and December 31, 2012.
 
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 $57,100 and $20,500 from license agreements for the three months ended September 30, 2013 and 2012, respectively. The Company recognized revenue of approximately $157,900 and $61,500 from license agreements for the nine months ended September 30, 2013 and 2012, respectively.
 
The Company accounts for revenue arrangements with multiple elements under the provisions of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (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.
 
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 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 nine months ended September 30, 2013. There were no awards granted during the nine months ended September 30, 2012.

   
Nine Months
Ended
September 30,
2013
 
Dividend rate
    0 %
Risk free interest rate
    2.03% – 2.20 %
Expected term
 
10 years
 
Expected volatility
    177 %

The basis for the above assumptions are as follows: the dividend rate is based upon the Company’s 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 Company’s historical pattern of options granted and the period of time they are expected to be outstanding; and expected volatility was calculated by review of the Company’s and a peer Company’s historical activity.
 
 
9

 
 
Non-employee stock-based compensation - The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of ASC 505-50, Equity-Based Payments to Non-Employees. 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. 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 vendor’s 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. During the nine months ended September 30, 2013 the Company issued 168,000 options valued at $19,105 for consulting services rendered. During the nine months ended September 30, 2012, the Company did not issue any non-employee stock based compensation.
 
The fair value of stock options issued to consultants during the nine months ended September 30, 2013 was calculated using the Black-Scholes model with the following assumptions: Expected life in years: 2 years; Estimated volatility 165%; Risk-free interest rate: 0.26%; Dividend yield: 0%.
 
Research and development expenses and grant proceeds - Expenditures for research, development and engineering of products are expensed as incurred. For the three and nine months ended September 30, 2013, the Company incurred research and development costs of approximately $185,900 and $512,700 respectively. For the three and nine months ended September 30, 2012, the Company incurred research and development costs of approximately $192,700 and $495,000, respectively. The Company accounts for proceeds received from government grants for research as a reduction in research and development costs. For the three and nine months ended September 30, 2013 the Company recorded approximately $91,300 and $91,300, respectively, in grant proceeds against research and development expenses on the statement of operations. For the three and nine months ended September 30, 2012, the Company recorded approximately $0 and $67,000, respectively, in grant proceeds against research and development expenses on the statement of operations.

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 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.
 
 
10

 
 
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of September 30, 2013. The Company uses the market approach to measure fair value for its Level 1 financial assets and liabilities, which include cash equivalents. 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, accounts payable, accrued compensation and accrued expenses.
 
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 identifies and evaluates uncertain tax positions, if any, and recognizes the impact of uncertain tax positions for which there is a less than more-likely-than-not probability of the position being upheld when reviewed by the relevant taxing authority. Such positions are deemed to be unrecognized tax benefits and a corresponding liability is established on the balance sheet. The Company has not recognized a liability for uncertain tax positions. 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. The Company’s remaining open tax years subject to examination by the Internal Revenue Service include the years ended December 31, 2009 through 2012.
 
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 income (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 anti-dilutive and thus are excluded from the calculation. For each of the three and nine months ended September 30, 2013, the Company had 40,127,582 potentially dilutive common shares that were not included in the computation of income (loss) per share. For the three and nine months ended September 30, 2012, the Company had 55,505,342 potentially dilutive common shares that were not included in the computation of income (loss) per share.

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 may be 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.
 
Recent accounting pronouncements - Recent accounting pronouncements issued by FASB, the AICPA and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
 
 
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4. Accrued Expenses, other
 
Accrued expenses, other consist of the following:
 
   
September 30,
2013
   
December 31,
2012
 
             
Accrued expenses, other
  $ 29,135     $ 29,946  
Accrued registration rights penalty
    -       5,000  
Accrued warranty costs
    93,525       92,829  
Contractual obligation
    -       13,200  
    $ 122,660     $ 140,975  
 
5. Related Party Transactions
 
Timothy N. Tangredi, our Chief Executive Officer and Chairman, is a founder and a member of the board of directors of Aegis BioSciences, LLC (“Aegis”). Mr. Tangredi currently owns 52% of Aegis’ outstanding equity and spends approximately one to two days per month on Aegis business for which he is compensated by Aegis. Aegis has two exclusive, world-wide licenses from us under which it has the right to use and sell products containing our polymer technologies in biomedical and health care applications. As a result of a $150,000 payment made by Aegis, the first license is considered fully paid and as such no additional license revenue will be forthcoming. Pursuant to the second license Aegis made an initial one-time payment of $50,000 and 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 currently $4,066 per month. The Company recognized rent expense of approximately $12,200 and $11,400 during the three months ended September 30, 2013 and 2012, respectively. The Company recognized rent expense of approximately $36,600 and $34,200 during the nine months ended September 30, 2013 and 2012, respectively. At September 30, 2013 and December 31, 2012, $110,033 and $82,195, respectively, were included in accounts payable for amounts owed for rent.
 
The Company also has accrued compensation due to the Chief Executive Officer and other employees for deferred salaries earned and unpaid as of September 30, 2013 and December 31, 2012 of $1,592,654 and $1,494,739, respectively. The Company determined that total accrued compensation should be classified as a long term liability, as the Company does not believe it will be repaid within the next year.
 
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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6. Stock Options and Warrants
 
Options
 
In June 2000 and November 2009, our Board of Directors adopted, and our shareholders approved, the 2000 Plan and 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 Company’s Board of Directors approved and made available 11,093,886 and 15,000,000 shares of common stock to be issued pursuant to the 2000 Plan and the 2009 Plan. The Plans permit grants of options to purchase common shares authorized and approved by the Company’s Board of Directors.
 
The average fair value of options granted at market value during nine months ended September 30, 2013 was $0.15 per option. There were no options awarded during the nine months ended September 30, 2012. There were no options exercised during the nine months ended September 30, 2013 and 2012.
 
