Item
1.
Financial Statements
The
consolidated condensed balance sheet as of June 30, 2016 and the related consolidated condensed statements of operations for the
three and six months ended June 30, 2016 and 2015 and cash flows for the six months ended June 30, 2016 and 2015 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 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 condensed financial statements pursuant to the rules and regulations of the SEC. The consolidated
condensed 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 condensed financial
statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2015.
The
results of operations for the three and six months ended June 30, 2016 and 2015 are not necessarily indicative of the results
of the entire fiscal year or of any other period.
Integrated
Environmental Technologies, Ltd.
Consolidated
Condensed Balance Sheets
(Unaudited)
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
79,144
|
|
|
$
|
838,107
|
|
Accounts receivable, net
|
|
|
77,825
|
|
|
|
36,223
|
|
Prepaid expenses and other
|
|
|
32,052
|
|
|
|
14,948
|
|
Inventory
|
|
|
104,251
|
|
|
|
103,220
|
|
Total current assets
|
|
|
293,272
|
|
|
|
992,498
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
220,642
|
|
|
|
245,621
|
|
Total assets
|
|
$
|
513,914
|
|
|
$
|
1,238,119
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Deficiency
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
505,722
|
|
|
$
|
209,774
|
|
Accrued expenses
|
|
|
298,336
|
|
|
|
199,893
|
|
Customer deposits
|
|
|
2,000
|
|
|
|
2,000
|
|
Convertible debentures
|
|
|
25,000
|
|
|
|
501,125
|
|
Note payable
|
|
|
22,497
|
|
|
|
—
|
|
Total current liabilities
|
|
|
853,555
|
|
|
|
912,792
|
|
|
|
|
|
|
|
|
|
|
Convertible debentures
|
|
|
1,318,834
|
|
|
|
788,501
|
|
Total liabilities
|
|
|
2,172,389
|
|
|
|
1,701,293
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders’ deficiency:
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value; 600,000,000 shares authorized; 320,571,243 and 311,404,576 shares, respectively, issued and outstanding
|
|
|
320,571
|
|
|
|
311,405
|
|
Additional paid-in capital
|
|
|
24,145,434
|
|
|
|
24,005,008
|
|
Accumulated deficit
|
|
|
(26,124,480
|
)
|
|
|
(24,779,587
|
)
|
Total stockholders’ deficiency
|
|
|
(1,658,475
|
)
|
|
|
(463,174
|
)
|
Total liabilities and stockholders’ deficiency
|
|
$
|
513,914
|
|
|
$
|
1,238,119
|
|
The
accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
Integrated
Environmental Technologies, Ltd.
Consolidated
Condensed Statements of Operations
(Unaudited)
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
73,338
|
|
|
$
|
151,545
|
|
|
$
|
101,136
|
|
|
$
|
295,622
|
|
Leasing and licensing fees
|
|
|
6,000
|
|
|
|
6,000
|
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
|
79,338
|
|
|
|
157,545
|
|
|
|
113,136
|
|
|
|
307,622
|
|
Cost of sales
|
|
|
30,417
|
|
|
|
52,411
|
|
|
|
44,676
|
|
|
|
108,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
48,921
|
|
|
|
105,134
|
|
|
|
68,460
|
|
|
|
198,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
235,830
|
|
|
|
446,286
|
|
|
|
512,605
|
|
|
|
1,033,995
|
|
Sales and marketing
|
|
|
276,736
|
|
|
|
249,837
|
|
|
|
664,421
|
|
|
|
672,519
|
|
Research and development
|
|
|
43,839
|
|
|
|
59,169
|
|
|
|
101,208
|
|
|
|
193,179
|
|
|
|
|
556,405
|
|
|
|
755,292
|
|
|
|
1,278,234
|
|
|
|
1,899,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(507,484
|
)
|
|
|
(650,158
|
)
|
|
|
(1,209,774
|
)
|
|
|
(1,700,911
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
22
|
|
|
|
271
|
|
|
|
95
|
|
|
|
390
|
|
Interest expense
|
|
|
(67,832
|
)
|
|
|
(11,123
|
)
|
|
|
(135,214
|
)
|
|
|
(22,134
|
)
|
Total other income (expense)
|
|
|
(67,810
|
)
|
|
|
(10,852
|
)
|
|
|
(135,119
|
)
|
|
|
(21,744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(575,294
|
)
|
|
$
|
(661,010
|
)
|
|
$
|
(1,344,893
|
)
|
|
$
|
(1,722,655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
318,657,324
|
|
|
|
304,160,495
|
|
|
|
315,030,950
|
|
|
|
291,746,739
|
|
The
accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
Integrated
Environmental Technologies, Ltd.
