Document_and_Entity_Informatio
Document and Entity Information (USD $) | 12 Months Ended | ||
Dec. 31, 2013 | Mar. 30, 2014 | Jun. 30, 2013 | |
Document And Entity Information | ' | ' | ' |
Entity Registrant Name | 'EAU TECHNOLOGIES, INC. | ' | ' |
Entity Central Index Key | '0001170816 | ' | ' |
Document Type | '10-K | ' | ' |
Document Period End Date | 31-Dec-13 | ' | ' |
Amendment Flag | 'false | ' | ' |
Current Fiscal Year End Date | '--12-31 | ' | ' |
Is Entity a Well-known Seasoned Issuer? | 'No | ' | ' |
Is Entity a Voluntary Filer? | 'No | ' | ' |
Is Entity's Reporting Status Current? | 'Yes | ' | ' |
Entity Filer Category | 'Smaller Reporting Company | ' | ' |
Entity Public Float | ' | ' | $734,883 |
Entity Common Stock, Shares Outstanding | ' | 28,575,371 | ' |
Document Fiscal Period Focus | 'FY | ' | ' |
Document Fiscal Year Focus | '2013 | ' | ' |
BALANCE_SHEETS
BALANCE SHEETS (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
CURRENT ASSETS | ' | ' |
Cash | $2,654 | $753,348 |
Accounts receivable, net | 29,705 | 2,500 |
Accounts receivable - related party, net | 1,500 | 5,500 |
Prepaid expense | 60,210 | 39,034 |
Inventory, net | 653,967 | 1,169,966 |
Total current assets | 748,036 | 1,970,348 |
PROPERTY AND EQUIPMENT, accumulated depreciation of $120,721 | ' | ' |
LEASED EQUIPMENT, net of accumulated depreciation of $0 and $502,861 | ' | 602,948 |
OTHER ASSETS | ' | ' |
Deposits | ' | 144,273 |
Intellectual property, net | 123,547 | 137,231 |
Total other assets | 123,547 | 281,504 |
Total assets | 871,583 | 2,854,800 |
CURRENT LIABILITIES | ' | ' |
Accounts payable | 325,623 | 287,236 |
Accrued expenses | 41,098 | 49,903 |
Accrued interest | 2,043,671 | 1,560,422 |
Warranty reserve | 160,000 | 145,000 |
Advance deposits on machine orders | 554,618 | 1,624,058 |
Advance deposits on machine orders - related party | 433,540 | 515,383 |
Short term notes payable - related party | 130,000 | ' |
Unsecured short term advances - related party | 5,000 | 1,325,000 |
Convertible note payables - related party, currentportion net of discounts of $0 and $41,152 | 4,986,827 | 3,317,375 |
Total current liabilities | 8,680,377 | 8,824,377 |
Total Liabilities | 8,680,377 | 8,824,377 |
STOCKHOLDERS' EQUITY (DEFICIT) | ' | ' |
Common stock, $.0001 par value; 50,000,000 shares authorized; 28,575,371 and 28,575,371 issued and outstanding, respectively | 2,858 | 2,858 |
Additional paid in capital | 45,681,729 | 45,557,946 |
Accumulated deficit | -53,493,381 | -51,530,381 |
Total stockholders' equity (deficit) | -7,808,794 | -5,969,577 |
Total liabilities and stockholders' equity (deficit) | $871,583 | $2,854,800 |
BALANCE_SHEETS_Parenthetical
BALANCE SHEETS (Parenthetical) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Assets | ' | ' |
Accumulated Depreciation on Property and Equipment | $120,721 | $120,721 |
Accumulated Depreciation on Leased Equipment | 0 | 502,861 |
CURRENT LIABILITIES | ' | ' |
Discount on Convertible notes payable | $0 | $41,152 |
Stockholders Equity | ' | ' |
Common Stock shares par value | $0.00 | $0.00 |
Common Stock shares Authorized | 50,000,000 | 50,000,000 |
Common Stock shares Issued | 28,575,371 | 28,575,371 |
Common Stock shares Outstanding | 28,575,371 | 28,575,371 |
STATEMENTS_OF_OPERATIONS
STATEMENTS OF OPERATIONS (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Income Statement [Abstract] | ' | ' |
NET REVENUES - RELATED PARTY | $132,574 | $273,011 |
NET REVENUES | 1,851,475 | 198,198 |
TOTAL REVENUES | 1,984,049 | 471,209 |
COST OF GOODS SOLD | 1,391,741 | 320,672 |
GROSS PROFIT | 592,308 | 150,537 |
OPERATING EXPENSES | ' | ' |
Depreciation and amortization | 1,356 | 2,366 |
Research and development | 18,438 | 7,500 |
General and administrative | 1,677,616 | 1,743,079 |
Total operating expenses | 1,697,410 | 1,752,945 |
LOSS FROM OPERATIONS | -1,105,102 | -1,602,408 |
OTHER INCOME (EXPENSE) | ' | ' |
Interest expense | -561,395 | -465,336 |
Interest income | 171 | 49 |
Rental income | 4,800 | ' |
Impairment of leased equipment | -301,474 | ' |
Gain on settlement of debt | ' | 35,814 |
Total other income (expense) | -857,898 | -429,473 |
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | -1,963,000 | -2,031,881 |
PROVISION FOR INCOME TAXES | ' | ' |
NET INCOME (LOSS) | ($1,963,000) | ($2,031,881) |
NET INCOME (LOSS) PER SHARE | ($0.07) | ($0.07) |
WEIGHTED AVERAGE OF SHARES OUTSTANDING - BASIC AND FULLY DILUTED | 28,575,371 | 28,575,371 |
STATEMENTS_OF_STOCKHOLDERS_EQU
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (USD $) | COMMON STOCK | ADDITIONAL PAID IN CAPITAL | ACCUMULATED DEFICIT | Total |
Beginning Balance, Amount at Dec. 31, 2011 | $2,857 | $45,242,947 | ($49,498,500) | ($4,252,696) |
Beginning Balance, Shares at Dec. 31, 2011 | 28,567,460 | ' | ' | ' |
Issuance and vesting of options and warrants for services | ' | 315,000 | ' | 315,000 |
Reconciling adjustment, Shares | 7,911 | ' | ' | ' |
Reconciling adjustment, Amount | 1 | -1 | ' | ' |
Net loss for the year ended | ' | ' | -2,031,881 | -2,031,881 |
Ending Balance, Amount at Dec. 31, 2012 | 2,858 | 45,557,946 | -51,530,381 | -5,969,577 |
Ending Balance, Shares at Dec. 31, 2012 | 28,575,371 | ' | ' | ' |
Issuance and vesting of options and warrants for services | ' | 97,283 | ' | 97,283 |