The following summarizes the information relating to outstanding stock options activity with employees during 2013 and 2012:
 
   
Common
Shares
   
Weighted
Average
Exercise Price
   
Weighted
Average
Remaining
Contractual
Term
(in years)
   
Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2012
    18,647,332     $ 0.29       6.06     $ 26,345  
Awarded
    5,168,000     $ 0.17                  
Expired/Forfeited
    (1,521,416 )   $ 0.27                  
Outstanding at September 30, 2013
    22,293,916     $ 0.26       5.91     $ 0  
Exercisable at September 30, 2013
    20,679,748     $ 0.27       5.67     $ 0  
 
Stock compensation expense was approximately $31,900 and $784,400 for the three and nine months ended September 30, 2013, respectively, and $28,000 and $111,100 for the three and nine months ended September 30, 2012, respectively. The total fair value of shares vested during the nine months ended September 30, 2013 and 2012 was approximately $780,980 and $83,700, respectively.
 
As of September 30, 2013, there was approximately $216,500 of unrecognized employee stock-based compensation expense related to non vested stock options, of which $31,200, $84,600, $74,700 and $26,000 is expected to be recognized for the remainder of the fiscal year ending December 31, 2013, and for the fiscal years ending 2014, 2015 and 2016, respectively.
 
The following table represents our non vested share-based payment activity with employees for the nine months ended September 30, 2013:

    Number of Options     Weighted Average Grant Date Fair Value  
             
Nonvested options - December 31, 2012
    1,235,555     $ 0.16  
Granted
    5,168,000     $ 0.15  
Vested
    (4,436,750 )   $ 0.14  
Forfeited
    (352,637 )   $ -  
                 
Nonvested options – September 30, 2013
    1,614,168     $ 0.12  
 
 
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Warrants
 
At September 30, 2013, the Company had outstanding warrants to purchase the Company’s common stock which were issued in connection with multiple financing arrangements and consulting agreements. Information relating to these warrants is summarized as follows:
 
Warrants   Remaining Number Outstanding     Weighted Average Remaining Life (Years)     Weighted Average Exercise Price     Expiration Year  
                         
Warrants-Financing
    7,000,000       2.48     $ 0.34       2016  
Warrants-Consulting Agreement
    825,000       1.02     $ 0.30       2014 – 2015  
Warrants-Note Conversions
    2,302,538       1.55     $ 0.39       2014 – 2015  
Warrants-Stock Purchases
    7,306,128       3.20     $ 0.35       2014 – 2018  
Warrants-Services
    400,000       1.31     $ 0.50       2015  
      17,833,666                          
 
7. Terminated Sales Agreements
 
On August 21, 2009, we entered into an Exclusive Distribution Agreement with Genertec America, under which we are to supply and Genertec was to to distribute, on an exclusive basis, three of our nanotechnology-based membrane products and related products in Greater China, including mainland China, Hong Kong, Macau and Taiwan. The agreement provided that during the initial five year term of the agreement, Genertec will order and purchase these products in the aggregate amount of $200 million. A minimum quantity of said products is to be purchased by Genertec during each contract year of the initial term.
 
In April of 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 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.
 
During 2011, Genertec expressed a desire to limit its participation in this endeavor as they find NanoAir and NanoClear to have engineering requirements they are not best suited to undertake. During the nine months ended September 30, 2012, we terminated the Genertec and CAST agreements and recognized $150,000 nonrefundable deposit received from Genertec as revenue.
 
8. Stock Purchase Agreement
 
On October 17, 2012, Dais Analytic Corporation (the “Company”) entered into a Securities Purchase Agreement (the “SPA”) with an investor, Green Valley International Investment Management Company Limited (the “Investor”) pursuant to which the Company will offer up to $7.0 million of the Company’s common stock, $0.01 par value per share (the “Common Stock”), and warrants (the “Warrants”) to purchase up to 17,500,000 shares of Common Stock (such offer being the “Offering”). Pursuant to the terms and conditions of the SPA, Company agreed to issue the Common Stock and Warrants in three tranches. The Warrants are exercisable for 60 months beginning on the date of their issuance. The warrants have an exercise price of $0.30, and are subject to standard anti-dilution adjustments for stock splits and other subdivisions. Pursuant to terms of the Offering, officers of the Company and the Investor have signed lock-up agreements restricting the sale of Common Stock. The Investor does not have any registration rights with respect to the Common Stock or Warrants. No underwriter or placement agent was used in the sale of the Common Stock or Warrants.
 
 
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On December 28, 2012, Dais Analytic Corporation (the “Company”) amended the SPA, dated October 17, 2012, with Green Valley International Investment Management Company Limited (the “Investor”) pursuant to which the Investor may purchase up to $7.0 million of the Company’s common stock, $0.01 par value per share (the “Common Stock”), and warrants (the “Warrants”) to purchase up to 17,500,000 shares of Common Stock
 
In 2012, the Company sold and issued, in connection with the SPA, 17,500,000 shares of its common stock to the Investor for $1,750,000. In addition, as part of the purchase it issued the Investor a warrant to purchase 4,375,000 shares of the Company’s common stock with an exercise period of five years from the date of issue at an exercise price of $.30 per share.
 
During 2013, in connection with the SPA, the Company sold and issued 492,280 shares to the Investor for $49,228 in cash, of which $19,255 was received in 2012. In addition, under the terms of this agreement, the Investor also received a warrant to purchase 123,070 shares of the Company’s common stock with an exercise period of five years from the date of issue at an exercise price of $0.30 per share. The SPA expired, per its terms and conditions, on January 31, 2013.

During 2013, the Company received $149,915 from an investor under another SPA entered into on May 31, 2013, towards the purchase of common stock at $0.10 per share. During the nine months ended September 30, 2013, the Company issued 1,499,150 shares of common stock in settlement of the aforementioned common stock payable. With the issuance of the common stock, the Company issued warrants to purchase 374,788 shares of the Company’s common stock at $0.50 per share. The warrants are exercisable for 60 months. The warrants are subject to standard anti-dilution adjustments for stock splits and other subdivisions. The proceeds from the sale of the securities shall be used for working capital purposes and to investigate and establish a China PRC company.

During the nine months ended September 30, 2013, the Company issued, pursuant to a Stock Purchase Agreement with a private investor (the “Investor”), 2,850,000 restricted shares of the Company’s common stock at a purchase price of $0.10 per share for a total of $285,000. With the issuance of the common stock, the Company issued warrants to purchase 712,500 shares of the Company’s common stock at $0.50 per share. The Warrants are exercisable for 60 months. The warrants are subject to standard anti-dilution adjustments for stock splits and other subdivisions. The proceeds from the sale of the securities shall be used for working capital purposes.

