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FLEXPOINT SENSOR SYSTEMS INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Edgar Glimpses Via Acquire Media NewsEdge) EXECUTIVE OVERVIEW
Flexpoint Sensor Systems, Inc. is a development stage company principally
engaged in designing, engineering and manufacturing bend sensor technology and
devises that use its patented Bend Sensor® technology, (a flexible potentiometer
technology). For the past three years we have been making improvements to our
technology and proving the versatility and durability of the Bend Sensor® by
manufacturing Bend Sensor® devices and related products and introducing these to
a variety of industries. We currently own nine technology patents and through
our research and development efforts are in the process of filing for more that
include fully integrated products using our Bend Sensor® technology being sold
and supplied to our limited customer base. We have also jointly developed
additional commercially viable products, including a universal sensor that will
be used in the automotive, medical and industrial industries. We are working
towards expansion of our customer base as our patented technology continues to
gain recognition in various markets and industries. Over the next six to nine
months we will concentrate most of our marketing efforts and limited financial
resources on current projects that we believe can be brought to market in the
shortest period of time. We anticipate having as many as 10 to 15 different
products featuring our patented Bend Sensor® technology on the market over the
next 6 to 9 months including products in the automotive, residential home care
and industrial control industries.
Over the past nine months we have been enhancing our relationships with various
automotive Tier 1 suppliers as they have continued testing and proving our
patented horn and seat switch reliability. We have also developed new types of
products for our Bend Sensor® technologies and have received small repeat
production orders from our existing customers. We have made improvements on our
initial prototype for a Home Monitoring Presence Detection System using our Bend
Sensor® technologies and have received development and design orders from
various industries including the military. In addition, we continue working
with significant market makers and Tier 1 automotive suppliers in the U.S. and
Europe on numerous other applications for our sensors and devises. Once we
receive our UL certification we will be able to complete at least two production
contracts that should provide a continued source of revenue over the next
several years.
We have developed and are in the final stages of testing a specialty sensor for
an undisclosed disposable medical device for a company. The estimated volumes
quoted for this device are between 500,000 to 1 million sensors annually. The
application will use a sensor that is an adaptation of a sensor that we already
have commercially available; therefore the additional cost associated with the
development of this application has been marginal. We have received and
completed the initial purchase order from a company outside the United States to
complete the initial engineering and prototype build of a disposable directional
positioning sensor for colonoscopies. It is estimated that the annual demand for
colonoscopy ranges from 2.21 to 7.96 million procedures in the United States and
as the population continues to age more procedures will be required. One of the
difficulties with the procedure is providing an inexpensive means of locating
the exact position of the colonoscopes. With the use of our unique Bend Sensor®
array and monitoring equipment the initial testing has shown that with the our
technology it is possible to locate the positioning of the colonoscopes.
HTK Engineering, LLC continues to market their safety mechanism specifically
designed for garbage trucks and other large commercial vehicles. Most commercial
vehicles have an "air breaking system" which can lose pressure and disengage the
breaks while the vehicle is still running. Our Bend Sensor® technology is the
key component of the HTK system which provides a backup braking system
preventing the vehicle from inadvertently rolling into people, buildings or
other vehicles. Part of HTK's marketing effort has been to involve insurance
companies who
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have paid claims related to the initial break failure. Because the HTK system is
easily installed and adaptable to most vehicles insurance companies have
indicated they would provide a reduction in premiums should their customers
install the HTK system. There are over 179,000 garbage and recycling trucks in
use in the United States. HTK is also pursuing opportunities for the system
throughout Europe and Asia.
We have had multiple inquires, including a South African Company, regarding our
seat sensor system to monitor and track passengers as part of the Country's
study on urban mobility and the use of public transportation. The initial
testing included sensors that were configured to monitor taxi usage in a
specific location. Using the Bend Sensor® seat system the South African Company
was able to complete their demand and feasibility study with 100% accurate
information. Based upon this information Flexpoint is currently exploring the
possibility of developing a full "plug and play" version of this system for easy
installation in similar public transportation applications. With the increase in
the cost of gas and the uncertainty of fossil fuels there is a large and unmet
need for taxi and other public transportation efficiency systems world-wide.
