x |
Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
|
o |
Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
|
For
the transition period from __________ to
__________
|
Delaware
|
77-0262908
|
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
(IRS
Employer Identification Number)
|
3590
East Columbia Street
Tucson,
Arizona
|
85714
|
|
(Address
of Principal Executive
Offices)
|
(Zip
Code)
|
Large
accelerated filer: o
|
Accelerated
filer: x
|
|
Non-accelerated
filer: o
|
Smaller
reporting company: o
|
||
(Do
not check if a smaller reporting company)
|
PART
I. FINANCIAL
INFORMATION
|
||||
ITEM 1. Condensed
Consolidated Financial Statements
|
||||
Condensed
Consolidated Balance Sheets as of September 30, 2008 (Unaudited)
and
December 31, 2007
|
1
|
|||
Condensed
Consolidated Statements of Operations for the three months ended
September
30, 2008 and 2007 (Unaudited)
|
2
|
|||
Condensed
Consolidated Statements of Operations for the nine months ended
September
30, 2008 and 2007 (Unaudited)
|
3
|
|||
Condensed
Consolidated Statements of Cash Flows for the nine months ended
September
30, 2008 and 2007 (Unaudited)
|
4
|
|||
Notes
to Condensed Consolidated Financial Statements
|
5
|
|||
ITEM
2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
13
|
|||
|
|
|||
ITEM
4. Controls
and Procedures
|
16
|
|
||
|
||||
PART
II. OTHER
INFORMATION
|
||||
|
||||
ITEM
2. Unregistered
Sales of Equity Securities and Use of Proceeds
|
17
|
|||
|
||||
ITEM
6. Exhibits
|
17
|
|||
|
||||
SIGNATURES
|
18
|
September
30, 2008
|
December
31, 2007
|
||||||
(Unaudited)
|
|||||||
ASSETS
|
|||||||
Current
assets
|
|||||||
Cash
and cash equivalents
|
$
|
8,449,212
|
$
|
14,981,192
|
|||
Accounts
receivable
|
4,071,551
|
3,264,968
|
|||||
Inventory
|
2,084,263
|
1,468,391
|
|||||
Prepaid
expenses and deposits
|
173,060
|
445,832
|
|||||
Other
receivables
|
47,151
|
59,983
|
|||||
Total
current assets
|
14,825,237
|
20,220,366
|
|||||
Securities
available for sale - net
|
7,030,000
|
7,500,000
|
|||||
Long
term receivables - net
|
253,130
|
-
|
|||||
Property
and equipment - net
|
3,555,158
|
1,600,887
|
|||||
Intangible
assets - net
|
49,200
|
86,100
|
|||||
Other
assets
|
37,935
|
59,517
|
|||||
TOTAL
ASSETS
|
$
|
25,750,660
|
$
|
29,466,870
|
|||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
Current
liabilities
|
|||||||
Accounts
payable
|
$
|
935,995
|
$
|
1,148,266
|
|||
Accrued
expenses
|
506,302
|
516,589
|
|||||
Accrued
compensation
|
1,067,585
|
1,060,603
|
|||||
Customer
deposits
|
1,064,600
|
936,373
|
|||||
Billings
in excess of costs
|
20,530
|
-
|
|||||
Current
portion of capital lease obligations
|
4,491
|
13,937
|
|||||
Total
current liabilities
|
3,599,503
|
3,675,768
|
|||||
Capital
lease obligations
|
-
|
2,028
|
|||||
Deferred
rent
|
5,025
|
125,814
|
|||||
Total
liabilities
|
3,604,528
|
3,803,610
|
|||||
Commitments
and contingencies
|
|||||||
Stockholders’
equity
|
|||||||
Series
A Convertible Preferred stock, $.001 par value, 2,000,000
shares
authorized;
650,672 shares issued and outstanding at September 30, 2008
and
690,000 shares issued and outstanding at December 31, 2007
|
651
|
690
|
|||||
Common
stock, $.001 par value, 125,000,000 shares authorized;
81,078,499
shares issued and outstanding at September 30, 2008 and
80,244,617
shares issued and outstanding at December 31, 2007
|
81,079
|
80,245
|
|||||
Additional
paid-in capital
