x
|
Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended June 30,
2010
|
|
or
|
¨
|
Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.
|
000-51807
|
(Commission File No.)
|
Delaware
|
87-0654478
|
(State
or other jurisdiction of incorporation or
organization)
|
(I.R.S.
Employer Identification No.)
|
1890 Cobb International Blvd, Suite A, Kennesaw
Georgia
|
30152
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Issuer’s
telephone number: (678)
388-9492
|
Large
accelerated filer
|
¨
|
Accelerated
filer
|
¨
|
Non-accelerated
filer
|
¨
|
Smaller
reporting company
|
x
|
(Do
not check if a smaller reporting company)
|
Page
|
|||
PART
I. FINANCIAL INFORMATION
|
|||
ITEM
1.
|
Financial
Statements
|
|
|
Balance
Sheets – June 30, 2010 and December 31, 2009
|
3
|
||
Statements
of Operations – Three and Six months ended June 30, 2010 and
2009
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5
|
||
Statement
of Stockholders’ Equity (Deficit)
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6
|
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Statements
of Cash Flows – Six months ended June 30, 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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23
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ITEM
4T.
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Controls
and Procedures
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23
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PART
II. OTHER INFORMATION
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|||
ITEM
1.
|
Legal
Proceedings
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24
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|
ITEM
1A.
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Risk
Factors
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24
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|
ITEM
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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24
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|
ITEM
3.
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Defaults
Upon Senior Securities
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24
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ITEM
4.
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Reserved
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24
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|
ITEM
5.
|
Other
Information
|
24
|
|
ITEM
6.
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Exhibits
|
24
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|
SIGNATURES
|
25
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June 30,
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December 31,
|
|||||||
2010
|
2009
|
|||||||
|
(Unaudited)
|
(Restated)
|
||||||
CURRENT ASSETS | ||||||||
Cash
and cash equivalents
|
$ | 51,162 | $ | 181,481 | ||||
Accounts
receivable, net
|
43,420 | 42,995 | ||||||
Other
receivable – related party
|
5,500 | 6,248 | ||||||
Pre-paid
expense
|
34,840 | 45,419 | ||||||
Inventory,
net
|
1,929,187 | 2,022,462 | ||||||
Total
current assets
|
2,064,109 | 2,298,605 | ||||||
PROPERTY
AND EQUIPMENT, net of accumulated depreciation of $140,911 and
$133,821
|
19,092 | 26,183 | ||||||
LEASED
EQUIPMENT, net of accumulated depreciation of $435,774 and
$406,952
|
692,399 | 721,221 | ||||||
OTHER
ASSETS
|
||||||||
Deposits
|
10,496 | 10,496 | ||||||
Restricted
cash
|
- | 240,000 | ||||||
Intellectual
property, net
|
115,240 | 111,265 | ||||||
Total
other assets
|
125,736 | 361,761 | ||||||
Total
assets
|
$ | 2,901,336 | $ | 3,407,770 |
June 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
|
(Unaudited)
|
(Restated)
|
||||||
CURRENT LIABILITIES | ||||||||
Accounts
payable
|
$ | 451,124 | $ | 401,663 | ||||
Accrued
expenses
|
368,145 | 351,215 | ||||||
Accrued
interest
|
770,940 | 572,892 | ||||||
Warranty
reserve
|
83,297 | 92,160 | ||||||
Current
portion of deferred licensing revenue – related party
|
41,667 | 141,667 | ||||||
Advance
deposits on machine orders – related party
|
329,630 | 349,986 | ||||||