Issuance of warrants to related party | ' | 26,500 | ' | 26,500 |
Net loss for the year ended | ' | ' | -1,963,000 | -1,963,000 |
Ending Balance, Amount at Dec. 31, 2013 | $2,858 | $45,681,729 | ($53,493,381) | ($7,808,794) |
Ending Balance, Shares at Dec. 31, 2013 | 28,575,371 | ' | ' | ' |
STATEMENTS_OF_CASH_FLOWS
STATEMENTS OF CASH FLOWS (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ' | ' |
Net loss | ($1,963,000) | ($2,031,881) |
Adjustments to reconcile net loss to net cash used in operating activities: | ' | ' |
Depreciation and amortization | 1,356 | 2,366 |
Warrants and options vested or issued for services | 97,283 | 120,000 |
Discount of note payable | 67,652 | 44,894 |
Gain on settlement of debt | ' | -35,814 |
Impairment of leased equipment | 301,474 | ' |
Disposal of intellectual property | 34,005 | ' |
Changes in operating assets and liabilities: | ' | ' |
(Increase) decrease in accounts receivable | -27,205 | 80,878 |
Decrease in accounts receivable - related party | 4,000 | ' |
(Increase) decrease in pre-paid expense | -21,176 | -6,774 |
Decrease in inventory | 817,473 | 3,947 |
(Increase) decrease in deposits | 144,273 | -135,435 |
Increase (decrease) in accounts payable | 38,387 | -207,006 |
(Decrease) in accrued expenses | -8,805 | -270,466 |
Increase in accrued interest | 483,249 | 408,172 |
Increase in warranty reserve | 15,000 | 25,000 |
(Decrease) in advance deposits for machine orders - related party | -81,843 | -248,010 |
Increase (decrease) in advance deposits on machine orders | -1,069,440 | 1,609,988 |
Net cash (used) in operating activities | -1,167,317 | -640,141 |
CASH FLOWS FROM INVESTING ACTIVITIES | ' | ' |
Intellectual property additions | -21,677 | -15,839 |
Net cash (used) in investing activities | -21,677 | -15,839 |
CASH FLOWS FROM FINANCING ACTIVITIES | ' | ' |
Proceeds from issuance of common stock - related party | ' | ' |
Proceeds from issuance of notes payable - related party | 438,300 | 1,325,000 |
Net cash provided by financing activities | 438,300 | 1,325,000 |
NET INCREASE (DECREASE) IN CASH | -750,694 | 669,020 |
CASH, beginning of period | 753,348 | 84,328 |
CASH, end of period | 2,654 | 753,348 |
Supplemental Disclosures of Cash Flow Information: | ' | ' |
Cash paid during the period for: Interest paid | 10,494 | 12,270 |
Cash paid during the period for: Income Taxes paid | ' | ' |
1_BUSINESS_DESCRIPTION_AND_SIG
1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 2013 | |
Accounting Policies [Abstract] | ' |
BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES | ' |
Business Description – EAU Technologies, Inc. (the “Company” or “EAU”), was incorporated on March 6, 2000, under the laws of the state of Delaware and commenced operations in September, 2000 as Primacide, Inc. On May 10, 2001, the Company changed its name from Primacide, Inc., to Electric Aquagenics Unlimited, Inc. On January 17, 2007 the Company changed its name from Electric Aquagenics Unlimited, Inc. to EAU Technologies, Inc. The Company is in the business of developing, manufacturing and marketing equipment that uses water electrolysis to create fluids. These fluids have various commercial applications and may be used in commercial food processing organic or non-organic agricultural and consumer products that clean, disinfect, remediate, hydrate and moisturize. These products, which the Company intends to market nationally and internationally, are for commercial and residential use. The Company’s financial statements are presented in accordance with accounting principles generally accepted in the United States of America. | |
Cash and Cash Equivalents - For purposes of the balance sheet and statement of cash flows, the Company considers all highly liquid debt instruments purchased with maturity of three months or less to be cash equivalents. | |
Receivables – Receivables represent valid claims against debtors for sales or other charges arising on or before the balance-sheet date and are reduced to their estimated net realizable value. The Company estimates allowances for doubtful accounts based on the aged receivable balances and historical losses. The Company charges off uncollectible accounts receivable when management estimates no possibility of collecting the related receivable. | |
Inventory – Inventory, consisting primarily of finished goods, is stated at the lower of cost or market; cost is determined on first-in, first-out (FIFO) method. | |
Property and Equipment, and Depreciation – Property and equipment are recorded at historical cost. Expenditures for additions and major improvements that extend the life of the asset are capitalized, whereas the cost of maintenance and repairs are expensed as incurred. Depreciation is computed on the straight-line method over the estimated useful lives of the assets ranging from three to seven years. Depreciation expense for the years ended December 31, 2013 and 2012 was $0 and $2,366, respectively. In September 2005, the Company pledged all the assets of the Company as collateral for the Senior Convertible Note, payable to Water Science, a related party. | |
Long-Lived Assets – Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the fair value of the asset. Long-lived assets are reported at the lower of carrying or fair value less costs to sell. | |