9. Deferred Revenue
 
The Company entered into a licensing agreement during the year ended December 31, 2003 and received an initial fee of $770,000. This fee is deferred and recognized on a straight-line basis over the life of the license agreement of 10 years. In addition, the Company received royalties of $100,000 in each of the first three years of the agreement. The Company recognized revenue of approximately $900 and $19,250 for this agreement during each of the three months ended September 30, 2013 and 2012, respectively. The Company recognized revenue of approximately $39,400 and $57,750 for this agreement during each of the nine months ended September 30, 2013 and 2012, respectively.
 
The Company entered into a licensing agreement with a biomedical entity during the year ended December 31, 2005 and received an initial license fee of $50,000. This fee is deferred and recognized on a straight-line basis over the life of the license agreement of 7 years. The Company recognized revenue of approximately $1,250 for this agreement during each of the three months ended September 30, 2013 and 2012. The Company recognized revenue of approximately $3,750 for this agreement during each of the nine months ended September 30, 2013 and 2012.

On October 30, 2012, the Company and MG Energy LLC, a Delaware limited liability company (“MG Energy”), a company in which a shareholder of the Company holds a position, entered into a License and Supply Agreement (the “Agreement”), effective October 26, 2012, pursuant to which the Company licensed certain intellectual property and improvements thereto to MG Energy, for use in the manufacture and sale of energy recovery ventilators (“ERV”) and certain other HVAC systems for installation in commercial, residential or industrial buildings in North America and South America in exchange for the cancellation of $2,034,521 of debt due to MG Energy. MG Energy also agreed to purchase its requirements of certain ConsERV products from the Company for MG Energy’s use, pursuant to the terms and conditions of the Agreement. MG Energy will also pay royalties, as defined, to the Company on the net sales of each product or system sold. The term of the Agreement will expire upon the last to expire of the underlying patent rights for the licensed technology.
 
 
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The Company has identified all of the deliverables under the Agreement and has determined significant deliverables to be the license for the intellectual property and the supply services. In determining the units of accounting, the Company evaluated whether the license has stand alone value to MG Energy based upon consideration of the relevant facts and circumstances of the Agreement. The Company determined that the license does not have stand alone value to the licensee and, therefore, should be combined with the supply agreement as one unit of accounting. The initial payment for the license agreement will be treated as an advance payment and recognized over the performance period of the supply agreement. Royalties will be recognized as revenue when earned. The Company recognized revenue of $29,920 in license fees and $283,324 in product sales relating to this Agreement during the three months ended September 30, 2013. The Company recognized revenue of $89,758 in license fees and $1,075,402 in product sales relating to this Agreement during the nine months ended September 30, 2013.

10. Change in Fair Value of Warrant Liability
 
The Company has accounted for certain warrants in accordance with ASC 815-10, Derivatives and Hedging (ASC 815-10). ASC 815-10 provides guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock. This applies to any freestanding financial instrument or embedded feature that has all the characteristics of a derivative under ASC 815-10, including any freestanding financial instrument that is potentially settled in an entity’s own stock.
 
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 Company’s 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 statement of operations and is estimated using the Black-Scholes option-pricing model with the following assumptions:
 
   
For the Three
Months Ended
September 30,
2012
   
For the Nine
Months Ended
September 30,
2012
 
Exercise price
  $ 0.25     $ 0.25  
Market value of stock at end of period
  $ 0.10     $ 0.10  
Expected dividend rate
    0 %     0 %
Expected volatility
    221% - 240 %     221% - 240 %
Risk-free interest rate
    0.10 %     0.10 %
 
All warrants issued by the Company other than the above noted warrants are classified as equity. For the three months ended September 30, 2013 and 2012, the Company recognized a change in the fair value of the warrant liability of $0 and $108,633, respectively. For the nine months ended September 30, 2013 and 2012, the Company recognized a change in the fair value of the warrant liability of $0 and $1,608,486, respectively. In the first quarter of 2013, all such warrants or provisions providing for price resets expired.
 
11. Amortization of Debt Discount on Convertible Note Payable
 
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 an investor. In connection with the financing agreements, the Company issued a stock purchase warrant to the investor to purchase 3,000,000 shares of the Company’s 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 nine months ended September 30, 2012 the Company recognized $358,555 as amortization of this debt discount. The debt discount was fully amortized as of December 31, 2012.
 
 
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12. Commitments

In April 2013, the U.S. Department of Defense, Navy and the U.S. Department of Energy Advanced Research Projects Agency-Energy (ARPA-E) approved a grant of up to $800,000 to Company for the funding of a project to produce and trial a chilling system, that is operated by directly manipulating water vapor using Company’s selectively permeable membrane made of a nano-structure solid polymer. The grant requires the Company to contribute $200,000 of the proposed total project cost of $1,000,000. The Company will receive the grant amount in phases upon the meeting of certain milestones. The grant will advance our Nano Air technologies toward commercialization.
 
On June 11, 2013, effective as of March 11, 2013, the Company entered into an Employment Agreement with Ms. Joyce Conner-Boyd in connection with her appointment as Chief Operating Officer (the Executive). The term of the Agreement shall initially be for one year until March 11, 2014 but shall be automatically renewed on each anniversary of the effective date for an additional year unless either the Company or the Executive delivers a written termination at least 60 days before any anniversary.

The Executive shall receive a salary of $120,000 per annum. After the completion of an offering of the Company’s common stock greater than $2 million to an investor who, at the time of the investment, does not own or control shares in the Company, the Executive’s salary shall be increased to $160,000 per annum.

The Agreement provided that within ninety days of the effective date, the Company shall grant the Executive, pursuant to the terms and conditions of Company’s 2009 Incentive Compensation Plan (the "2009 Plan"), an option to purchase up to 1,250,000 shares of Company’s common stock. Such option was granted on June 11, 2013 at $0.16 per share, the fair market value of Company’s common stock on the date of the option grant, as determined in accordance with the terms of the 2009 Plan. An option to purchase 312,500 shares of the Company’s common stock shall vest on the effective date with the remaining options to purchase 937,500 shares of the Company’s common stock vesting ratably over a three year period on the first, second and third anniversary of the effective date provided the Executive is employed by Company on each vesting date.