Consolidated
Condensed Statements of Cash Flows
(Unaudited)
|
|
Six Months Ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,344,893
|
)
|
|
$
|
(1,722,655
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
47,330
|
|
|
|
46,965
|
|
Stock-based compensation expense
|
|
|
3,392
|
|
|
|
443,378
|
|
Interest accreted on convertible debentures
|
|
|
54,208
|
|
|
|
—
|
|
Gain on settlement of accrued expense
|
|
|
(13,550
|
)
|
|
|
—
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(42,373
|
)
|
|
|
(36,518
|
)
|
Inventory
|
|
|
(1,031
|
)
|
|
|
(68,276
|
)
|
Prepaid expenses and other
|
|
|
(17,104
|
)
|
|
|
169
|
|
Other receivable
|
|
|
—
|
|
|
|
111,200
|
|
Accounts payable
|
|
|
296,719
|
|
|
|
184,533
|
|
Accrued expenses
|
|
|
120,693
|
|
|
|
(201,454
|
)
|
Net cash used in operating activities
|
|
|
(896,609
|
)
|
|
|
(1,242,658
|
)
|
Cash flows used in investing activity:
|
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
|
(22,351
|
)
|
|
|
(23,828
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock, net of offering costs
|
|
|
137,500
|
|
|
|
1,913,950
|
|
Proceeds from issuance of note payable
|
|
|
24,650
|
|
|
|
—
|
|
Repayment of note payable
|
|
|
(2,153
|
)
|
|
|
(39,780
|
)
|
Net cash provided by financing activities
|
|
|
159,997
|
|
|
|
1,874,170
|
|
(Decrease) increase in cash
|
|
|
(758,963
|
)
|
|
|
607,684
|
|
Cash - beginning of period
|
|
|
838,107
|
|
|
|
371,292
|
|
Cash - end of period
|
|
$
|
79,144
|
|
|
$
|
978,976
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
561
|
|
|
$
|
1.504
|
|
Cash paid for income taxes
|
|
$
|
650
|
|
|
$
|
900
|
|
Noncash operating activities:
|
|
|
|
|
|
|
|
|
Issuance of 171,428 shares of common stock as payment of director fees
|
|
$
|
—
|
|
|
$
|
12,000
|
|
Noncash investing activity:
|
|
|
|
|
|
|
|
|
Parts and materials inventory used in production equipment
|
|
$
|
—
|
|
|
$
|
35,225
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
Issuance of 1,055,303 shares of common stock as payment of offering costs related to private placements
|
|
$
|
—
|
|
|
$
|
56,000
|
|
Issuance of warrants to purchase 1,450,303 shares of common stock as payment of offering costs related to private placements
|
|
$
|
—
|
|
|
$
|
47,100
|
|
The
accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
Integrated
Environmental Technologies, Ltd.
Notes
to Unaudited Consolidated Condensed Financial Statements
1.
Basis of Presentation
The
accompanying consolidated condensed 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 a working capital deficiency of $560,283 and an accumulated deficit of $26,124,480 as of June 30, 2016. 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 condensed 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
unprofitable operations and limited assets. The Company continues to execute its strategy of selling Excelyte
®
and Catholyte Zero
™
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, 2016 and December 31, 2015, inventory consisted of parts and materials totaling $104,251 and $103,220, respectively.
3.
Property and Equipment
As
of June 30, 2016 and December 31, 2015, property and equipment, on a net basis, consisted of the following:
|
|
June
30, 2016
|
|
|
December 31, 2015
|
|
Leasehold improvements
|
|
$
|
328,977
|
|
|
$
|
328,977
|
|
Equipment
|
|
|
537,658
|
|
|
|
515,307
|
|
|
|
|
866,635
|
|
|
|
844,284
|
|
Less: Accumulated depreciation
|
|
|
(645,993
|
)
|
|
|
(598,663
|
)
|
|
|
$
|
220,642
|
|
|
$
|
245,621
|
|
4.
Accrued Expenses
As
of June 30, 2016 and December 31, 2015, accrued expenses consisted of the following:
|
|
June
30, 2016
|
|
|
December 31, 2015
|
|
Accrued compensation
|
|
$
|
174,990
|
|
|
$
|
116,455
|
|
Accrued interest (see Note 5)
|
|
|
119,346
|
|
|
|
39,188
|
|
Accrued professional fees
|
|
|
4,000
|
|
|
|
22,000
|
|
Accrued consulting fees and other expenses
|
|
|
—
|
|
|
|
22,250
|
|
|
|
$
|
298,336
|
|
|
$
|
199,893
|
|
5.
Convertible Debentures
April
2007 Convertible Debenture
On
April 26, 2007, the Company issued a convertible debenture to an individual investor in the principal amount of $25,000. This
convertible debenture matured on January 2, 2009 and remains unpaid and, as a result, such obligation can be placed in default
by the holder. 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.