Current
portion of long-term debt
|
57,344 | 50,832 | ||||||
Convertible
notes payable – related party
|
4,150,000 | 3,600,000 | ||||||
Derivative
liability – related party
|
319,839 | 5,333,401 | ||||||
Total
current liabilities
|
6,571,986 | 10,893,816 | ||||||
LONG
TERM LIABILITIES
|
||||||||
Long
term debt, net of current portion
|
- | 6,512 | ||||||
Total
liabilities
|
6,571,986 | 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
|
2,001 | 1,989 | ||||||
Additional
paid in capital
|
41,510,214 | 41,311,512 | ||||||
Accumulated
deficit
|
(45,182,865 | ) | (48,806,059 | ) | ||||
Total
stockholders’ equity (deficit)
|
(3,670,650 | ) | (7,492,558 | ) | ||||
Total
liabilities and stockholders’ equity (deficit)
|
$ | 2,901,336 | $ | 3,407,770 |
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(Restated)
|
(Restated)
|
|||||||||||||||
NET
SALES – RELATED PARTY
|
$ | 50,000 | $ | 50,000 | $ | 124,627 | $ | 100,000 | ||||||||
NET
SALES
|
89,631 | 153,975 | 177,406 | 258,625 | ||||||||||||
TOTAL
SALES
|
139,631 | 203,975 | 302,033 | 358,625 | ||||||||||||
COST
OF GOODS SOLD
|
23,962 | 36,345 | 64,777 | 61,825 | ||||||||||||
GROSS
PROFIT
|
115,669 | 167,630 | 237,256 | 296,800 | ||||||||||||
OPERATING
EXPENSES
|
||||||||||||||||
Depreciation
and amortization
|
3,885 | 4,778 | 7,769 | 11,802 | ||||||||||||
Research
and development
|
19,957 | 42,938 | 86,708 | 117,005 | ||||||||||||
General
and administrative
|
581,587 | 848,598 | 1,331,919 | 1,598,629 | ||||||||||||
Total
operating expenses
|
605,429 | 896,314 | 1,426,396 | 1,727,436 | ||||||||||||
LOSS
BEFORE OTHER INCOME (EXPENSE)
|
(489,760 | ) | (728,684 | ) | (1,189,140 | ) | (1,430,636 | ) | ||||||||
OTHER
INCOME (EXPENSE)
|
||||||||||||||||
Interest
expense
|
(104,988 | ) | (76,184 | ) | (201,253 | ) | (187,802 | ) | ||||||||
Interest
income
|
- | 3,840 | 26 | 7,645 | ||||||||||||
Gain
(Loss) on derivative liability
|
4,441,213 | 579,242 | 5,013,561 | 525,835 | ||||||||||||
Other
income (expense)
|
- | - | - | - | ||||||||||||
Total
other income (expense)
|
4,336,225 | 506,898 | 4,812,334 | 345,678 | ||||||||||||
INCOME
(LOSS) BEFORE PROVISION FOR INCOME TAXES
|
3,846,465 | (221,786 | ) | 3,623,194 | (1,084,958 | ) | ||||||||||
PROVISION
FOR INCOME TAXES
|
- | - | - | - | ||||||||||||
NET
INCOME (LOSS)
|
$ | 3,846,465 | $ | (221,786 | ) | $ | 3,623,194 | $ | (1,084,958 | ) | ||||||
EARNINGS
PER SHARE
|
||||||||||||||||
BASIC
|
$ | 0.19 | $ | (0.01 | ) | $ | 0.18 | $ | (0.06 | ) | ||||||
DILUTED
|
$ | 0.19 | N/A | $ | 0.18 | N/A | ||||||||||
WEIGHTED
AVERAGE OF SHARES OUTSTANDING
|
20,006,168 | 19,126,553 | 19,966,720 | 18,796,483 |
ADDITIONAL
|
||||||||||||||||||||
COMMON STOCK
|
PAID
IN
|
ACCUMULATED
|
||||||||||||||||||
SHARES
|
AMOUNT
|
CAPITAL
|
DEFICIT
|
TOTAL
|
||||||||||||||||
Balance,
December 31, 2009 (Restated)
|
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
|
20,000 | 2 | 198 | - | 200 | |||||||||||||||
Issuance
of shares for $100,000, or $1.00 per share, to Theodore Jacoby, a
director
|
100,000 | 10 | 99,990 | - | 100,000 | |||||||||||||||
Vesting
of options for services
|
- | - | 98,514 | - | 98,514 | |||||||||||||||
Net
gain for the six months ended June 30, 2010
|
- | - | - | 3,623,194 | 3,623,194 | |||||||||||||||
Balance,
June 30, 2010
|
20,006,168 | $ | 2,001 | $ | 41,510,214 | $ | (45,182,865 | ) | $ | (3,670,650 | ) |
For the Six Months
|
||||||||
Ended June 30,
|
||||||||
2010
|
2009
|
|||||||
|
(Restated)
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net
income (loss)
|
$ | 3,623,194 | $ | (1,084,958 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
|
36,591 | 73,626 | ||||||
Bad
debt expense
|
- | 15,000 | ||||||
Warrants
and options vested or issued for services
|
98,514 | 166,153 | ||||||
Discount
of note payable
|
- | 76,754 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Decrease
in restricted cash
|
240,000 | - | ||||||
(Increase)
in accounts receivable
|
(426 | ) | (28,925 | ) | ||||
Decrease
in accounts receivable – related party
|
748 | 3,000 | ||||||
Decrease
(increase) in pre-paid expense
|
