x
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Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended March 31,
2009
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|
or
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¨
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Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.
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000-51807
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(Commission
File No.)
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(name
of small business issuer in its
charter)
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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
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(Address
of principal executive offices)
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(Zip
Code)
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Issuer’s
telephone number: (678)
388-9492
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Large accelerated
filer ¨
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Accelerated
filer ¨
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Non-accelerated
filer ¨
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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
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||
ITEM
1.
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Financial
Statements
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|
Balance
Sheets – March 31, 2009 and December 31, 2008
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3
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Statements
of Operations – Three months ended March 31, 2009 and 2008
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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, 2009 and 2008
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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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15
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ITEM
3.
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Quantitative
and Qualitative Disclosures About Market Risk
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20
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ITEM
4T.
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Controls
and Procedures
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20
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PART
II. OTHER INFORMATION
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||
ITEM
1.
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Legal
Proceedings
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21
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ITEM
1A.
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Risk
Factors
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22
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ITEM
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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22
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ITEM
3.
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Defaults
Upon Senior Securities
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22
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ITEM
4.
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Submission
of Matters to a Vote of Security Holders
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22
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ITEM
5.
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Other
Information
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22
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ITEM
6.
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Exhibits
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22
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SIGNATURES
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23
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March
31,
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December
31,
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|||||||
2009
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2008
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|||||||
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(Unaudited)
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(Audited)
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||||||
CURRENT
ASSETS
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||||||||
Cash and cash
equivalents
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$ | 190,696 | $ | 494,612 | ||||
Accounts
receivable, net
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14,010 | 8,710 | ||||||
Accounts
receivable – related party, net
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355,656 | 358,656 | ||||||
Accrued
interest
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5,625 | 1,875 | ||||||
Pre-paid
expense
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30,727 | 52,468 | ||||||
Note
receivable, current portion
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150,000 | 150,000 | ||||||
Inventory,
net
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2,382,350 | 3,014,503 | ||||||
Total current
assets
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3,129,064 | 4,080,824 | ||||||
PROPERTY
AND EQUIPMENT, net of
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||||||||
accumulated depreciation of
$120,309 and $113,359
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39,695 | 46,644 | ||||||
LEASED EQUIPMENT,
net of
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||||||||
accumulated depreciation of
$40,636 and $15,156
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908,370 | 200,253 | ||||||
OTHER
ASSETS
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||||||||
Deposits
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10,496 | 10,496 | ||||||
Restricted
cash
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240,000 | 240,000 | ||||||
Intellectual
property
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90,503 | 87,561 | ||||||
Total other
assets
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340,999 | 338,057 | ||||||
Total assets
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$ | 4,418,128 | $ | 4,665,778 |
March
31,
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December
31,
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|||||||
2009
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2008
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|||||||
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(Unaudited)
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(Audited)
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||||||
CURRENT
LIABILITIES
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||||||||
Accounts payable
