Item
1.
Financial Statements
The
consolidated balance sheet as of June 30, 2014 and the related consolidated statements of operations and consolidated statements
of cash flows for the three and six months ended June 30, 2014 and 2013 for Integrated Environmental Technologies, Ltd. and its
wholly-owned subsidiary I.E.T., Inc. (collectively referred to herein as “IET” or the “Company”) included
in this Item 1, have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (the “SEC”). Certain information and footnote disclosures required under accounting principles generally
accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted from the following consolidated
financial statements pursuant to the rules and regulations of the SEC. The consolidated financial statements include our
wholly-owned subsidiary and all significant inter-company transactions and balances have been eliminated. In the opinion of management,
the accompanying consolidated financial statements include all adjustments, which are of a normal and recurring nature, necessary
to present fairly our financial position and results of operations. It is suggested that the following consolidated financial
statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s
annual report on Form 10-K for the year ended December 31, 2013.
The
results of operations for the three and six months ended June 30, 2014 and 2013 are not necessarily indicative of the results
of the entire fiscal year or of any other period.
Integrated
Environmental Technologies, Ltd.
Consolidated
Balance Sheets
(Unaudited)
|
|
June
30,
|
|
December
31,
|
|
|
2014
|
|
2013
|
Assets
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
279,664
|
|
|
$
|
1,049,399
|
|
Accounts
receivable
|
|
|
22,772
|
|
|
|
28,250
|
|
Prepaid
expenses
|
|
|
10,918
|
|
|
|
26,166
|
|
Inventory
|
|
|
127,816
|
|
|
|
126,952
|
|
Total
current assets
|
|
|
441,170
|
|
|
|
1,230,767
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
302,176
|
|
|
|
344,884
|
|
Total
assets
|
|
$
|
743,346
|
|
|
$
|
1,575,651
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ (Deficiency) Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
108,769
|
|
|
$
|
41,320
|
|
Accrued
expenses
|
|
|
49,612
|
|
|
|
47,954
|
|
Customer
deposits
|
|
|
38,109
|
|
|
|
38,109
|
|
Convertible
debentures
|
|
|
25,000
|
|
|
|
25,000
|
|
Note
payable
|
|
|
84,469
|
|
|
|
75,513
|
|
Total
current liabilities
|
|
|
305,959
|
|
|
|
227,896
|
|
|
|
|
|
|
|
|
|
|
Convertible
debentures
|
|
|
476,125
|
|
|
|
476,125
|
|
Note
payable
|
|
|
6,766
|
|
|
|
46,546
|
|
Total
liabilities
|
|
|
788,850
|
|
|
|
750,567
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
Stockholders’
(deficiency) equity:
|
|
|
|
|
|
|
|
|
Common
stock, $.001 par value; 400,000,000 shares authorized; 230,778,176 and 229,971,926 shares issued and outstanding, respectively
|
|
|
230,778
|
|
|
|
229,972
|
|
Additional
paid-in capital
|
|
|
20,165,846
|
|
|
|
20,075,764
|
|
Accumulated
deficit
|
|
|
(20,442,128
|
)
|
|
|
(19,480,652
|
)
|
Total
stockholders' (deficiency) equity
|
|
|
(45,504
|
)
|
|
|
825,084
|
|
Total
liabilities and stockholders' (deficiency) equity
|
|
$
|
743,346
|
|
|
$
|
1,575,651
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
Integrated
Environmental Technologies, Ltd.
Consolidated
Statements of Operations
(Unaudited)
|
|
Three
Months Ended
June
30,
|
|
Six
Months Ended
June
30,
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
42,382
|
|
|
$
|
22,376
|
|
|
$
|
54,444
|
|
|
$
|
44,706
|
|
Leasing
and licensing fees
|
|
|
6,000
|
|
|
|
19,500
|
|
|
|
12,000
|
|
|
|
36,000
|
|
|
|
|
48,382
|
|
|
|
41,876
|
|
|
|
66,444
|
|
|
|
80,706
|
|
Cost of sales
|
|
|
27,486
|
|
|
|
9,274
|
|
|
|
31,731
|
|
|
|
14,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
20,896
|
|
|
|
32,602
|
|
|
|
34,713
|
|
|
|
66,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
279,582
|
|
|
|
373,450
|
|
|
|
577,059
|
|
|
|
651,805
|
|
Sales and marketing
|
|
|
121,855
|
|
|
|
110,216
|
|
|
|
282,222
|
|
|
|
215,323
|
|
Research
and development
|
|
|
51,001
|
|
|
|
51,349
|
|
|
|
111,891
|
|
|
|
99,391
|
|
|
|
|
452,438
|
|
|
|
535,015
|
|
|
|
971,172
|
|
|
|
966,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(431,542
|
)
|
|
|
(502,413
|
)
|
|
|
(936,459
|
)
|
|
|
(900,461
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
-
|
|
|
|
16
|
|
|
|
-
|
|
|
|
53
|
|
Interest
expense
|
|
|
(12,735
|
)
|
|
|
(10,456
|
)
|
|
|
(25,017
|
)
|
|
|
(21,058
|
)
|
Total
other income (expense)
|
|
|
(12,735
|
)
|
|
|
(10,440
|
)
|
|
|
(25,017
|
)
|
|
|
(21,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(444,277
|
)
|
|
$
|
(512,853
|
)
|
|
$
|
(961,476
|
)
|
|
$
|
(921,466
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share,
basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding, basic and diluted
|
|
|
230,778,176
|
|
|
|
171,255,129
|
|
|
|
230,602,520
|
|
|
|
163,836,087
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
Integrated
Environmental Technologies, Ltd.
