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 March 31, 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 (I.R.S. Employer
incorporation or organization) 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 April 30, 2003, there were 9,617,673 shares of common stock outstanding.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DURASWITCH INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 2003 December 31, 2002
-------------- -----------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,067,446 $ 7,036,959
Accounts receivable (net of allowance for doubtful accounts
of $12,000 in 2003 and 2002) 48,708 11,191
Inventory - Net 244,894 192,915
Prepaid expenses and other current assets 263,732 168,121
------------ ------------
Total current assets 6,624,780 7,409,186
PROPERTY AND EQUIPMENT - Net 704,469 786,506
GOODWILL - Net 443,874 443,874
PATENTS - Net 757,056 743,447
OTHER ASSETS 113,259 119,116
------------ ------------
TOTAL ASSETS $ 8,643,438 $ 9,502,129
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 83,328 $ 23,933
Accrued salaries and benefits 364,091 500,413
Other accrued expenses and other current liabilities 185,407 231,973
Deferred licensing revenue (Note 2) 453,640 460,803
Current portion of capital leases payable 15,990 18,110
------------ ------------
Total current liabilities 1,102,456 1,235,232
------------ ------------
LONG-TERM LIABILITIES:
Capital leases payable 6,069 8,213
Other non-current liabilities 34,984 36,750
Deferred licensing revenue - long-term (Note 2) 1,271,423 1,364,601
------------ ------------
Total long-term liabilities 1,312,476 1,409,564
------------ ------------
Total liabilities 2,414,932 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, 9,617,673 and 9,534,195 shares issued and
outstanding in 2003 and 2002, respectively 9,618 9,534
Additional paid-in capital 27,413,230 27,317,314
Accumulated deficit (21,194,342) (20,469,515)
------------ ------------
Total stockholders' equity 6,228,506 6,857,333
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,643,438 $ 9,502,129
============ ============
See notes to consolidated financial statements.
2
DURASWITCH INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
----------------------------
2003 2002
------------ ------------
NET REVENUE:
Licensing $ 159,027 $ 184,932
Product -- 24,675
------------ ------------
Total net revenue 159,027 209,607
COST OF GOODS SOLD:
Licensing 17,053 16,024
Product -- --
------------ ------------
Total cost of goods sold 17,053 16,024
------------ ------------
Gross profit 141,974 193,583
------------ ------------
OPERATING EXPENSES:
Selling, general and administrative 574,588 818,813
Research and development 310,440 717,397
------------ ------------
Total operating expenses 885,028 1,536,210
------------ ------------
LOSS FROM OPERATIONS (743,054) (1,342,627)
OTHER INCOME - Net 18,227 49,814
------------ ------------
NET LOSS $ (724,827) $ (1,292,813)
============ ============
NET LOSS PER COMMON SHARE, BASIC AND DILUTED $ (0.08) $ (0.14)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING,
BASIC AND DILUTED 9,604,688 9,529,617
============ ============
See notes to consolidated financial statements.
3
DURASWITCH INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
----------------------------
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (724,827) $ (1,292,813)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 104,315 101,405
Bad debt expense -- 6,500
Stock compensation expense 20,000 --
Changes in operating assets and liabilities:
Accounts receivable (37,517) (14,432)
Inventory (51,979) (5,198)
Prepaid expenses and other current assets (19,611) (28,111)
Accounts payable 59,395 (29,012)
Accrued salaries and benefits (136,322) (61,261)
Other accrued expenses and other current liabilities (46,566) 8,843
Other non-current liabilities (1,766) (25,772)
Deferred licensing revenue (100,341) (94,781)
------------ ------------
Net cash used in operating activities (935,219) (1,434,632)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in patents (24,151) (57,005)
Decrease in other assets -- 2,600
Purchases of property and equipment (5,879) (19,230)
------------ ------------
Net cash used in investing activities (30,030) (73,635)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of stock -- 18,760
Principal payments on capital leases (4,264) (5,598)
------------ ------------
Net cash provided by (used in) financing activities (4,264) 13,162
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (969,513) (1,495,105)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,036,959 12,016,430
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,067,446 $ 10,521,325
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 943 $ 1,708
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Stock issued on January 15, 2003 in exchange for consulting
services which will be rendered over a 12 month period $ 96,000 $ --
============ ============
See notes to consolidated financial statements.
4
DURASWITCH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying interim financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission for interim reporting. Accounting policies utilized in the
preparation of financial information herein presented are the same as set forth
in our annual financial statements. Certain disclosures and information normally
included in financial statements have been condensed or omitted. In the opinion
of the management of Duraswitch Industries, Inc. (the "Company"), these
financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the interim
financial statements. Interim results of operations are not necessarily
indicative of the results of operations for the full year.
