Changes are Blacklined (====) -------------------------------------------------------------------------------- U.S. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-QSB-A == AMENDMENT NO. 2 = (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. ------------------------------------------------------------------ (Exact Name of Small Business Issuers as Specified in its Charter) Delaware 33-0750453 ------------------------ ------------------------------------ (State of Incorporation) (IRS Employer Identification Number) 10410 Trademark Street Rancho Cucamonga, CA 91730 ---------------------------------------- (Address of Principal Executive Offices) (909) 987-0456 ------------------------------------------------ (Issuer's Telephone Number, Including Area Code) __________________________________ 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] -------------------------------------------------------------------------------- AQUACELL TECHNOLOGIES, INC. FORM 1O-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 2004 TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Item 1. Financial Statements: PAGE Condensed Consolidated Balance Sheet as of September 30, 2004...... 1 Condensed Consolidated Statements of Operations for the three-month periods ended September 30, 2004 and 2003.............. 2 Condensed Consolidated Statements of Cash Flow for the three-month periods ended September 30, 2004 and 2003.............. 3 Notes to Condensed Consolidated Financial Statements............... 4 Item 2. Managements Discussion and Analysis................................ 6 Forward-Looking Statements Overview Results of Operations Liquidity and Capital Resources Item 3. Controls and Procedure............................................. 8 PART II - OTHER INFORMATION Item 2(C). Sales of Unregistered Securities................................... 9 Item 4. Submission of Matters to a Vote of Security Holders................ 9 Item 6. Exhibits and Reports on Form 8-K................................... 9 Signature..................................................................... 9 i PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AQUACELL TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET September 30, 2004 (Unaudited) ASSETS Current assets: Cash.......................................................... $ 203,000 Subscription receivable....................................... 44,000 Accounts receivable, net of allowance of $42,000.............. 51,000 Inventories................................................... 79,000 Prepaid expenses and other current assets..................... 46,000 ------------ Total current assets..................................... 423,000 ------------ Property, equipment and billboard coolers, net..................... 877,000 ------------ Other assets: Goodwill...................................................... 824,000 Patents, net.................................................. 75,000 Security deposits............................................. 16,000 ------------ Total other assets....................................... 915,000 ------------ $ 2,215,000 ============ LIABILITIES Current liabilities: Accounts payable.............................................. $ 444,000 Accrued expenses.............................................. 665,000 Preferred stock dividend payable.............................. 17,000 Customer deposits............................................. 20,000 Installment note payable...................................... 2,000 Current portion of deferred payable........................... 13,000 ------------ Total current liabilities................................ 1,161,000 Deferred payable, net of current portion........................... 460,000 ------------ Total liabilities........................................ 1,621,000 ------------ Commitments and contingencies STOCKHOLDERS' EQUITY: Preferred stock - Class A, par value $.00l; 1,870,000 shares authorized; 675,000 shares issued and outstanding........................... 1,000 Preferred stock, par value $.001; 8,130,000 shares authorized; no shares issued................................................ - Common stock, par value $.001; 40,000,000 shares authorized; 15,048,769 shares issued and outstanding........................ 15,000 Additional paid-in capital......................................... 20,918,000 Accumulated deficit................................................ (18,429,000) ------------ 2,505,000 Subscription receivable............................................ (5,000) Unamortized deferred compensation.................................. (1,906,000) ------------ Total stockholders' equity............................... 594,000 ------------ $ 2,215,000 ============ See notes to condensed consolidated financial statements. 1 AQUACELL TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended September 30, ------------------------------- 2004 2003 -------------- -------------- Revenue: Net sales.................................. $ 199,000 $ 201,000 -------------- -------------- Costs and expenses: Cost of sales.............................. 124,000 129,000 Salaries and wages......................... 288,000 299,000 Legal, accounting and other professional expenses.................... 52,000 65,000 Consulting fees and expenses- marketing research and development................. 24,000 - Fair value adjustment of derivative........ - 207,000 Stock based compensation................... 242,000 375,000 Other...................................... 337,000 255,000 -------------- -------------- 1,067,000 1,330,000 -------------- -------------- Loss from operations before other income (expense):.................... (868,000) (1,129,000) -------------- -------------- Other income (expense): Interest income............................ - 1,000 Interest (expense)......................... - - -------------- -------------- - 1,000 -------------- -------------- Net loss for the period......................... $ (868,000) $ (1,128,000) ============== ============== Weighted average share outstanding- basic and diluted.......................... 14,576,000 9,349,000 ============== ============== Loss attributable to common stockholders: Net loss................................... $ (868,000) $ (1,128,000) Preferred stock dividends.................. 9,000 16,000 -------------- -------------- Loss attributable to common stockholders... $ (877,000) $ (1,144,000) ============== ============== Net loss per common share.................. $ (0.06) $ (0.12) ============== ============== See notes to condensed consolidated financial statements. 2 AQUACELL TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended September 30, ------------------------------- 2004 2003 -------------- -------------- Cash flows from operating activities: Net loss........................................ $ (868,000) $ (1,128,000) Adjustment to reconcile net loss to net cash used in operating activities: Stock based compensation..................... 242,000 375,000 Fair value adjustment of derivative.......... - 207,000 Depreciation and amortization................ 6,000 13,000 Changes in: Accounts receivable.......................... - 10,000 Accrued interest receivable.................. - 7,000 Prepaid expenses and other current assets.... 7,000 (35,000) Inventories.................................. 15,000 (150,000) Accounts payable............................. (138,000) (226,000) Accrued expenses............................. (41,000) 37,000 Customer deposits............................ (41,000) 6,000 -------------- -------------- Net cash used in operating activities...... (818,000) (884,000) -------------- -------------- Cash flows from investing activities: Collections on notes receivable.............. - 68,000 Payments on note issued for purchase of property and equipment..................... (1,000) (1,000) Capital expenditures......................... (84,000) (1,000) -------------- -------------- Net cash provided by (used in) investing activities..................... (85,000) 66,000 -------------- -------------- Cash flows from financing activities: Proceeds from private placements of common stock............................... - 2,555,000 Expenses of offerings........................ - (259,000) Preferred stock dividend paid................ - (12,000) Exercise of stock options.................... - 27,000 Proceeds (repayments) of loans from related parties............................ - (25,000) Proceeds from subscriptions receivable....... 40,000 - Proceeds from exercise of commons stock warrants................................... 209,000 - Expense of warrant exercise.................. (3,000) - -------------- -------------- Net cash provided by financing activities.. 246,000 2,286,000 -------------- -------------- Increase (decrease) in cash..................... (657,000) 1,468,000 Cash, beginning of period....................... 860,000 32,000 -------------- -------------- Cash, end of period............................. $ 203,000 $ 1,500,000 ============== ============== Supplemental disclosure of cash flow information: Cash paid for interest $ - $ - Supplemental schedule of non-cash investing and financing activities: Issuance of common stock warrants for services to the company................................ $ 91,000 $ 2,564,000 Subscription receivable for conversion of warrants...................................... $ 49,000 $ - Dividends payable on preferred stock............ $ 9,000 $ 16,000 See notes to condensed consolidated financial statements. 3 AQUACELL TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2004 (Unaudited) NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements include the accounts of AquaCell Technologies, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the three months ended September 30, 2004 are not necessarily indicative of the results to be expected for the full year. For further information, refer to the Company's annual report filed on Form 10-KSB for the year ended June 30, 2004. At September 30, 2004 the Company's ability to continue as a going concern, for the reasons outlined on the 10-KSB filed for the year ended June 30, 2004, still existed. During the quarter ended September 30, 2004 the Company successfully obtained external financing through exercise of warrants and plans to continue to raise capital through the sale or exercise of equity securities on a just in time basis. NOTE B - INVENTORIES Inventories consist of the following at September 30, 2004: Raw materials........................................... $ 50,000 Work in progress........................................ 23,000 Finished goods.......................................... 6,000 ----------- $ 79,000 =========== NOTE C - PROPERTY, EQUIPMENT AND BILLBOARD COOLERS Property and equipment is summarized as follows at September 30, 2004: Billboard coolers, including parts...................... $ 853,000 Furniture and fixtures.................................. 36,000 Equipment - office...................................... 102,000 Machinery and equipment................................. 127,000 Rental units............................................ 9,000 Leasehold improvements.................................. 10,000 Truck................................................... 11,000 ----------- 1,148,000 Less accumulated depreciation........................... 