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
Six
Months Ended
June 30,
|
|
|
2014
|
|
2013
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(961,476
|
)
|
|
$
|
(921,466
|
)
|
Adjustments to reconcile
net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
42,708
|
|
|
|
77,163
|
|
Stock-based compensation
expense
|
|
|
49,188
|
|
|
|
81,065
|
|
Stock issued as
settlement of litigation
|
|
|
-
|
|
|
|
26,550
|
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
478
|
|
|
|
(4,046
|
)
|
Inventory
|
|
|
(864
|
)
|
|
|
1,529
|
|
Prepaid expenses
|
|
|
15,248
|
|
|
|
6,249
|
|
Accounts payable
|
|
|
88,949
|
|
|
|
17,677
|
|
Accrued expenses
|
|
|
1,659
|
|
|
|
1,438
|
|
Customer
deposits
|
|
|
-
|
|
|
|
2,000
|
|
Net
cash used in operating activities
|
|
|
(764,110
|
)
|
|
|
(711,841
|
)
|
Cash flows used in investing activity:
|
|
|
|
|
|
|
|
|
Purchase
of equipment
|
|
|
-
|
|
|
|
(56,887
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale
of common stock, net of offering costs
|
|
|
25,200
|
|
|
|
756,250
|
|
Repayment
of note payable
|
|
|
(30,825
|
)
|
|
|
-
|
|
Net
cash (used in) provided by financing activities
|
|
|
(5,625
|
)
|
|
|
756,250
|
|
Decrease in cash
|
|
|
(769,735
|
)
|
|
|
(12,478
|
)
|
Cash -
beginning of period
|
|
|
1,049,399
|
|
|
|
180,489
|
|
Cash -
end of period
|
|
$
|
279,664
|
|
|
$
|
168,011
|
|
Supplemental disclosure of cash flow
information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
4,119
|
|
|
$
|
624
|
|
Cash paid for income
taxes
|
|
$
|
700
|
|
|
$
|
-
|
|
Non-cash operating activity:
|
|
|
|
|
|
|
|
|
Issuance
of 206,250 and 1,485,714 shares of common stock, respectively, as payment of director fees
|
|
$
|
16,500
|
|
|
$
|
52,000
|
|
Non-cash investing activity
|
|
|
|
|
|
|
|
|
Issuance
of note payable as payment of equipment
|
|
$
|
-
|
|
|
$
|
152,000
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
Integrated
Environmental Technologies, Ltd.
Notes
to Consolidated Financial Statements
1. Basis of Presentation
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
The Company has incurred significant recurring operating losses and negative cash flows from operations. The Company had working
capital of $135,211 and an accumulated deficit of $20,442,128 as of June 30, 2014. The Company also has no lending relationships
with commercial banks and is dependent on the completion of financings involving the private placement of its securities in order
to continue operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The
Company does not anticipate establishing any lending relationships with commercial banks in the foreseeable future due to its
limited operations and assets. The Company continues to execute its strategy of selling anolyte and catholyte solutions and leasing
its EcaFlo™ equipment to fund its operations and is focused on obtaining additional capital through the private placement
of its securities. The Company is pursuing potential equity and/or debt investors and, from time to time, has engaged placement
agents to assist it in this initiative. While the Company is pursuing the opportunities and actions described above, there can
be no assurance that it will be successful in its efforts. If the Company is unable to secure additional capital, it will explore
other strategic alternatives, including, but not limited to, the sale of the Company. Any additional equity financing may result
in substantial dilution to the Company’s stockholders.
2.
Inventory
As
of June 30, 2014 and December 31, 2013, inventory consisted of parts and materials totaling $127,816 and $126,952, respectively.
3.
Property and Equipment
As
of June 30, 2014 and December 31, 2013, property and equipment, on a net basis, consisted of the following (see note 7):
|
|
June
30,
2014
|
|
December
31,
2013
|
Leasehold improvements
|
|
$
|
328,977
|
|
|
$
|
328,977
|
|
Equipment
|
|
|
437,504
|
|
|
|
437,504
|
|
|
|
|
766,481
|
|
|
|
766,481
|
|
Less: Accumulated
depreciation
|
|
|
(464,305
|
)
|
|
|
(421,597
|
)
|
|
|
$
|
302,176
|
|
|
$
|
344,884
|
|
4.
Accrued Expenses
As
of June 30, 2014 and December 31, 2013, accrued expenses consisted of the following:
|
|
June
30,
2014
|
|
December
31,
2013
|
Accrued interest
|
|
$
|
45,230
|
|
|
$
|
24,321
|
|
Accrued auditing fees
|
|
|
2,750
|
|
|
|
22,000
|
|
Accrued other expenses
|
|
|
1,632
|
|
|
|
1,633
|
|
|
|
$
|
49,612
|
|
|
$
|
47,954
|
|
5.
Customer Deposits
On
March 29, 2011, the Company issued a credit to purchase equipment to a consultant in the amount of $36,109 as payment to the consultant
for consulting services rendered to the Company.
