x
|
Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended March 31,
2010
|
o
|
Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.
|
000-51807
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(Commission
File No.)
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Delaware
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87-0654478
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(State
or other jurisdiction of incorporation or
organization) |
(I.R.S.
Employer Identification No.)
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1890 Cobb International Blvd, Suite A, Kennesaw
Georgia
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30152
|
(Address
of principal executive offices)
|
(Zip
Code)
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Large
accelerated filer o
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Accelerated
filer o
|
|
Non-accelerated
filer o
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Smaller
reporting company x
|
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(Do
not check if a smaller reporting company)
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Page
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||
PART
I. FINANCIAL INFORMATION
|
||
ITEM
1.
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Financial
Statements
|
|
Balance
Sheets – March 31, 2010 and December 31, 2009
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3
|
|
Statements
of Operations – Three months ended March 31, 2010 and 2009
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5
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Statement
of Stockholders’ Equity (Deficit)
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6
|
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Statements
of Cash Flows – Three months ended March 31, 2010 and 2009
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7
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Notes
to Financial Statements
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9
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ITEM
2.
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Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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17
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ITEM
3.
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Quantitative
and Qualitative Disclosures About Market Risk
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22
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ITEM 4T.
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Controls
and Procedures
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22
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PART
II. OTHER INFORMATION
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||
ITEM
1.
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Legal
Proceedings
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23
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ITEM
1A.
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Risk
Factors
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23
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ITEM
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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23
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ITEM
3.
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Defaults
Upon Senior Securities
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23
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ITEM
4.
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Reserved
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ITEM
5.
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Other
Information
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23
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ITEM
6.
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Exhibits
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23
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SIGNATURES
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25
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March 31,
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December 31,
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|||||||
2010
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2009
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|||||||
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(Unaudited)
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(Restated)
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||||||
CURRENT ASSETS |
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|||||||
Cash and cash
equivalents
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$ | 316,634 | $ | 181,481 | ||||
Accounts
receivable, net
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35,645 | 42,995 | ||||||
Accounts
receivable – related party, net
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6,216 | 6,248 | ||||||
Pre-paid
expense
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25,664 | 45,419 | ||||||
Inventory,
net
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1,954,093 | 2,022,462 | ||||||
Total current
assets
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2,338,252 | 2,298,605 | ||||||