2. DEFERRED LICENSING REVENUE
In April 2000, the Company entered into a license agreement with Delphi
Corporation ("Delphi"), that gives Delphi the exclusive right to utilize and
manufacture the Company's patented switch technologies for the automotive
industry. In connection with the license agreement, the Company also issued a
warrant to Delphi to purchase 225,000 shares of common stock at $7.00 per share
and a short-term option to purchase 1,651,846 shares of common stock at $7.00
per share. In exchange, Delphi paid the Company a non-refundable payment of $4.0
million and agreed to pay a royalty fee for each switch sold by Delphi. The term
of the exclusive license agreement is seven years. The agreement also requires
Delphi to make minimum royalty payments, beginning July 1, 2004, totaling $12
million during the initial seven-year term ending June 30, 2007. Delphi can
maintain exclusivity for the automotive industry through June 30, 2012 by making
additional minimum annual royalty payments during that period. After June 30,
2012, either party may convert the agreement to a non-exclusive agreement
through 2020.
The estimated fair value of the warrant and the option was $1,134,338, as
determined using the Black-Scholes valuation model. The remaining value of the
non-refundable payment, totaling $2,865,662, was recorded as deferred revenue
and is being amortized over the initial seven-year term of the exclusive license
agreement.
The current portion of deferred licensing revenue includes the revenue to
be recognized in the next twelve months related to the Delphi non-refundable
payment and royalty prepayments by other licensees that have been deferred until
such royalties are earned under the licensing agreements.
3. INVENTORY
The Company's inventory is primarily comprised of licensed components. The
licensed components are sold to licensees and are recognized as licensing
revenue and the cost of the components is recorded as licensing cost of goods
sold when the components are shipped to the licensee.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The words "believe," "expect," "anticipate," "intend,"
"estimate" and other expressions that are predictions of or indicate future
events and trends and which do not relate to historical matters identify
forward-looking statements. These forward-looking statements are based largely
on our expectations or forecasts of future events, can be affected by inaccurate
assumptions and are subject to various business risks and known and unknown
uncertainties, a number of which are beyond our control. Therefore, actual
results could differ materially from the forward-looking statements contained in
this document, and readers are cautioned not to place undue reliance on such
forward-looking statements. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. There can be no assurance that the forward-looking
statements contained in this document will, in fact, transpire or prove to be
accurate. For a more detailed description of these and other cautionary factors
that may affect our future results, please refer to our Annual Report on Form
10-K for our fiscal year ended December 31, 2002 filed with the Securities and
Exchange Commission.
5
Critical Accounting Policies
We have identified the policies below as critical to our business
operations and the understanding of our results of operations. The impact and
any associated risks related to these policies on our business operations are
discussed throughout Management's Discussion and Analysis of Financial Condition
and Results of Operations when such policies affect our reported or expected
financial results.
In the ordinary course of business, we have made a number of estimates and
assumptions relating to the reporting of results of operations and financial
condition in the preparation of our financial statements in conformity with
accounting principles generally accepted in the United States. We base our
estimates on historical experience and on various other assumptions that we
believe are reasonable under the circumstances. The results form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results could differ
significantly from those estimates under different assumptions and conditions.
We believe that the following discussion addresses our most critical accounting
policies, which are those that are most important to the portrayal of our
financial condition and results of operations and require our most difficult,
subjective, and complex judgments, often as a result of the need to make
estimates about the effect of matters that are inherently uncertain.
REVENUE RECOGNITION. We enter into licensing agreements with our customers.
Our licensing strategy incorporates a simplified requirement whereby the
licensee purchases licensed components from us. The purchase price of the
licensed components includes the royalty fee. When the components are shipped,
we recognize licensing revenue and licensing cost of goods sold. In some cases,
where no licensed components are supplied, we are paid a royalty per switch
manufactured by the licensee.
Some of our licensees have prepaid royalties to us pursuant to their
license agreements. These prepayments are recorded as deferred revenue. This
deferred revenue is recognized as licensing revenue when earned under the
licensing agreement. If a licensee purchases a licensed component from us, the
royalty is earned when the licensed component is shipped. If the licensee is
directly manufacturing our switches without purchasing licensed components from
us, we consider the royalty earned when the switch is manufactured. In the case
of our exclusive license agreement with Delphi, the up-front payment is
nonrefundable and the portion of the $4.0 million payment allocated to deferred
revenue is being amortized over the initial seven-year term of the agreement.
(See Note 2 of our Notes to Unaudited Consolidated Financial Statements.)