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$ | 280,264 | $ | 373,206 | ||||
Accrued expenses
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704,903 | 658,608 | ||||||
Warranty reserve
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98,473 | 100,000 | ||||||
Advance
deposits on machine orders – related party
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697,500 | 697,500 | ||||||
Current portion of long-term
debt
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30,394 | 23,581 | ||||||
Senior convertible note payable –
related party, current portion net
of
discounts of $0 and $76,754
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3,000,000 | 2,923,246 | ||||||
Total current
liabilities
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4,811,534 | 4,776,141 | ||||||
LONG
TERM LIABILITIES
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||||||||
Long term debt, net of current
portion
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32,337 | 39,150 | ||||||
Deferred licensing revenue –
related party
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291,667 | 341,667 | ||||||
Derivative liability – related
party
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10,881,760 | 8,621,940 | ||||||
Total long term
liabilities
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11,205,764 | 9,002,757 | ||||||
Total Liabilities
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16,017,298 | 13,778,898 | ||||||
STOCKHOLDERS’
EQUITY (DEFICIT)
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||||||||
Common stock, $.0001 par value;
50,000,000 shares authorized;
18,761,168 and
18,285,918 issued and outstanding, respectively
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1,877 | 1,829 | ||||||
Additional paid in
capital
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40,178,381 | 39,594,894 | ||||||
Accumulated
deficit
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(51,779,428 | ) | (48,709,843 | ) | ||||
Total stockholders’ equity
(deficit)
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(11,599,170 | ) | (9,113,120 | ) | ||||
Total liabilities and
stockholders’ equity (deficit)
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$ | 4,418,128 | $ | 4,665,778 |
Three
Months Ended
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||||||||
March 31,
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||||||||
2009
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2008
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|||||||
NET
REVENUES – RELATED PARTY
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$ | 50,000 | $ | 50,000 | ||||
NET
REVENUES
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104,650 | 45,655 | ||||||
TOTAL
REVENUES
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154,650 | 95,655 | ||||||
COST
OF GOODS SOLD
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25,480 | 25,657 | ||||||
GROSS
PROFIT
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129,170 | 69,998 | ||||||
OPERATING
EXPENSES
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||||||||
Depreciation and
amortization
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7,024 | 21,324 | ||||||
Research and
development
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74,067 | 10,402 | ||||||
General and
administrative
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750,031 | 1,082,383 | ||||||
Total operating
expenses
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831,122 | 1,114,109 | ||||||
LOSS
BEFORE OTHER INCOME (EXPENSE)
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(701,952 | ) | (1,044,111 | ) | ||||
OTHER
INCOME (EXPENSE)
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||||||||
Interest
expense
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(111,618 | ) | (277,145 | ) | ||||
Interest
income
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3,805 | 8,130 | ||||||
Gain
(loss) on derivative liability
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(2,259,820 | ) | 85,753 | |||||
Total other income
(expense)
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(2,367,633 | ) | (183,262 | ) | ||||
LOSS
BEFORE PROVISION FOR INCOME TAXES
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(3,069,585 | ) | (1,227,373 | ) | ||||
PROVISION
FOR INCOME TAXES
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- | - | ||||||
NET
LOSS
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$ | (3,069,585 | ) | $ | (1,227,373 | ) | ||
NET
LOSS PER SHARE
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$ | (0.17 | ) | $ | (0.08 | ) | ||
WEIGHTED
AVERAGE OF SHARES OUTSTANDING
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18,478,696 | 15,254,002 |
COMMON STOCK
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ADDITIONAL
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|||||||||||||||||||
PAID
IN
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ACCUMULATED
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|||||||||||||||||||
SHARES
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AMOUNT
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CAPITAL
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DEFICIT
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TOTAL
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||||||||||||||||
Balance,
December 31, 2008 (Audited)
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18,285,918 | $ | 1,829 | $ | 39,594,894 | $ | (48,709,843 | ) | $ | (9,113,120 | ) | |||||||||
Issuance
of shares for cash of $500,000, or $1.00 per share, to Water Science, a
related party.
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500,000 | 50 | 499,950 | - | 500,000 | |||||||||||||||
Issuance
and vesting of options and warrants for services
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- | - | 83,535 | - | 83,535 | |||||||||||||||
Cancellation
of shares
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(24,750 | ) | (2 | ) | 2 | - | ||||||||||||||
Net
loss for the three months ended March 31, 2009
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- | - | - | (3,069,585 | ) | (3,069,585 | ) | |||||||||||||
Balance,
March 31, 2009
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18,761,168 | $ | 1,877 | $ | 40,178,381 | $ | (51,779,428 | ) | $ | (11,599,170 | ) |
For
the Three Months
Ended
March 31,
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||||||||
2009
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2008
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|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
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||||||||
Net loss
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$ | (3,069,585 | ) | $ | (1,227,373 | ) | ||
Adjustments to reconcile net loss
to net cash
used
in operating activities:
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||||||||
Depreciation
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32,503 | 21,324 | ||||||