For
the three and six months ended June 30, 2016, the Company recorded $748 and $1,496, respectively, of interest expense related
to this convertible debenture. For the three and six months ended June 30, 2015, the Company recorded $748 and $1,488, respectively,
of interest expense related to this convertible debenture. As of June 30, 2016 and December 31, 2015, the outstanding principal
on this convertible debenture was $25,000, which was included as a component of current convertible debentures, and the accrued
and unpaid interest was $17,937 and $16,441, respectively, which was included as a component of accrued expenses (see Note 4).
Zanett
Convertible Debenture
On
August 21, 2012, the Company issued to Zanett Opportunity Fund, Ltd. an 8% convertible debenture in the amount of $476,125 (the
“Zanett August 2012 Debenture”). The Zanett August 2012 Debenture bears interest at a rate of 8% per annum, had a
three-year term maturing on August 21, 2015 and was originally convertible into 4,761,250 of the Company’s common stock
at a conversion price of $0.10 per share. Effective July 7, 2016, the Zanett August 2012 Debenture was amended to extend the maturity
date to December 31, 2017 and reduce the conversion price to $0.07 per share. As a result of this amendment, the Zanett August
2012 Debenture is convertible into 6,801,786 shares of the Company’s common stock.
For
the three and six months ended June 30, 2016, the Company recorded $9,496 and $18,993, respectively, of interest expense related
to the Zanett August 2012 Debenture. For the three and six months ended June 30, 2015, the Company recorded $9,496 and $18,888,
respectively, of interest expense related to the Zanett August 2012 Debenture. As of June 30, 2016, the outstanding principal
on the Zanett August 2012 Debenture was $476,125, which was included as a component of non-current convertible debentures, and
the accrued and unpaid interest was $32,873, which was included as a component of accrued expenses (see Note 4). As of December
31, 2015, the outstanding principal on the Zanett August 2012 Debenture was $476,125, which was included as a component of current
convertible debentures, and the accrued and unpaid interest was $13,880, which was included as a component of accrued expenses
(see Note 4).
November
and December 2015 Convertible Debentures and Warrants
On
November 11, 2015, December 3, 2015 and December 18, 2015, the Company issued 12% convertible debentures (the “2015 Debentures”)
in the aggregate principal amount of $997,222 to five institutional investors and three individual investors. In connection with
the issuance of the 2015 Debentures, the Company issued warrants (the “2015 Debenture Warrants”) to purchase an aggregate
of 7,123,014 shares of its common stock. The gross proceeds received in connection with these private placements were $897,500.
The
2015 Debentures mature on the date that is two years from the issuance date, bear interest at a rate of 12% per annum and contain
an original issue discount of 10% of the principal amount ($99,722 in aggregate). The entire principal amount of each of the 2015
Debentures is convertible at any time into shares of the Company’s common stock at the option of the respective debenture
holder at a conversion price of $0.07 per share. An aggregate of 14,246,029 shares of the Company’s common stock can be
issued pursuant to the 2015 Debentures at the current conversion price of $0.07 per share.
The
Company separately accounted for the liability and equity components of the 2015 Debentures based upon the relative fair value
of the liability and equity components on the respective dates of issuance. As a result, the Company recorded a discount of $117,708
for the 2015 Debentures to account for the relative fair value attributable to the 2015 Debenture Warrants, which is being accreted
as interest expense using the effective interest method over the respective two-year terms of each of the 2015 Debentures. In
addition, the $99,722 original issue discount is also being accreted as interest expense using the effective interest method over
the respective two-year terms of each of the 2015 Debentures.
For
the three and six months ended June 30, 2016, the Company recorded a total of $56,939 ($27,104 accreted) and $113,878 ($54,208
accreted), respectively, of interest expense related to the 2015 Debentures. As of June 30, 2016 and December 31, 2015, $68,536
and $8,867, respectively, of interest due on the 2015 Debentures was accrued and recorded as a component of accrued expenses (see
Note 4). As of June 30, 2016, the unamortized discount on the 2015 Debentures related to the fair value of the 2015 Debenture
Warrants was $83,347, the unamortized discount on the 2015 Debentures related to the original issue discount was $71,166 and the
net carrying value of the 2015 Debentures was $842,709, which was recorded as a component of non-current convertible debentures.
As of December 31, 2015, the net carrying value of the 2015 Debentures was $788,501, which was recorded as a component of non-current
convertible debentures.
6.
Stockholders’ Deficiency
Sale
of Common Stock
On
April 20, 2016, the Company sold an aggregate of 9,166,667 shares of common stock and warrants to purchase 1,833,333 shares of
common stock to two individual investors for an aggregate purchase price of $137,500, or $0.015 per share.
