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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB-A
AMENDMENT NO. 2
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(Mark one)
_X_ Quarterly report under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2004.
___ Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from __________ to __________
Commission File Number 1-16165
AQUACELL TECHNOLOGIES, INC.
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(Exact Name of Small Business Issuers as Specified in its Charter)
Delaware 33-0750453
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(State of Incorporation) (IRS Employer Identification Number)
10410 Trademark Street
Rancho Cucamonga, CA 91730
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(Address of Principal Executive Offices)
(909) 987-0456
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(Issuer's Telephone Number, Including Area Code)
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Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
Securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $.001 par value
15,764,137 shares outstanding as of November 12, 2004.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
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When used in this Form 10-QSB and in future filings by the Company with the
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Commission, statements identified by the words "believe", "positioned",
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"estimate", "project", "target", "continue", "will", "intend", "expect",
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"future", "anticipates", and similar expressions express management's present
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belief, expectations or intentions regarding the Company's future performance
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within the meaning of the Private Securities Litigation Reform Act of 1995.
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Readers are cautioned not to place undue reliance on any such forward-looking
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statements, each of which speaks only as of the date made. Such statements are
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subject to certain risks and uncertainties that could cause actual results to
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differ materially from historical earnings and those presently anticipated or
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projected. The Company has no obligations to publicly release the result of any
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revisions which may be made to any forward-looking statements to reflect
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anticipated or unanticipated events or circumstances occurring after the date of
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such statements.
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Overview
The following discussions and analysis should be read in conjunction with
the Company's condensed consolidated financial statements and the notes
presented following the condensed consolidated financial statements. The
discussion of results, causes and trends should not be constructed to imply any
conclusion that such results or trends will necessarily continue in the future.
During the quarter ended September 30, 2004, we diligently worked to
finalize agreements for our newly launched "Message On The Bottle" advertising
program through our Aquacell Media subsidiary. Aquacell Media installs our
patented Aquacell 1000 Bottled Water Cooler Systems free of charge into various
locations while retaining ownership of the coolers. Revenue is generated
through the sale of advertising on the band of the cooler's permanently attached
five-gallon bottle, as well as on the cup holder.
Subsequent to the end of the quarter, we signed our first Water Cooler
Placement Agreement with Rite Aid Corporation, the third largest drug chain in
America with more than 3000 stores. Rite Aid conducted an extensive test over
several months on the performance of our coolers in their corporate office as
well as in several stores.
Under an initial term of five years, Rite Aid has agreed that the Aquacell
1000 coolers will be installed on a national basis at no cost to Rite Aid, and
that AquaCell may sell the advertising space on the bottle band. The initial
rollout, expected to be completed by the end of December 2004, will entail
replacing water fountains in approximately half of the stores. Aquacell has
been manufacturing coolers in anticipation of this agreement and is in position
to use current inventory to supply the water coolers for these initial
locations.
We are in negotiations with other retailers including other national chain
drug stores and supermarkets, as well as other national chain retail stores for
installations in these locations, as well. Test units have been installed in
many of these locations and we anticipate the signing of agreements with
additional retailers in the near future.
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Also subsequent to the end of the quarter, we secured our first advertiser,
Unilever, one of the world's largest consumer products companies. This
inaugural program is for the Dove(R) product line, the timing of which coincides
with the roll out of installations in Rite Aid stores. The program also
includes advertising in other chain drug stores.
The "Message On The Bottle" advertising provides a unique point-of-sale
opportunity for manufacturers to reach the consumer. Advertising on the bottle
gets face-to-face impact reaching the consumers while they are in the store. We
are negotiating with other major manufacturers and providers of health care
related products and/or their agencies, for the advertisement of their products.
AquaCell has engaged several new marketing partners, including Beau Dietl
& Associates. This organization has agreed to provide us with introductions to
distribution channels and to potential advertisers on our coolers as well as
consulting on future promotional activities. Our agreement runs through August,
2006. Through this association, we retained the services of J. DeKama
Associates. Our consulting agreement with J. DeKama Associates, which runs
through February 2007, provides for that organization to assist us in securing
retail locations for our coolers and for securing potential advertisers.