We have an ongoing relationship with Monnit Corporation, a cutting edge supplier
of wireless sensing devises, we have jointly developed a versatile "plug and
play" Wireless Flex Sensor that can measure mechanical movement, air flow, water
flow, or even vibration. The device transmits this data wirelessly between
Monnit's local sensor network gateways and the iMonnit online data monitoring
system, which records sensor information and sends notifications via text or
email if user-defined conditions are met or exceeded. Through our relationship
Monnit and the jointly developed Wire Flex Sensor, we have introduced two new
products featuring Bend Sensor® technology. One is a seat sensor for occupancy
detection and monitoring, Wireless Seat Occupancy Sensor and the other is
designed to measure airflow in HVAC systems, Wireless Airflow Sensor. Both
products transmit data wirelessly to Monnit's online sensor monitoring and
alerting system, which can be easily accessed from any PC or smartphone, and
both target large industries with multiple practical applications. In an age of
smart phones and web based information Monnit's technology will help expedite
development of projects and enable us to pursue applications that traditional
wiring would have been costly and time consuming. Monnit is an established firm
with a host of major clients, including Walgreen's, 3M, HP and Accenture among
many others.
We have continued our efforts to complete a production contract with one of the
world's largest industrial firms over a security mat that uses Bend Sensor® to
track and differentiate traffic flow in and out of buildings or venues. Early
testing on the mat sensor has shown that it can differentiate between foot
traffic and other things like wheels on a dolly. Weight measurements can also be
fine-tuned to provide another layer of data for identification and security
purposes. Flexpoint is being represented in these discussions by an industry
insider with extensive experience. The mat can be used in everything from retail
stores to government buildings because the algorithms used to interpret data
from the Bend Sensor® technology can be configured for a variety of unique
applications. The technology can provide fine-tuned data to instantaneously
track and monitor building or venue traffic. There are some 12,000 government
properties in the U.S. and hundreds of thousands of venues and other heavy
traffic facilities that could use this technology.
In management's opinion the desire of U.S. manufacturers to have lighter weight
more fuel efficient cars have proven to be to our advantage. Our Bend Sensor® is
lighter in weight, has fewer moving parts than conventional sensing devices that
are currently being used by automobile manufacturers and is more versatile. Due
to its unique design the Bend Sensor® is also more cost effective. Product and
design changes in the automotive industry are slow, averaging two to three years
before actually being incorporated into a commercially viable automotive
platform. Because of our recent work with several Tier 1 suppliers, we have
shown the Bend Sensor® as the next generation of sensing devises to the
industry. Due to the advanced technology of the Bend Sensor® and its versatility
of applications we believe we anticipate being a part of the changes needed in
the automotive, energy and technological industries.
Over the past two years our patented "horn pad" sensor has gone through key
testing validations with Navistar International Corporation, an auto industry
veteran We have been informed that the "horn pad" is slated for implementation
once the next generation of the truck electronic architecture is completed. This
certification and testing process is similar to the process required by other
manufacturers, and allows the Company to move forward with its marketing of the
"horn pad" as a fully integrated automotive component to other manufacturers of
heavy trucks including, but not limited to, Kenworth, Volvo and Peterbilt.
In addition to the testing of the our "horn pad" we standardized and broadened
our electronic board interfaces that will significantly streamline the
integration of our sensor arrays into existing computer monitoring systems and
other electronic components. The standardization will help the Company to
strengthen is competitive position within the automotive and other industries
while building a broader customer base.