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, 2016, stock options to purchase 3,846,920 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 original aggregate number of shares of common stock
which could be awarded under the 2012 Equity Incentive Plan was 14,000,000 shares, subject to adjustment as provided in the 2012
Equity Incentive Plan. Effective January 29, 2016, as permitted under the 2012 Equity Incentive Plan, the Company’s board
of directors increased the number of shares of common stock that could be awarded under the 2012 Equity Incentive Plan to 31,140,458
shares. As of June 30, 2016, options to purchase 2,518,150 shares of the Company’s common stock were outstanding under the
2012 Equity Incentive Plan and up to 28,622,308 shares of the Company’s common stock remain available for awards 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, but 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, 2016 is set forth below:
|
|
Stock
Option
Shares
|
|
|
Weighted
Average
Exercise
Price Per
Common
Share
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2015
|
|
|
8,365,070
|
|
|
$
|
0.11
|
|
|
$
|
—
|
|
Granted during the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised during the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Terminated during the period
|
|
|
(2,000,000
|
)
|
|
$
|
0.04
|
|
|
|
—
|
|
Outstanding at June 30, 2016
|
|
|
6,365,070
|
|
|
$
|
0.13
|
|
|
$
|
—
|
|
Exercisable at June 30, 2016
|
|
|
6,115,070
|
|
|
$
|
0.13
|
|
|
$
|
—
|
|
Exercisable at December 31, 2015
|
|
|
6,002,570
|
|
|
$
|
0.13
|
|
|
$
|
—
|
|
Information
with respect to stock options outstanding and stock options exercisable as of June 30, 2016 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)
|
|
$
|
0.07
|
|
|
|
2,068,150
|
|
|
$
|
0.07
|
|
|
|
3.8
|
|
|
|
2,068,150
|
|
|
$
|
0.07
|
|
|
|
3.8
|
|
$
|
0.08
|
|
|
|
450,000
|
|
|
$
|
0.08
|
|
|
|
8.7
|
|
|
|
200,000
|
|
|
$
|
0.08
|
|
|
|
8.7
|
|
$
|
0.10
|
|
|
|
2,180,253
|
|
|
$
|
0.10
|
|
|
|
2.7
|
|
|
|
2,180,253
|
|
|
$
|
0.10
|
|
|
|
2.7
|
|
$
|
0.20
|
|
|
|
833,333
|
|
|
$
|
0.20
|
|
|
|
5.8
|
|
|
|
833,333
|
|
|
$
|
0.20
|
|
|
|
5.8
|
|
$
|
0.30
|
|
|
|
833,334
|
|
|
$
|
0.30
|
|
|
|
5.8
|
|
|
|
833,334
|
|
|
$
|
0.30
|
|
|
|
5.8
|
|
|
|
|
|
|
6,365,070
|
|
|
$
|
0.13
|
|
|
|
4.2
|
|
|
|
6,115,070
|
|
|
$
|
0.13
|
|
|
|
4.1
|
|
A
summary of the non-vested shares subject to stock options granted under the Equity Incentive Plans as of June 30, 2016 is as follows:
|
|
Stock
Option
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
Per Share
|
|
Non-vested at December 31, 2015
|
|
|
2,362,500
|
|
|
$
|
0.03
|
|
Granted during the period
|
|
|
—
|
|
|
|
—
|
|
Vested during the period
|
|
|
(112,500
|
)
|
|
$
|
0.05
|
|
Terminated during the period
|
|
|
(2,000,000
|
)
|
|
$
|
0.03
|
|
Non-vested at June 30, 2016
|
|
|
250,000
|
|
|
$
|
0.05
|
|
As
of June 30, 2016, there was $12,516 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 twenty-three
months.
Warrants
to Purchase Common Stock
A
summary of warrant transactions during the six months ended June 30, 2016 is as follows:
|
|
Warrant
Shares
|
|
|
Weighted
Average
Exercise
Price Per
Common
Share
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2015
|
|
|
25,454,701
|
|
|
$
|
0.08
|
|
|
$
|
3,459
|
|
Issued during the period
|
|
|
1,833,333
|
|
|
$
|
0.02
|
|
|
|
—
|
|
Exercised during the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Terminated during the period
|
|
|
(1,250,000
|
)
|
|
$
|
0.05
|
|
|
|
—
|
|
Outstanding at June 30, 2016
|
|
|
26,038,034
|
|
|
$
|
0.08
|
|
|
$
|
—
|
|
Exercisable at June 30, 2016
|
|
|
26,038,034
|
|
|
$
|
0.08
|
|
|
$
|
—
|
|
Exercisable at December 31, 2015
|
|
|
25,454,701
|
|
|
$
|
0.08
|
|
|
$
|
3,459
|
|
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, 2016 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
|
|
$
|
0.02 - 0.04
|
|
|
|
2,750,775
|
|
|
|
2.6
|
|
|
$
|
0.03
|
|
|
|
2,750,775
|
|
|
|
2.6
|
|
|
$
|
0.03
|
|
$
|
0.06 - 0.07
|
|
|
|
9,844,244
|
|
|
|
3.1
|
|
|
$
|
0.07
|
|
|
|
9,844,244
|
|
|
|
3.1
|
|
|
$
|
0.07
|
|
$
|
0.08 - 0.10
|
|
|
|
13,443,015
|
|
|
|
3.6
|
|
|
$
|
0.10
|
|
|
|
13,443,015
|
|
|
|
3.6
|
|
|
$
|
0.10
|
|
|
|
|
|
|
26,038,034
|
|
|
|
3.3
|
|
|
$
|
0.08
|
|
|
|
26,038,034
|
|
|
|
3.3
|
|
|
$
|
0.08
|
|
As
of June 30, 2016, there were no non-vested shares subject to warrants and no unrecognized compensation cost related to warrants.