If the Executive’s employment is terminated (i) by the Company, without Cause (as defined in the Agreement) or terminated for other similar reasons described in the Agreement, or (ii) by the Executive for Good Reason (as defined in the Agreement), the Executive will be entitled to receive 50% of the Executive’s then-current annual base salary, in equal payments over six months, and immediate vesting of the Executive’s stock options pursuant to the terms and conditions of the 2009 Plan.
 
 
17

 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
 
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the notes thereto included elsewhere in this quarterly report on Form 10-Q and in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2013.
 
THIS FILING, INCLUDING BUT NOT LIMITED TO “MANAGEMENT’S DISCUSSION AND ANALYSIS”, CONTAINS FORWARD-LOOKING STATEMENTS. THE WORDS “ANTICIPATED,” “BELIEVE,” “EXPECT,” “PLAN,” “INTEND,” “SEEK,” “ESTIMATE,” “PROJECT,” “WILL,” “COULD,” “MAY,” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS INCLUDE, AMONG OTHERS, INFORMATION REGARDING FUTURE OPERATIONS, FUTURE CAPITAL EXPENDITURES, AND FUTURE NET CASH FLOW. SUCH STATEMENTS REFLECT THE COMPANY’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, WITHOUT LIMITATION, GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES IN FOREIGN, POLITICAL, SOCIAL, AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, THE ABILITY TO ACHIEVE FURTHER MARKET PENETRATION AND ADDITIONAL CUSTOMERS, AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND THE COMPANY’S CONTROL. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD- LOOKING STATEMENTS AS A RESULT OF SEVERAL FACTORS, INCLUDING THE RISKS FACED BY US AS DESCRIBED BELOW AND ELSEWHERE IN THIS FORM 10-Q AS WELL AS IN OUR FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 29, 2013. IN LIGHT OF THESE RISKS AND UNCERTAINTIES THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS FORM 10-Q WILL OCCUR. WE HAVE NO OBLIGATION TO PUBLICLY UPDATE OR REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT NEW INFORMATION, FUTURE EVENTS, OR OTHERWISE, EXCEPT AS REQUIRED BY FEDERAL SECURITIES LAWS AND WE CAUTION YOU NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD- LOOKING STATEMENTS. WE MAY NOT UPDATE THESE FORWARD-LOOKING STATEMENTS, EVEN THOUGH OUR SITUATION MAY CHANGE IN THE FUTURE.
 
OVERVIEW AND CURRENT DEVELOPMENTS
 
We have developed and patented a nano-structure polymer technology, Aqualyte™, which is being commercialized in products based on the functionality of these materials. The Company is commercializing its innovative Aqualyte™ family of nano-structured materials and processes focusing on evolutionary or disruptive air, energy and water applications. The uses include:

·
ConsERV™, a commercially available engineered energy recovery ventilator (an HVAC product) useful for efficient management of ventilation air’s temperature and moisture content using the energy found in the outgoing ‘stale’ air stream to pre-condition the incoming fresh air often saving energy, CO2 and allowing for equipment downsizing;
 
·
NanoAir™, an alpha -stage water-based, no fluorocarbon producing refrigerant cooling cycle useful to replace the existing gas based compression cooling cycle in most all forms of air conditioning and refrigeration saving a projected 50% in energy and CO2;
 
·
NanoClear™, an early beta --stage method for treating contaminated water (sea, waste, industrial) to provide nearly 1,000 times cleaner potable water; and
 
·
NanoCap™, which holds promise to use the Aqualyte™ family to form a disruptive non-chemical energy storage device (an ultra capacitor) when completed for use in transportation, renewable energy and ‘smart grid’ configurations.
 
The initial product commercialized using the firm’s Aqualyte™ materials is ConsERV™, an energy recovery ventilator. Our primary focus at this time is to expand the marketing and sales of our Aqualyte™ materials and products world-wide. We also have new product applications centered around the Aqualyte™ materials and processes in various stages of development. We believe that three of these product applications - including an advanced air conditioning system which is projected to be more energy efficient and have lower emissions compared to current HVAC equipment, a sea-water desalination product and an electrical energy storage device - may be brought to market in the foreseeable future with channel partners and made faster if we receive adequate capital funding.
 
The Company received an initial order for its ConsERV™ cores and systems useful in most forms of HVAC equipment built around Aqualyte™ nano-materials from a specialty engineering service company in Beijing, China. The deployment of the ConsERV™ technology is at the first building of a 45-building complex, which includes technology designed to address China’s air quality issues (PM2.5). Installation in the first building has been completed and the customer reports approximately 20% savings in energy usage.
 
We expect Aqualyte™ materials and products to continue to be our focused commercial products through 2014 with a growing emphasis on moving the development of international sales channel for ConsERV™ and selling materials for NanoClear™ water projects. NanoAir™ and NanoCap™ technologies needing more early development (which may be partially funded by government grants) will be the ‘second wave’ of uses being sold by Dais and its distribution channels.

During the second quarter of 2013 we completed the design, build and production of a pilot wastewater treatment device (based on the Company’s NanoClear™ process), located near a Pasco County, Florida municipal wastewater treatment facility. The NanoClear™ unit began to produce clean water from contaminated wastewater and has (and will) continue to undergo rigorous testing and monitoring. The project was undertaken to showcase the functionality of Dais’s Aqualyte™ nano-materials and novel process in harsh wastewater uses over existing products for the cleaning of contaminated water. The project shows, via third party testing, contamination in water is reduced to nearly the ‘parts per billion’ level while current water standards allow for impurities measured in ‘parts per million’.1
________________________
1 Based on independent water sample testing commissioned by Dais to the Pasco County Utilities Environmental Laboratory, and TestAmerica, Tampa Florida USA. October 2013
 
 
18

 

REVENUES
 
Currently, we generate our revenues primarily from the sale of our Aqualyte™ materials fashioned into an heat exchanger for ConsERV™ applications largely in commercial HVAC equipment with a small amount of revenue coming from newer distributors, and selling materials, or prototype products made from our materials to include original equipment manufacturers (“OEM”), our North and South America ConsERV™ Licensee, distributors and retailers. Aqualyte™ products used as an heat exchanger often reduces energy usage in HVAC equipment.
 