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We continue to manufacture products for Intertek Industrial Corp. Their ProTek
System is an automotive seat monitoring device integrated into emergency
response vehicles. This monitoring device places the Company's Bend Sensors® in
each rear passenger seat with a monitor viewable to the vehicle's driver. The
foolproof system informs the driver if the emergency medical technicians are
seated and properly secured prior to departure and while the vehicle is in
motion. The system is installed in the seats of the rear compartments of the
emergency vehicle and provides the driver with constant feedback as to the
"seated and secured" status of passengers and personnel in the rear of the
vehicle. The system is currently installed in ambulances and is being tested for
use in other types of emergency vehicles. Through its relationship with Intertek
the Company has validated its technology as a useful reliable safety devise
and is currently working with other companies on similar systems for buses,
cabs and heavy equipment operators to ensure the safety of their passengers and
drivers. A national surge in ambulance accidents has called for increased safety
standards for emergency vehicles. Due to the rise in injuries and fatalities
that result from these accidents, the National Fire Protection Association
(NFPA) has taken on the task of rewriting the ambulance standard. As a result
there is currently national legislation proposed that could take effect as early
as 2013. The proposed legislation could require all emergency vehicles be
equipped with a safety system similar to Intertek's Pro Tek System, which will
give Intertek a significant competitive advantage being first to market with an
already proven system that will meet the legislative requirements.
Using our Bend Sensor® technology the Company has developed a patented medical
bed. Because of the Bend Sensor's® predictability the accompanying electronics
of the bed are able to determine the position of the person in the bed and how
they are moved. The bed has the ability to roll a patient left or right to
relieve pressure areas that can cause bed sores or other life threatening
complications for patients that are bed ridden as well as facilitate dressing
changes. Needed adjustments can be programmed into the bed to relieve pressure
areas to meet the required standards for patient care and comfort. The entire
integrated system will also record the movements providing a chronological
record of patient care. Our Bend Sensor® technology has many other medical
applications that the Company is pursuing.
The Company anticipates marketing a similar bed as part of an in-home specialty
mattress. The specialty (non-innerspring) segment of the bedding market has been
growing rapidly over the past six to seven years. With the increasing demand of
specialty mattresses almost every commercial mattress company has a specialty
bed they promote. The Company has had some discussions with mattress companies
who have expressed interest in the concept. In June 2010 the Company initiated
legal action against R&D Products, LLC, the joint developer of the medical bed,
and at this time management is unsure of the effect that this action may have on
our relationship with R&D Products and its Licensee of the medical bed
application of the Bend Sensor® technology (See Note 7 of the financial
statements).
Although so far the volumes for our applications and devises have been
relatively small we continue to receive follow up orders for the universal
sensor that we jointly developed last year. We expect to receive additional
orders from other customers for this sensor as it becomes more recognizable in
the market. Currently our customers for this type of sensor include companies in
the following industries; automobiles, trucking, busing, emergency vehicles,
taxi cabs, public transportation, military and other governmental entities. As
anticipated, the Company is beginning to see the potential for more significant
volumes and revenues from the sale of this sensing devise over the next year and
beyond.
Finalizing additional long-term revenue generating production contracts with
other customers remains our greatest challenge because our on-going business is
dependent on the types of revenues and cash flows generated by such contracts.
Cash flow and cash requirement risks are closely tied to and are dependent upon
our ability to attract significant long-term production contracts. In the short
term we must continue to obtain funding to operate and expand our operations so
that we can deliver our unique Bend Sensor® and Bend Sensor® related
technologies and products to the market. Management believes that even though
we have made positive strides forward with our business plan, it is likely that
significant progress may not occur for the next three to six months, primarily
due to the time it takes for negotiating such contracts. Accordingly, we cannot
guarantee that we will realize significant revenues or that we will become
profitable over the next six to nine months.
In 2010 we entered into a Technology Development Agreement with Design HMi, LLC,
which has extensive experience, contact and knowledge involving product design
and development in the automotive industry. This relationship has opened
additional automotive opportunities for the implementation of the Bend Sensor®
technology for the automotive industry that should be realized over the next
three to six months.