INVENTORY VALUATION. Our inventory is primarily comprised of licensed
components which are sold to licensees and raw materials which are primarily
used for research and development projects and manufacturing marketing samples.
We state inventories at the lower of cost or market value, determined using the
first-in, first-out method. Our policy is to write down our inventory for
estimated obsolescence or unmarketable inventory to the extent the cost exceeds
the estimated market value. We base the estimate on our assumptions about future
demand and market conditions. If actual market conditions are less favorable
than those assumed in our estimates, additional inventory write-downs might be
required. We reflect any write-down of inventory in the period in which the
facts giving rise to the inventory write-down become known to us.
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. We review our long-lived
assets and identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. Additionally, goodwill is reviewed on an annual basis. Our
intangible assets are primarily our patents and the goodwill associated with the
acquisition of Aztec Industries. If such assets were considered to be impaired,
the impairment to be recognized would be measured by the amount by which the
carrying amount of the assets exceeds the fair market value of the assets.
We evaluate the recoverability of property and equipment and intangibles
(excluding goodwill) not held for sale by comparing the carrying amount of the
asset or group of assets against the estimated undiscounted future net cash
flows expected to result from the use of the asset or group of assets. If the
undiscounted estimated cash flows are less than the carrying value of the asset
or group of assets being reviewed, an impairment loss would be recorded. The
loss would be measured based on the estimated fair value of the asset or group
of assets compared to its carrying value. The estimated fair value would be
based on the best information available under the circumstances, including
prices for similar assets and the results of valuation techniques, including the
present value of expected future cash flows using a discount rate commensurate
with the risks involved.
We evaluate goodwill for impairment by comparing the estimated fair value
of our company, which is the only reporting unit, with the carrying value,
including goodwill. The estimated fair value is based on the best information
6
available under the circumstances, including quoted market prices in stock
markets, valuation techniques based on earnings, or independent valuations. If
the fair value of our company exceeds the carrying amount, goodwill is not
considered to be impaired. If the carrying amount of our company exceeds our
fair value, the fair value of the goodwill is calculated, and the excess of the
carrying value of the goodwill over its fair value is recorded as an impairment
loss. To determine the fair value of goodwill, our fair value is allocated to
all of our assets and liabilities, and any excess of fair value of our company
over the fair value of our assets and liabilities is the estimated fair value of
goodwill.
STOCK-BASED COMPENSATION. At March 31, 2003, we had three stock-based
employee compensation plans. SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION encourages, but does not require, companies to record as
compensation expense, over the vesting period, the fair value of all stock-based
awards on the date of grant. We have chosen to account for these plans using the
intrinsic value method of accounting prescribed by APB Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations. No
stock-based employee compensation cost is reflected in net income, as all
options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. The fair value of all
stock option grants is estimated on the date of grant in accordance with SFAS
No. 123 using the Black-Scholes option pricing model with the following
assumptions: an expected risk-free interest rate of 2.9 percent for options
granted in 2002, an expected life of three years, an expected volatility rate of
69 percent for options granted in 2002, and an expected dividend rate of zero
percent. No options were granted or vested during the quarter ended March 31,
2003. The following table illustrates the effect on net income and earnings per
share if we had applied the fair value recognition provisions of SFAS No. 123 to
stock-based employee compensation:
QUARTER ENDED MARCH 31,
----------------------------
2003 2002
------------ ------------
Net loss, as reported $ (724,827) $ (1,292,813)
Less: Total stock-based employee
expense determined under fair value
based method for all awards, net of
related tax effects -- (57,190)
------------ ------------
Pro forma net loss $ (724,827) $ (1,350,003)
============ ============
Loss per share:
Basic and diluted, as reported $ (0.08) $ (0.14)
============ ============
Basic and diluted, pro forma $ (0.08) $ (0.14)
============ ============
RESULTS OF OPERATIONS
NET REVENUE:
We recorded net revenue of $159,027 for the three months ended March 31,
2003, compared to $209,607 for the three months ended March 31, 2002, a decrease
of $50,580 resulting from decreased licensing and product revenue.
Licensing revenue was $159,027 and $184,932 for the three months ended
March 31, 2003 and 2002, respectively, a decrease of $25,905. To date, the
majority of non-exclusive licensing revenue has been related to our PushGate
pushbutton technology. The number of unit sales of royalty-bearing PushGates has
increased during the last three years from approximately one million in 2000, to
1.8 million in 2001, to 2.8 million in 2002. For the three months ended March
31, 2003, the number of royalty bearing PushGate units sold was slightly higher
than the number of PushGate units sold during the three months ended March 31,
2002. Revenue has not tracked this slight increase because the average revenue
earned per PushGate during the three months ended March 31, 2003 was just under
$0.13, compared to the average per-PushGate revenue of $0.23 for the three
months ended March 31, 2002. We believe that the average revenue earned
per-PushGate will be closer to $0.10 for the remainder of 2003. For the first
quarter of 2003, $102,345 or 64% of total licensing revenue and 64% of total
revenue was from the recognition of deferred revenue related to our exclusive
license agreement with Delphi. For the first quarter of 2002, $102,345 or 55% of
total licensing revenue and 49% of total revenue was from the Delphi license
agreement.