Effective
January 1, 2013, the Company entered into a license agreement with a third party related to the use by the third party of the
Company’s United States Environmental Protection Agency (the “EPA”) registration for its anolyte solution. The
Company received a deposit of $2,000 pursuant to the terms of this agreement.
6.
Convertible Debentures
April
2007 Convertible Debenture
On
April 26, 2007, in a private placement, the Company issued a convertible debenture to an individual accredited investor in the
principal amount of $25,000. This convertible debenture matured on January 2, 2009 and remains unpaid. The convertible debenture
accrues interest at a rate of 12% per annum and is convertible at any time into shares of the Company’s common stock at
the option of the holder at a conversion price of $0.40 per share. An aggregate of 62,500 shares of the Company’s common
stock can be issued upon the conversion of the outstanding principal amount due on this convertible debenture at the current conversion
price of $0.40 per share.
During
each of the three and six months ended June 30, 2014 and 2013, the Company recorded $748 and $1,488, respectively, of interest
expense related to this convertible debenture. As of June 30, 2014 and December 31, 2013, the outstanding principal on this convertible
debenture was $25,000 and the accrued and unpaid interest was $11,929 and $10,441, respectively. The accrued and unpaid interest
is included as a component of accrued expenses.
Zanett
Convertible Debentures
On
August 21, 2012, the Company issued to Zanett Opportunity Fund, Ltd. (“Zanett”) an 8% convertible debenture in the
amount of $476,125 (the “Zanett August 2012 Debenture”). In connection with this private placement, the Company refinanced
an 8% convertible debenture, in the principal amount of $376,125, issued to Zanett on July 7, 2011 (the “Zanett July 2011
Debenture”) and refinanced an 8% convertible secured promissory note, in the principal amount of $100,000, issued to Zanett
on September 23, 2011 (the “Zanett September 2011 Note”). As a result of the issuance of the Zanett August 2012 Debenture,
the Zanett July 2011 Debenture and the Zanett September 2011 Note were cancelled.
The
Zanett August 2012 Debenture has a three-year term maturing on August 21, 2015 and bears interest at a rate of 8% per annum. Interest
is payable in annual installments in cash or, at the option of the Company, in shares of the Company’s common stock. If
the Company elects to pay the interest in shares of its common stock, the number of shares issued as payment will be equal to
the quotient of the unpaid interest divided by the market price of the Company’s common stock, as defined in the Zanett
August 2012 Debenture.
The
entire principal amount of the Zanett August 2012 Debenture is convertible at any time into shares of the Company’s common
stock at the option of the holder at a conversion price of $0.10 per share. In addition, at the option of the Company, the entire
principal amount of the Zanett August 2012 Debenture is convertible into shares of the Company’s common stock at $0.10 per
share upon the occurrence of the merger or acquisition of the Company or if the average closing price of the Company’s common
stock for any period of ten consecutive trading days is greater than or equal to $0.15 per share. The quoted market price of the
Company’s common stock on August 21, 2012 was $0.05 per share. An aggregate of 4,761,250 shares of the Company’s common
stock can be issued upon the conversion of the outstanding principal amount due on the Zanett August 2012 Debenture at the current
conversion price of $0.10 per share.
On
August 22, 2013, the Company issued 400,947 shares of the Company’s common stock to Zanett as payment of $38,090 of accrued
interest due on the Zanett August 2012 Debenture for the period commencing August 21, 2012 through August 20, 2013. The number
of shares of the Company’s common stock issued as payment of the accrued interest was calculated based on the market price
of the Company’s common stock ($0.095 per share) as defined in the Zanett August 2012 Debenture.
During
the three and six months ended June 30, 2014, the Company recorded $9,496 and $18,888, respectively, of interest expense related
to the Zanett August 2012 Debenture. During the three and six months ended June 30, 2013, the Company recorded $9,628 and $19,151,
respectively, of interest expense related to the Zanett August 2012 Debenture. As of June 30, 2014 and December 31, 2013, the
outstanding principal on the Zanett August 2012 Debenture was $476,125 and the accrued and unpaid interest was $32,768 and $13,880,
respectively. The accrued and unpaid interest is included as a component of accrued expenses.
7.
Note Payable
On
June 17, 2013, the Company and Benchmark Performance Group, Inc. (“Benchmark”) entered into an Asset Purchase Agreement
(the “Asset Purchase Agreement”), whereby the Company purchased nineteen EcaFlo™ machines owned by Benchmark
as well as the rights to the Excelyte™ trademark and certain other intangible assets. The purchase price for the nineteen
EcaFlo™ machines, the Excelyte™ trademark and other intangible assets was $190,000.
The
Company paid $38,000 in conjunction with the closing of the Asset Purchase Agreement and issued a promissory note with a principal
balance of $152,000 (the “Benchmark Note”). The Benchmark Note bears interest at a rate of 7% per annum and requires
the Company to make twenty-four monthly payments of $6,805 commencing August 1, 2013. The Benchmark Note is secured by the nineteen
EcaFlo™ machines.
For
the three and six months ended June 30, 2014, the Company recorded $1,706 and $3,735, respectively, of interest expense related
to the Benchmark Note. As of June 30, 2014 and December 31, 2013, the outstanding principal on the Benchmark Note was $91,235
(current portion $84,469; long-term portion $6,766) and $122,059 (current portion $75,513; long-term portion $46,546), respectively.
