UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedSeptember 30, 2016
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number000-26309
INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD.
(Exact name of registrant as specified in its charter)
| Nevada | | 98-0200471 |
| (State or other jurisdiction of | | (I.R.S. Employer |
| incorporation or organization) | | Identification No.) |
| 4235 Commerce Street | | |
| Little River, South Carolina | | 29566 |
| (Address of principal executive offices) | | (Zip Code) |
(843) 390-2500
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [ ] | Accelerated filer [ ] |
| | |
| Non-accelerated filer [ ] (Do not check if a smaller reporting company) | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of November 11, 2016, there were 320,571,243 shares of the registrant’s common stock, par value $0.001 per share, outstanding.
INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD.
INDEX TO FORM 10-Q
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information included in this quarterly report on Form 10-Q and other filings of the registrant under the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as information communicated orally or in writing between the dates of such filings, contains or may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.
Forward-looking statements may include the words “may”, “could”, “estimate”, “intend”, “continue”, “believe”, “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this quarterly report on Form 10-Q. Except as may be required under applicable securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement. You should, however, consult further disclosures we make in future filings of our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Additionally, the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 most likely do not apply to our forward-looking statements because we are considered a penny stock issuer.
PART I – FINANCIAL INFORMATION
Item 1.Financial Statements
The consolidated condensed balance sheet as of September 30, 2016 and the related consolidated condensed statements of operations for the three and nine months ended September 30, 2016 and 2015 and cash flows for the nine months ended September 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 nine months ended September 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)
| | | September 30, 2016 | | | December 31, 2015 | |
| | | | | | | |
| Assets | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash | | $ | 229,144 | | | $ | 838,107 | |
| Accounts receivable, net | | | 26,575 | | | | 36,223 | |
| Prepaid expenses and other | | | 65,452 | | | | 14,948 | |
| Inventory | | | 124,942 | | | | 103,220 | |
| Total current assets | | | 446,113 | | | | 992,498 | |
| | | | | | | | | |
| Property and equipment, net | | | 204,198 | | | | 245,621 | |
| Total assets | | $ | 650,311 | | | $ | 1,238,119 | |
| | | | | | | | | |
| Liabilities and Stockholders’ Deficiency | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 540,568 | | | $ | 209,774 | |
| Accrued expenses | | | 339,146 | | | | 199,893 | |
| Customer deposits | | | 2,000 | | | | 2,000 | |
| Convertible debentures | | | 411,035 | | | | 501,125 | |
| Note payable | | | 15,935 | | | | — | |
| Total current liabilities | | | 1,308,684 | | | | 912,792 | |
| | | | | | | | | |
| Convertible debentures | | | 1,346,236 | | | | 788,501 | |
| Total liabilities | | | 2,654,920 | | | | 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 | | | 24,441,941 | | | | 24,005,008 | |
| Accumulated deficit | | | (26,767,121 | ) | | | (24,779,587 | ) |
| Total stockholders’ deficiency | | | (2,004,609 | ) | | | (463,174 | ) |
| Total liabilities and stockholders’ deficiency | | $ | 650,311 | | | $ | 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 September 30, | | | Nine Months Ended September 30, | |
| | | 2016 | | | 2015 | | | 2016 | | | 2015 | |
| | | | | | | | | | | | | |