7.
Stock-Based Compensation
During
the three and six months ended June 30, 2016 and 2015, the Company recorded stock-based compensation expense as follows:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
General and administrative
|
|
$
|
299
|
|
|
$
|
66,894
|
|
|
$
|
598
|
|
|
$
|
254,251
|
|
Sales and marketing
|
|
|
1,397
|
|
|
|
1,396
|
|
|
|
2,794
|
|
|
|
132,951
|
|
Research and development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
56,176
|
|
|
|
$
|
1,696
|
|
|
$
|
68,290
|
|
|
$
|
3,392
|
|
|
$
|
443,378
|
|
For
the three and six months ended June 30, 2016, the Company recorded stock-based compensation expense related to stock options granted
to employees of $1,696 and $3,392, respectively. For the three and six months ended June 30, 2015, the Company recorded stock-based
compensation expense related to common stock and stock options granted to employees and directors of $68,290 and $443,378, respectively.
For each of the three and six months ended June 30, 2016 and 2015, the Company did not record any stock-based compensation expense
for non-employees.
8.
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, 2016, diluted net loss per share did not include the effect of 6,365,070 shares of common
stock issuable upon the exercise of outstanding stock options, 26,038,034 shares of common stock issuable upon the exercise of
outstanding warrants and 19,069,779 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, 2015, diluted net loss per share did not include the effect of 6,365,070 shares of common
stock issuable upon the exercise of outstanding stock options, 22,440,811 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.
9.
Subsequent Events
Issuance
of Zero Coupon Secured Convertible Debentures
On
July 14, 2016, the Company issued zero coupon secured convertible debentures to eight individual investors and one institutional
investor (each a “July 2016 Debenture” and collectively, the “July 2016 Debentures”) in the aggregate
principal amount of $670,557. In connection with the issuance of the July 2016 Debentures, the Company issued warrants (the “July
2016 Debenture Warrants”) to purchase an aggregate of 67,055,700 shares of its common stock. The gross proceeds received
in connection with this private placement were $603,500.
The
July 2016 Debentures have a one-year term maturing on July 14, 2017, contain an original issue discount of 10% and are secured
by the Company’s assets. The entire principal amount of a July 2016 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 $0.01 per share (the “July 2016 Debenture
Conversion Price”). If at any time subsequent to the issuance of the July 2016 Debentures and prior to the conversion of
the July 2016 Debentures into shares of the Company’s common stock, the Company closes on a financing involving the issuance
of convertible debentures or shares of its common stock with or at a per share conversion price or purchase price that is less
than the July 2016 Debenture Conversion Price (the “Subsequent Financing Per Share Price”), then the July 2016 Debenture
Conversion Price will be reduced to seventy-five percent (75%) of the Subsequent Financing Per Share Price. The quoted market
price of the Company’s common stock on July 14, 2016 was $0.009 per share. An aggregate of 67,055,700 shares of the Company’s
common stock can be issued pursuant to the July 2016 Debentures at the current conversion price of $0.01 per share.
The
July 2016 Debenture Warrants have a five-year term and provide the holders with the right to purchase an aggregate of 67,055,700
shares of the Company’s common stock at $0.01 per share. All of the shares of the Company’s common stock underlying
the July 2016 Debenture Warrants are fully vested. The July 2016 Debenture Warrants contain a cashless exercise provision and
are callable in the event the closing price of the Company’s common stock averaged over a period of ten (10) consecutive
trading days is equal to or greater than $0.04 per share. The exercise price of the July 2016 Debenture Warrants is subject to
adjustment for stock dividends, stock splits, or similar events.
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 a hypochlorous
acid-based solution, commonly known as anolyte, that it markets and sells under the brand name Excelyte
®
, as well
as an anti-oxidizing, mildly alkaline solution, commonly known as catholyte, that it markets under the brand name Catholyte Zero
™
.
Both Excelyte
®
and Catholyte Zero
™
provide an environmentally friendly and effective alternative
for cleaning, sanitizing and disinfecting as compared to the hazardous chemicals traditionally prevalent in commercial use. IET
manufactures proprietary equipment, which it markets under the brand name EcaFlo
™
, to produce Excelyte
®
and Catholyte Zero
™
for distribution by IET and, under certain circumstances, such equipment is leased
by IET to customers for use at their facilities.