8.
Stockholders’ Equity
Stock
Options
The
Company currently has two stock option/stock compensation plans in place: the 2010 Stock Incentive Plan and the 2012 Equity Incentive
Plan (collectively, the “Equity Incentive Plans”).
The
2010 Stock Incentive Plan was approved by the stockholders in September 2010. The Company had reserved for issuance an aggregate
of 10,000,000 shares of common stock under the 2010 Stock Incentive Plan. As of June 30, 2014, stock options to purchase 4,680,254
shares of the Company’s common stock were outstanding under the 2010 Stock Incentive Plan and 90,500 shares of the Company’s
common stock had been issued under the 2010 Stock Incentive Plan. As a result of the adoption of the Company’s 2012 Equity
Incentive Plan, no further awards are permitted under the 2010 Stock Incentive Plan.
The
2012 Equity Incentive Plan was approved by the stockholders in May 2012. The Company has reserved for issuance an aggregate of
14,000,000 shares of common stock under the 2012 Stock Incentive Plan. The 2012 Equity Incentive Plan is designed to encourage
and enable employees and directors of the Company to acquire, or increase their holdings of, common stock and other proprietary
interests in the Company. It is intended to promote these individuals’ interests in the Company, thereby enhancing the efficiency,
soundness, profitability, growth and stockholder value of the Company. The 2012 Equity Incentive Plan provides for grants and/or
awards in the form of incentive and non-qualified stock option grants, stock appreciation rights, restricted stock awards, performance
share awards, phantom stock awards and dividend equivalent awards. As of June 30, 2014, no grants or awards had been made under
the 2012 Equity Incentive Plan.
Common
stock grants and stock option awards under the Equity Incentive Plans were granted or issued at prices as determined by the Company’s
compensation committee; provided, however, that such prices were not less than the fair market value of the Company's common stock
on the date of grant or issuance. Stock options granted and outstanding to date consist of both incentive stock options and non-qualified
stock options.
A
summary of stock option transactions under the Equity Incentive Plans during the six months ended June 30, 2014 is set forth below:
|
|
Stock
Option
Shares
|
|
Weighted
Average Exercise Price Per Common Share
|
|
Aggregate
Intrinsic Value
|
Outstanding at December 31, 2013
|
|
|
4,980,254
|
|
|
$
|
0.18
|
|
|
$
|
-
|
|
Granted during the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised during the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Terminated during
the period
|
|
|
300,000
|
|
|
$
|
0.08
|
|
|
|
-
|
|
Outstanding at June 30, 2014
|
|
|
4,680,254
|
|
|
$
|
0.19
|
|
|
$
|
-
|
|
Available for purchase
at June 30, 2014
|
|
|
3,013,586
|
|
|
$
|
0.13
|
|
|
$
|
-
|
|
Available for purchase
at December 31, 2013
|
|
|
3,313,586
|
|
|
$
|
0.12
|
|
|
$
|
-
|
|
Information
with respect to stock options outstanding and stock options exercisable as of June 30, 2014 is as follows:
|
|
Stock
Options Outstanding
|
|
Stock
Options Exercisable
|
Exercise
Price
|
|
Number
of Shares Available Under Outstanding Stock
Options
|
|
Weighted
Average Exercise Price Per Common Share
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
Number
of Shares Available for Purchase Under Outstanding Stock
Options
|
|
Weighted
Average Exercise Price Per Common Share
|
|
Weighted
Average Remaining Contractual Life (Years)
|
$
|
0.10
|
|
|
|
2,180,253
|
|
|
$
|
0.10
|
|
|
|
4.7
|
|
|
|
2,180,253
|
|
|
$
|
0.10
|
|
|
|
4.7
|
|
$
|
0.20
|
|
|
|
833,333
|
|
|
$
|
0.20
|
|
|
|
7.8
|
|
|
|
833,333
|
|
|
$
|
0.20
|
|
|
|
7.8
|
|
$
|
0.30
|
|
|
|
1,666,668
|
|
|
$
|
0.30
|
|
|
|
7.8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
4,680,254
|
|
|
$
|
0.19
|
|
|
|
6.3
|
|
|
|
3,013,586
|
|
|
$
|
0.13
|
|
|
|
5.5
|
|
A
summary of the non-vested shares subject to stock options granted under the Equity Incentive Plans as of June 30, 2014 is as follows:
|
|
Stock
Option
Shares
|
|
Weighted
Average Grant
Date Fair
Value
Per
Share
|
Non-vested at December 31, 2013
|
|
|
1,666,668
|
|
|
$
|
0.05
|
|
Granted during the period
|
|
|
-
|
|
|
|
-
|
|
Vested during the period
|
|
|
-
|
|
|
|
-
|
|
Terminated during
the period
|
|
|
-
|
|
|
|
-
|
|
Non-vested at June 30, 2014
|
|
|
1,666,668
|
|
|
$
|
0.05
|
|
As
of June 30, 2014, there was $14,734 of total unrecognized compensation cost related to non-vested, stock-based compensation arrangements
granted under the Equity Incentive Plans. That cost is expected to be recognized over a weighted average period of six months.