| Revenues: | | | | | | | | | | | | | | | | |
| Sales | | $ | 50,430 | | | $ | 135,665 | | | $ | 151,567 | | | $ | 431,287 | |
| Leasing and licensing fees | | | 6,000 | | | | 6,000 | | | | 18,000 | | | | 18,000 | |
| | | | 56,430 | | | | 141,665 | | | | 169,567 | | | | 449,287 | |
| Cost of sales | | | 20,350 | | | | 53,719 | | | | 65,025 | | | | 162,559 | |
| | | | | | | | | | | | | | | | | |
| Gross profit | | | 36,080 | | | | 87,946 | | | | 104,542 | | | | 286,728 | |
| | | | | | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | | | | | |
| General and administrative | | | 238,573 | | | | 368,332 | | | | 751,179 | | | | 1,402,327 | |
| Sales and marketing | | | 253,002 | | | | 299,516 | | | | 917,422 | | | | 972,035 | |
| Research and development | | | 40,041 | | | | 37,200 | | | | 141,249 | | | | 230,379 | |
| | | | 531,616 | | | | 705,048 | | | | 1,809,850 | | | | 2,604,741 | |
| | | | | | | | | | | | | | | | | |
| Loss from operations | | | (495,536 | ) | | | (617,102 | ) | | | (1,705,308 | ) | | | (2,318,013 | ) |
| | | | | | | | | | | | | | | | | |
| Other income (expense): | | | | | | | | | | | | | | | | |
| Interest income | | | 47 | | | | 136 | | | | 142 | | | | 526 | |
| Interest expense | | | (147,152 | ) | | | (11,451 | ) | | | (282,368 | ) | | | (33,585 | ) |
| Total other income (expense) | | | (147,105 | ) | | | (11,315 | ) | | | (282,226 | ) | | | (33,059 | ) |
| | | | | | | | | | | | | | | | | |
| Net loss | | $ | (642,641 | ) | | $ | (628,417 | ) | | $ | (1,987,534 | ) | | $ | (2,351,072 | ) |
| | | | | | | | | | | | | | | | | |
| Net loss per share, basic and diluted | | $ | (0.00 | ) | | $ | (0.00 | ) | | $ | (0.01 | ) | | $ | (0.01 | ) |
| | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding, basic and diluted | | | 320,571,243 | | | | 304,164,263 | | | | 316,891,194 | | | | 295,931,399 | |
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)
| | | Nine Months Ended September 30, | |
| | | 2016 | | | 2015 | |
| Cash flows from operating activities: | | | | | | | | |
| Net loss | | $ | (1,987,534 | ) | | $ | (2,351,072 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
| Depreciation and amortization | | | 69,161 | | | | 67,932 | |
| Stock-based compensation expense | | | 5,108 | | | | 454,543 | |
| Interest accreted on convertible debentures | | | 158,937 | | | | — | |
| Write-off of accounts receivable | | | 6,610 | | | | — | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts receivable | | | 2,267 | | | | (32,030 | ) |
| Inventory | | | (21,722 | ) | | | (57,460 | ) |
| Prepaid expenses and other | | | (50,504 | ) | | | (12,536 | ) |
| Other receivable | | | — | | | | 111,200 | |
| Accounts payable | | | 331,565 | | | | 295,494 | |
| Accrued expenses | | | 147,953 | | | | (193,103 | ) |
| Net cash used in operating activities | | | (1,338,159 | ) | | | (1,717,032 | ) |
| Cash flows used in investing activity: | | | | | | | | |
| Purchase of equipment | | | (27,738 | ) | | | (21,852 | ) |
| Cash flows from financing activities: | | | | | | | | |
| Proceeds from issuance of convertible debentures | | | 603,500 | | | | — | |
| 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 | | | (8,716 | ) | | | (46,546 | ) |
| Net cash provided by financing activities | | | 756,934 | | | | 1,867,404 | |
| (Decrease) increase in cash | | | (608,963 | ) | | | 128,520 | |
| Cash - beginning of period | | | 838,107 | | | | 371,292 | |
| Cash - end of period | | $ | 229,144 | | | $ | 499,812 | |
| Supplemental disclosure of cash flow information: | | | | | | | | |
| Cash paid for interest | | $ | 2,218 | | | $ | 2,593 | |
| 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 | | $ | — | | | $ | 55,951 | |
| 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 $862,571 and an accumulated deficit of $26,767,121 as of September 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 September 30, 2016 and December 31, 2015, inventory consisted of parts and materials totaling $124,942 and $103,220, respectively.