Products
We
produce Excelyte
®
, which is effective as a disinfectant without leaving a harmful residue. The naturally occurring
properties and less-corrosive nature of Excelyte
®
make it an excellent replacement for quaternary ammonia, sodium
hypochlorite (bleach) and other hazardous chemicals traditionally used as biocides/disinfectants and sanitizers. Excelyte
®
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.
Excelyte
®
is registered with the U.S. Environmental Protection Agency (the “EPA”) as a tuberculocidal hospital-level,
hard non-porous surface disinfectant (EPA Registration No. 82341-1). Our EPA registration for Excelyte
®
includes
kill claims for: (1) various pathogens including, but not limited to,
Mycobacterium bovis
(Tuberculosis),
Salmonella
enterica
,
Pseudomonas aeruginosa
,
Staphylococcus aureus
, methicillin-resistant
Staphylococcus aureus
(MRSA), H1N1 influenza virus (swine flu) and Respiratory Syncytial virus (RSV); (2) hospital-acquired pathogens such as
Clostridium
difficile
spores (
C. diff
) and vancomycin-resistant enterococci (VRE) as well as a carbapenem-resistant enterobacteriaceae
(CRE) known as
Klebsiella pneumoniae
(NDM-1); (3) high-risk blood-borne pathogen human immunodeficiency virus (HIV); (4)
the food-borne pathogens
Listeria monocytogenes
and
Escherichia coli
(
E. coli
); (5) Yeast,
Candida albicans
;
and (6) the non-enveloped viruses adenovirus, norovirus, rhinovirus and rotavirus. Our EPA registration for Excelyte
®
also includes approval for use in oil and gas applications as a hydrogen sulfide (H
2
S) scavenger/eliminator and
biocide. Excelyte
®
is also 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.
We
also produce Catholyte Zero
™
, which is an anti-oxidizing, mildly alkaline solution that is effective as an industrial
degreaser and surfactant. We have recently developed a new proprietary oil well treatment protocol that consists of a dual treatment
regimen utilizing both Excelyte
®
and Catholyte Zero
™
. The protocol has significantly increased
oil production, while substantially reducing hydrogen sulfide, iron sulfide scales (FeS), bacteria and bacterial deposits present
in oil wells.
IET
will also lease EcaFlo
®
equipment to a customer in certain situations if the customer’s business model and
required volume of solution warrants such an arrangement. Under this type of arrangement, we lease our EcaFlo
®
equipment and provide service support for a fixed monthly amount plus royalty payments for the solution 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 solution produced by our EcaFlo
®
equipment. We currently
have no active lease arrangements and have one active license agreement.
Business
Strategy
We
seek long-term relationships and commitments directly with our targeted customers and distributors. Our business model is focused
on selling Excelyte
®
and Catholyte Zero
™
directly to customers. In certain situations, a customer’s
business model and required volume of solution may make it advantageous for us to place the EcaFlo
®
equipment at
the customer’s facility. In these situations, we would lease the EcaFlo
®
equipment to the customer, maintaining
ownership of the equipment.
Currently,
we are primarily focused on selling large volumes of Excelyte
®
and Catholyte Zero
™
to the upstream
oil and gas production market (exploration and production companies), and the majority of our sales, marketing, research and development,
and administrative resources are dedicated to this endeavor. However, we also sell smaller volumes of Excelyte
®
to the healthcare and food production markets, and we maintain long-term interest in developing these business segments further.
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, 2015. There have been no material changes to the critical accounting policies.
Results
of Operations
Revenue.
Revenue for the three months ended June 30, 2016 was $79,338, as compared to $157,545, for the three months ended June 30,
2015. The $78,207, or 50%, decrease in revenue for the three months ended June 30, 2016 was primarily the result of a $71,356
decrease in Excelyte
®
sales and a $6,565 decrease in sales of EcaFlo
®
equipment parts and related
supplies. The $71,356 decrease in Excelyte
®
sales was primarily the result of a $110,400 decrease in sales to two
of our oil and gas customers who reduced their well maintenance budgets and/or closed down low-producing wells, offset by a $36,855
increase in sales to an existing customer that expanded Excelyte
®
well maintenance treatments to additional wells
in a second basin.
Revenue
for the six months ended June 30, 2016 was $113,136, as compared to $307,622, for the six months ended June 30, 2015. The $194,486,
or 63%, decrease in revenue for the six months ended June 30, 2016 was primarily the result of a $167,997 decrease in Excelyte
®
sales and a $22,619 decrease in sales of EcaFlo
®
equipment parts and related supplies. The $167,997 decrease
in Excelyte
®
sales was primarily the result of a $226,125 decrease in sales to two of our oil and gas customers
who reduced their well maintenance budgets and/or closed down low-producing wells, offset by a $36,855 increase in sales to an
existing customer that expanded Excelyte
®
well maintenance treatments to additional wells in a second basin.
