UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2003
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-15069
Duraswitch Industries, Inc.
(Exact name of registrant as specified in its charter)
| Nevada | 88-0308867 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
234 S. Extension Road
Mesa, Arizona 85210
(Address of principal executive offices)
(480) 586-3300
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of August 4, 2003, there were 9,568,977 shares of common stock outstanding.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
DURASWITCH INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
| June 30, 2003 |
December 31, 2002 |
|||||||
| (Unaudited) | ||||||||
| ASSETS |
||||||||
| CURRENT ASSETS: |
||||||||
| Cash and cash equivalents |
$ | 5,287,792 | $ | 7,036,959 | ||||
| Accounts receivable (net of allowance for doubtful accounts of $12,000 in 2003 and 2002) |
13,264 | 11,191 | ||||||
| Inventory—Net (Note 3) |
211,630 | 192,915 | ||||||
| Prepaid expenses and other current assets |
210,458 | 168,121 | ||||||
| Total current assets |
5,723,144 | 7,409,186 | ||||||
| PROPERTY AND EQUIPMENT—Net |
479,190 | 786,506 | ||||||
| ASSETS HELD FOR SALE (Note 4) |
62,370 | — | ||||||
| GOODWILL—Net |
443,874 | 443,874 | ||||||
| PATENTS—Net |
766,109 | 743,447 | ||||||
| OTHER ASSETS |
107,102 | 119,116 | ||||||
| TOTAL ASSETS |
$ | 7,581,789 | $ | 9,502,129 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable |
$ | 48,590 | $ | 23,933 | ||||
| Accrued salaries and benefits |
340,373 | 500,413 | ||||||
| Other accrued expenses and other current liabilities |
168,841 | 231,973 | ||||||
| Deferred licensing revenue (Note 2) |
453,845 | 460,803 | ||||||
| Current portion of capital leases payable |
13,773 | 18,110 | ||||||
| Total current liabilities |
1,025,422 | 1,235,232 | ||||||
| LONG-TERM LIABILITIES: |
||||||||
| Capital leases payable |
3,856 | 8,213 | ||||||
| Other non-current liabilities |
33,219 | 36,750 | ||||||
| Deferred licensing revenue—long-term (Note 2) |
1,167,828 | 1,364,601 | ||||||
| Total long-term liabilities |
1,204,903 | 1,409,564 | ||||||
| Total liabilities |
2,230,325 | 2,644,796 | ||||||
| COMMITMENTS AND CONTINGENCIES |
||||||||
| STOCKHOLDERS’ EQUITY: |
||||||||
| Preferred stock, no par value, 10,000,000 shares authorized, no shares issued and outstanding in 2003 and 2002 |
— | — | ||||||
| Common stock, $.001 par value, 40,000,000 shares authorized in 2003 and 2002, 9,568,977 and 9,534,195 shares issued and outstanding in 2003 and 2002, respectively |
9,569 | 9,534 | ||||||
| Additional paid-in capital |
27,357,279 | 27,317,314 | ||||||
| Accumulated deficit |
(22,015,384 | ) | (20,469,515 | ) | ||||
| Total stockholders’ equity |
5,351,464 | 6,857,333 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 7,581,789 | $ | 9,502,129 | ||||
See notes to consolidated financial statements.
2
DURASWITCH INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2003 |
2002 |
2003 |
2002 |
|||||||||||||
| NET REVENUE: |
||||||||||||||||
| Licensing |
$ | 161,245 | $ | 237,412 | $ | 320,272 | $ | 422,344 | ||||||||
| Product |
— | — | — | 24,675 | ||||||||||||
| Total net revenue |
161,245 | 237,412 | 320,272 | 447,019 | ||||||||||||
| COST OF GOODS SOLD: |
||||||||||||||||
| Licensing |
13,523 | 41,222 | 30,576 | 57,246 | ||||||||||||
| Product |
— | — | — | — | ||||||||||||
| Total cost of goods sold |
13,523 | 41,222 | 30,576 | 57,246 | ||||||||||||
| Gross profit |
147,722 | 196,190 | 289,696 | 389,773 | ||||||||||||
| OPERATING EXPENSES: |
||||||||||||||||
| Selling, general and administrative |
646,511 | 745,745 | 1,221,099 | 1,564,558 | ||||||||||||
| Research and development |
294,449 | 690,032 | 604,889 | 1,407,429 | ||||||||||||
| Total operating expenses |
940,960 | 1,435,777 | 1,825,988 | 2,971,987 | ||||||||||||
| LOSS FROM OPERATIONS |
(793,238 | ) | (1,239,587 | ) | (1,536,292 | ) | (2,582,214 | ) | ||||||||
| OTHER INCOME (EXPENSE)—Net |
(27,804 | ) | 43,241 | (9,577 | ) | 93,055 | ||||||||||
| NET LOSS |
$ | (821,042 | ) | $ | (1,196,346 | ) | $ | (1,545,869 | ) | $ | (2,489,159 | ) | ||||
| NET LOSS PER COMMON SHARE, BASIC AND DILUTED |
$ | (0.09 | ) | $ | (0.13 | ) | $ | (0.16 | ) | $ | (0.26 | ) | ||||
| WEIGHTED AVERAGE SHARES OUTSTANDING, |
9,613,927 | 9,531,778 | 9,609,333 | 9,530,703 | ||||||||||||
See notes to consolidated financial statements.
3
DURASWITCH INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended June 30, |
||||||||
| 2003 |
2002 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net loss |
$ | (1,545,869 | ) | $ | (2,489,159 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
200,974 | 205,780 | ||||||
| Bad debt expense |
— | 6,500 | ||||||
| Stock compensation expense |
40,000 | — | ||||||
| Impairment loss on assets held for sale |
10,618 | — | ||||||
| Loss on disposal of equipment |
47,810 | — | ||||||
| Reserve for inventory obsolescence |
27,000 | 20,000 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(2,073 | ) | (15,469 | ) | ||||
| Inventory |
(45,715 | ) | 8,842 | |||||
| Prepaid expenses and other current assets |
(42,337 | ) | (97,550 | ) | ||||
| Other assets |
300 | 7,100 | ||||||
| Accounts payable |
24,657 | (35,440 | ) | |||||
| Accrued salaries and benefits |
(160,040 | ) | 90,527 | |||||
| Other accrued expenses and other current liabilities |
(63,132 | ) | 29,423 | |||||
| Other non-current liabilities |
(3,531 | ) | (136,668 | ) | ||||
| Deferred licensing revenue |
(203,731 | ) | (212,037 | ) | ||||
| Net cash used in operating activities |
(1,715,069 | ) | (2,618,151 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Increase in patents |
(44,161 | ) | (111,408 | ) | ||||
| Proceeds from sale of equipment |
31,236 | — | ||||||
| Purchases of property and equipment |
(12,479 | ) | (118,283 | ) | ||||
| Net cash used in investing activities |
(25,404 | ) | (229,691 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Net proceeds from sale of stock |
— | 31,849 | ||||||
| Principal payments on capital leases |
(8,694 | ) | (9,438 | ) | ||||
| Net cash provided by (used in) financing activities |
(8,694 | ) | 22,411 | |||||
| DECREASE IN CASH AND CASH EQUIVALENTS |
(1,749,167 | ) | (2,825,431 | ) | ||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
7,036,959 | 12,016,430 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 5,287,792 | $ | 9,190,999 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
||||||||
| Cash paid for interest |
$ | 776 | $ | 3,074 | ||||
| SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES: |
||||||||
| Issuance of $96,000 of stock in exchange for consulting services agreement, net of |
$ | 40,000 | ||||||