|
69,881,952
|
66,344,066
|
|||||
Accumulated
deficit
|
(47,447,550
|
)
|
(40,761,741
|
)
|
|||
Accumulated
other comprehensive loss
|
(370,000
|
)
|
-
|
||||
Total
stockholders’ equity
|
22,146,132
|
25,663,260
|
|||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
25,750,660
|
$
|
29,466,870
|
For
the three months ended
September
30,
|
|||||||
2008
|
2007
|
||||||
Revenue
|
$
|
4,014,302
|
$
|
3,608,584
|
|||
Cost
of revenue
|
3,789,962
|
5,641,565
|
|||||
Gross
profit (loss)
|
224,340
|
(2,032,981
|
)
|
||||
Operating
expenses:
|
|||||||
General
and administrative
|
1,647,366
|
2,851,179
|
|||||
Selling
and marketing
|
61,565
|
76,340
|
|||||
Research
and development
|
359,807
|
548,895
|
|||||
Total
operating expenses
|
2,068,738
|
3,476,414
|
|||||
Operating
loss
|
(1,844,398
|
)
|
(5,509,395
|
)
|
|||
Other
(expense) income
|
|||||||
Interest
expense
|
(388
|
)
|
(453
|
)
|
|||
Interest
income
|
123,558
|
341,872
|
|||||
Total
other
|
123,170
|
341,419
|
|||||
Net
loss
|
(1,721,228
|
)
|
(5,167,976
|
)
|
|||
Preferred
stock dividends
|
(277,274
|
)
|
(295,105
|
)
|
|||
Net
loss attributable to common stockholders
|
$
|
(1,998,502
|
)
|
$
|
(5,463,081
|
)
|
|
Net
loss per common share – basic and diluted
|
$
|
(0.02
|
)
|
$
|
(0.07
|
)
|
|
Weighted
average number of shares outstanding, basic and diluted
|
80,628,098
|
79,107,767
|
For
the nine months ended
September
30,
|
|||||||
2008
|
|
2007
|
|||||
Revenue
|
$
|
11,653,390
|
$
|
8,828,367
|
|||
Cost
of revenue
|
10,719,524
|
10,989,077
|
|||||
Gross
profit (loss)
|
933,866
|
(2,160,710
|
)
|
||||
Operating
expenses:
|
|||||||
General
and administrative
|
6,170,107
|
7,514,464
|
|||||
Selling
and marketing
|
173,003
|
331,155
|
|||||
Research
and development
|
965,017
|
856,722
|
|||||
Total
operating expenses
|
7,308,127
|
8,702,341
|
|||||
Operating
loss
|
(6,374,261
|
)
|
(10,863,051
|
)
|
|||
Other
(expense) income
|
|||||||
Interest
expense
|
(1,940
|
)
|
(1,941
|
)
|
|||
Interest
income
|
539,166
|
1,079,841
|
|||||
Other
|
10
|
7,847
|
|||||
Total
other
|
537,236
|
1,085,747
|
|||||
Net
loss
|
(5,837,025
|
)
|
(9,777,304
|
)
|
|||
Preferred
stock dividends
|
(854,585
|
)
|
(885,326
|
)
|
|||
Net
loss attributable to common stockholders
|
$
|
(6,691,610
|
)
|
$
|
(10,662,630
|
)
|
|
Net
loss per common share – basic and diluted
|
$
|
(0.08
|
)
|
$
|
(0.14
|
)
|
|
Weighted
average number of shares outstanding, basic and diluted
|
80,416,412
|
78,677,306
|
For
the nine months ended
September
30,
|
|||||||
2008
|
2007
|
||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|||||||
Net
loss
|
$
|
(5,837,025
|
)
|
$
|
(9,777,304
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|||||||
Depreciation
and amortization
|
650,136
|
756,877
|
|||||
Loss
on equipment disposal
|
-
|
76,767
|
|||||
Deferred
rent adjustment on purchase of premises
|
118,594
|
-
|
|||||
Provision
for losses on projects
|
94,953
|
1,165,854
|
|||||
Non-cash
stock based compensation expense
|
2,965,334
|
2,809,980
|
|||||
Changes
in assets and liabilities:
|
|||||||
Accounts
receivable
|
(806,583
|
)
|
(1,237,387
|
)
|
|||
Other
receivable
|
12,832
|
1,681
|
|||||
Inventory
|
(710,825
|
)
|
211,678
|
||||
Prepaid
expenses and deposits
|
294,354
|
491,832
|
|||||
Long
term receivables - net
|
(253,130
|
)
|
-
|
||||
Accounts
payable
|
(212,271
|
)
|
688,879
|
||||
Billings
in excess of costs
|
20,530