Warrants
to Purchase Common Stock
On
June 30, 2014, the Company issued a warrant to purchase 500,000 shares of the Company’s common stock to an unaffiliated
third party as payment of consulting services. The warrant is exercisable at $0.06 per share and has a term of two years. The
warrant vested upon issuance. The fair value of the warrant on the date of issuance as calculated using the Black-Scholes model
was $11,471, using the following weighted average assumptions: exercise price of $0.06 per share; common stock price of $0.055
per share; volatility of 134%; term of two years; dividend yield of 0%; interest rate of 0.47%; and risk of forfeiture of 35%.
A
summary of warrant transactions during the six months ended June 30, 2014 is as follows:
|
|
Warrant
Shares
|
|
Weighted
Average
Exercise
Price Per
Common Share
|
|
Aggregate
Intrinsic
Value
|
Outstanding at December 31, 2013
|
|
|
36,844,565
|
|
|
$
|
0.12
|
|
|
$
|
-
|
|
Issued during the period
|
|
|
500,000
|
|
|
$
|
0.06
|
|
|
|
-
|
|
Exercised during the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Terminated during
the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at June 30, 2014
|
|
|
37,344,565
|
|
|
$
|
0.12
|
|
|
$
|
-
|
|
Available for purchase
at June 30, 2014
|
|
|
37,344,565
|
|
|
$
|
0.12
|
|
|
$
|
-
|
|
Available for purchase
at December 31, 2013
|
|
|
36,844,565
|
|
|
$
|
0.12
|
|
|
$
|
-
|
|
Warrants
issued by the Company contain exercise prices that were approved by the Company’s board of directors. Such exercise prices
are generally not less than the quoted market price of the Company's common stock on the date of issuance. Warrants currently
issued either vested immediately or over a period of up to three years and have a maximum term of ten years from the date of issuance.
Information
with respect to warrants outstanding and warrants exercisable at June 30, 2014 is as follows:
|
|
Warrants
Outstanding
|
|
Warrants
Exercisable
|
Range
of
Exercise Prices
|
|
Number
of Shares Available Under Outstanding Warrants
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
Weighted
Average Exercise Price Per Common Share
|
|
Number
of Shares Available for Purchase Under Outstanding Warrants
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
Weighted
Average Exercise Price Per Common Share
|
$
|
0.03
-
0.04
|
|
|
|
1,151,567
|
|
|
|
2.5
|
|
|
$
|
0.04
|
|
|
|
1,151,567
|
|
|
|
2.5
|
|
|
$
|
0.04
|
|
$
|
0.06
-
0.10
|
|
|
|
23,556,061
|
|
|
|
3.4
|
|
|
$
|
0.09
|
|
|
|
23,556,061
|
|
|
|
3.4
|
|
|
$
|
0.09
|
|
$
|
0.20
|
|
|
|
12,636,937
|
|
|
|
0.7
|
|
|
$
|
0.20
|
|
|
|
12,636,937
|
|
|
|
0.7
|
|
|
$
|
0.20
|
|
|
|
|
|
|
37,344,565
|
|
|
|
2.5
|
|
|
$
|
0.13
|
|
|
|
37,344,565
|
|
|
|
2.5
|
|
|
$
|
0.13
|
|
As
of June 30, 2014, there were no non-vested shares subject to warrants and no unrecognized compensation cost related to warrants.
9.
Stock-Based Compensation
During
the three and six months ended June 30, 2014 and 2013, the Company recorded stock-based compensation expense as follows:
|
|
Three
Months
Ended
June
30,
|
|
Six
Months
Ended
June
30,
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
General
and administrative
|
|
$
|
15,111
|
|
|
$
|
37,549
|
|
|
$
|
41,948
|
|
|
$
|
73,825
|
|
Sales
and marketing
|
|
|
2,548
|
|
|
|
2,548
|
|
|
|
5,068
|
|
|
|
5,068
|
|
Research
and development
|
|
|
1,092
|
|
|
|
1,092
|
|
|
|
2,172
|
|
|
|
2,172
|
|
|
|
$
|
18,751
|
|
|
$
|
41,189
|
|
|
$
|
49,188
|
|
|
$
|
81,065
|
|
For
the three and six months ended June 30, 2014, the Company recorded stock-based compensation expense related to stock options granted
to employees and directors of $7,280 and $17,717, respectively. For the three and six months ended June 30, 2014, the Company
recorded stock-based compensation expense related to common stock and warrants granted to non-employees of $11,471 and $31,471,
respectively.
For
the three and six months ended June 30, 2013, the Company recorded stock-based compensation expense related to stock options granted
to employees and directors of $12,118 and $24,103, respectively. For the three and six months ended June 30, 2013, the Company
recorded stock-based compensation expense related to common stock and warrants granted to non-employees of $29,071 and $56,962,
respectively.
10.
Net Loss Per Common Share
Basic
net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the
impact of common shares issuable upon exercise of stock options and warrants and conversion of convertible debt that are not deemed
to be anti-dilutive. The dilutive effect of the outstanding stock options and warrants is computed using the treasury stock method.
For
the three and six months ended June 30, 2014, diluted net loss per share did not include the effect of 4,680,254 shares of common
stock issuable upon the exercise of outstanding stock options, 37,344,565 shares of common stock issuable upon the exercise of
outstanding warrants and 4,823,750 shares of common stock issuable upon the conversion of convertible debt, as their effect would
be anti-dilutive.