Our near term revenue growth is dependent on sales from (i) the growth of our licensee’s ConsERV™ sales in North and South America, (ii) more seasoned independent sales representatives and distributors world-wide, and (iii) from the Company’s own ‘customer direct’ sales activities, all of which focus on the sale of product primarily into the commercial user marketplace.
 
As a result of the License and Supply Agreement with MG Energy LLC, however, we anticipate both revenue and cost of goods sold for the fourth quarter of 2013 may decrease when compared to the same period in 2012. The Company, MG Energy LLC and its independent sales representatives will work to secure orders for ConsERV™ products, including but not limited to “core only” sales from HVAC equipment manufacturers and from distribution firms servicing the equipment needs of the HVAC installer community.

We are also working to create license/supply relationships with HVAC or ERV OEMs preferably having a dominant presence in existing direct related sales channels world-wide outside of North and South America.

The Company received an initial order for its ConsERV™ cores and systems useful in most forms of HVAC equipment built around Aqualyte™ nano-materials from a specialty engineering service company in Beijing, China. The deployment of the ConsERV™ technology is at the first building of a 45-building complex, which includes technology designed to address China’s air quality issues (PM2.5). Installation in the first building has been completed and the customer reports approximately 20% savings in energy usage. In April 2013, the U.S. Department of Defense, Navy and the U.S. Department of Energy Advanced Research Projects Agency-Energy (ARPA-E) approved a grant of up to $800,000 to Company for the funding of a project to produce and trial a chilling system, that is operated by directly manipulating water vapor using Company’s selectively permeable membrane made of a nano-structure solid polymer. The grant requires the Company to contribute $200,000 of the proposed total project cost of $1,000,000. The Company receives the grant amount in phases upon the meeting of certain milestones. The grant will advance our Nano Air technologies toward commercialization.
 
COST OF SALES
 
Our cost of sales consists primarily of materials (including freight), direct labor, and outsourced manufacturing expenses incurred to produce our Aqualyte™ products.
 
We have created an efficient supply chain made up of independent third parties to manufacture the key components needed for our nano-structured based materials and 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 our technical specifications, or the inability to obtain alternative sources of these components on a timely basis or on terms acceptable to us, would create delays in production of our products or increase our unit costs of production. Certain of the components contain proprietary products of our suppliers, or the processes used by our suppliers to manufacture these components are proprietary. If we are required to replace any of our suppliers, while we should be able to obtain comparable components from alternative suppliers at comparable costs, it would create a delay in production.
 
Our cost of sales may fluctuate due to a number of factors, including, but not limited to:
 
•      A change in key suppliers or the prices that they charge for the fundamental components of our Aqualyte™ materials and products;
 
•      An increase in the labor resources needed to produce or expand the production of our Aqualyte™ 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.
 
 
19

 
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
 
Our selling, general and administrative expenses consist primarily of payroll and related benefits, share-based compensation, professional fees, marketing and channel support costs, and other infrastructure costs such as insurance, information technology and occupancy expenses.
 
Our selling, general and administrative expenses may fluctuate due to a variety of factors, including, but not limited to:
 
 
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 Aqualyte™ materials and related 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

During the nine months ended September 30, 2013, the Company implemented a new streamlined organization with new employees in key roles, including a new Chief Operating Officer. The structure was designed to better capitalize on our core competency in the nano-materials area, allow wider distribution of ConsERV™ products to other parts of the world and place heavy emphasis on moving new applications to commercialization.

Results of Operations
 
Summary of Three Months Ended September 30, 2013 Results of Operations
 
The following table sets forth, for the periods indicated, certain data derived from our Statements of Operations and certain of such data expressed as a percentage of revenues:
 
   
Three Months Ended
September 30,
 
    2013     2012  
             
Revenues
  $ 357,795     $ 849,469  
Percentage of revenues
    100.0 %     100.0 %
Cost of goods sold   $ 229,595     $ 518,166  
Percentage of revenues
    64.2 %     61.0 %
Research and development expenses, net grant revenue   $ 94,638     $ 192,749  
Percentage of revenues
    26.5 %     22.7 %
Selling, general and administrative expenses
  $ 373,737     $ 418,696  
Percentage of revenues
    104.5 %     49.3 %
Impairment of fixed assets
  $ 0     $ 62,288  
Percentage of revenues
    0.0 %     7.3 %
Other income
  $ 13,200     $ 0  
Percentage of revenues
    3.7 %     0.0 %
Interest expense
  $ 31     $ 94,893  
Percentage of revenues
    0.0 %     11.2 %
Change in fair value of warrant liability (gain)
  $ 0     $ (108,633 )
Percentage of revenues     0.0 %     12.8 %
Net loss
  $ (327,006 )   $ (328,690 )
Percentage of revenues
    91.4 %     38.7 %
 
 
20

 
 
REVENUES: Total revenues for the three months ended September 30, 2013 and 2012 were $357,795 and $869,469, respectively, a decrease of $511,674 or 58.8%. The decrease in revenues in the 2013 period is primarily attributable to transitioning ConsERV™ system sales in North and South America to MG Energy LLC, our licensee. Despite the drop in sales, as described below, the change in net income is flat for the three months ended September 30, 2013.
 
COST OF GOODS SOLD: Cost of goods sold decreased $288,207 to $229,595 and represented 64.2% of revenues, for the three months ended September 30, 2013 compared to $518,166 or 61.0% of revenues for the three months ended September 30, 2012. Gross profit margin decreased from 39% in 2012 to 36% in 2013. The increase in the gross profit margin is primarily the result of the efficiency in the production of the ConsERV™ cores.
 