10,579 | (4,390 | ) | |||||
(Increase)
in accrued interest
|
- | (7,500 | ) | |||||
(Increase)
decrease in inventory
|
93,275 | (18,581 | ) | |||||
(Increase)
in deposits
|
- | (6,473 | ) | |||||
Increase
(decrease) in accounts payable
|
49,461 | (5,553 | ) | |||||
(Decrease)
in warranty reserve
|
(8,863 | ) | (4,985 | ) | ||||
Decrease
in advance deposits for machine orders – related party
|
(20,356 | ) | - | |||||
Increase
in accrued expenses
|
16,930 | 17,592 | ||||||
Increase
in accrued interest
|
198,048 | 109,863 | ||||||
(Decrease)
in deferred revenue
|
(100,000 | ) | (100,000 | ) | ||||
(Decrease)
in derivative liability
|
(5,013,561 | ) | (525,835 | ) | ||||
Net
cash (used) in operating activities
|
(775,866 | ) | (1,325,212 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Acquisition
of property and equipment
|
- | (107,580 | ) | |||||
Intellectual
property disbursements
|
(4,653 | ) | (5,754 | ) | ||||
Net
cash (used) in investing activities
|
(4,653 | ) | (113,334 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Payments
on notes payable
|
- | (7,891 | ) | |||||
Proceeds
from issuance of note payable – related party
|
550,000 | - | ||||||
Proceeds
from issuance of common stock – related party
|
100,200 | 1,250,000 | ||||||
Net
cash provided by financing activities
|
650,200 | 1,242,109 | ||||||
NET
INCREASE (DECREASE) IN CASH
|
(130,319 | ) | (196,437 | ) | ||||
Cash
and cash equivalents, beginning of period
|
181,481 | 494,612 | ||||||
Cash
and cash equivalents, end of period
|
$ | 51,162 | $ | 298,175 |
For the Six Months
|
||||||||
Ended June 30,
|
||||||||
2010
|
2009
|
|||||||
(Restated)
|
||||||||
Supplemental
Disclosures of Cash Flow Information:
|
||||||||
Cash
paid during the period for:
|
||||||||
Interest
|
$ | 2,262 | $ | 3,613 | ||||
Income
Taxes
|
$ | - | $ | - | ||||
Supplemental
Disclosures of Non-cash Investing and Financing
Activities:
|
||||||||
Reclass
inventory to Property and Equipment
|
$ | - | $ | 805,184 |
June 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
Finished
goods
|
$ | 819,992 | $ | 894,488 | ||||
Raw
materials
|
1,509,195 | 1,527,974 | ||||||
Allowance
for obsolete inventory
|
(400,000 | ) | (400,000 | ) | ||||
$ | 1,929,187 | $ | 2,022,462 |
Warranty
reserve at beginning of period
|
$ | 92,160 | ||
Costs
accrued for additional warranties
|
- | |||
Service
obligations honored
|
(8,863 | ) | ||
Warranty
reserve at end of period
|
$ | 83,297 |
For the Three Months Ended
|
For the Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(Restated)
|
(Restated)
|
|||||||||||||||
Net
Income (loss) (numerator)
|
$ | 3,846,465 | $ | (221,786 | ) | $ | 3,623,194 | $ | (1,084,958 | ) | ||||||
Shares
(denominator)
|
||||||||||||||||
Basic
|
20,006,168 | 19,126,553 | 19,966,720 | 18,796,483 | ||||||||||||
Diluted
|
20,102,168 | N/A | 20,063,272 | N/A | ||||||||||||
Per
share amount
|
||||||||||||||||
Basic
|
$ | 0.19 | $ | (0.01 | ) | $ | 0.18 | $ | (0.06 | ) | ||||||
Dilutive
|
$ | 0.19 | N/A | $ | 0.18 | N/A |
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
|
(5,480,531 | ) | 1.36 | |||||
Outstanding
at end of period
|
2,316,760 | $ | 1.71 |
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 | 100,000 |
0.1
years
|
$ | 0.01 | 100,000 | $ | 0.01 | |||||||||||
1.00-1.99 | 1,499,260 |
7.0
years
|
1.31 | 912,130 | 1.31 | ||||||||||||||
2.00-2.99 | 625,000 |
5.6
years
|
2.68 | 625,000 | 2.68 | ||||||||||||||
3.00-3.99 | 92,500 |
4.9
years
|
3.50 | 92,500 | 3.50 | ||||||||||||||
|
|||||||||||||||||||
$ | .01-5.50 | 2,316,760 |
6.2 years
|
$ | 1.71 | 1,825,930 | $ | 2.00 |
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, June 30,
2009
|
Restated, June 30,
2009
|
Change
|
|||||||||
Gross
profit
|
$ | 296,800 | $ | 296,800 | $ | 0 | ||||||
Gain
(loss) on derivative liability
|
$ | (1,829,343 | ) | $ | 525,835 | $ | 2,355,178 | |||||
Net
loss
|
$ | (3,440,136 | ) | $ | (1,084,958 | ) | $ | 2,355,178 | ||||
Net
loss per share
|
$ | (0.18 | ) | $ | (0.06 | ) | $ | 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)
|
|
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)
|