3. Property and Equipment
As of September 30, 2016 and December 31, 2015, property and equipment, on a net basis, consisted of the following:
| | | September 30, 2016 | | | December 31, 2015 | |
| Leasehold improvements | | $ | 328,977 | | | $ | 328,977 | |
| Equipment | | | 543,045 | | | | 515,307 | |
| | | | 872,022 | | | | 844,284 | |
| Less: Accumulated depreciation | | | (667,824 | ) | | | (598,663 | ) |
| | | $ | 204,198 | | | $ | 245,621 | |
4. Accrued Expenses
As of September 30, 2016 and December 31, 2015, accrued expenses consisted of the following:
| | | September 30, 2016 | | | December 31, 2015 | |
| Accrued compensation | | $ | 174,990 | | | $ | 116,455 | |
| Accrued interest (see Notes 5 and 6) | | | 159,992 | | | | 39,188 | |
| Accrued professional fees | | | 4,000 | | | | 22,000 | |
| Accrued consulting fees and other expenses | | | 164 | | | | 22,250 | |
| | | $ | 339,146 | | | $ | 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 nine months ended September 30, 2016, the Company recorded $756 and $2,252, respectively, of interest expense related to this convertible debenture. For the three and nine months ended September 30, 2015, the Company recorded $756 and $2,244, respectively, of interest expense related to this convertible debenture. As of September 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 $18,694 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 nine months ended September 30, 2016, the Company recorded $9,601 and $28,594, respectively, of interest expense related to the Zanett August 2012 Debenture. For the three and nine months ended September 30, 2015, the Company recorded $9,601 and $28,489, respectively, of interest expense related to the Zanett August 2012 Debenture. As of September 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 $42,473, 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 nine months ended September 30, 2016, the Company recorded a total of $57,565 ($27,402 accreted) and $171,443 ($81,610 accreted), respectively, of interest expense related to the 2015 Debentures. As of September 30, 2016 and December 31, 2015, $98,699 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 September 30, 2016, the unamortized discount on the 2015 Debentures related to the fair value of the 2015 Debenture Warrants was $68,513, the unamortized discount on the 2015 Debentures related to the original issue discount was $58,598 and the net carrying value of the 2015 Debentures was $870,111, 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.
July 2016 Convertible Debentures and Warrants
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 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.
The Company separately accounted for the liability and equity components of the July 2016 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 $294,794 for the July 2016 Debentures to account for the relative fair value attributable to the July 2016 Debenture Warrants, which is being accreted as interest expense using the effective interest method over the one-year term of the July 2016 Debentures. In addition, the $67,057 original issue discount is also being accreted as interest expense using the effective interest method over the one-year term of the July 2016 Debentures.
For each of the three and nine months ended September 30, 2016, the Company recorded a total of $77,327 of accreted interest expense related to the July 2016 Debentures. As of September 30, 2016, the unamortized discount on the July 2016 Debentures related to the fair value of the July 2016 Debenture Warrants was $231,797, the unamortized discount on the July 2016 Debentures related to the original issue discount was $52,727 and the net carrying value of the July 2016 Debentures was $386,033, which was recorded as a component of current convertible debentures.
6. Note Payable
On May 9, 2016, the Company entered into a finance agreement with IPFS Corporation (“IPFS”). Pursuant to the terms of this finance agreement, IPFS loaned the Company the principal amount of $24,650, which amount would accrue interest at a rate of 9.6% per annum, in order to partially fund the payment of the premium of the Company’s director and officer liability insurance. The finance agreement requires the Company to make eleven monthly payments of $2,350, including interest, commencing May 15, 2016. For the three and nine months ended September 30, 2016, the Company recorded a total of $613 and $810, respectively, of interest expense related to this finance agreement. As of September 30, 2016, the outstanding principal balance related to this finance agreement was $15,935 and the accrued and unpaid interest was $127, which was included as a component of accrued expenses (see Note 4).
7. Stockholders’ Deficiency
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 September 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 September 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 nine months ended September 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 September 30, 2016 | | | 6,365,070 | | | $ | 0.13 | | | $ | — | |
| Exercisable at September 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 September 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 | | | | 3.5 | | | | 2,068,150 | | | $ | 0.07 | | | | 3.5 | |
| $ | 0.08 | | | | 450,000 | | | $ | 0.08 | | | | 8.4 | | | | 200,000 | | | $ | 0.08 | | | | 8.4 | |
| $ | 0.10 | | | | 2,180,253 | | | $ | 0.10 | | | | 2.4 | | | | 2,180,253 | | | $ | 0.10 | | | | 2.4 | |
| $ | 0.20 | | | | 833,333 | | | $ | 0.20 | | | | 5.5 | | | | 833,333 | | | $ | 0.20 | | | | 5.5 | |
| $ | 0.30 | | | | 833,334 | | | $ | 0.30 | | | | 5.5 | | | | 833,334 | | | $ | 0.30 | | | | 5.5 | |
| | | | | | 6,365,070 | | | $ | 0.13 | | | | 4.0 | | | | 6,115,070 | | | $ | 0.13 | | | | 3.8 | |
A summary of the non-vested shares subject to stock options granted under the Equity Incentive Plans as of September 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 September30, 2016 | | | 250,000 | | | $ | 0.05 | |
As of September 30, 2016, there was $10,801 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 months.