Fair Value of Financial Instruments – The carrying values of cash on hand, receivables, payables and accrued expenses approximate their fair value due to the short period to maturity of these instruments. | |
Recognition of Sales and Costs of Goods Sold – The Company records sales of its products based upon the terms of the contract; when title passes to its customers; and, when collectability is reasonably assured. The Company provides an allowance for sales returns based on current and historical experience. Cost of goods sold consists of the purchase price of products sold including inbound shipping charges. | |
Sales Taxes - In accordance with FASB ASC 605-45, formerly EITF Issue No. 06-3, How Taxes Collected From Customers and Remitted to Government Authorities Should be Presented in the Income Statement, the Company accounts for sales taxes imposed on its good and services on a gross basis in the statements of operations. For the years ended December 31, 2013 and 2012, respectively, $0 and $2,665 of sales taxes has been reported in revenues. | |
Warranties – The Company warrants its products against defects in materials and workmanship for a period of up to three years. The Company has accrued a reserve for these anticipated future warranty costs. | |
Income Taxes – Deferred income taxes are provided using the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment. | |
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. | |
Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the statement of income. | |
Accounting Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. | |
Research and Development – Research and development costs are expensed as incurred. Research and development expenses for the years ended December 31, 2013 and 2012 were approximately $18,438 and $7,500, respectively. | |
Patents, Trademarks and Intellectual Property – Patents, trademarks and intellectual property, consisting of trade secrets and formulas are recorded in accordance with Accounting Standards Codification 350, Intangibles – Goodwill and Other (ASC 350), (formerly Statement of Financial Accounting Standards “SFAS” No. 142, "Goodwill and Other Intangible Assets"). As such, patents and trademarks are initially measured based on their fair values. | |
Loss Per Share – The Company follows the provisions of ASC Topic 260 "Earnings Per Share". Earnings per share (EPS) are computed based on the weighted average number of shares actually outstanding. No changes in the computation of diluted earnings per share amounts are presented because warrants granted would have been anti-dilutive due to the Company’s net reported loss. | |
Stock Based Compensation - Stock-based compensation is calculated according to FASB ASC Topic 718, Compensation — Stock Compensation, which requires a fair-value-based measurement method to account for stock-based compensation. The Company has modified the price of stock options to employees and directors. The Company accounts for the incremental value of the modified options based on the excess of the fair value of the modified award based on current circumstances. The modifications made to the Company’s equity awards did not result in significant incremental compensation costs, either individually or in the aggregate. | |
Recently Enacted Accounting Standards | |
In February 2013, the FASB issued Accounting Standard Update (“ASU”) 2013-02, “Comprehensive Income (Topic 220)—Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” which requires entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, entities are required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, entities are required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail on these amounts. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012. Since ASU 2013-02 only impacts presentation and disclosure requirements, the adoption of this guidance did not have a material impact on the Company’s financial position or results of operations. | |
In April 2013, the FASB issued ASU 2013-07, “Presentation of Financial Statements (Topic 205)—Liquidation Basis of Accounting”. These amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. Entitles should apply the requirements prospectively from the day that liquidation becomes imminent. Early adoption is permitted. This is not applicable to the Company. | |
In July 2013, the FASB issued ASU 2013-11, “Income Taxes (Topic 740)—Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” which requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. To the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability. This ASU is effective for annual and interim periods beginning after December 15, 2013, with early adoption permitted. The Company does not expect that the adoption of this guidance will have a material effect on the Company’s financial position or results of operations. |
2_CONCENTRATIONS_OF_CREDIT_RIS
2. CONCENTRATIONS OF CREDIT RISK | 12 Months Ended |
Dec. 31, 2013 | |
Concentrations Of Credit Risk | ' |
2. CONCENTRATIONS OF CREDIT RISK | ' |
The Company occasionally maintains cash balances in excess of the $250,000 federally insured limit. To date, the Company has not incurred, and the Company’s management does not currently expect to incur, any losses associated with its cash balances. | |