Cost
of Sales
. Cost of sales for the three months ended June 30, 2016 was $30,417, as compared to $52,411 for the three months
ended June 30, 2015. The $21,994, or 42%, decrease in cost of sales for the three months ended June 30, 2016 was primarily the
result of the decrease in Excelyte
®
sales to oil and gas customers.
Cost
of sales for the six months ended June 30, 2016 was $44,676, as compared to $108,840 for the six months ended June 30, 2015. The
$64,164, or 59%, decrease in cost of sales for the six months ended June 30, 2016 was primarily the result of the decrease in
Excelyte
®
sales to oil and gas customers.
Gross
Profit
. For the three months ended June 30, 2016 and 2015, gross profit was $48,921 and $105,134, respectively, and gross
profit margins were 62% and 67%, respectively. The $56,213 decrease in gross profit for the three months ended June 30, 2016 was
primarily the result of the decrease in Excelyte
®
sales to oil and gas customers. The decrease in gross profit
margins for the three months ended June 30, 2016, as compared to the three months ended June 30, 2015, was primarily the result
of increased start-up costs at new production facilities during 2016.
For
the six months ended June 30, 2016 and 2015, gross profit was $68,460 and $198,782, respectively, and gross profit margins were
61% and 65%, respectively. The $130,322 decrease in gross profit for the six months ended June 30, 2016 was primarily the result
of the decrease in Excelyte
®
sales to oil and gas customers. The decrease in gross profit margins for the six months
ended June 30, 2016, as compared to the six months ended June 30, 2015, was primarily the result of increased start-up costs at
new production facilities during 2016.
General
and Administrative Expenses
. For the three months ended June 30, 2016, general and administrative expenses were $235,830,
as compared to $446,286 for the three months ended June 30, 2015. The $210,456, or 47%, decrease in general and administrative
expenses for the three months ended June 30, 2016 was primarily the result of a $66,595 decrease in stock-based compensation expense
for directors, a $63,473 decrease in consulting fees primarily related to investor and public relations, a $38,605 decrease in
travel and conference expenses primarily related to fundraising and business development activities, a $22,896 decrease in expenses
related to the annual meeting of stockholders, a $7,650 decrease in director compensation, a $7,285 decrease in office-related
expenses and a $4,483 decrease in employee payroll and associated benefit costs.
For
the six months ended June 30, 2016, general and administrative expenses were $512,605, as compared to $1,033,995 for the six months
ended June 30, 2015. The $521,390, or 50%, decrease in general and administrative expenses for the six months ended June 30, 2016
was primarily the result of a $187,058 decrease in stock-based compensation expense for employees, a $140,329 decrease in consulting
fees primarily related to investor and public relations, a $66,595 decrease in stock-based compensation expense for directors,
a $59,486 decrease in travel and conference expenses primarily related to fundraising and business development activities, a $22,896
decrease in expenses related to the annual meeting of stockholders, a $15,650 decrease in director compensation, a $10,828 decrease
in employee payroll and associated benefit costs and a $7,233 decrease in office-related expenses.
Sales
and Marketing Expenses
. For the three months ended June 30, 2016, sales and marketing expenses were $276,736, as compared
to $249,837 for the three months ended June 30, 2015. The $26,899, or 11%, increase in sales and marketing expenses for the three
months ended June 30, 2016 was primarily the result of a $28,979 increase in consulting expenses related to sales and marketing
initiatives and a $28,554 increase in rent expense and maintenance expenses related to additional facilities, offset by a $28,197
decrease in travel and conference expenses related to sales activities.
For
the six months ended June 30, 2016, sales and marketing expenses were $664,421, as compared to $672,519 for the six months ended
June 30, 2015. The $8,098, or 1%, decrease in sales and marketing expenses for the six months ended June 30, 2016 was primarily
the result of a $130,157 decrease in stock-based compensation expense for employees and a $34,400 decrease in travel and conference
expenses related to sales activities, offset by a $59,483 increase in consulting expenses related to sales and marketing initiatives,
a $53,622 increase in rent expense and maintenance expenses related to additional facilities and a $44,609 increase in employee
payroll and associated benefit costs related to new employees.
Research
and Development Expenses
. For the three months ended June 30, 2016, research and development expenses were $43,839, as compared
to $59,169 for the three months ended June 30, 2015. The $15,330, or 26%, decrease in research and development expenses for the
three months ended June 30, 2016 was primarily the result of a $5,383 decrease in consulting fees related to regulatory and patent
activities, a $4,737 decrease in supplies and a $3,053 decrease in laboratory testing fees.
For
the six months ended June 30, 2016, research and development expenses were $101,208, as compared to $193,179 for the six months
ended June 30, 2015. The $91,971, or 48%, decrease in research and development expenses for the six months ended June 30, 2016
was primarily the result of a $56,176 decrease in stock-based compensation expense for employees, a $25,960 decrease in laboratory
testing fees, an $8,555 decrease in supplies and a $7,409 decrease in consulting fees related to regulatory and patent activities.