For
the three and six months ended June 30, 2013, diluted net loss per share did not include the effect of 5,813,587 shares of common
stock issuable upon the exercise of outstanding stock options, 46,377,998 shares of common stock issuable upon the exercise of
outstanding warrants and 4,823,750 shares of common stock issuable upon the conversion of convertible debt, as their effect would
be anti-dilutive.
11.
Commitments and Contingencies
Litigation
with Former Executive Vice President - Operations
On
June 17, 2014, a civil complaint was filed against the Company and one of its directors, E. Wayne Kinsey, III, in the Court of
Common Pleas, County of Horry, State of South Carolina, by Marion Sofield, the Company’s former Executive Vice President
- Operations. In her complaint, Ms. Sofield alleges breach of contract and fraudulent inducement by the Company against her with
regard to her employment agreement and the termination of her employment. Ms. Sofield also alleges civil conspiracy, tortious
interference and unfair trade practices. Ms. Sofield claims that she is owed additional compensation under her terminated employment
agreement, and is seeking the recovery of such compensation as well as attorney’s fees and punitive damages.
On
July 18, 2014, the Company filed a motion to dismiss this state court action due to the binding arbitration clause contained in
Ms. Sofield’s employment agreement.
The
Company does not believe there is any merit to Ms. Sofield’s allegations and will vigorously defend this action.
12.
Subsequent Events
From
July 22, 2014 through July 31, 2014, the Company sold an aggregate of 4,850,000 shares of its common stock to five individual
investors for an aggregate purchase price of $198,400. The Company incurred offering costs of $13,432 in connection with these
transactions.
On
July 31, 2014, the Company issued an aggregate of 286,364 shares of its common stock, at a per share price of $0.055, as settlement
of $15,750 of director fees due certain members of the Company’s board of directors for services rendered for the period
commencing January 1, 2014 through June 30, 2014. The quoted market price of the Company’s common stock on July 1, 2014,
the date the issuance was approved by the Company’s board of directors, was $0.051 per share.
Item
2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
IET
was originally incorporated in Delaware on February 2, 1999 and is now a Nevada corporation. IET is headquartered in Little River,
South Carolina and operates through its wholly-owned subsidiary, I.E.T., Inc., a Nevada corporation incorporated on January 11,
2002.
IET
markets its products and equipment under the umbrella brand name, EcoTreatments™. IET produces and sells a hypochlorous
acid solution (“Anolyte”) as well as an anti-oxidizing, mildly alkaline solution (“Catholyte” and, together
with Anolyte, the “Solutions”), that provide an environmentally friendly and effective alternative for cleaning, sanitizing
and disinfecting as compared to the hazardous chemicals traditionally prevalent in commercial use. IET sells its Anolyte under
the brand name, Excelyte™ and sells its Catholyte under the brand name, Catholyte Zero™. IET manufactures proprietary
equipment, which it markets under the brand name EcaFlo™, to produce the Solutions for distribution by IET and, under certain
circumstances, such equipment is leased by IET to customers for use at a customer’s facility.
Products
IET
produces Anolyte that is effective as a disinfectant, can be used safely anywhere there is a need to control bacteria, viruses,
and germs and leaves no harmful residue. The non-toxic and less-corrosive nature of our Anolyte makes it an excellent replacement
for quaternary ammonia, sodium hypochlorite (bleach) and other hazardous chemicals currently being used as disinfectants and sanitizers.
Our Anolyte contains an active killing agent that is produced with a pH of 6.5 and contains a ratio of free available chlorine
of approximately 92% hypochlorous acid to 8% hypochlorite. Our Anolyte kills various pathogens including, but not limited to,
Mycobacterium bovis
(Tuberculosis),
Salmonella enterica
,
Pseudomonas aeruginosa
,
Staphylococcus aureus
,
methicillin-resistant
Staphylococcus aureus
(MRSA), H1NI influenza virus (swine flu) and
B. anthracis
spores (anthrax).
Our Anolyte also kills hospital-acquired pathogens such as
Clostridium difficile
spores (
C. diff
) and vancomycin-resistant
enterococci (VRE) as well as two carbapenem-resistant enterobacteriaceae (CRE) known as
Klebsiella pneumoniae
carbapenemase
(KPC) and New Delhi Metallo-beta-lactamase (NDM). Further, the high-risk blood-borne pathogen human immunodeficiency virus (HIV)
and the food-borne pathogens
Listeria monocytogenes
and
Escherichia coli
(
E. coli
) are killed by our Anolyte.
We also produce Catholyte, an anti-oxidizing and mild alkaline solution that is effective as a degreaser and cleaner.
Our
Anolyte is registered with the EPA as a tuberculocidal hospital-level surface disinfectant and as a biocide for use in oil and
gas drilling (EPA Registration No. 82341-1). In addition, our Anolyte is registered with the EPA (EPA Registration No. 82341-4)
as a disinfectant to prevent Canine distemper virus, Canine parvovirus and
Bordetella bronchiseptica
. We intend to market
the canine product, in conjunction with a third-party partner, as Excelyte™ VET.