271,000 ----------- $ 877,000 =========== 4 AQUACELL TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2004 (Unaudited) NOTE D - DEFERRED PAYABLE At September 30, 2004, the deferred payable represented the balance due to a private company for the return and cancellation of all exclusive distribution and marketing rights previously held under a distribution agreement. This amount is payable solely from 5% of the future revenues to be generated by our Global Water-Aquacell subsidiary. NOTE E - EQUITY TRANSACTIONS During August 2004 the Company amended a February 2004 consulting agreement to provide for additional compensation of 100,000 common shares. These shares were valued at $66,000 based upon closing market price at the date of issuance. Such amount will be amortized to expense over the remaining term of the agreement. Amortization amounted to $4,000 for the quarter ended September 30, 2004. During August 2004 the Company issued 50,000 common stock purchase warrants at a price of $.66 per share in connection with performance under an existing consulting agreement. These warrants were valued at $25,000 utilizing the Black Scholes valuation method. Such amount will be amortized over a period of 31 months. Amortization amounted to $2,000 for the quarter ended September 30, 2004. During September 2004 the Company issued an aggregate of 457,000 shares of common stock in connection with the repricing of 457,000 common stock purchase warrants issued in previously completed private placements. Warrants with exercise prices of $2.00 and $4.00 were repriced to $.70 and $.56. The Company realized gross proceeds of $286,000 and expenses were $32,000 in connection with the repricings. New common stock purchase warrants were issued for 247,000 shares of common stock exercisable at $.90 per share and 210,000 shares of common stock exercisable at $.95 per share and an additional 210,000 shares of common stock exercisable at $4.00 per share. NOTE F - CONCENTRATION OF CREDIT RISK The Company's financial instruments that are exposed to concentration of credit risk consists of cash. Such amounts are in excess of FDIC insurance limits. NOTE G - SUBSEQUENT EVENTS During October and November 2004 the Company issued an aggregate of 693,000 shares in connection with the repricing of outstanding warrants. The Company realized gross proceeds of $434,000 in connection with the repricing. 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements When used in this Form 10-QSB and in future filings by the Company with the Commission, statements identified by the words "believe", "positioned", "estimate", "project", "target", "continue", "will", "intend", "expect", "future", "anticipates", and similar expressions express management's present belief, expectations or intentions regarding the Company's future performance within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on any such forward-looking statements, each of which speaks only as of the date made. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company has no obligations to publicly release the result of any revisions which may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements. 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. 6 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 During the three months ended September 30, 2004 on a consolidated basis, revenues were $199,000 as compared to $201,000 for the similar period of the preceding year. On a consolidated basis cost of sales was 62% for the quarter ended September 30, 2004 as compared to 64% for the same quarter of the prior year. Net loss on a consolidated basis, attributable to common stockholders, for the three months ended September 30, 2004 was $877,000 or $0.06 per share, as compared to $1,144,000 or $.12 per share for the same period of the prior year. The decrease in the loss is primarily attributable to the decrease in fair value adjustment of derivative in the amount of $207,000. Salaries and wages decreased by $11,000 for the quarter ended September 30, 2004 over the prior year. Legal, accounting and other professional expensed decreased by approximately $13,000 for the quarter ended September 30, 2004. Stock based compensation decreased by $133,000 to $242,000 for the quarter ended September 30, 2004. Other selling, general and administrative expenses, consisting primarily of rent - $49,000, telephone and utilities- $17,000, travel- $21,000, business promotion- $22,000, insurance- $37,000, and vehicle expenses-$25,000 increased by approximately $82,000 to $337,000 for the quarter ended September 30, 2004. 7 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. ===== 8 PART II. OTHER INFORMATION ITEM 2(C). SALES OF UNREGISTERED SECURITIES During September 2004 the Registrant repriced and sold 222,300 Common Stock Purchase Warrants to 4 accredited investors pursuant to the exemption provided by Regulation D, Rule 505, and Section 4(2) of the Securities Act of 1933, as amended. New Common Stock Purchase Warrants were issued to the investors at prices ranging from $.90 to $4.00. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. 31.1 CEO's Certification Pursuant to Rule 13a-14(a)/ 15d-14(a) 31.2 CFO's Certification Pursuant to Rule 13a-14(a)/ 15d-14(a) 32 Certification Pursuant to 18 U.S.C. Section 1350 (b) Reports on Form 8-K. None SIGNATURE In accordance with the requirements of the Exchange Act, the Registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. AquaCell Technologies, Inc. ----------------------------------- Registrant Date: August 10, 2005 /s/ Gary S. Wolff =============== ----------------------------------- Name: Gary S. Wolff Title: Chief Financial Officer 9