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On October 7, 2011 we entered into a joint venture and marketing agreement with
Victor S.r.l of Italy ("Victor"). The agreement includes provisions to jointly
develop custom sensors to be used in Victor's RimSense Technology. Victor is a
30-year-old diversified company located in Verona, Italy. Victor has grown from
the hand-crafting steering wheel company in to one that offers a wide range of
products for the automotive, truck and marine industries.
On November 1, 2011 we announced our recently executed Marketing and Agency
Agreement with Mobicon Electronic Supplies Company to market Flexpoint's sensors
and specialty products in China and Asia. Mobicon was established in 1983 and
initially engaged in the retail and wholesale business of electronic and
computer components. Mobicon's business has a global reach in the distribution
of electronic components, equipment, automation, computer and computer
accessories and has over 5000 customers located in 72 countries.
Management believes the validation by Navistar of our "horn pad" and the
standardization of our electronics strengthens our relationship with Victor and
Mobicon Marketing and positions the Company to be able to leverage these
relationships to open additional markets for our products and technology, build
a solid customer base and drive revenue generation for the future. As we have
developed fully integrated devises that have applications across various
marketing channels we have hired a sales and marketing person who is responsible
to expand our existing customer base.
LIQUIDITY AND CAPITAL RESOURCES
Our revenue is primarily from design, contract, testing and limited production
services and is not to a level to support our operations. Over the past
twenty-four months we have relied on the proceeds of various convertible notes
and lines of credit to fund our operations. These notes and lines of credit are
generally secured escrowed restricted shares of our common stock and most have
been paid in full through the release of the escrowed shares. Management
anticipates that we may not realize significant revenue within the next six to
nine months.
On November 2, 2010 the Company secured a $500,000 line of credit from Maestro
Investments. LLC. Under the terms and conditions of the line of credit the
Company can draw against the line as needed to fund operations. The line has a
fixed interest rate of 12% per annum and the principle amount of all draws and
outstanding interest is due and payable on or before December 31, 2012. Over the
twelve months ending December 31, 2011 the Company drew down the entire line of
credit to fund its operations. On April 10, 2012 the Board of Directors
authorized the issuance of 2,500,000 restricted common shares to retire the full
amount due from the line of credit including accrued interest. The debt was
converted at a rate of $0.20 per share and the fair market value of the shares
was $0.09 per share on the date of conversion. This resulted in a gain on
conversion of debt of $323,248 that was recognized during the three months ended
June 30, 2012.
During the first and second quarter of 2012 we issued additional promissory
notes in the amount of $312,565. The notes have an annual interest rate of 10%
and a conversion feature for the Company's restricted common stock ranging from
$0.08 to $0.15 per share. The notes had varying maturity dates and were due and
payable, including any outstanding interest, between June 30, 2012 and December
31, 2012
During the three months ending September 30, 2012, the Company secured two lines
of credit for $300,000 each, to fund the Company's operations. The lines of
credit have an annual interest rate of 10% and a conversion feature ranging from
$0.08 to $0.10 and are secured by 6,375,000 restricted shares of the Company's
common stock held in escrow. One line of credit will mature on December 31, 2012
and the other on June 30, 2013.
One line was fully drawn down to condense and consolidate the promissory notes
issued from January through June 2012. As of September 30, 2012 the Company had
drawn $125,000 of the second line of credit to fund operations.
As of September 30, 2012 we have $825,141 in current liabilities, including
$477,525 in notes payable related to the lines of credit and notes issued to
existing shareholders. Of the $262,567 in total accounts payable over $237,000
are related to legal and accounting fees associated with the litigation
described in Note 7 of the financial statements. Management believes they have
a strong case against R&D et al, and that most, if not all, of the legal and
accounting will be eliminated once the litigation is resolved. In the short-term
we will continue to fund our operations through various stockholder notes or
lines of credit.