RESEARCH AND DEVELOPMEN EXPENSES, NET OF GRANT REVENUE: Research and development expenses of $94,638 for the three months ended September 30, 2013 decreased from $192,749 for the same period ended September 30, 2012. The decrease was primarily attributable to the receipt of $91,310 in grant proceeds during 2013, which partially offset our research and development expenditures.
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and administrative expenses of $373,737 for the three months ended September 30, 2013 decreased $44,959 from $418,696 in the same period of 2012 or 10.7%. The decrease was primarily due to a decrease in legal expenses of approximately $49,600.
 
INTEREST EXPENSE: Interest expense was $31 for the three months ended September 30, 2013 compared to $94,893 for the same period of 2012. The decrease was primarily due to the repayment of debt during 2012 leaving minimal interest-bearing debt on our balance sheet.
 
CHANGE IN FAIR VALUE OF WARRANT LIABILITY: The change in the fair value of warrant liability decreased to $0 for the three months ended September 30, 2013 from a gain of $108,633 in the prior period ended September 30, 2012. In the first quarter of 2013, all warrants or provisions providing for price resets have expired so as to no longer be classified in accordance with FASB ASC 815-10-15. Therefore, no warrant liability was recorded for the three months ended September 30, 2013.
 
NET LOSS: Net loss for the three months ended September 30, 2013 decreased by $1,684 to $327,006 from a net loss of $328,690 for the three months ended September 30, 2012.
 
Summary of Nine Months Ended September 30, 2013 Results of Operations
 
The following table sets forth, for the periods indicated, certain data derived from our Statements of Operations and certain of such data expressed as a percentage of revenues:
 
   
Nine Months Ended
September 30,
 
    2013     2012  
             
Revenues
  $ 1,506,205     $ 2,537,967  
Percentage of revenues
    100.00 %     100.0 %
Cost of goods sold   $ 1,061,763     $ 1,707,554  
Percentage of revenues
    70.50 %     67.3 %
Research and development expenses, net grant revenue   $ 421,360     $ 427,743  
Percentage of revenues
    16.60 %     16.90 %
Selling, general and administrative expenses
  $ 1,757,974     $ 1,383,106  
Percentage of revenues
    116.70 %     57.00 %
Impairment of fixed assets
  $ 0     $ 62,288  
Percentage of revenues
    0.00 %     2.50 %
Interest expense
  $ 0     $ 254,208  
Percentage of revenues
    0.00 %     10.00 %
Change in fair value of warrant liability (gain)
  $ 0     $ (1,608,486 )
Percentage of revenues
    0.00 %     63.40 %
Amortization of discount on convertible note payable
  $ 0     $ 358,555  
Percentage of revenues
    0.00 %     14.10 %
Net loss
  $ (1,716,661 )   $ (46,936 )
Percentage of revenues
    114.00 %     1.80 %
 
 
21

 
 
REVENUES: Total revenues for the nine months ended September 30, 2013 and 2012 were $1,506,205 and $2,537,967, respectively, a decrease of $1,031,762 or 41%. The decrease in revenues in the 2013 period is primarily attributable to transitioning ConsERV™ system sales in North and South America to MG Energy LLC, our licensee and recognition of the $150,000 nonrefundable deposit related to the termination of the Genertec and the CAST agreements during the nine months ended September 30, 2012.
 
COST OF GOODS SOLD: Cost of goods sold decreased $645,791 to $1,061,763 and represented 70.5% of revenues for the nine months ended September 30, 2013 compared to $1,707,554 or 67.3% of revenues for the nine months ended September 301, 2012. Gross profit margin decreased from 33% in 2012 to 30% in 2013. The decrease in the cost of goods sold and the gross profit margin were due to transitioning ConsERV™ system sales to our licensee in North and South America.
 
RESEARCH AND DEVELOPMEN EXPENSES, NET OF GRANT REVENUE: Research and development expenses, net of grant revenues, of $421,360 for the nine months ended September 30, 2013 decreased slightly from $427,743 for the same period ended September 30, 2012. The decrease was primarily attributable to $91,310 of grant revenues received in 2013 compared to $67,240 received in 2012.
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and administrative expenses of $1,757,974 for the nine months ended September 30, 2013 increased $374,868 from $1,383,106 in the same period of 2012 or 27.1%. The increase was primarily due to the increases in stock based compensation of $654,141 and bad debt expense of approximately $70,280, which were partially offset by the decreases in payroll expenses of approximately $184,500 and professional fees of approximately $126,500.
 
INTEREST EXPENSE: Interest expense was $0 for the nine months ended September 30, 2013 compared to $254,208 for the same period of 2012. The decrease was due to the repayment of debt during 2012.
 
CHANGE IN FAIR VALUE OF WARRANT LIABILITY: The change in the fair value of warrant liability decreased for the nine months ended September 30, 2013 to $0 from a gain of $1,608,486 in the prior period ended September 30, 2012. In the first quarter of 2013, all warrants or provisions providing for price resets have expired so as to no longer be classified in accordance with FASB ASC 815-10-15. Therefore, no warrant liability was recorded for the nine months ended September 30, 2013.

AMORTIZATION OF DISCOUNT ON NOTE PAYABLE: Amortization of discount on note payable decreased to $0 for the nine months ended September 30, 2013 compared to $358,555 for the same period ended September 30, 2012. The decrease was due to the related note payable reaching maturity in the first quarter 2012.
 
NET LOSS: Net loss for the nine months ended September 30, 2013 increased by $1,669,725 to $1,716,661 from a net loss of $46,936 for the nine months ended September 30, 2012. The increase in net loss is primarily due to the increase in selling, general and administrative expense including, but not limited to, $654,141 increase in non cash stock based compensation, a decrease in the change in the fair value of the warrant liability from a gain of $1,608,486 for the period ended September 30, 2012 to $0 for the period ended September 30, 2013 and a decrease in revenues as discussed above.

Liquidity and Capital Resources
 
The Company finances its operations primarily through sales of its Aqualyte™ materials and products made from Aqualyte™ materials, focusing on selling foreign distribution agreements for ConsERV™, entering into a royalty bearing License and Supply arrangement, small sales of of its common stock, the issuance of convertible promissory notes, unsecured promissory notes and license agreements.
 