The Company extends unsecured credit to its customers in the normal course of business. Periodically, the Company performs credit evaluations of its customers’ financial condition for determination of doubtful accounts. |
3_TRADE_ACCOUNTS_RECEIVABLE
3. TRADE ACCOUNTS RECEIVABLE | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Receivables [Abstract] | ' | ||||||||
3. TRADE ACCOUNTS RECEIVABLE | ' | ||||||||
Trade accounts receivable consist of the following at December 31: | |||||||||
2013 | 2012 | ||||||||
Trade accounts receivable | $ | 29,705 | $ | 2,500 | |||||
Trade accounts receivable – related party | 1,500 | 5,500 | |||||||
Less allowance for doubtful accounts | - | - | |||||||
$ | 31,205 | $ | 8,000 | ||||||
During 2013, sales to one customer represented 75% of our total revenues. During 2012, sales to three customers represented approximately 83% of our revenues. Bad debt expense for the years ended December 31, 2013 and 2012 was $0 and $0, respectively. |
4_INVENTORIES
4. INVENTORIES | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Inventory Disclosure [Abstract] | ' | ||||||||
4. INVENTORIES | ' | ||||||||
The composition of inventories is as follows at December 31: | |||||||||
2013 | 2012 | ||||||||
Finished goods | $ | 536,207 | $ | 645,604 | |||||
Raw materials | 634,015 | 829,362 | |||||||
Allowance for obsolete inventory | (516,255 | ) | (305,000 | ) | |||||
$ | 653,967 | $ | 1,169,966 |
5_PROPERTY_AND_EQUIPMENT
5. PROPERTY AND EQUIPMENT | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Property, Plant and Equipment [Abstract] | ' | ||||||||
5. PROPERTY AND EQUIPMENT | ' | ||||||||
Property and equipment consisted of the following at December 31: | |||||||||
2013 | 2012 | ||||||||
Machinery and equipment | $ | 41,301 | $ | 41,301 | |||||
Furniture and fixtures | 47,284 | 47,284 | |||||||
Leasehold improvements | 32,136 | 32,136 | |||||||
Total property and equipment | 120,721 | 120,721 | |||||||
Less: accumulated depreciation | (120,721 | ) | (120,721 | ) | |||||
Property and equipment, net | $ | - | $ | - | |||||
Depreciation expense for the year ended December 31, 2013 and 2012 was $0 and $1,009, respectively. |
6_INTANGIBLE_ASSETS
6. INTANGIBLE ASSETS | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | ' | ||||||||
6. INTANGIBLE ASSETS | ' | ||||||||
Patents, trademarks and intellectual property, consisting of trade secrets and formulas are recorded in accordance with Accounting Standards Codification 350, Intangibles – Goodwill and Other (ASC 350), (formerly Statement of Financial Accounting Standards “SFAS” No. 142, "Goodwill and Other Intangible Assets"). As such, patents are initially measured based on their fair values. The patents which have been granted are being amortized over a period of 20 years. Patents which are pending or are being developed are not amortized until a patent has been issued. The amount of intangible assets, consisting of patents, as of December 31, 2012 is as follows: | |||||||||
2013 | 2012 | ||||||||
Gross amount of patents | $ | 136,275 | $ | 141,945 | |||||
Less amount of accumulated amortization | (6,071 | ) | (4,714 | ) | |||||
Net value of patents | $ | 130,204 | $ | 137,231 | |||||
Amortization expense for the fiscal years ended December 31, 2013 and 2012 was $1,357 and $1,357, respectively. During the year ended December 31, 2013, the Company abandoned a patent application that was not permitted by the U.S. Patent Office and wrote off $34,005 of accrued costs. | |||||||||
The estimated amortization expense, based on current intangible balances, for the next fiscal years beginning January 1, 2014 is as follows: | |||||||||
2014 | $ | 1,357 | |||||||
2015 | $ | 1,357 | |||||||
2016 | $ | 1,357 | |||||||
2017 | $ | 1,357 | |||||||
2018 | $ | 1,357 |
7_RELATED_PARTY_TRANSACTIONS
7. RELATED PARTY TRANSACTIONS | 12 Months Ended |
Dec. 31, 2013 | |
Related Party Transactions [Abstract] | ' |
7. RELATED PARTY TRANSACTIONS | ' |
Sales to Affiliates – In September 2005, Water Science, a related party, paid to the Company $1,000,000 for the exclusive rights to sell our products in South America and Mexico. The agreement allows for a pro-rated refund during the first 5 years under certain circumstances. The Company recognizes income from this agreement over the first 5 years of the agreement. The Company fully recognized the exclusivity rights during 2010. This agreement also gives Water Science the rights to purchase machinery from the Company at cost plus 25 percent. The Company had sales of $132,574 and $273,011 during the years ended December 31, 2013 and 2012, respectively. The Company has received and recorded $433,540 and $515,383 in advance deposits from Water Science on machine orders at December 31, 2013 and 2012, respectively. | |
Notes Payable – See Note 9 for disclosure of related party Notes Payable. | |
Advances – Periodically throughout the year, the Company advances officers and employees cash for certain reimbursable expenses. As of December 31, 2013 and 2012, the Company had advances to employees or officers in the amount of $1,500 and $5,500, respectively. | |