IET
will also lease EcaFlo™ equipment to a customer when the customer’s business model or required volume of Solutions
warrants such an arrangement. Under this type of arrangement, we would lease our EcaFlo™ equipment and provide service support
for a fixed monthly price and, in certain circumstances, we would receive royalty payments for the Solutions produced by the customer.
We also license to certain customers the right to utilize our intellectual property pursuant to which the customer is required
to pay us a monthly fee based on the number of gallons of Solutions produced by our EcaFlo™ equipment.
Business
Strategy
Our
business model is focused on selling Solutions directly to customers. In situations where a customer desires to have EcaFlo™
equipment on-site, we lease the equipment and maintain ownership as opposed to selling the EcaFlo™ equipment outright.
We
seek long-term contracts directly with our targeted customers and through a distributor network. In some circumstances, where
the Solutions will be consumed by the customer in its commercial process, we will lease the EcaFlo™ equipment to that customer.
We are currently focused on selling the Solutions in three markets: oil and gas production, healthcare facilities and food production.
Critical
Accounting Policies and Estimates
The
discussion and analysis of the Company’s financial condition and results of operations are based upon the interim consolidated
financial statements contained elsewhere herein, which have been prepared in accordance with U.S. GAAP. The preparation of these
consolidated financial statements required us to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates,
including those related to bad debts, income taxes, contingencies and litigation. We based our estimates on historical experience
and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or conditions.
The
critical accounting estimates that we believe affect the more significant judgments and estimates used in preparation of the consolidated
financial statements contained elsewhere herein are described in the Management’s Discussion and Analysis of Financial Condition
and Results of Operations and in the Notes to the Consolidated Financial Statements included in the Company’s annual report
on Form 10-K for the year ended December 31, 2013. There have been no material changes to the critical accounting policies.
Results
of Operations
Revenue.
For the three months ended June 30, 2014, revenue was $48,382, as compared to $41,876 for the three months ended June 30,
2013. The $6,506, or 16%, increase in revenue for the three months ended June 30, 2014 was primarily due to a $23,975 increase
in sales of EcaFlo™ equipment parts, offset by a $13,500 decrease in EcaFlo™ equipment leasing revenue.
For
the six months ended June 30, 2014, revenue was $66,444, as compared to $80,706 for the six months ended June 30, 2013. The $14,262,
or 18%, decrease in revenue for the six months ended June 30, 2014 was primarily due to a $24,000 decrease in EcaFlo™ equipment
leasing revenue, offset by an $11,549 increase in sales of EcaFlo™ equipment parts and related supplies.
Cost
of Sales
. For the three months ended June 30, 2014, cost of sales was $27,486, as compared to $9,274 for the three months
ended June 30, 2013. The $18,212, or 196%, increase in cost of sales for the three months ended June 30, 2014 was primarily attributable
to the increase in sales of EcaFlo™ equipment parts with higher cost of sales.
For
the six months ended June 30, 2014, cost of sales was $31,731, as compared to $14,648 for the six months ended June 30, 2013.
The $17,083, or 117%, increase in cost of sales for the six months ended June 30, 2014 was primarily attributable to the increase
in sales of EcaFlo™ equipment parts with higher cost of sales.
Gross
Profit
. For the three months ended June 30, 2014 and 2013, gross profit margins were 43% and 78%, respectively. For the six
months ended June 30, 2014 and 2013, gross profit margins were 52% and 82%, respectively.
General
and Administrative Expenses
. For the three months ended June 30, 2014, general and administrative expenses were $279,582,
as compared to $373,450 for the three months ended June 30, 2013. The $93,868, or 25%, decrease in general and administrative
expenses for the three months ended June 30, 2014 was primarily the result of a $45,349 decrease in legal fees primarily related
to litigation, a $26,550 decrease in litigation settlement expense, a $17,600 decrease in stock-based compensation expense for
consultants and a $17,972 decrease in depreciation expense, offset by a $15,000 increase in consulting fees related to investor
and public relations and a $12,605 increase in travel expense related to business development activities.
For
the six months ended June 30, 2014, general and administrative expenses were $577,059, as compared to $651,805 for the six months
ended June 30, 2013. The $74,746, or 11%, decrease in general and administrative expenses for the six months ended June 30, 2014
was primarily the result of a $47,321 decrease in legal fees primarily related to litigation, a $34,454 decrease in depreciation
expense, a $26,550 decrease in litigation settlement expense and a $25,491 decrease in stock-based compensation expense for consultants,
offset by a $40,000 increase in consulting fees related to investor and public relations and a $15,114 increase in travel expense
related to business development activities.
Sales
and Marketing Expenses
. For the three months ended June 30, 2014, sales and marketing expenses were $121,855, as compared
to $110,216 for the three months ended June 30, 2013. The $11,639, or 11%, increase in sales and marketing expenses for the three
months ended June 30, 2014 was primarily the result of a $12,605 increase in travel expenses related to sales activities.
For
the six months ended June 30, 2014, sales and marketing expenses were $282,222, as compared to $215,323 for the six months ended
June 30, 2013. The $66,899, or 31%, increase in sales and marketing expenses for the six months ended June 30, 2014 was primarily
the result of a $52,218 increase in marketing expenses related to the re-design of the Company’s web-site and new product
branding initiatives and a $15,114 increase in travel expenses related to sales activities.