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Management believes that our current cash burn rate is approximately $50,000 per
month and the proceeds from the convertible notes, lines of credit and our
engineering and design fees will not totally fund our anticipated growth in
operations. We will therefore need to raise additional financing. We believe
that this additional financing will provide the needed capital to extend
operations to the development and production of our growing product offerings
and growing manufacturing opportunities. However, we may not be able to obtain
financing, or the sources of financing, if any, may not continue to be
available, and if available, they may be on terms unfavorable to us.
As we enter into new technology agreements in the future, we must ensure that
those agreements will provide adequate funding for any pre-production research
and development and manufacturing costs. As we are successful in establishing
agreements with adequate initial funding, management believes that our
operations for the long term will be funded by revenues, licensing fees and
royalties related to such agreements. However, other than the joint marketing
agreements, that we believe will provide future revenues, we have not formalized
any agreements during the past year and there can be no assurance that the
agreements we currently have will come to fruition in the near future or that a
desired technological application can be brought to market on a commercially
viable basis.
FINANCIAL OBLIGATIONS AND CONTINGENT LIABILITIES
Our principal commitments at September 30, 2012 consist of our operating lease
of $7,950 per month, and total liabilities of $825,174 which includes $477,525
of convertible notes payable. Under the terms of our operating lease the average
monthly payments are $8,450, including common area maintenance through December
31, 2014. The total future minimum payments under this lease as of September 30,
2012 are $232,650.
On August 8, 2011 the Company issued a promissory note for $40,000 to an
existing shareholder. The note has an annual interest rate of 10% and is secured
by the Company's equipment. The principle amount of the note, and all accrued
interest is due and payable on or before July 31, 2012 and has a conversion
feature for restricted common shares at $0.20 per share. Management is
negotiating to extend or convert that matured on in July of this year.
.
On April 15, 2012 the Company issued a promissory note for $202,397.
Consolidating and canceling the $50,000 notes issued in January, February and
March 2012, and received an additional $50,000 in proceeds from the new note to
help fund operations. The note has an annual interest rate of 10% and is secured
by the Company's equipment. The principle amount of the note, and all accrued
interest is due and payable on or before December 31, 2012 and has a conversion
feature for restricted common shares at $0.10 per share.
On May 16, 2012 the Company issued a promissory note for $50,000. The note has
an annual interest rate of 10% and is secured by the Company's equipment. The
principle amount of the note, and all accrued interest is due and payable on or
before December 31, 2012 and has a conversion feature for restricted common
shares at $0.10 per share.
On June 18, 2012 the Company issued a promissory note for $50,000. The note has
an annual interest rate of 10% and is secured by the Company's equipment. The
principle amount of the note, and all accrued interest is due and payable on or
before December 31, 2012 and has a conversion feature for restricted common
shares at $0.10 per share.
Our total current liabilities include accounts payable of $262,567 related to
normal operating expenses, including health insurance, utilities, production
supplies, travel expense, and expenses for professional fees.
Accrued liabilities at September 30, 2012, were $85,082 and were related to
payroll, payroll tax liabilities, accrued professional expenses, accrued
insurance expense, accrued interest expense on notes and accrued paid time off.
OFF-BALANCE SHEET ARRANGEMENTS
Other than our current operating lease identified in Note 6 to the financial
statements, above, we have not entered into any off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources and
would be considered material to investors.
16
--------------------------------------------------------------------------------CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Estimates of particular
significance in our financial statements include goodwill and the annual tests
for impairment of goodwill and long-lived assets and valuing stock option
compensation.