Employee Options – In December 2007, the Company granted 480,260 options to various employees. The options are for a term of ten (10) years and have an exercise price of $1.30 per share. The options vested over a period of four (4) years. The options were valued using the Binomial model with the following assumptions: risk free rate of 4.64%, volatility at 87.06% and the stock price at $1.30. The value of each option was approximately $1.13. In May 2009, 36,000 options were cancelled due to the departure of an employee. The exercise price per option was adjusted to $0.31 by the Company in September 2010. The options were fully vested as of December 31, 2012. | |
In November 2007, the Company granted 530,000 options to Douglas Kindred, in connection with the appointment of Mr. Kindred as Chief Technology Officer. The options are for a term of ten (10) years and have an exercise price of $1.30 per share. The options vested over a period of four (4) years. The options were valued using the Binomial model with the following assumptions: risk free rate of 4.28%, volatility at 85.99% and the stock price at $1.01. The exercise price per option was adjusted to $0.31 by the Company in September 2010. The options were fully vested as of December 31, 2012. | |
Director Options – See Note 10 for disclosure about grants of director stock options. |
8_WARRANTY_RESERVE
8. WARRANTY RESERVE | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Guarantees [Abstract] | ' | ||||||||
8. WARRANTY RESERVE | ' | ||||||||
The Company warrants its products against defects in materials and workmanship for a period of three years. The Company reviews the historical experience of failure rates and estimates the rate of warranty claims that will be made and has accrued a warranty reserve for these anticipated future warranty costs. If actual results differ from the estimates, the Company would adjust the estimated warranty liability. Changes in the warranty reserve are as follows: | |||||||||
For the Year Ended December 31, | |||||||||
2013 | 2012 | ||||||||
Warranty reserve at beginning of period | $ | 145,000 | $ | 120,000 | |||||
Cost accrued for additional warranties | 16,864 | 25,894 | |||||||
Services obligations honored | (1,864 | ) | (894 | ) | |||||
Warranty reserve at end of period | $ | 160,000 | $ | 145,000 |
9_NOTES_PAYABLE_RELATED_PARTIE
9. NOTES PAYABLE - RELATED PARTIES | 12 Months Ended |
Dec. 31, 2013 | |
Debt Disclosure [Abstract] | ' |
9. NOTES PAYABLE - RELATED PARTIES | ' |
At various times throughout 2013, funds totaling $303,300 were advanced to the Company by Mr. Ullrich, a related party. In April 2014, the Company entered into a loan agreement with this related party which formalized those advances into a note payable. This balance has been included on the balance sheet in related party notes payable as of December 31, 2013. The loan agreement provides for interest at a rate of 10% annually and will mature on November 30, 2014. The outstanding balance under the Loan Agreement is convertible into shares of the Company’s common stock at $0.31 per share and no principal or interest payments are due until maturity. The Loan Agreement provides that accrued interest and the outstanding principal balance can be prepaid, in whole or in part, at any time without premium or penalty. In connection with the negotiation of the Loan Agreement, the Company also granted a warrant to purchase up to 303,300 shares of the Company’s common stock at an exercise of $0.31 per share. The warrant expires in April, 2019. | |
In May 2013, the Company entered into Promissory Notes (“Promissory Notes”) with Peter Ullrich and Theodore Jacoby, related parties. Mr. Ullrich agreed to lend the Company $80,000 and Mr. Jacoby agreed to lend the Company $50,000. The Promissory Notes provide for interest at a rate of 10% annually and will mature on November 15, 2013. No principal or interest payments are due until maturity. The Promissory Notes provide that accrued interest and the outstanding principal balance can be prepaid, in whole or in part, at any time without premium or penalty. In November 2013, the Company entered into Amended Promissory Note agreements to extend the notes from November 2013 to May 2014. | |
In January 2013, the Company entered into a loan agreement with a related party. The principal amount of the Note is $1,325,000. The funds had been advanced to the Company at various times throughout 2012. The Loan Agreement provides for interest at a rate of 10% annually and will mature on November 30, 2013. The outstanding balance under the Loan Agreement is convertible into shares of the Company’s common stock at $0.31 per share and no principal or interest payments are due until maturity. The Loan Agreement provides that accrued interest and the outstanding principal balance can be prepaid, in whole or in part, at any time without premium or penalty. In connection with the negotiation of the Loan Agreement, the Company also granted a warrant to purchase up to 1,325,000 shares of the Company’s common stock at an exercise of $0.31 per share. The warrant expires on January 31, 2018. Due to the warrants issued in connection with the loan, the Company recognized a debt discount of $26,500 in interest expense. The Company also recognized approximately $26,500 in interest expense related to the amortization of this debt discount. | |