Warrants to Purchase Common Stock
A summary of warrant transactions during the nine months ended September 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 | | | 68,889,033 | | | $ | 0.01 | | | | — | |
| Exercised during the period | | | — | | | | — | | | | — | |
| Terminated during the period | | | (1,250,000 | ) | | $ | 0.05 | | | | — | |
| Outstanding at September 30, 2016 | | | 93,093,734 | | | $ | 0.03 | | | $ | — | |
| Exercisable at September 30, 2016 | | | 93,093,734 | | | $ | 0.03 | | | $ | — | |
| 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 September 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 | |
| $ | 0.01 - 0.04 | | | | 69,806,475 | | | | 4.7 | | | $ | 0.01 | | | | 69,806,475 | | | | 4.7 | | | $ | 0.01 | |
| $ | 0.06 - 0.07 | | | | 9,844,244 | | | | 2.8 | | | $ | 0.07 | | | | 9,844,244 | | | | 2.8 | | | $ | 0.07 | |
| $ | 0.08 - 0.10 | | | | 13,443,015 | | | | 3.3 | | | $ | 0.10 | | | | 13,443,015 | | | | 3.3 | | | $ | 0.10 | |
| | | | | | 93,093,734 | | | | 4.3 | | | $ | 0.03 | | | | 93,093,734 | | | | 4.3 | | | $ | 0.03 | |
As of September 30, 2016, there were no non-vested shares subject to warrants and no unrecognized compensation cost related to warrants.
8. Stock-Based Compensation
During the three and nine months ended September 30, 2016 and 2015, the Company recorded stock-based compensation expense as follows:
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | 2016 | | | 2015 | | | 2016 | | | 2015 | |
| General and administrative | | $ | 303 | | | $ | 7,080 | | | $ | 901 | | | $ | 261,331 | |
| Sales and marketing | | | 1,413 | | | | 4,084 | | | | 4,207 | | | | 137,036 | |
| Research and development | | | — | | | | — | | | | — | | | | 56,176 | |
| | | $ | 1,716 | | | $ | 11,164 | | | $ | 5,108 | | | $ | 454,543 | |
For the three and nine months ended September 30, 2016, the Company recorded stock-based compensation expense related to stock options granted to employees of $1,716 and $5,108, respectively. For the three and nine months ended September 30, 2015, the Company recorded stock-based compensation expense related to common stock and stock options granted to employees and directors of $11,164 and $454,543, respectively. For each of the three and nine months ended September 30, 2016 and 2015, the Company did not record any stock-based compensation expense for non-employees.
9. Net Loss Per Common Share
Basic net loss per share is computed by dividing net loss available to common stockholders 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 nine months ended September 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, 93,093,734 shares of common stock issuable upon the exercise of outstanding warrants and 88,166,015 shares of common stock issuable upon the conversion of convertible debt, as their effect would be anti-dilutive.
For the three and nine months ended September 30, 2015, diluted net loss per share did not include the effect of 8,365,070 shares of common stock issuable upon the exercise of outstanding stock options, 19,315,811 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.
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-resistantStaphylococcus aureus (MRSA), H1N1 influenza virus (swine flu) and Respiratory Syncytial virus (RSV); (2) hospital-acquired pathogens such asClostridium difficile spores (C. diff) and vancomycin-resistant enterococci (VRE) as well as a carbapenem-resistant enterobacteriaceae (CRE) known asKlebsiella pneumoniae (NDM-1); (3) high-risk blood-borne pathogen human immunodeficiency virus (HIV); (4) the food-borne pathogensListeria monocytogenes andEscherichia 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 (H2S) 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 andBordetella 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 September 30, 2016 was $56,430, as compared to $141,665, for the three months ended September 30, 2015. The $85,235, or 60%, decrease in revenue for the three months ended September 30, 2016 was primarily the result of a $77,790 decrease in Excelyte® sales and a $7,021 decrease in sales of EcaFlo® equipment parts and related supplies. The $77,790 decrease in Excelyte® sales was primarily the result of a $107,790 decrease in sales to two oil and gas customers who either reduced their well maintenance budgets and/or closed down low-producing wells, offset by a $31,777 increase in sales to an existing customer that expanded Excelyte® well maintenance treatments to additional wells in new basins.