PROPERTY
AND EQUIPMENT, net of accumulated depreciation of $137,366 and
$133,821
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22,638 | 26,183 | ||||||
LEASED
EQUIPMENT, net of accumulated depreciation of $ 421,363 and
$406,952
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706,810 | 721,221 | ||||||
OTHER
ASSETS
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||||||||
Deposits
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11,571 | 10,496 | ||||||
Restricted
cash
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- | 240,000 | ||||||
Intellectual property,
net
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114,079 | 111,265 | ||||||
Total other
assets
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125,650 | 361,761 | ||||||
Total assets
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$ | 3,193,350 | $ | 3,407,770 |
March 31,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
|
(Unaudited)
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(Restated)
|
||||||
CURRENT LIABILITIES | ||||||||
Accounts payable
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$ | 437,617 | $ | 401,663 | ||||
Accrued expenses
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365,965 | 351,215 | ||||||
Accrued interest
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667,749 | 572,892 | ||||||
Warranty reserve
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86,198 | 92,160 | ||||||
Current portion of deferred
licensing revenue – related party
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91,667 | 141,667 | ||||||
Advance
deposits on machine orders
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12,500 | - | ||||||
Advance
deposits on machine orders – related party
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329,630 | 349,986 | ||||||
Current portion of long-term
debt
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57,344 | 50,832 | ||||||
Convertible notes payable –
related party
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3,950,000 | 3,600,000 | ||||||
Total current
liabilities
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5,998,670 | 5,560,415 | ||||||
LONG
TERM LIABILITIES
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||||||||
Long term debt, net of current
portion
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- | 6,512 | ||||||
Derivative liability – related
party
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4,761,053 | 5,333,401 | ||||||
Total long term
liabilities
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4,761,053 | 5,339,913 | ||||||
Total liabilities
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10,759,723 | 10,900,328 | ||||||
STOCKHOLDERS’
EQUITY (DEFICIT)
|
||||||||
Common
stock, $.0001 par value; 50,000,000 shares authorized; 20,006,168 and
19,886,168 issued and outstanding, respectively
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2,001 | 1,989 | ||||||
Additional paid in
capital
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41,460,956 | 41,311,512 | ||||||
Accumulated
deficit
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(49,029,330 | ) | (48,806,059 | ) | ||||
Total stockholders’ equity
(deficit)
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(7,566,373 | ) | (7,492,558 | ) | ||||
Total liabilities and
stockholders’ equity (deficit)
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$ | 3,193,350 | $ | 3,407,770 |
Three Months Ended
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||||||||
March 31,
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||||||||
2010
|
2009
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|||||||
(Restated)
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||||||||
NET
REVENUES – RELATED PARTY
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$ | 74,627 | $ | 50,000 | ||||
NET
REVENUES
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87,775 | 104,650 | ||||||
TOTAL
REVENUES
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162,402 | 154,650 | ||||||
COST
OF GOODS SOLD
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40,815 | 25,480 | ||||||
GROSS
PROFIT
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121,587 | 129,170 | ||||||
OPERATING
EXPENSES
|
||||||||
Depreciation and
amortization
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3,884 | 7,024 | ||||||
Research and
development
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66,751 | 74,067 | ||||||
General and
administrative
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750,332 | 750,031 | ||||||
Total operating
expenses
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820,967 | 831,122 | ||||||
LOSS
BEFORE OTHER INCOME (EXPENSE)
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(699,380 | ) | (701,952 | ) | ||||
OTHER
INCOME (EXPENSE)
|
||||||||
Interest
expense
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(96,265 | ) | (111,618 | ) | ||||
Interest
income
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26 | 3,805 | ||||||
Gain
(Loss) on derivative liability
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572,348 | (53,407 | ) | |||||
Total other income
(expense)
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476,109 | (161,220 | ) | |||||
LOSS
BEFORE PROVISION FOR INCOME TAXES