Loss
from Operations
.
For the three months ended June 30, 2016, the loss from operations was $507,484, as compared to $650,158
for the three months ended June 30, 2015. The $142,674, or 22%, decrease in the loss from operations for the three months ended
June 30, 2016 was the result of a $210,456 decrease in general and administrative expenses and a $15,330 decrease in research
and development expenses, offset by a $56,213 decrease in gross profit on sales and a $26,899 increase in sales and marketing
expenses.
For
the six months ended June 30, 2016, the loss from operations was $1,209,774, as compared to $1,700,911 for the six months ended
June 30, 2015. The $491,137, or 29%, decrease in the loss from operations for the six months ended June 30, 2016 was the result
of a $521,390 decrease in general and administrative expenses, a $91,971 decrease in research and development expenses and an
$8,098 decrease in sales and marketing expenses, offset by a $130,322 decrease in gross profit on sales.
Interest
Income
.
For the three months ended June 30, 2016, interest income was $22, as compared to $271 for the three months
ended June 30, 2015. For the six months ended June 30, 2016, interest income was $95, as compared to $390 for the three months
ended June 30, 2015.
Interest
Expense
.
For the three months ended June 30, 2016, interest expense was $67,832, as compared to $11,123 for the three
months ended June 30, 2015. The $56,709, or 510%, increase in interest expense for the three months ended June 30, 2016 was primarily
the result of a $56,939 increase in interest expense ($27,104 accreted interest on debt discount) related to the 2015 Debentures.
For
the six months ended June 30, 2016, interest expense was $135,214, as compared to $22,134 for the six months ended June 30, 2015.
The $113,080, or 511%, increase in interest expense for the six months ended June, 2016 was primarily the result of a $113,878
increase in interest expense ($54,208 accreted interest on debt discount) related to the 2015 Debentures.
Net
Loss
. For the three months ended June 30, 2016, the Company’s net loss was $575,294, as compared to $661,010 for the
three months ended June 30, 2015. The $85,716, or 13%, decrease in the net loss for the three months ended June 30, 2016 was primarily
the result of a $210,456 decrease in general and administrative expenses and a $15,330 decrease in research and development expenses,
offset by a $56,709 increase in interest expense, a $56,213 decrease in gross profit on sales and a $26,899 increase in sales
and marketing expenses.
For
the six months ended June 30, 2016, the Company’s net loss was $1,344,893, as compared to $1,722,655 for the six months
ended June 30, 2015. The $377,762, or 22%, decrease in the net loss for the six months ended June 30, 2016 was primarily the result
of a $521,390 decrease in general and administrative expenses, a $91,971 decrease in research and development expenses and an
$8,098 decrease in sales and marketing expenses, offset by a $130,322 decrease in gross profit on sales and a $113,080 increase
in interest expense.
Liquidity
and Capital Resources
As
of June 30, 2016, the Company had a working capital deficiency of $560,283 and cash on hand of $79,144. The $758,963 decrease
in cash on hand from December 31, 2015 was primarily the result of payments to fund our continuing operating expenses.
During
the past several years, we 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 and the issuance of convertible debentures.
On
April 20, 2016, the Company received gross proceeds of $137,500 in connection with the sale of an aggregate of 9,166,667 shares
of common stock and warrants to purchase 1,833,333 shares of common stock.
On
July 14, 2016, the Company received gross proceeds of $603,500 in connection with the issuance of the July 2016 Debentures.
As
of August 10, 2016, our cash position was approximately $418,000. 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. We have reduced operating expenses and effective July
1, 2016, David R. LaVance, our President and Chief Executive Officer and Thomas S. Gifford, our Executive Vice President and Chief
Financial Officer, each agreed to reduce their respective annual salary to $110,000. Prior to the reduction, Mr. LaVance’s
annual salary was $235,000 and Mr. Gifford’s annual salary was $200,000. The reduced salaries will remain in effect until:
(a)(i) IET reaches positive earnings before interest, taxes, depreciation and amortization, adjusted for non-cash expenses (“Adjusted
EBITDA”), for one calendar quarter, and (ii) the subsequent calendar quarter Adjusted EBITDA is projected to remain positive,
factoring in the increased salaries for each of Mr. LaVance and Mr. Gifford, or (b) some other corporate activity occurs whereby
an adjustment is justified, as determined by our compensation committee. We also deferred certain vendor payments until our cash
flow position improves. We did not make a $25,000 principal payment due on a convertible debenture and, as a result, this obligation
can be placed into default by the holder.
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, 2015, which expressed substantial doubt about our ability to continue as a
going concern. Our consolidated condensed financial statements included herein do not include any adjustments related to this
uncertainty.
We
have no lending relationships with commercial banks and are dependent on our 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 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 our stockholders. If we are unable to attain profitable
operations or secure additional capital, we will explore strategic alternatives, including, but not limited to, the sale of the
Company.