Revenue for the nine months ended September 30, 2016 was $169,567, as compared to $449,287, for the nine months ended September 30, 2015. The $279,720, or 62%, decrease in revenue for the nine months ended September 30, 2016 was primarily the result of a $245,787 decrease in Excelyte® sales and a $29,640 decrease in sales of EcaFlo® equipment parts and related supplies. The $245,787 decrease in Excelyte® sales was primarily the result of a $333,915 decrease in sales to two oil and gas customers who either reduced their well maintenance budgets and/or closed down low-producing wells, offset by an $87,980 increase in sales to an existing customer that expanded Excelyte® well maintenance treatments to additional wells in new basins.
Cost of Sales. Cost of sales for the three months ended September 30, 2016 was $20,350 as compared to $53,719 for the three months ended September 30, 2015. The $33,369, or 62%, decrease in cost of sales for the three months ended September 30, 2016 was primarily the result of the decrease in Excelyte® sales to oil and gas customers.
Cost of sales for the nine months ended September 30, 2016 was $65,025, as compared to $162,559 for the nine months ended September 30, 2015. The $97,534, or 60%, decrease in cost of sales for the nine months ended September 30, 2016 was primarily the result of the decrease in Excelyte® sales to oil and gas customers.
Gross Profit. For the three months ended September 30, 2016 and 2015, gross profit was $36,080 and $87,946, respectively, and gross profit margins were 64% and 62%, respectively. The $51,866 decrease in gross profit for the three months ended September 30, 2016 was primarily the result of the decrease in Excelyte® sales to oil and gas customers.
For the nine months ended September 30, 2016 and 2015, gross profit was $104,542 and $286,728, respectively, and gross profit margins were 62% and 64%, respectively. The $182,186 decrease in gross profit for the nine months ended September 30, 2016 was primarily the result of the decrease in Excelyte® sales to oil and gas customers.
General and Administrative Expenses. For the three months ended September 30, 2016, general and administrative expenses were $238,573, as compared to $368,332 for the three months ended September 30, 2015. The $129,759, or 35%, decrease in general and administrative expenses for the three months ended September 30, 2016 was primarily the result of a $57,450 decrease in employee payroll and associated benefit costs, a $29,426 decrease in consulting fees primarily related to investor and public relations, a $23,598 decrease in travel and conference expenses primarily related to fundraising and business development activities and a $14,958 decrease in office-related expenses.
For the nine months ended September 30, 2016, general and administrative expenses were $751,179, as compared to $1,402,327 for the nine months ended September 30, 2015. The $651,148, or 46%, decrease in general and administrative expenses for the nine months ended September 30, 2016 was primarily the result of a $187,058 decrease in stock-based compensation expense for employees, a $172,566 decrease in consulting fees primarily related to investor and public relations, an $83,084 decrease in travel and conference expenses primarily related to fundraising and business development activities, a $73,372 decrease in stock-based compensation expense for directors, a $68,279 decrease in employee payroll and associated benefit costs, a $27,049 decrease in expenses related to the annual meeting of stockholders, a $22,192 decrease in office-related expenses and an $8,650 decrease in director compensation.
Sales and Marketing Expenses. For the three months ended September 30, 2016, sales and marketing expenses were $253,002, as compared to $299,516 for the three months ended September 30, 2015. The $46,514, or 16%, decrease in sales and marketing expenses for the three months ended September 30, 2016 was primarily the result of a $48,685 decrease in employee payroll and associated benefits and a $9,470 decrease in travel and conference expenses related to sales activities, offset by a $14,202 increase in rent expense and maintenance expenses related to additional facilities.
For the nine months ended September 30, 2016, sales and marketing expenses were $917,422, as compared to $972,035 for the nine months ended September 30, 2015. The $54,613, or 6%, decrease in sales and marketing expenses for the nine months ended September 30, 2016 was primarily the result of a $132,830 decrease in stock-based compensation expense for employees and a $56,592 decrease in travel and conference expenses related to sales activities, offset by a $67,824 increase in rent expense and maintenance expenses related to additional facilities and a $51,450 increase in consulting and marketing expenses related to sales initiatives.