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(223,271 | ) | (863,172 | ) | ||||
PROVISION
FOR INCOME TAXES
|
- | - | ||||||
NET
LOSS
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$ | (223,271 | ) | $ | (863,172 | ) | ||
NET
LOSS PER SHARE
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$ | (0.01 | ) | $ | (0.05 | ) | ||
WEIGHTED
AVERAGE OF SHARES OUTSTANDING
|
19,926,835 | 18,478,696 |
ADDITIONAL
|
||||||||||||||||||||
COMMON STOCK
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PAID
IN
|
ACCUMULATED
|
||||||||||||||||||
SHARES
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AMOUNT
|
CAPITAL
|
DEFICIT
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TOTAL
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||||||||||||||||
Balance,
December 31, 2009 (Restated)
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19,886,168 | $ | 1,989 | $ | 41,311,512 | $ | (48,806,059 | ) | $ | (7,492,558 | ) | |||||||||
Exercise
of warrants for cash of $200, or $0.01 per share
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20,000 | 2 | 198 | - | 200 | |||||||||||||||
Issuance
of shares for $100,000, or $1.00 per share, to Theodore Jacoby, a
director
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100,000 | 10 | 99,990 | - | 100,000 | |||||||||||||||
Vesting
of options for services
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- | - | 49,256 | - | 49,256 | |||||||||||||||
Net
loss for the three months ended March 31, 2010
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- | - | - | (223,271 | ) | (223,271 | ) | |||||||||||||
Balance,
March 31, 2010
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20,006,168 | $ | 2,001 | $ | 41,460,956 | $ | (49,029,330 | ) | $ | (7,566,373 | ) |
For the Three Months
Ended March 31,
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||||||||
2010
|
2009
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
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(Restated)
|
|||||||
Net loss
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$ | (223,271 | ) | $ | (863,172 | ) | ||
Adjustments to reconcile net loss
to net cash used in operating activities:
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||||||||
Depreciation
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18,295 | 32,503 | ||||||
Warrants and options vested or
issued for services
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49,256 | 83,535 | ||||||
Discount of note
payable
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- | 76,754 | ||||||
Changes in operating assets and
liabilities:
|
||||||||
Decrease in restricted
cash
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240,000 | - | ||||||
(Increase) decrease in accounts
receivable
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7,350 | (5,300 | ) | |||||
(Increase) decrease in accounts
receivable – related party
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32 | 3,000 | ||||||
Decrease in pre-paid
expense
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19,755 | 21,741 | ||||||
(Increase) in accrued
interest
|
- | (3,750 | ) | |||||
(Increase) decrease in
inventory
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68,369 | (1,977 | ) | |||||
(Increase) decrease in
deposits
|
(1,075 | ) | - | |||||
Increase (decrease) in accounts
payable
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35,954 | (92,942 | ) | |||||
Increase (decrease) in warranty
reserve
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(5,962 | ) | (1,527 | ) | ||||
Increase in advance deposits for
machine orders
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12,500 | - | ||||||
Increase in advance deposits for
machine orders – related party
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(20,356 | ) | - | |||||
Increase in accrued
expenses
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14,750 | 11,432 | ||||||
Increase in accrued
interest
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94,857 | 34,863 | ||||||
(Decrease)
in deferred revenue
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(50,000 | ) | (50,000 | ) | ||||
Increase
(decrease) in derivative liability
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(572,348 | ) | 53,407 | |||||
Net cash (used) in operating
activities
|
(311,894 | ) | (701,433 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Acquisition
of property and equipment
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- | (99,467 | ) | |||||
Intellectual
property disbursements
|
(3,153 | ) | (3,016 | ) | ||||
Net cash (used) in investing
activities
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(3,153 | ) | (102,483 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Proceeds
from issuance of note payable – related party
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350,000 | - | ||||||
Proceeds
from issuance of common stock – related party
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100,200 | 500,000 | ||||||
Net cash provided by financing
activities
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450,200 | 500,000 | ||||||
NET
INCREASE (DECREASE) IN CASH
|
135,153 | (303,916 | ) | |||||
Cash
and cash equivalents, beginning of period
|
181,481 | 494,612 | ||||||
Cash
and cash equivalents, end of period