Through J. DeKama Associates' efforts, we have signed consulting agreements
with former Unilever executives who have tapped into the services of Advantage
Sales and Marketing. This network has been instrumental in assisting us in
developing a wide variety of companies for both advertising and for placement
of Aquacell 1000 coolers into retail locations. By utilizing these and other
individuals who are responsible for payment of their own expenses, and who
will receive cash compensation only upon the generation of revenues, we do not
anticipate incurring any significant direct sales and marketing expenses in
the rollout of this program.
During the quarter ended September 30, 2004 we incurred non-cash charges
for stock based compensation for warrants issued to consultants, which we
believe is a benefit to the Company and its shareholders for the growth of the
Company.
We are embarking on additional opportunities, including expansion of our
"Message On The Bottle" advertising program into more diverse areas, such as
medical offices, car dealerships, health clubs and law offices, which we believe
will provide long-term benefits to the Company.
Results of Operations
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During the three months ended September 30, 2004 on a consolidated basis,
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revenues were $199,000 as compared to $201,000 for the similar period of the
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preceding year.
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On a consolidated basis cost of sales was 62% for the quarter ended
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September 30, 2004 as compared to 64% for the same quarter of the prior year.
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Net loss on a consolidated basis, attributable to common stockholders, for
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the three months ended September 30, 2004 was $877,000 or $0.06 per share, as
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compared to $1,144,000 or $.12 per share for the same period of the prior year.
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The decrease in the loss is primarily attributable to the decrease in fair value
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adjustment of derivative in the amount of $207,000.
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Salaries and wages decreased by $11,000 for the quarter ended September 30,
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2004 over the prior year. Legal, accounting and other professional expensed
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decreased by approximately $13,000 for the quarter ended September 30, 2004.
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Stock based compensation decreased by $133,000 to $242,000 for the quarter ended
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September 30, 2004. Other selling, general and
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administrative expenses, consisting primarily of rent - $49,000, telephone and
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utilities- $17,000, travel- $21,000, business promotion- $22,000, insurance-
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$37,000, and vehicle expenses-$25,000 increased by approximately $82,000 to
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$337,000 for the quarter ended September 30, 2004.
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Liquidity and Capital Resources
During the three months ended September 30, 2004 we raised, through the
repricing of warrants to purchase common shares, net equity of approximately
$209,000.
Cash used by operations during the three months ended September 30, 2004
amounted to $818,000. Net loss of $868,000 was reduced by non-cash stock based
compensation in the amount of $242,000, and depreciation and amortization of
$6,000. Cash used by operations was further increased by decreases in accounts
payable of $138,000, accrued expenses of $41,000, and customer deposits in the
amount of $41,000. Net loss was further decreased by net changes in inventories
and prepaid expenses aggregating $22,000.
Cash used by investing activities during the three months ended September
30, 2004 represented capital expenditures in the amount of $84,000 increased by
payments on a note issued for the purchase of equipment in the amount of $1,000.
The note which was payable in three equal installments of $333 has been paid.
Cash provided by financing activities was approximately $246,000. Proceeds
from sales of common stock purchase warrants amounted to $209,000 and expenses
of warrant exercises amounted to $3,000. Proceeds from subscriptions receivable
were $40,000.
We have granted warrants, subsequent to our initial public offering in
connection with private placements, consulting, marketing and financing
agreements that remain outstanding at the date of this filing and may generate
additional capital of up to approximately $13,800,000 if exercised. There is no
assurance however, that any of the warrants will be exercised.
Management believes that its present cash position combined with subsequent
equity raises and conversion of warrants, and cash flows expected to be
generated from future operations will be sufficient to meet presently
anticipated needs for working capital and capital expenditures through at least
the next 12 months; however, there can be no assurance in that regard. The
Company presently has no material commitments for future capital expenditures.
ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this Report the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including the Company's chief executive officer and chief financial
officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e)
adopted under the Securities Exchange Act of 1934. Based upon that evaluation,
the chief executive officer and chief financial officer concluded that the
Company's disclosure controls and procedures are effective. There were no
significant changes in the Company's internal controls or in other factors that
could significantly affect these controls as of the date of their evaluation.
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