Research and Development Expenses. For the three months ended September 30, 2016, research and development expenses were $40,041, as compared to $37,200 for the three months ended September 30, 2015. The $2,841, or 8%, increase in research and development expenses for the three months ended September 30, 2016 was primarily the result of a $5,928 increase in consulting fees related to regulatory and patent activities, offset by a $2,681 decrease in laboratory testing fees.
For the nine months ended September 30, 2016, research and development expenses were $141,249, as compared to $230,379 for the nine months ended September 30, 2015. The $89,130, or 39%, decrease in research and development expenses for the nine months ended September 30, 2016 was primarily the result of a $56,177 decrease in stock-based compensation expense for employees and a $28,640 decrease in laboratory testing fees.
Loss from Operations.For the three months ended September 30, 2016, the loss from operations was $495,536, as compared to $617,102 for the three months ended September 30, 2015. The $121,566, or 20%, decrease in the loss from operations for the three months ended September 30, 2016 was the result of a $129,759 decrease in general and administrative expenses and a $46,514 decrease in sales and marketing expenses, offset by a $51,866 decrease in gross profit on sales and a $2,841 increase in research and development expenses.
For the nine months ended September 30, 2016, the loss from operations was $1,705,308, as compared to $2,318,013 for the nine months ended September 30, 2015. The $612,705, or 26%, decrease in the loss from operations for the nine months ended September 30, 2016 was the result of a $651,148 decrease in general and administrative expenses, an $89,130 decrease in research and development expenses and a $54,613 decrease in sales and marketing expenses, offset by a $182,186 decrease in gross profit on sales.
Interest Income.For the three months ended September 30, 2016, interest income was $47, as compared to $136 for the three months ended September 30, 2015. For the nine months ended September 30, 2016, interest income was $142, as compared to $526 for the nine months ended September 30, 2015.
Interest Expense.For the three months ended September 30, 2016, interest expense was $147,152, as compared to $11,451 for the three months ended September 30, 2015. The $135,701, or 1,185% increase in interest expense for the three months ended September 30, 2016 was primarily the result of the $134,892 of interest expense ($104,729 accreted interest) attributable to the July 2016 Debentures and the 2015 Debentures.
For the nine months ended September 30, 2016, interest expense was $282,368, as compared to $33,585 for the nine months ended September 30, 2015. The $248,783, or 741%, increase in interest expense for the nine months ended September 30, 2016 was primarily the result of the $248,770 of interest expense ($158,937 accreted interest) attributable to the July 2016 Debentures and the 2015 Debentures.
Net Loss. For the three months ended September 30, 2016, the Company’s net loss was $642,641, as compared to $628,417 for the three months ended September 30, 2015. The $14,224, or 2%, increase in the net loss for the three months ended September 30, 2016 was primarily the result of a $135,701 increase in interest expense, a $51,866 decrease in gross profit on sales and a $2,841 increase in research and development expenses, offset by a $129,759 decrease in general and administrative expenses and a $46,514 decrease in sales and marketing expenses.
For the nine months ended September 30, 2016, the Company’s net loss was $1,987,534, as compared to $2,351,072 for the nine months ended September 30, 2015. The $363,538, or 15%, decrease in the net loss for the nine months ended September 30, 2016 was primarily the result of a $651,148 decrease in general and administrative expenses, an $89,130 decrease in research and development expenses and a $54,613 decrease in sales and marketing expenses, offset by a $248,783 increase in interest expense and a $182,186 decrease in gross profit on sales.
Liquidity and Capital Resources
As of September 30, 2016, the Company had a working capital deficiency of $862,571 and cash on hand of $229,144. The $608,963 decrease in cash on hand from December 31, 2015 was primarily the result of payments to fund our continuing operating expenses, offset by the receipt of $137,500 of gross proceeds from the sale of our common stock and the receipt of $603,500 of gross proceeds from the issuance of the July 2016 Debentures.
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.
As of November 11, 2016, our cash position was approximately $122,000. 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 one months from the filing date of this quarterly report on Form 10-Q. We have and continue to reduce operating expenses and have 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.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
IET is a smaller reporting company and is therefore not required to provide this information.
Item 4.Controls and Procedures
Evaluation of disclosure controls and procedures
As required by Rule 13a-15 under the Exchange Act, as of the end of the Company’s last fiscal quarter, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company’s current management, including the Company’s President and Chief Executive Officer and the Company’s Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer), who concluded that the Company’s disclosure controls and procedures are effective.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s President and Chief Executive Officer and the Company’s Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer), as appropriate, to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting
Management reviews the Company’s system of internal control over financial reporting and makes changes to the Company’s processes and systems to improve controls and increase efficiency, while ensuring that the Company maintains an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities and migrating processes.