We anticipate that licensing revenue will fluctuate from period to period.
It will be difficult for us to predict the timing and magnitude of such revenue,
as it is dependent on production orders for products utilizing our technologies
being issued to our licensees. The timing of the purchase orders is dependent on
economic conditions as well as market acceptance of products that incorporate
7
our technologies. We believe that the amount of licensing revenue for any period
is not necessarily indicative of results for any future period.
Product revenue was $0 for the three months ended March 31, 2003 compared
to $24,675 for the three months ended March 31, 2002. As we have completed our
transition from switch manufacturing to licensing our technologies, we do not
expect to have any significant product revenue in the future. The 2002 product
revenue was related to the collection of disputed fees for engineering services
we had provided to a customer in prior periods.
COST OF GOODS SOLD:
Total cost of goods sold was $17,053 for the three months ended March 31,
2003, compared to $16,024 for the three months ended March 31, 2002, an increase
of $1,029. The increase in cost of goods sold for the three months ended March
31, 2003 was primarily due to an increase in sales of some component materials
to licensees that have a lower gross margin as compared to royalty revenue.
There was no product cost of goods sold.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling, general and administrative expenses were $574,588 for the three
months ended March 31, 2003, compared to $818,813 for the three months ended
March 31, 2002, a decrease of $244,225. The decrease in selling, general and
administrative expenses was primarily related to reductions in personnel.
RESEARCH AND DEVELOPMENT:
Research and development expenses were $310,440 for the three months ended
March 31, 2003, compared to $717,397 for the three months ended March 31, 2002,
a decrease of $406,957. This decrease was primarily related to cost-cutting
initiatives that included significant reductions in research and development
personnel which were announced in October 2002. The personnel reductions were
completed by the end of 2002. We have created a portfolio of patented and
patent-pending technologies which are available through our licensees. The
efforts of our remaining research and development personnel will continue to be
directed at supporting our licensees in their efforts to commercialize these
technologies as opposed to also focusing on the creation of new technologies.
LOSS FROM OPERATIONS:
As a result of the factors described above, loss from operations was
$743,054 for the three months ended March 31, 2003 compared to $1,342,627 for
the three months ended March 31, 2002, a decrease of $599,573.
OTHER INCOME - NET:
Other income - net was $18,227 for the three months ended March 31, 2003,
compared to $49,814 for the three months ended March 31, 2002, a decrease of
$31,587. The decrease in other income - net is due to decreased investment
income as a result of lower interest rates and lower average cash balances.
NET LOSS:
The $567,986 decrease in the net loss to $724,827 for the three months
ended March 31, 2003 from $1,292,813 for the three months ended March 31, 2002
was primarily a result of reductions in personnel.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents on March 31, 2003 were $6,067,446 compared to
$7,036,959 on December 31, 2002. The decrease in cash and cash equivalents was
primarily attributable to cash used in operations.
Net cash used in operating activities was $935,219 for the three months
ended March 31, 2003. The net use of cash was primarily attributable to the net
loss.
Net cash used in investing activities was $30,030 for the three months
ended March 31, 2003. The net cash used in investing activities related
primarily to investment in patents.
Net cash used in financing activities was $4,264 for the three months ended
March 31, 2003 related to principal payments on capital leases.
8
At December 31, 2002, we had approximately $19.9 million in net operating
loss carry forwards available for federal and state income tax purposes. We have
not recognized any benefit from these operating loss carry forwards which expire
in 2011 through 2021.
Our license agreement with Delphi requires Delphi to pay us minimum royalty
payments, beginning July 1, 2004, totaling $12 million during the initial
seven-year term ending June 30, 2007. Delphi can maintain exclusivity for the
automotive industry through June 30, 2012 by making additional minimum annual
royalty payments during that period. After June 30, 2012, either party may
convert the agreement to a nonexclusive agreement through 2020.
We have experienced significant operating losses since our inception. In
October 2002, we announced cost-cutting initiatives that included significant
reductions in personnel. The announced personnel reductions were completed by
the end of the fourth quarter of 2002. We anticipate that our cash and working
capital requirements will decrease in 2003 from 2002 historical levels. However,
our capital expenditures and working capital requirements could increase
depending on our operating results and other adjustments to our operating plan
as may be needed to respond to competition or unexpected events.