In September 2005, the Company entered into a Senior Convertible Note (the “Note”) with Water Science, a related party, in exchange for $3,000,000. Pursuant to the debt agreement, the Note accrues interest at the rate of 3% per annum and was initially due, principal and interest together, on September 16, 2008. In June 2008, Water Science agreed to extend the maturity date of the Note to March 16, 2009. In March 2009, the Company and Water Science agreed to extend the maturity date to September 16, 2009 and increase the interest rate to 10%. No principal or interest payments need to be paid during the loan period. In October 2008, as part of a new financing agreement, the Company amended the Note and changed the conversion rate from $3.00 per share to $1.00 per share. | |
The Note may be converted into 3,000,000 shares of the Company’s $0.0001 par value common stock prior to the maturity date, and at any time, by the holder at a price per share equal to $1.00 per share, subject to certain other conversion adjustments. The Company granted a security interest in all of the Company’s assets as collateral for the loan. In connection with the original issuance of the Note, the Company granted a three year warrant to purchase up to two million shares of the Company’s $0.0001 par value common stock with an exercise price of $2.76 per share. | |
In August 2009 and October 2010, the Company entered into agreements with Water Science, a related party, to extend the maturity dates of the Note from September 16, 2009 to November 1, 2010 and to December 1, 2011, respectively. | |
In December 2011, the Company and Water Science agreed to again extend the maturity date of the Note this time to November 30, 2013. | |
In December 2011, the Company entered into an agreement to convert $358,527 of accrued interest into a new convertible note. Simple interest will accrue at a rate of 10% per annum on the unpaid principal amount outstanding and the loan will mature on November 30, 2013, at which time accrued interest and the outstanding principal balance shall be due. The agreement contains an optional conversion right, whereby the Lender may convert all or any portion of the outstanding principal and interest due into shares of the Company’s common stock at a price per share equal to $1.00 per share. In connection with the issuance of the convertible note, the Company granted a five year warrant to purchase up to 358,527 shares of the Company’s $0.0001 par value common stock with an exercise price of $0.31 per share. | |
In April 2014, the Company entered into agreements with Water Science and Mr. Ullrich to extend the Senior Convertible Note, the $358,527 Note and the $1,325,000 Note until November 30, 2014. |
10_COMMON_STOCK
10. COMMON STOCK | 12 Months Ended | |||||||||||||||||||
Dec. 31, 2013 | ||||||||||||||||||||
Equity [Abstract] | ' | |||||||||||||||||||
10. COMMON STOCK | ' | |||||||||||||||||||
In January 2013, the Compensation Committee of the Board of Directors of the Company authorized the Company to grant each director 96,775 warrants for the purchase of common stock at $0.31 per share for the current year compensation for the year of service the director will serve as a member of the Board of Directors, pursuant to the Company’s Board of Directors compensation plan. The option will vest ratably over a period of two years from the date of when the option was granted. These grants were made pursuant to the annual directors’ compensation program approved by the Board in December 2007. | ||||||||||||||||||||
In December 2011, the Compensation Committee of the Board of Directors of the Company authorized the Company to grant to each board member 96,775 options to purchase shares of the Company’s common stock at an exercise price of $0.31 per share for each director for the years of service 2010, 2011 and 2012 for a total of 290,325 options each, effective on January 1, 2012. A portion of the options vested immediately while some will vest over a period of two years from the date of grant as follows: 145,163 immediately, 96,775 on January 1, 2013 and 48,387 on January 1, 2014. The grants were made in March 2012 and were granted pursuant to the annual directors’ compensation program approved by the Board in December 2007. The Board also granted 48,388 options to Karl Hellman for his year of service in 2009. | ||||||||||||||||||||
In August 2013, the Company modified existing options for two former employees. The Company recognized approximately $31,000 of expense related to the change. | ||||||||||||||||||||
A summary of the status of common stock options and warrants outstanding at December 31, 2013 and 2012, and changes during the years then ended is presented below. | ||||||||||||||||||||
For the years ended December 31, | ||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||
Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | |||||||||||||||||
Outstanding at beginning of period | 4,897,754 | $ | 0.31 | 3,688,066 | $ | 0.32 | ||||||||||||||
Granted | 2,105,560 | 0.31 | 1,209,688 | 0.31 | ||||||||||||||||
Exercised | - | - | - | - | ||||||||||||||||
Expired or cancelled | (393,460 | ) | - | - | - | |||||||||||||||
Outstanding at end of period | 6,609,854 | $ | 0.31 | 4,897,754 | $ | 0.31 | ||||||||||||||