During the Company’s last fiscal quarter, there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1.Legal Proceedings
None.
Item 1A.Risk Factors
IET is a smaller reporting company and is therefore not required to provide this information.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
There were no sales of unregistered securities during the three months ended September 30, 2016, other than those set forth below or otherwise reported on Forms 8-K filed by IET during the three months ended September 30, 2016.
Item 3.Defaults Upon Senior Securities
Not applicable.
Item 4.Mine Safety Disclosures
Not applicable.
Item 5.Other Information
None.
Item 6.Exhibits
See Index of Exhibits Commencing on Page E-1.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD. |
| | | |
| November 14, 2016 | By: | /s/ David R. LaVance |
| | | David R. LaVance |
| | | President and Chief Executive Officer |
| | | |
| November 14, 2016 | By: | /s/ Thomas S. Gifford |
| | | Thomas S. Gifford |
| | | Executive Vice President |
| | | Chief Financial Officer and Secretary |
INDEX OF EXHIBITS
| Exhibit No. | | Description |
| | | |
| 3.1 | | Amended and Restated Articles of Incorporation of Integrated Environmental Technologies, Ltd. (the “Company”) (incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K that was filed with the Securities and Exchange Commission (the “SEC”) on May 29, 2015). |
| | | |
| 3.2 | | Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s current report on Form 8-K that was filed with the SEC on May 22, 2012). |
| | | |
| 4.1 | | Convertible Debenture Unit Purchase Agreement between the Company and L.J. Tichacek dated April 26, 2007 (incorporated by reference to Exhibit 4.1 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2011 that was filed with the SEC on August 22, 2011). |
| | | |
| 4.2 | | 10% Convertible Debenture in the principal amount of $25,000 issued to L.J. Tichacek dated April 26, 2007 (incorporated by reference to Exhibit 4.2 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2011 that was filed with the SEC on August 22, 2011). |
| | | |
| 4.3 | | 8% Convertible Debenture, dated as of August 21, 2012, issued to Zanett Opportunity Fund, Ltd. Agreement (incorporated by reference to Exhibit 4.1 to the Company’s current report on Form 8-K that was filed with the SEC on August 23, 2012). |
| | | |
| 4.3.1 | | Addendum dated July 7, 2016 to the 8% Convertible Debenture dated August 21, 2012 between Zanett Opportunity Fund, Ltd. and the Company (incorporated by reference to Exhibit 4.3 to the Company’s current report on Form 8-K that was filed with the SEC on July 18, 2016). |
| | | |
| 4.4 | | Form of 12% Convertible Debenture issued on: November 11, 2015 in the principal amount of $275,000; December 3, 2015 in the aggregate principal amount of $222,222; and December 18, 2015 in the aggregate principal amount of $500,000 (incorporated by reference to Exhibit 4.5 to the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2015 that was filed with the SEC on November 13, 2015). |
| | | |
| 4.5 | | Form of Zero Coupon Secured Convertible Debenture issued to eight individual investors and one institutional investor on July 14, 2016 in the aggregate principal amount of $670,577 (incorporated by reference to Exhibit 4.1 to the Company’s current report on Form 8-K that was filed with the SEC on July 18, 2016). |
| | | |
| 10.1 | | Amended and Restated Registration Rights Agreement between the Company and E. Wayne Kinsey, III and Zanett Opportunity Fund, Ltd. dated September 23, 2011 (incorporated by reference to Exhibit 10.4 to the Company’s annual report on Form 10-K for the year ended December 31, 2011 that was filed with the SEC on March 30, 2012). |
| Exhibit No. | | Description |
| | | |
| 10.2 | | 2010 Stock Incentive Plan of the Company (incorporated by reference to Exhibit 10.5 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2011 that was filed with the SEC on August 22, 2011). |
| | | |
| 10.3 | | 2012 Equity Incentive Plan of the Company (incorporated by reference to Exhibit 10.3 to the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2013 that was filed with the SEC on May 15, 2013). |
| | | |
| 10.4 | | Form of Warrant, dated April 21, 2011, issued by the Company to each of David R. LaVance (for the purchase of 1,818,182 shares of the Company’s common stock), Raymond C. Kubacki (for the purchase of 1,818,182 shares of the Company’s common stock) and Valgene L. Dunham (for the purchase of 969,697 shares of the Company’s common stock) (incorporated by reference to Exhibit 10.12 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2011 that was filed with the SEC on August 22, 2011). |