The Company's goodwill represents the excess of its reorganization value over
the fair value of the net assets upon emergence from bankruptcy. Goodwill is not
amortized, therefore we test our goodwill for impairment annually or when a
triggering event occur using a fair value approach. A fair value based test is
applied at the overall Company level. The test compares the fair value of the
Company to the carrying value of its nets assets. The test requires various
judgments and estimates. During the nine months ended September 30, 2011, the
Company recorded an impairment charge of $250,757 to reduce the carrying value
of the goodwill to its estimated fair value. As part of the impairment testing,
the Company considered factors such as the global market volatility, variables
in the economy, and the overall uncertainty in the markets which has resulted in
a decline in the market price of the Company's stock price and market
capitalization for a sustained period, as indicators for potential goodwill
impairment. The analysis for the impairment test for the six months ended June
30, 2012 compared the carrying value of the Company's net assets to the
estimated fair value of the overall Company, and the projected net cash flows of
the Company over the next three years, based upon our analysis no additional
impairment was recognized during the three months ended September 30, 2012.
We test long-lived assets for impairment quarterly or when a triggering event
occurs. Impairment is indicated if undiscounted cash flows are less than the
carrying value of the assets. The amount of impairment is measured using a
discounted-cash-flows model considering future revenues, operating costs and
risk-adjusted discount rate and other factors. The analysis compares the present
value of projected net cash flows for the remaining current year and next two
years against the carrying value of the long-lived assets. If the carrying
values of the long lives assets exceed the present value of the discounted
projected revenues an impairment expense would be recognized in the period and
the carrying value of the assets would be adjusted accordingly. Under similar
analysis no impairment charge was taken during the three month period ended
September 30, 2012. Impairment tests will be conducted on a quarterly basis and,
should they indicate a carrying value in excess of fair value, additional
charges may be required.
Financial accounting standards require that recognition of the cost of employee
services received in exchange for stock options and awards of equity instruments
be based on the grant-date fair value of such options and awards and is
recognized as an expense in operations over the period they vest. The fair value
of the options we have granted is estimated at the date of grant using the
Black-Scholes American option-pricing model. Option pricing models require the
input of highly sensitive assumptions, including expected stock volatility.
Also, our stock options have characteristics significantly different from those
of traded options, and changes in the subjective input assumptions can
materially affect the fair value estimate. Management believes the best input
assumptions available were used to value the options and that the resulting
option values are reasonable. For the nine month periods ended September 30,
2012 and 2011 we recognized $0.00 and $13,242, respectively, of stock-based
compensation expense for our stock options and there is no additional
unrecognized compensation cost related to employee stock options at the current
time.
RESULTS OF OPERATIONS
The following discussions are based on the consolidated operations of Flexpoint
Sensor Systems, Inc. and its subsidiaries and should be read in conjunction with
our unaudited financial statements for the three and nine months ended September
30, 2012 and 2011, included in Part I, Item 1, above, and the audited financial
statements included in the Company's annual report on Form 10-K for the years
ended December 31, 2011 and 2010.
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Three month period ended Nine month period ended
Sept. 30, 2012 Sept. 30, 2011 Sept. 30, 2012 Sept. 30, 2011
Design, contract and testing revenue $ 13,837 $ 18,616
$ 40,711 $ 51,664
Total operating costs and expenses 245,632 353,145 826,230 1, 333,396
Net other income (expense) (9,994) (11,664) 285,745 (17,750)
Net loss (241,789) (346,193) (499,774) (1,299,482)
Basic and diluted loss per common share $ (0.01) $ (0.01)
$ (0.01) $ (0.04)
For the three months ending September 30, 2012 revenue decreased by $4,779
compared to the same period in 2011 and revenues decreased by $10,953 for the
nine months ending September 30, 2012 compared to the nine months ending
September 30, 2011. The decrease in revenue is due to the Company concentrating
its marketing strategy and resources on a limited number of customers.