|
-
|
|||||
Accrued
expenses, deposits and deferred rent
|
4,133
|
(60,589
|
)
|
||||
Net
cash used in operating activities
|
(3,658,968
|
)
|
(4,871,732
|
)
|
|||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|||||||
Purchase
of land, building and equipment
|
(2,686,101
|
)
|
(385,404
|
)
|
|||
Proceeds
from sale of available-for-sale marketable securities
|
100,000
|
-
|
|||||
Proceeds
from disposal of equipment
|
-
|
17,180
|
|||||
Net
cash used in investing activities
|
(2,586,101
|
)
|
(368,224
|
)
|
|||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|||||||
Dividends
paid (preferred stock)
|
(275,437
|
)
|
-
|
||||
Exercise
of stock options and warrants
|
-
|
113,837
|
|||||
Principal
payments on capital lease obligations
|
(11,474
|
)
|
(55,606
|
)
|
|||
Net
cash (used in) provided by financing activities
|
(286,911
|
)
|
58,231
|
||||
Net
decrease in cash and cash equivalents
|
(6,531,980
|
)
|
(5,181,725
|
)
|
|||
Cash
and cash equivalents, beginning of period
|
14,981,192
|
22,123,792
|
|||||
Cash
and cash equivalents, end of period
|
$
|
8,449,212
|
$
|
16,942,067
|
1. |
BASIS
OF PRESENTATION
|
2. |
ACCOUNTS
RECEIVABLE
|
September
30, 2008
|
December
31, 2007
|
||||||
Contracts
receivable
|
$
|
2,590,437
|
$
|
1,734,140
|
|||
Costs
and estimated earnings on uncompleted contracts
|
1,481,114
|
1,530,828
|
|||||
Total
|
$
|
4,071,551
|
$
|
3,264,968
|
Costs
and Estimated Earnings on Uncompleted Contracts
|
|||||||
September
30, 2008
|
December
31, 2007
|
||||||
Costs
incurred on uncompleted contracts
|
$
|
17,151,234
|
$
|
10,881,465
|
|||
Estimated
earnings
|
1,328,091
|
829,764
|
|||||
Total
billable costs and estimated earnings
|
18,479,325
|
11,711,229
|
|||||
Less:
|
|||||||
Billings
to date
|
17,018,741
|
10,180,401
|
|||||
|
|||||||
Total
|
$
|
1,460,584
|
$
|
1,530,828
|
|||
Included
in accompanying balance sheet:
|
|||||||
Unbilled
costs and estimated earnings on uncompleted contracts included
in accounts
receivable
|
|||||||
$
|
1,481,114
|
$
|
1,530,828
|
||||
Billings
in excess of costs and estimated earnings on uncompleted
contracts
|
(20,530
|
)
|
-
|
||||
Total
|
$
|
1,460,584
|
$
|
1,530,828
|
3. |
INVENTORY
|
September
30, 2008
|
|
December
31, 2007
|
|||||
Raw
materials
|
$
|
192,778
|
$
|
213,645
|
|||
Work-in-process
|
1,891,485
|
1,254,746
|
|||||
Total
|
$
|
2,084,263
|
$
|
1,468,391
|
4. |
SECURITIES
AVAILABLE FOR SALE
|
· |
Defines
fair value as the price that would be received to sell an asset or
paid to
transfer a liability in an orderly transaction between market participants
at the measurement date;
|
· |
Establishes
a three-level hierarchy (“Valuation Hierarchy”) for fair value
measurements;
|
· |
Requires
consideration of the company’s creditworthiness when valuing liabilities;
and
|
· |
Expands
disclosures about instruments measured at fair
value.
|
· |
Level
1 - inputs to the valuation methodology are quoted prices (unadjusted)
for
identical assets or liabilities in active
markets.
|
· |
Level
2 - inputs to the valuation methodology include quoted prices for
similar
assets and liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for
substantially the full term of the financial instrument.
|
· |
Level
3 - inputs to the valuation methodology are unobservable and significant
to the fair value measurement. See below for further discussion of
the
company’s level 3 fair value
measurements.