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| 10.5 | | Form of Warrant, dated May 23, 2011, issued by the Company to each of David R. LaVance (for the purchase of 3,100,000 shares of the Company’s common stock) and Thomas S. Gifford (for the purchase of 3,100,000 shares of the Company’s common stock) (incorporated by reference to Exhibit 10.13 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2011 that was filed with the SEC on August 22, 2011). |
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| 10.6 | | Building Lease Agreement, dated September 15, 2014, by and between I.E.T., Inc. and Reece Gibson (incorporated by reference to Exhibit 10.6 to the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2014 that was filed with the SEC on November 7, 2014). |
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| 10.7 | | Building Lease Agreement, dated November 1, 2014, by and between I.E.T., Inc. and Culy Hawkins (incorporated by reference to Exhibit 10.7 to the Company’s annual report on Form 10-K for the year ended December 31, 2014 that was filed with the SEC on March 27, 2015). |
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| 10.8 | | Building Lease Agreement, dated November 14, 2014, by and between I.E.T., Inc. and Duchesne Crossing, LLC (incorporated by reference to Exhibit 10.8 to the Company’s annual report on Form 10-K for the year ended December 31, 2014 that was filed with the SEC on March 27, 2015). |
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| 10.9 | | Building Lease Agreement, dated August 31, 2015, by and between I.E.T., Inc. and Wally Moon (incorporated by reference to Exhibit 10.9 to the Company’s annual report on Form 10-K for the year ended December 31, 2015 that was filed with the SEC on March 30, 2016). |
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| 10.9.1 | | Addendum dated July 13, 2016 to the Building Lease Agreement dated August 31, 2015 by and between I.E.T., Inc. and Wally Moon (incorporated by reference to Exhibit 10.9.1 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2016 that was filed with the SEC on August 12, 2016). |
| Exhibit No. | | Description |
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| 10.10 | | Building Lease Agreement, dated January 28, 2016, by and between I.E.T., Inc. and Ray C. Luna (incorporated by reference to Exhibit 10.9 to the Company’s annual report on Form 10-K for the year ended December 31, 2015 that was filed with the SEC on March 30, 2016). |
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| 10.11 | | Form of Incentive Stock Option Agreement, dated March 27, 2012, issued by the Company to each of David R. LaVance (for the purchase of 3,000,000 shares of the Company’s common stock) and Thomas S. Gifford (for the purchase of 2,000,000 shares of the Company’s common stock) (incorporated by reference to Exhibit 10.14 to the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2012 that was filed with the SEC on May 15, 2012). |
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| 10.12 | | Form of Non-Qualified Stock Option Agreement, dated March 27, 2012, issued by the Company to each of: Raymond C. Kubacki (for the purchase of 541,860 shares of the Company’s common stock); David N. Harry (for the purchase of 309,640 shares of the Company’s common stock); Valgene L. Dunham (for the purchase of 340,600 shares of the Company’s common stock); and E. Wayne Kinsey, III (for the purchase of 154,820 shares of the Company’s common stock) (incorporated by reference to Exhibit 10.15 to the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2012 that was filed with the SEC on May 15, 2012). |
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| 10.13 | | Form of Warrant issued to eight individual investors and one institutional investor on July 14, 2016 in connection with the issuance on July 14, 2016 of Zero Coupon Secured Debentures in the aggregate principal amount of $670,577 (incorporated by reference to Exhibit 4.2 to the Company’s current report on Form 8-K that was filed with the SEC on July 18, 2016). |
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| 31.1 | | Section 302 Certification of Principal Executive Officer. |
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| 31.2 | | Section 302 Certification of Principal Financial Officer. |
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| 32.1 | | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350. |
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| 32.2 | | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350. |
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| 101 | | The following materials from the Company’s quarterly report on Form 10-Q for the period ended September 30, 2016, formatted in Extensible Business Reporting Language (XBRL): (i) consolidated balance sheets; (ii) consolidated statements of operations; (iii) consolidated statements of cash flows; and (iv) notes to the consolidated financial statements. |