Management believes this approach has the highest potential to bring long term
commercially viable products to market during balance of 2012 and beyond, and
will provide sustainable cash flow to fund the Company's operations in the
future. Currently, overall revenues are not sufficient to sustain our
operations. But management anticipates that revenues will increase as we
continue to execute our long-term business plan and cultivate larger customer
base with our existing product offering. However until a long-term production
contract is in place there is no guarantee that our current customer base will
order in sufficient volumes to sustain our operations. Therefore management
continues to work with larger companies and industries and is hopeful that in
the near future will sign a long-term licensing or manufacturing contract.
Revenue for the three and nine months ending September 30, 2012 and 2011 was
from design contract, development engineering and limited production. Revenue
from research and development engineering contracts is recognized as the
services are provided and accepted by the customer. Revenue from contracts to
license technology to others is deferred until all conditions under the contract
are met and then the sale is recognized as licensing royalty revenue over the
remaining term of the contract. Revenue from the sale of a product is recorded
at the time of shipment to the customer.
Of the $245,632 and $826,230 total operating costs and expense for the three and
nine months ending September 30, 2012, $60,648 and $192,824 were for direct
research and development cost, respectively. Of the $353,145 and $1,333,396
total operating cost and expense for the three and nine months ending September
30, 2011, $75,301 and $193,910 were for direct research and development cost,
respectively. For the three and nine months ending September 30, 2012, total
operating expenses decreased by $107,479 and $507,133 when compared to the same
periods in 2011. The decrease in operating expenses for the three and nine month
periods was partially due to fully expensing the non-cash compensation to
employees associated with stock options issued during the 2011, and further
reduction in compensation taken by the President of the Company to preserve
cash.
On April 10, 2012 the Company issued 2,500,000 restricted shares of its common
stock at $0.20 per share and retired $500,000 in debt. At the time of issuance
the market value of the shares was $0.09. This resulted in a non- cash gain on
the issuance of $323,249. The gain represents the difference between the market
value of the shares issued to the conversion price. Due to the non-cash gain
recognized on the conversion the Company recorded net income of $20,004 during
the three months ending September 30, 2012, compared to a net loss of $354,784
during the same three month period in 2011. Due to minimal revenues and overall
operating costs and expenses, the Company recorded a net loss and loss per share
for the three and nine months ending September 30, 2012 of $241,789 and
$499,774, respectively, compared to $346,193 and $1,299,482, respectively for
the same periods in 2011. Excluding the non cash gain of $323,249 recognized for
the conversion of stock the loss through the nine months ending September 30,
2012 would have been $823,023or $(0.02) net loss per share.
18
--------------------------------------------------------------------------------The chart below represents a summary of our condensed consolidated balance
sheets at September 30, 2012 and December 31, 2011
Sept. 30, 2012 December 31, 2011
Cash and cash equivalents $ 30,764 $ 7,294
Total current
assets 57,862 48,904
Total assets 5,834,728 5,967,705
Total liabilities 825,141 1,088,334
Deficit accumulated during the development
stage (18,897,194) (18,397,420)
Total stockholders' equity $ 5,009,587 $ 4,879,371
Cash and cash equivalents increased $23,470 at September 30, 2012 compared to
December 31, 2011. The increase in cash resulted from additional funding from
convertible notes and lines of credit during the nine months ending September
30, 2012. Our non-current assets decreased at September 30, 2012 due to the
depreciation and amortization of long-lived assets. These assets include
property and equipment valued at $150,114, net of depreciation; patents and
proprietary technology of $504,588, net of amortization; goodwill of $5,105,664
and long-term deposits of $16,500 associated with the facility operating lease
and pending patents.
Total liabilities decreased by $263,193 at September 30, 2012; the net decrease
was primarily due to the reduction in accrued liabilities of $191,807. The
reduction was due to the issuance of 3,624,600 shares of the Company's
restricted common stock in lieu of cash for investor relations and marketing
services, and the cancelation of $390,000 in Company debt. Accounts payable
increased slightly during the period due to attorneys' fees associated with our
current litigation (See Note 7 to the financial statements above).
INFLATION
We do not expect the impact of inflation on our operations to be significant for
the next twelve months.
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