Like I've been saying for 4 years their 10Q's give me a headache because 1/3 of the Reports are related to giving away stock before they are cash flow positive.
I seen a 6% increase but page 38 concerns me as it looks like a lot of shares have been dumped into the float.
If you look at a Stock like CPST you can see what will happen when they are cash flow positive... .70 to 2.18
Its still a Spec play until the Chart tells me to be in.
ECOSPHERE TECHNOLOGIES AND SUBSIDIARIES
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31, 2011 to the Three Months Ended March 31, 2010
The Company’s reported a net loss applicable to Ecosphere Technologies, Inc. common stock was $3,799,662 during the three months ended March 31, 2011 as compared to a net loss applicable to common stock of $23,132,206 for the three months ended March 31, 2010. The Company’s net loss for the three months ended March 31, 2010 was significantly impacted by the accounting for derivative liabilities related to warrants and convertible notes issued by the Company. On May 18, 2009 and May 17, 2010, the Company filed Form 8-Ks which highlighted the fluctuations in net income (loss) which may occur related to the accounting for these derivative instruments, stated that we believe an evaluation of our results should focus on our income or loss from operations and outlined steps the Company was taking to reduce the number of derivative instruments.
These derivative liabilities are recorded at fair value each reporting period. A major component of this valuation is the market value of the Company’s common stock. The periodic change in the value of the derivative liability is recorded in other income and expense. As the market value of the Company’s common stock increases, so does the Company’s derivative liability. This results in other expense. As the market value of the Company’s common stock declines, the Company’s derivative liability decreases resulting in other income for the period.
During the three months ended March 31, 2011, the market value of the Company’s common stock increased from $0.48 per share at December 31, 2010 to $0.62 per share at March 31, 2011 resulting in other expense of $198,761 related to the increase in the Company’s liability for warrant derivative instruments. During the three months ended March 31, 2010, the market value of the Company’s common stock increased from $0.47 per share at December 31, 2009 to $1.50 per share at March 31, 2010, resulting in other expense of $21,044,851 related to the increase in the Company’s derivative liability. The larger impact realized during the three months ended March 31, 2010 was due to a significantly larger number of derivative instruments outstanding as of March 31, 2010 as compared to March 31, 2011. The derivative liability at March 31, 2010 was based on 16,911,486 warrants outstanding plus 1,828,703 shares related to embedded conversion options as compared to 1,707,083 warrants outstanding as of March 31, 2011.
Revenues
Revenues for the three months ended March 31, 2011 increased $126,774 or 6% over the three months ended March 31, 2010. Revenue for the three months ended March 31, 2011 consisted of 83% related to pretreating water prior to its use to fracture natural gas wells and 17% related to processing frac flowback water. Revenue for the three months ended March 31, 2010 was generated 72% related to pretreating water prior to its use to fracture natural gas wells, 14% from the processing of frac flowback water from natural gas wells and 14% from pilot projects processing flowback water from various oil and gas exploration sources.
Cost of Revenues
Cost of revenues amounted to $621,699 for the three months ended March 31, 2011 as compared to $746,534 for the three months ended March 31, 2010. These costs consist of the payroll related costs of field personnel, plus parts, fuel and supplies used in support of the operations. Cost of revenues as percentage of revenues was 27.9% for the three months ended March 31, 2011 as compared to 35.5% for the three months ended March 31, 2010. The higher percentage in 2010 resulted from higher support costs for pilot project operations as compared to the costs of recurring operations in 2011.
Operating Expenses
Operating expenses for the three months ended March 31, 2011 were $4,936,150 compared to $2,805,046 for the three months ended March 31, 2010. This increase resulted (1) from an increase in salaries and employee benefits of $1.8 million which resulted from an increase in non-cash employee option expense of $1.5 million resulting from new executive options granted in December 2010 and January 2011, plus an increase of $157,000 for the addition of a new Chief Executive Officer and additional support staff in anticipation of the Hydrozonix agreement and an increase in employee insurance costs of $43,000; (2) an increase of $393,000 in professional fees related to legal expenses surrounding the preparation of the definitive Hydrozonix agreement and $97,000 of non-cash expense related to options granted to legal counsel and a $60,000 increase is accounting and auditing fees; and (3) an increase of 85,000 in depreciation expense due to an increase in the amount of equipment used in operations. These increases were partially offset by a decrease of $104,000 in Administrative and Selling expenses due to decrease in travel expenses of $87,000 which decreased because there were no pilot projects during the three months ended March 31, 2011 and because there were fewer corporate, engineering and manufacturing personnel needed onsite to support field operations. In addition, facilities expense was slightly lower due to the elimination of the temporary executive offices in Texas.
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