We believe that our cash on hand will be sufficient to meet our anticipated
cash needs for working capital and capital expenditures for at least 12 months.
We continually evaluate our working capital needs and we may seek to obtain
additional working capital through debt or equity offerings. There can be no
assurance that additional funds will be available on acceptable terms. In the
event that additional funds are not available on acceptable terms, we could be
required to reduce the scope of or cease operations.
The following table sets forth our contractual obligations and commitments
as of March 31, 2003:
PAYMENTS DUE BY PERIOD
-------------------------------------------------
LESS THAN
1 YEAR 1-3 YEARS THEREAFTER TOTAL
---------- ---------- ---------- ----------
CONTRACTUAL OBLIGATIONS
Capital lease obligations $ 18,010 $ 6,375 $ -- $ 24,385
Operating leases 168,313 915 -- 169,228
Purchase order obligation (1) -- 11,426 -- 11,426
---------- ---------- ---------- ----------
Total contractual cash obligations $ 186,323 $ 18,716 $ -- $ 205,039
========== ========== ========== ==========
- ----------
(1) Our purchase order obligation represents an open commitment to acquire
licensed components.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk is the potential loss arising from adverse changes in market
rates and prices, such as foreign currency exchange and interest rates. We do
not use derivative financial instruments to manage these risks and do not hold
or issue financial instruments for trading purposes.
We are currently exposed to credit risk on credit extended to our
licensees. Based on the credit worthiness of our licensee base and the relative
size of these financial instruments, we believe the risk associated with these
instruments will not have a material adverse affect on our business, financial
position, results of operations or cash flows.
Additionally, we are exposed to some market risk through interest rates
related to our investments of cash and cash equivalents of approximately $6
million. The risk is not considered material and we manage such risk by
evaluating the best investment rates available for short-term high-quality
investments.
Presently, all of our receivables and substantially all of our payments are
denominated in U.S. dollars and, consequently, we believe we have no foreign
currency exchange rate risk. However, in the future, we may enter into
agreements in foreign currencies that may subject us to foreign exchange rate
risk. There can be no assurance that our future efforts to reduce foreign
exchange risk will be successful.
9
ITEM 4. CONTROLS AND PROCEDURES.
Based on his evaluation, as of a date within 90 days prior to the date of
the filing of this report, of the effectiveness of our disclosure controls and
procedures, our Chief Executive Officer/Chief Financial Officer has concluded
that our disclosure controls and procedures are effective and sufficient to
ensure that we record, process, summarize and report information required to be
disclosed by us in our periodic reports filed under the Securities Exchange Act
within the time periods specified by the Securities and Exchange Commission's
rules and forms.
Subsequent to the date of his evaluation, there have not been any
significant changes in our internal controls or in other factors that could
significantly affect these controls, including any corrective action with regard
to significant deficiencies and material weaknesses.
10
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
During January 2003, we issued to UTEK Corporation, a consultant to our
company, 83,478 shares of common stock at a deemed value per share of $1.15 in
exchange for the services to be rendered over a 12 month period pursuant to the
consulting agreement. We issued these shares without registration under the
Securities Act in reliance on the exemption provided by Section 4(2) of the
Securities Act as a transaction by an issuer not involving a public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See attached exhibit list
(b) Reports on Form 8-K
On February 25, 2003, we filed Form 8-K announcing our fourth quarter and
fiscal 2002 financial results.
11
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.
Duraswitch Industries, Inc.
----------------------------------------
(Registrant)
Date: April 30, 2003 By: /s/ Robert J. Brilon
--------------------- ------------------------------------
Robert J. Brilon, President & Chief
Executive Officer, Chief Financial
Officer, Secretary and Treasurer
(Principal Executive, Financial and
Accounting Officer)
12
CERTIFICATIONS
I, Robert J. Brilon, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Duraswitch
Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensue that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: April 30, 2003 /s/ Robert J. Brilon
----------------------------------------
Robert J. Brilon
Chairman of the Board, CEO, President,
CFO, Secretary and Treasurer
13
EXHIBIT INDEX
Exhibit No. Description Incorporated by Reference to: Filed Herewith:
- ----------- ----------- ----------------------------- ---------------
3.2 Amended and Restated Bylaws X
4.3 Specimen Common Stock Certificate Form SB-2 filed with the SEC
on August 26, 1999
99.1 Certification Pursuant to 18 X
U.S.C. Section 1350, as
Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act
of 2002
14