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$ | 316,634 | $ | 190,696 |
Three Months Ended
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||||||||
March 31,
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||||||||
2010
|
2009
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|||||||
(Restated)
|
||||||||
Supplemental
Disclosures of Cash Flow Information:
|
||||||||
Cash
paid during the period for:
|
||||||||
Interest
|
$ | 1,407 | $ | - | ||||
Income
Taxes
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$ | - | $ | - |
March 31,
2010
|
December 31,
2009
|
|||||||
Finished
goods
|
$ | 819,991 | $ | 894,488 | ||||
Raw
materials
|
1,534,102 | 1,527,974 | ||||||
Allowance
for obsolete inventory
|
(400,000 | ) | (400,000 | ) | ||||
$ | 1,954,093 | $ | 2,022,462 |
Warranty
reserve at beginning of period
|
$ | 92,160 | ||
Costs
accrued for additional warranties
|
- | |||
Service
obligations honored
|
(5,962 | ) | ||
Warranty
reserve at end of period
|
$ | 86,198 |
For the Three Months Ended
|
||||||||
March 31,
|
||||||||
2010
|
2009
|
|||||||
(Restated)
|
||||||||
Net
Loss (numerator)
|
$ | (223,271 | ) | $ | (863,172 | ) | ||
Shares
(denominator)
|
19,926,835 | 18,478,696 | ||||||
Per
share amount
|
$ | (0.01 | ) | $ | (0.05 | ) |
Number
|
Weighted
|
|||||||
of Options
|
Average Exercise
|
|||||||
and Warrants
|
Price
|
|||||||
Outstanding
at beginning of period
|
7,817,291 | $ | 1.46 | |||||
Granted
|
- | - | ||||||
Exercised
|
(20,000 | ) | 0.01 | |||||
Forfeited
|
- | - | ||||||
Expired
|
(85,000 | ) | 0.42 | |||||
Outstanding
at end of period
|
7,712,291 | $ | 1.48 |
Warrants Outstanding
|
Warrants Exercisable
|
||||||||||||||||
Range of
|
Weighted-Average
|
Weighted-Average
|
|
Weighted-Average
|
|||||||||||||
Exercise
|
Number
|
Remaining
|
Exercise
|
Number
|
Exercise
|
||||||||||||
Prices
|
Outstanding
|
Contractual Life
|
Price
|
Exercisable
|
Price
|
||||||||||||
$.01-.50
|
125,000 |
0.4
years
|
$ | 0.01 | 125,000 | $ | 0.01 | ||||||||||
1.00-1.99
|
6,668,491 |
1.3
years
|
1.30 | 6,081,361 | 1.30 | ||||||||||||
2.00-2.99
|
720,000 |
4.4
years
|
2.56 | 720,000 | 2.56 | ||||||||||||
3.00-3.99
|
115,000 |
4.8
years
|
3.46 | 115,000 | 3.46 | ||||||||||||
4.00-4.99
|
5,000 |
0.1
years
|
4.00 | 5,000 | 4.00 | ||||||||||||
5.00-5.50
|
78,800 |
0.1
years
|
5.00 | 78,800 | 5.00 | ||||||||||||
$.01-5.50
|
7,712,291 |
1.6 years
|
$ | 1.48 | 7,125,161 | $ | 1.48 |
As previously
reported,
December 31,
2009
|
Restated,
December 31,
2009
|
Change
|
||||||||||
Total
assets
|
3,407,770 | 3,407,770 | 0 | |||||||||
Derivative
liability
|
8,662,893 | 5,333,401 | (3,329,492 | ) | ||||||||
Total
liabilities
|
14,229,820 | 10,900,328 | (3,329,492 | ) | ||||||||
Accumulated
deficit
|
52,135,551 | 48,806,059 | (3,329,492 | ) | ||||||||
Total
Stockholders deficit
|
10,822,050 | 7,492,558 | (3,329,492 | ) |
As previously
reported,
March 31,
2009
|
Restated,
March 31,
2009
|
Change
|
||||||||||
Gross
profit
|
129,170 | 129,170 | 0 | |||||||||
Gain
(loss) on derivative liability
|
(2,259,820 | ) | (53,407 | ) | 2,206,413 | |||||||
Net
loss
|
(3,069,585 | ) | (863,172 | ) | 2,206,413 | |||||||
Net
loss per share
|
(0.17 | ) | (0.05 | ) | 0.12 |
EXHIBIT NO.
|
DESCRIPTION OF EXHIBIT
|
|
3(i).1
|
Certificate
of Incorporation (Incorporated by reference from registration statement on
Form SB-1 filed with the SEC on July 29, 2002 (File No. 333-86830)
|
|
3(i).2
|
Certificate
of Amendment of Certificate of Incorporation (Incorporated by reference
from registration statement on Form SB-1 filed with the Securities and
Exchange Commission on July 29, 2002 (File No. 333-86830)
|
|
3(i).3
|
Certificate
of Amendment of Certificate of Incorporation (Incorporated by reference
from current report on Form 8-K filed with the Securities and Exchange
Commission on January 17, 2007)
|
|
3(ii).1
|
Amended
and Bylaws (Incorporated by reference from registration statement on
current report on Form 8-K filed with the Securities and Exchange
Commission on September 12,
2007)
|
10.1
|
Stock
Purchase agreement between the Company and Ted Jacoby. (Incorporated
by reference to Ex. 10.1 to the Company’s Form 8-K filed with the
Securities and Exchange Commission on March 10, 2010)
|
|
10.2
|
Waiver
and Consent Letter dated March 10, 2010 between the Company and JLM
Consulting, LLC. (Incorporated by reference to Ex. 10.2 to the
Company’s Form 8-K filed with the Securities and Exchange Commission on
March 10, 2010)
|
|
10.3
|
Waiver
and Consent Letter dated March 10, 2010 between the Company and Water
Science, LLC. (Incorporated by reference to Ex. 10.3 to the
Company’s Form 8-K filed with the Securities and Exchange Commission on
March 10, 2010)
|
|
31.1
|
Certification
by Wade R. Bradley under Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
31.2
|
Certification
by Brian D. Heinhold under Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
32.1
|
Certification
of Wade R. Bradley 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 Brian D. Heinhold pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
EAU
TECHNOLOGIES, INC.
|
||
By:
|
/s/
Wade R. Bradley
|
|
Wade
R. Bradley
|
||
Chief
Executive Officer
|
||
(Principal
Executive Officer)
|
||
By:
|
/s/
Brian D. Heinhold
|
|
Brian
D. Heinhold
|
||
Chief
Financial Officer
|
||
(Principal
Financial Officer)
|