Weighted average fair value of options and warrants exercisable | 6,513,079 | $ | 0.31 | 4,897,754 | $ | 0.31 | ||||||||||||||
A summary of the status of the options and warrants outstanding at December 31, 2013 is presented below: | ||||||||||||||||||||
Warrants Outstanding | Warrants Exercisable | |||||||||||||||||||
Range of Exercise Prices | Number Outstanding | Weighted-Average Remaining | Weighted-Average | Number Exercisable | Weighted-Average | |||||||||||||||
Contractual Life | Exercise Price | Exercise Price | ||||||||||||||||||
$ | .01-.50 | 6,609,854 | 4.3 years | $ | 0.31 | 6,513,079 | $ | 0.31 | ||||||||||||
The fair value of each option and warrant granted is estimated on the date granted using the Binomial pricing model, with the following assumptions used for the grants: risk-free interest rate of 1.15%, expected dividend yield of zero, expected lives of five years and expected volatility of 246%. | ||||||||||||||||||||
The stock-based compensation expense recognized in the statement of operations during the years ended December 31, 2013 and 2012, was $97,283 and $120,000 respectively. |
11_INCOME_TAXES
11. INCOME TAXES | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Income Tax Disclosure [Abstract] | ' | ||||||||
11. INCOME TAXES | ' | ||||||||
The Company accounts for income taxes in accordance with ASC 740, Income Taxes. ASC 740 requires the Company to provide a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting and any available operating loss or tax credit carryforwards. At December 31, 2013 and 2012, the total of all deferred tax assets was approximately $17,022,000 and $16,436,000, respectively, and the total of the deferred tax liabilities was approximately $143,000 and $0, respectively. The amount of and ultimate realization of the benefits from the deferred tax assets for income tax purposes is dependent, in part, upon the tax laws in effect, the Company’s future earnings, and other future events, the effects of which cannot be determined. Because of the uncertainty surrounding the realization of the deferred tax assets, the Company established a valuation allowance of approximately $167,879,000 and $16,436,000 as of December 31, 2013 and 2012, respectively, which has been offset against the deferred tax assets. The net change in the valuation allowance during the year ended December 31, 2013, was approximately $443,000. | |||||||||
The Company has available at December 31, 2013, unused tax operating loss carryforwards of approximately $42,849,000, which may be applied against future taxable income and expire in various years through 2033. | |||||||||
The components of income tax expense from continuing operations for the years ended December 31, 2013 and 2012 consist of the following: | |||||||||
Year Ended December 31, | |||||||||
2013 | 2012 | ||||||||
Current income tax expense: | |||||||||
Federal | $ | - | $ | - | |||||
State | - | - | |||||||
Net current tax expense | $ | - | $ | - | |||||
Deferred tax expense (benefit) arising from: | |||||||||
Net operating income (loss) | $ | (732,200 | ) | $ | (757,900 | ) | |||
Excess of tax over financial accounting depreciation | 113,000 | (43,900 | ) | ||||||
Stock for services | 36,300 | 44,800 | |||||||
Accrued interest | 178,200 | 150,000 | |||||||
Warranty reserve | 5,600 | 9,300 | |||||||
Amortization of debt discounts | 25,200 | 16,700 | |||||||
Section 263(A) | 5,700 | 1,800 | |||||||
Other – meals & entertainment, change in allowance for Obsolete | |||||||||
inventory, gain on settlement of accrued contingent liability | 79,600 | (128,200 | ) | ||||||
Valuation allowance | 286,600 | 707,400 | |||||||
Net deferred tax expense | $ | - | $ | - | |||||
Deferred income tax expense results primarily from the reversal of temporary timing differences between tax and financial statement income. | |||||||||
The temporary differences gave rise to the following deferred tax asset (liability) at December 31, 2013 and 2012: | |||||||||
December 31, | |||||||||
2013 | 2012 | ||||||||
Excess of book accounting depreciation over tax | $ | (142,800 | ) | $ | 10,200 | ||||
Obsolete inventory | 192,600 | 113,800 | |||||||
Accrued interest – related party | 764,900 | 586,700 | |||||||
Warranty reserve | 59,700 | 54,100 | |||||||
263(A) capitalization | 21,800 | 27,500 | |||||||
NOL carryforwards | 15,982,800 | 15,643,600 | |||||||
Valuation allowance | (16,879,000 | ) | (16,435,900 | ) | |||||
Net deferred tax expense | $ | - | $ | - | |||||
Deferred income tax expense results primarily from the reversal of temporary timing differences between tax and financial statement income. | |||||||||
The Company files income tax returns in the U.S. federal jurisdiction, and North Carolina, Georgia, and Utah. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2010. The statute of limitations remains open on all years from 2010 going forward. | |||||||||
At December 31, 2013, there are no tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. |
12_COMMITMENTS_AND_CONTINGENCI
12. COMMITMENTS AND CONTINGENCIES | 12 Months Ended |
Dec. 31, 2013 | |
Commitments and Contingencies Disclosure [Abstract] | ' |
12. COMMITMENTS AND CONTINGENCIES | ' |