Our historical revenues have not been sufficient to sustain our operations. We have achieved profitability in only one year since inception and we expect to continue to incur net losses and negative cash flow from operations until we can produce sufficient revenues to cover our costs. Furthermore, should we achieve our goal of selling Aqualyte™ materials and products made from Aqualyte™ materials into water applications we may be net cash flow positive. Our profitability will require the successful sales growth and more rapid commercialization of our Aqualyte™ materials and products made from Aqualyte™ materials. No assurances can be given when this will occur.
 
 
22

 
 
The Company is currently pursuing the following sources of short and long-term working capital:
 
 
1.
We are currently holding preliminary discussions with parties who are interested in becoming distribution partners for current or future products, by licensing or purchasing the rights to distribute the Company’s products, or providing equity or debt financing to further the Company’s business model outside of the Company’s current core market in North and South America.

 
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 anticipated faster channel penetration for the Company’s products.

Any future financing may result in dilution to existing shareholders, and future debt financing, if available, may include restrictive covenants or may require us to grant a lender a security interest in any of our assets not already subject to an existing security interest. To the extent that we attempt to raise additional funds through third party collaborations and/or licensing and distribution arrangements, we may be required to relinquish some rights to our technologies or products currently in various stages of development, or grant licenses or other rights on terms that are not favorable to us. Any failure by us to timely procure additional financing or investment adequate to fund our ongoing operations, including planned product development initiatives and commercialization efforts, will have material adverse consequences on our financial condition, results of operations and cash flows.
 
We will be dependent upon our existing cash of $41,250 at September 30, 2013, product sales, government grants, licensing, distribution arrangements and any additional debt and equity issuances to finance our operations through the next 12 months, including other contractual obligations of approximately $46,100 as of September 30, 2013. We plan to raise additional capital during the next eighteen months in order to finance additional growth of the Company, which includes secure new patents for innovative applications of our core technology, purchase equipment and fund our working capital requirements in accordance with our existing plans through September 2014. This additional capital could be provided by a successful completion of an offering of equity securities or by entering into licensing and/or distribution agreements. If we are unable to raise these funds, we may be required to delay our development plans, and curtail our expenditures.
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred significant losses since inception. As of September 30, 2013, the Company has an accumulated deficit of $39,668,488, negative working capital of $209,835 and a stockholders’ deficit of $3,396,312. The Company used $668,298 and $636,008 of cash in operations during the nine months ended September 30, 2013 and 2012, respectively, which was funded by proceeds from licensing and equity financings. There are no assurances that such financing will be available in the future. In view of these matters, there is substantial doubt that the Company will continue as a going concern.
 
The Company’s ability to continue as a going concern is highly dependent on our ability to obtain additional sources of cash flow sufficient to fund our working capital requirements. However, there can be no assurance that the Company will be successful in its efforts to secure such cash flow. Any failure by us to timely procure additional financing or investment adequate to fund our ongoing operations, including planned product development initiatives and commercialization efforts, will have material adverse consequences on our financial condition, results of operations and cash flows.
 
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.
 
On October 17, 2012, Dais Analytic Corporation (the “Company”) entered into a Securities Purchase Agreement (the “SPA”) with an investor, Green Valley International Investment Management Company Limited (the “Investor”) pursuant to which the Company will offer up to $7.0 million of the Company’s common stock, $0.01 par value per share (the “Common Stock”), and warrants (the “Warrants”) to purchase up to 17,500,000 shares of Common Stock (such offer being the “Offering”). Pursuant to the terms and conditions of the SPA, Company agreed to issue the Common Stock and Warrants in three tranches. The Warrants are exercisable for 60 months beginning on the date of their issuance. The warrants have an exercise price of $0.30, and are subject to standard anti-dilution adjustments for stock splits and other subdivisions. Pursuant to terms of the Offering, officers of the Company and the Investor have signed lock-up agreements restricting the sale of Common Stock. The Investor does not have any registration rights with respect to the Common Stock or Warrants. No underwriter or placement agent was used in the sale of the Common Stock or Warrants.
 
On December 28, 2012, Dais Analytic Corporation (the “Company”) amended the SPA, dated October 17, 2012, with Green Valley International Investment Management Company Limited (the “Investor”) pursuant to which the Investor will purchase up to $7.0 million of the Company’s common stock, $0.01 par value per share (the “Common Stock”), and warrants (the “Warrants”) to purchase up to 17,500,000 shares of Common Stock. The amendment requires the Purchaser to purchase the remaining Common Stock and Warrants on or before January 31, 2013.
 
 
23

 
 
In 2012, the Company sold and issued, in connection with the SPA, 17,500,000 shares of its common stock to the Investor for $1,750,000. In addition, as part of the purchase it issued the Investor a warrant to purchase 4,375,000 shares of the Company’s common stock with an exercise period of five years from the date of issue at an exercise price of $.30 per share.
 
During 2013, in connection with the SPA, the Company sold and issued 492,280 shares to the Investor for $49,228 in cash, of which $19,255 was received in 2012. In addition, under the terms of this agreement, the Investor also received a warrant to purchase 123,070 shares of the Company’s common stock with an exercise period of five years from the date of issue at an exercise price of $0.30 per share. The SPA expired, per its terms and conditions, on January 31, 2013.

During 2013, the Company received $149,915 from an investor under another SPA entered into on May 31, 2013, towards the purchase of common stock at $0.10 per share. During the nine months ended September 30, 2013, the Company issued 1,499,150 in settlement of the aforementioned common stock payable. With the issuance of the common stock, the Company issued warrants to purchase 374,788 shares of the Company’s common stock at $0.50 per share. The warrants are exercisable for 60 months. The warrants are subject to standard anti-dilution adjustments for stock splits and other subdivisions. The proceeds from the sale of the securities shall be used for working capital purposes and to investigate and establish a China PRC company.

During the nine months September 30, 2013, the Company issued, pursuant to a Stock Purchase Agreement with a private investor (the “Investor”), 2,850,000 restricted shares of the Company’s common stock at a purchase price of $0.10 per share for a total of $285,000. With the issuance of the common stock, the Company issued warrants to purchase 712,500 shares of the Company’s common stock at $0.50 per share. The warrants are exercisable for 60 months. The warrants are subject to standard anti-dilution adjustments for stock splits and other subdivisions. The proceeds from the sale of the securities shall be used for working capital purposes.
 