Research
and Development Expenses
. For the three months ended June 30, 2014, research and development expenses were $51,001, as compared
to $51,349 for the three months ended June 30, 2013. The $348, or 1%, decrease in research and development expenses for the three
months ended June 30, 2014 was primarily the result of a $2,198 decrease in consulting fees primarily related to regulatory and
patent consultants, offset by a $1,173 increase in office and research supplies.
For
the six months ended June 30, 2014, research and development expenses were $111,891, as compared to $99,391 for the six months
ended June 30, 2013. The $12,500, or 13%, increase in research and development expenses for the six months ended June 30, 2014
was primarily the result of a $9,008 increase in laboratory testing fees and a $2,593 increase in office and research supplies.
Loss
from Operations
.
For the three months ended June 30, 2014, the loss from operations was $431,542, as compared to $502,413
for the three months ended June 30, 2013. The $70,871, or 14%, decrease in the loss from operations for the three months ended
June 30, 2014 was primarily attributable to a $93,868 decrease in general and administrative expenses and a $6,506 increase in
revenue, offset by an $18,212 increase in cost of sales and an $11,639 increase in sales and marketing expenses.
For
the six months ended June 30, 2014, the loss from operations was $936,459, as compared to $900,461 for the six months ended June
30, 2013. The $35,998, or 4%, increase in the loss from operations for the six months ended June 30, 2014 was attributable to
a $66,899 increase in sales and marketing expenses, a $17,083 increase in cost of sales, a $12,500 increase in research and development
expenses and a $14,262 decrease in revenue, offset by a $74,746 decrease in general and administrative expenses.
Interest
Expense
.
For the three months ended June 30, 2014, interest expense was $12,735, as compared to $10,456 for the three
months ended June 30, 2013. The $2,278, or 22%, increase in interest expense for the three months ended June 30, 2014 was primarily
attributable to an increase in interest expense on notes payable related to the Benchmark Note.
For
the six months ended June 30, 2014, interest expense was $25,017, as compared to $21,058 for the three months ended June 30, 2013.
The $3,959, or 19%, increase in interest expense for the three months ended June 30, 2014 was primarily attributable to an increase
in interest expense on notes payable related to the Benchmark Note.
Net
Loss
. For the three months ended June 30, 2014, the Company’s net loss was $444,277, as compared to $512,853 for the
three months ended June 30, 2013. The $68,576, or 13%, decrease in the net loss for the three months ended June 30, 2014 was primarily
attributable to a $93,868 decrease in general and administrative expenses and a $6,506 increase in revenue, offset by an $18,212
increase in cost of sales and an $11,639 increase in sales and marketing expenses.
For
the six months ended June 30, 2014, the Company’s net loss was $961,476, as compared to $921,466 for the six months ended
June 30, 2013. The $40,010, or 4%, increase in the net loss for the six months ended June 30, 2014 was primarily attributable
to a $66,899 increase in sales and marketing expenses, a $17,083 increase in cost of sales, a $12,500 increase in research and
development expenses and a $14,262 decrease in revenue, offset by a $74,746 decrease in general and administrative expenses.
Liquidity
and Capital Resources
As
of June 30, 2014, IET had working capital of $135,211 and cash on hand of $279,664. The $769,735 decrease in cash on hand from
December 31, 2013 was primarily due to $34,027 of principal and interest payments on the Benchmark Note and our continuing operating
expenses, offset by the receipt of $25,200 of net proceeds from the sale of our common stock.
During
the past several years, IET has generally sustained recurring losses and negative cash flows from operations. We currently do
not generate sufficient revenue from the sale of our products to fund our operations and have funded this shortfall through the
sale of our common stock.
On
January 8, 2014, we received $25,200 of net proceeds related to the sale of our common stock. Subsequent to June 30, 2014, we
received $184,968 of net proceeds related to the sale of our common stock.
On
February 25, 2014, we issued an aggregate of 206,250 shares of our common stock as settlement of $16,500 of fees due certain members
of our board of directors for services rendered for the period commencing September 1, 2013 through December 31, 2013. On March
14, 2014, we issued 250,000 shares of our common stock in connection with a consulting agreement with an unaffiliated third party
for marketing services. The total expense associated with the issuance of these shares was $20,000, representing the fair market
value of the shares on the date of issuance ($0.08 per share).
As
of August 4, 2014, our cash position was approximately $350,000. If we are not able to generate profitable operations from the
sale of our products or we are not able to obtain additional financing, we will only be able to continue our operations for approximately
four months from the filing date of this quarterly report on Form 10-Q. The Company has no lending relationships with commercial
banks and is dependent on its ability to attain profitable operations and raise additional capital through one or more equity
and/or debt financings in order to continue operations. While we are working toward attaining profitability for our continuing
operations and aggressively pursuing potential equity and/or debt investors, there can be no assurance that we will be successful
in our efforts. From time to time, we engage placement agents to assist us in our financing initiatives. Any additional equity
financing may result in substantial dilution to the Company’s stockholders. If the Company is unable to attain profitable
operations or secure additional capital, it will explore strategic alternatives, including, but not limited to, the possible sale
of the Company. Our independent registered public accounting firm included an emphasis of a matter paragraph in its report included
in our annual report on Form 10-K for the year ended December 31, 2013, which expressed substantial doubt about our ability to
continue as a going concern. Our consolidated financial statements included herein do not include any adjustments related to this
uncertainty.