|
Asset
Backed
Securities
|
||||
Fair
value December 31, 2007
|
$
|
7,500,000
|
||
Unrealized
losses - 1st quarter 2008
|
(375,000
|
)
|
||
Sales
- 3rd quarter 2008
|
(100,000
|
)
|
||
Unrealized
loss adjustment - 3rd quarter 2008
|
5,000
|
|||
Fair
value September 30, 2008
|
$
|
7,030,000
|
5. |
PROPERTY
AND EQUIPMENT
|
September
30, 2008
|
December
31, 2007
|
||||||
Land
and buildings
|
$
|
2,072,215
|
$
|
-
|
|||
Equipment
|
3,145,186
|
2,717,940
|
|||||
Furniture
and building improvements
|
1,061,698
|
1,036,178
|
|||||
Software
|
794,732
|
753,947
|
|||||
Total
|
7,073,831
|
4,508,065
|
|||||
Less
accumulated depreciation and amortization
|
(3,518,673
|
)
|
(2,907,178
|
)
|
|||
Net
property and equipment
|
$
|
3,555,158
|
$
|
1,600,887
|
6. |
SHARE-BASED
COMPENSATION
|
Nine
Months Ended September 30,
|
||||
2008
|
|
2007
|
||
Expected
life (years)
|
4
years
|
4
years
|
||
Dividend
yield
|
0.0%
|
0.0%
|
||
Expected
volatility
|
65.0%
|
46.0%
|
||
Risk
free interest rates
|
2.9%
|
4.55%
- 4.74%
|
||
Weighted
average fair value of options at grant date
|
$1.36
|
$1.94
|
7. |
COMPREHENSIVE
LOSS
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Comprehensive
Loss
|
|||||||||||||
Net
loss
|
$
|
(1,721,228
|
)
|
$
|
(5,167,976
|
)
|
$
|
(5,837,025
|
)
|
$
|
(9,777,304
|
)
|
|
Other
comprehensive loss:
|
|||||||||||||
Unrealized
gain (loss) on available-for-sale securities
|
5,000
|
-
|
(370,000
|
)
|
-
|
||||||||
Total
|
$
|
(1,716,228
|
)
|
$
|
(5,167,976
|
)
|
$
|
(6,207,025
|
)
|
$
|
(9,777,304
|
)
|
September
30, 2008
|
December
31, 2007
|
||||||
Cumulative
unrealized loss on available-for-sale securities
|
$
|
(370,000
|
)
|
$
|
-
|
||
Total
accumulated other comprehensive loss
|
$
|
(370,000
|
)
|
$
|
-
|
8. |
SIGNIFICANT
CUSTOMERS
|
9. |
NET
LOSS PER SHARE
|
10. |
DIVIDENDS
|
11.
|
COMMITMENTS
AND CONTINGENCIES
|
12.
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
Nine
Months Ended September 30,
|
|||||||
2008
|
2007
|
||||||
Cash
paid during the period for:
|
|||||||
Interest
|
$
|
1,940
|
$
|
1,941
|
|||
Income
taxes
|
$
|
-
|
$
|
-
|
13.
|
SUBSEQUENT
EVENTS
|
2008
|
2007
|
||||||
Revenue
|
$
|
4,014,302
|
$
|
3,608,584
|
|||
Cost
of revenue
|
3,789,962
|
5,641,565
|
|||||
General
and administrative
|
1,647,366
|
2,851,179
|
|||||
Selling
and marketing
|
61,565
|
76,340
|
|||||
Research
and development
|
359,807
|
548,895
|
|||||
Other
(expense) income:
|
|||||||
Interest
expense
|
(388
|
)
|
(453
|
)
|
|||
Interest
income
|
123,558
|
341,872
|
|||||
Net
loss
|
$
|
(1,721,228
|
)
|
$
|
(5,167,976
|
)
|
2008
|
2007
|
||||||
Revenue
|
$
|
11,653,390
|
$
|
8,828,367
|
|||
Cost
of revenue
|
10,719,524
|
10,989,077
|
|||||
General
and administrative
|
6,170,107
|
7,514,464
|
|||||
Selling
and marketing
|
173,003
|
331,155
|
|||||
Research
and development
|
965,017
|
856,722
|
|||||
Other
(expense) income:
|
|||||||
Interest
expense
|
(1,940
|
)
|
(1,941
|
)
|
|||
Interest
income
|
539,166
|
1,079,841
|
|||||
Other
|
10
|
7,847
|
|||||
Net
loss
|
$
|
(5,837,025
|
)
|
$
|
(9,777,304
|
)
|
EXHIBIT
NUMBER
|
DESCRIPTION
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23.1
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Consent
of Houlihan Smith & Company, Inc.
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31.1
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Certification
of Chief Executive pursuant to Rule 13a-14 or 15d-14 of the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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31.2
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Certification
of Chief Financial Officer pursuant to Rule 13a-14 or 15d-14 of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302
of the
Sarbanes-Oxley Act of 2002.
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32.1
|
Chief
Executive Officer Certification pursuant to 18 U.S.C. Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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32.2
|
Chief
Financial Officer Certification pursuant to 18 U.S.C. Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
APPLIED
ENERGETICS, INC.
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By | /s/ Dana A, Marshall | |
Dana A. Marshall |
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Chief Executive Officer and President |