Statement of Cash Flows
 
The following table sets forth, for the periods indicated, selected cash flow information:
 
   
Nine Months Ended
September 30,
 
    2013     2012  
             
Cash flows used by operating activities
  $ (668,298 )   $ (636,008 )
Cash flows used in investing activities
    (49,491 )     (30,739 )
Cash flows provided by financing activities     464,889       485,000  
                 
Net decrease in cash and cash equivalents
  $ (252,900 )   $ (181,747 )
 
Cash and cash equivalents as of September 30, 2013 was $41,250 compared to $294,150 as of December 31, 2012. Cash is primarily used to fund our working capital requirements.
 
As of September 30, 2013, the Company had a working capital deficit of $209,835 compared to $245,365 of working capital as of December 31, 2012. During the nine months ended September 30, 2013 we used approximately $668,300 of cash from our operations, used approximately $49,500 in support of patent applications, patent issuances and fixed asset purchases and provided approximately $464,900 of proceeds from the issuance of common stock.
 
 
24

 
 
Net cash used by operating activities was approximately $668,300 for the nine months ended September 30, 2013 compared to the use of approximately $636,000 of cash for the same period in 2012. Net cash used in operations was due to our net loss of approximately $1,716,700 partially offset by the non-cash stock based compensation of approximately $784,400 and a decrease in accounts receivable of approximately $250,100.
 
Net cash used in investing activities was approximately $49,500 for the nine months ended September 30, 2013 compared to approximately $30,700 for the same period in 2012. During the nine months ended September 30, 2103, we used cash for the patents and the purchase of property and equipment.
 
Net cash provided by financing activities was approximately $464,900 for the nine months ended September 30, 2013 compared to cash provided by financing activities of $485,000 for the same period in 2012. During the nine months ended September 30, 2013, we received net proceeds of approximately $464,900 from the issuance of common stock or a common stock payable.
 
ECONOMY AND INFLATION
 
Except as disclosed herein, we have not experienced any significant cancellation of orders due to the downturn in the economy and only a small number of customers requested delays in delivery or production of orders in process. Our management believes that inflation has not had a material effect on our results of operations.
 
OFF-BALANCE SHEET ARRANGEMENTS
 
We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Not applicable.
 
ITEM 4. CONTROLS AND PROCEDURES
 
Evaluation of disclosure controls and procedures
 
Our Chief Executive Officer and Chief Financial Officer (collectively the “Certifying Officers”) maintain a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed, is accumulated and communicated to management timely. The Certifying Officers have concluded that the disclosure controls and procedures are effective at the “reasonable assurance” level. Under the supervision and with the participation of management, as of the end of the period covered by this report, the Certifying Officers evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 (e) and 15d-15(e) under the Exchange Act). Furthermore, the Certifying Officers concluded that our disclosure controls and procedures in place are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported on a timely basis in accordance with applicable Commission rules and regulations; and (ii) accumulated and communicated to our management, including our Certifying Officers and other persons that perform similar functions, if any, to allow us to make timely decisions regarding required disclosure in our periodic filings.
 
Changes in Internal Control Over Financial Reporting
 
During the three months ended September 30, 2013, the Company has not made any changes to our internal control processes.
 
 
25

 
 
PART II—OTHER INFORMATION
 
Item 1. LEGAL PROCEEDINGS
 
We are not currently a party to any pending legal proceedings. In the ordinary course of business, we may become a party to various legal proceedings generally involving contractual matters, infringement actions, product liability claims and other matters.
 
From time to time, claims are made against us in the ordinary course of our 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 us 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 our results of operations for that period or future periods.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
During the three months ended September 30, 2013, the Company issued the following equity securities.
 
During 2013, the Company received $149,915 from an investor under another SPA entered into on May 31, 2013, towards the purchase of common stock at $0.10 per share. During the nine months ended September 30, 2013, the Company issued 1,499,150 in settlement of the common stock payable. With the issuance of the common stock, the Company issued warrants to purchase 374,788 shares of the Company’s common stock at $0.50 per share. The warrants are exercisable for 60 months. The warrants are subject to standard anti-dilution adjustments for stock splits and other subdivisions. The proceeds from the sale of the securities shall be used for working capital purposes and to investigate and establish a China PRC company. The foregoing securities were issued in reliance upon the exemption from registration pursuant to Rule 903 of Regulation S.

During the nine months ended September 30, 2013, the Company issued, pursuant to a Stock Purchase Agreement with a private investor (the “Investor”), 2,850,000 restricted shares of the Company’s common stock at a purchase price of $0.10 per share for a total of $285,000. With the issuance of the common stock, the Company issued warrants to purchase 712,500 shares of the Company’s common stock at $0.50 per share. The warrants are exercisable for 60 months. The warrants are subject to standard anti-dilution adjustments for stock splits and other subdivisions. The proceeds from the sale of the securities shall be used for working capital purposes. The issuance was not a public offering based upon the following factors: (i) the issuance of the securities was an isolated private transaction offered to a single accredited investor; (ii) there was no public solicitation; (iii) the investment intent of the offeree; and (iv) the restriction on transferability of the securities issued. There was no underwriter used in the transaction. The proceeds from the private offering will be used for the repayment of an unsecured note, working capital and general corporate expenses. All of the foregoing securities were issued in reliance upon the exemption from registration pursuant to Rule 903 of Regulation S.
 
Item 3. Default Upon Senior Securities
 
None.
 
Item 4. Mine Safety Disclosures
 
Not applicable.
 
Item 5. Other Information
 
None.
 
 
26

 
 
Item 6. Exhibits
 
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
__________
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
 
 
27

 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
  DAIS ANALYTIC CORPORATION  
  (Registrant)  
       
Date: November 14, 2013
By:
/s/ TIMOTHY N. TANGREDI  
    Timothy N. Tangredi  
    President and Chief Executive Officer  
    (Principal Executive Officer)  
       
       
Date: November 14, 2013
By:
/s/ JUDITH C. NORSTRUD  
    Judith C. Norstrud  
    Chief Financial Officer and Treasurer  
    (Principal Financial and Accounting Officer)  
 
 
 
 
 
 
 
28