Bad
debt expense
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- | 4,100 | ||||||
Shares
issued for services
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- | 49,296 | ||||||
Warrants
and options issued for services
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83,535 | 162,970 | ||||||
Discount
of note payable
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76,754 | 250,000 | ||||||
Loss
on disposal of assets
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- | - | ||||||
Changes
in operating assets and liabilities:
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||||||||
(Increase) decrease in accounts
receivable
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(5,300 | ) | 38,845 | |||||
(Increase) decrease in accounts
receivable – related party
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3,000 | (3,000 | ) | |||||
Decrease in pre-paid
expense
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21,741 | 6,331 | ||||||
(Increase) in accrued
interest
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(3,750 | ) | - | |||||
(Increase) decrease in
inventory
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(1,977 | ) | 4,880 | |||||
Increase (decrease) in accounts
payable
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(92,942 | ) | 122,675 | |||||
Increase (decrease) in warranty
reserve
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(1,527 | ) | (6,000 | ) | ||||
Increase in accrued
expenses
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46,295 | 11,785 | ||||||
(Decrease)
in deferred revenue
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(50,000 | ) | (50,000 | ) | ||||
Increase
(decrease) in derivative liability
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2,259,820 | (85,753 | ) | |||||
Net cash used in operating
activities
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(701,433 | ) | (699,920 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES
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||||||||
Acquisition
of property and equipment
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(99,467 | ) | - | |||||
Intellectual
property disbursements
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(3,016 | ) | (6,340 | ) | ||||
Net cash (used) provided in
investing activities
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(102,483 | ) | (6,340 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES
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||||||||
Payments
on notes payable
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- | (4,356 | ) | |||||
Proceeds
from issuance of common stock – related party
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500,000 | 1,500 | ||||||
Net cash provided (used) by
financing activities
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500,000 | (2,856 | ) | |||||
NET
INCREASE (DECREASE) IN CASH
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(303,916 | ) | (709,116 | ) | ||||
Cash
and cash equivalents, beginning of period
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494,612 | 1,413,744 | ||||||
Cash
and cash equivalents, end of period
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$ | 190,696 | $ | 704,628 |
Three
Months Ended
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||||||||
March
31,
|
||||||||
2009
|
2008
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|||||||
Supplemental
Disclosures of Cash Flow Information:
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||||||||
Cash
paid during the period for:
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||||||||
Interest
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$ | - | $ | 4,645 | ||||
Income
Taxes
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$ | - | $ | - | ||||
Supplemental
Disclosures of Non-cash Investing and Financing
Activities:
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||||||||
Common
stock issued for services
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$ | - | $ | 49,296 | ||||
Reclass
inventory to Property and Equipment
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$ | 634,130 | $ | - |
March 31,
2009
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December 31,
2008
|
|||||||
Finished goods
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$ | 1,157,216 | $ | 1,828,984 | ||||
Raw
materials
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1,625,134 | 1,585,519 | ||||||
Allowance
for obsolete inventory
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(400,000 | ) | (400,000 | ) | ||||
$ | 2,382,350 | $ | 3,014,503 |
Warranty
reserve at beginning of period
|
$ | 100,000 | ||
Costs
accrued for additional warranties
|
- | |||
Service
obligations honored
|
(1,527 | ) | ||
Warranty
reserve at end of period
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$ | 98,473 |
For the Three Months Ended
|
||||||||
March
31,
|
||||||||
2009
|
2008
|
|||||||
Loss
(numerator)
|
$ | (3,069,585 | ) | $ | (1,227,373 | ) | ||
Shares
(denominator)
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18,478,696 | 15,254,002 | ||||||
Per
share amount
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$ | (0.17 | ) | $ | (0.08 | ) |
Number
|
Weighted
|
|||||||
of Options
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Average Exercise
|
|||||||
and Warrants
|
Price
|
|||||||
Outstanding
at beginning of period
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8,387,867 | $ | 1.60 | |||||
Granted
|
- | - | ||||||
Exercised
|
- | - | ||||||
Forfeited
|
- | - | ||||||
Expired
|
(30,210 | ) | 5.00 | |||||
Outstanding
at end of period
|
8,357,657 | $ | 1.59 |
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
|
310,000 |
0.9
years
|
$ | 0.04 | 310,000 | $ | 0.04 | ||||||||||
1.00-1.99
|
6,724,491 |
2.3
years
|
1.30 | 5,766,796 | 1.30 | ||||||||||||
2.00-2.99
|
720,000 |
5.4
years
|
2.56 | 720,000 | 2.56 | ||||||||||||
3.00-3.99
|
115,000 |
5.8
years
|
3.46 | 115,000 | 3.46 | ||||||||||||
4.00-4.99
|
255,000 |
0.5
years
|
4.00 | 255,000 | 4.00 | ||||||||||||
5.00-5.50
|
233,166 |
0.8
years
|
5.17 | 233,166 | 5.17 | ||||||||||||
$.01-5.50
|
8,357,657 |
2.5
years
|
$ | 1.59 | 7,399,962 | $ | 1.62 | ||||||||||
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
|
First
Amendment to Second Amended and Restated Senior Secured Convertible
Promissory Note signed March 24, 2009 between the Company and Water
Science LLC. (Incorporated by reference to Exhibit 10.30 of the Company's
Form 10-K dated March 30, 2009.)
|
|
10.2
|
First
Amendment to Stock Purchase Agreement dated March 25, 2009 between the
Company and Water Science LLC. (Incorporated by reference to Exhibit 10.31
of the Company's Form 10-K dated March 30, 2009.)
|
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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.
|
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)
|