In 2008, EAU signed a lease agreement with Fieldale Farms, a large poultry producer in northern Georgia, to install our equipment at their facility. We began receiving revenues of approximately $27,500 per month from this facility in February 2009. Per the terms of the agreement, we were to help the plant achieve Category 1 compliance for post-chill microbial performance. The plant completed a USDA test set October 2009 with the result that it met the Category 1 requirements for that test set. Fieldale indicated that it was suspending the agreement as of November 23, 2009 and ceased making payments. In February 2011, the Company filed a complaint in the Superior Court of Cobb County Georgia against Fieldale for breaching the agreement. (See Part I, Item 3 - Legal Proceedings) | |
In December 2010, the Company entered into a Second Amended and Restated License Agreement with Zerorez Franchising Systems, Inc. (“Zerorez”). The agreement amended the previous agreements with Zerorez by expanding the license granted to Zerorez by allowing Zerorez to acquire and use commercial Electrolyzed Water Generators in connection with their performance of franchise services other than the Primacide Generators manufactured or sold by the Company. The term of the agreement is for five years. | |
In September 2005, Water Science, a related party, paid to the Company $1,000,000 for the exclusive rights to sell our products in South America and Mexico. This agreement also gives Water Science the rights to purchase machinery from the Company at cost plus 25 percent. | |
The Company has incurred significant losses and has had negative cash flows from operations. As a result, at December 31, 2013, the Company has had a high level of equity financing transactions and additional financing will be required by the Company to fund its future activities and to support its operations. We currently do not have sufficient funds on hand to fund all of our operational needs for the next 12 months. We will have sufficient funds to operate our business provided we receive expected orders from our customers or if we are able to secure additional funding. We do not have any agreements in place for additional funding. Management will continue to seek to obtain sufficient funding for its operations through either debt or equity financing. However, there is no assurance that the Company will be able to obtain additional financing. Furthermore, there is no assurance that rapid technological changes, changing customer needs and evolving industry standards will enable the Company to introduce new products and services on a continual and timely basis so that profitable operations can be attained. The Company’s ability to achieve and maintain profitability and positive cash flows is dependent upon its ability to achieve positive sales and profit margins and control operating expenses. |
13_GOING_CONCERN
13. GOING CONCERN | 12 Months Ended |
Dec. 31, 2013 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ' |
13. GOING CONCERN | ' |
At December 31, 2013 the Company had deficit working capital, deficit equity and has sustained recurring losses from operations, all of which raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business. However, as a result of recurring operating losses, such realization of assets and satisfaction of liabilities are subject to uncertainty, which raises substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. | |
The Company estimates that it may need up to $1,500,000 for the upcoming twelve months to execute our business plan. Management plans to mitigate its losses in the near term through the further development and marketing of its trademarks, brand and product offerings. |
14_LOSS_PER_SHARE
14. LOSS PER SHARE | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Earnings Per Share [Abstract] | ' | ||||||||
14. LOSS PER SHARE | ' | ||||||||
Basic earnings per share is based on the weighted effect of all common shares issued and outstanding, and is calculated by dividing net income by the weighted average shares outstanding during the period. Diluted earnings per share is calculated by dividing net income by the weighted average number of common shares used in the basic earnings per share calculation plus the number of common shares that would be issued assuming exercise or conversion of all potentially dilutive common shares outstanding. | |||||||||
At December 31, 2013 and 2012, the Company had outstanding warrants and notes payable convertible into shares of common stock, which were not used in the computation of income (loss) per share because their effect would be anti-dilutive either due to the net loss or due to the exercise price of the warrants and options or conversion rate of the convertible notes relative to the current stock price. | |||||||||
The following data shows the amounts used in computing loss per share: | |||||||||
For the Year Ended December 31, | |||||||||
2013 | 2012 | ||||||||
Net (loss) (numerator) | $ | (1,963,000 | ) | $ | (2,031,881 | ) | |||
Shares (denominator) | |||||||||
Basic | 28,575,371 | 28,575,371 | |||||||
Per share amount | |||||||||
Basic | $ | (0.07 | ) | $ | (0.07 | ) |
15_SUBSEQUENT_EVENTS
15. SUBSEQUENT EVENTS | 12 Months Ended |
Dec. 31, 2013 | |
Subsequent Events [Abstract] | ' |
15. SUBSEQUENT EVENTS | ' |
At various times throughout 2013, funds totaling $303,300 were advanced to the Company by a related party. In April 2014, the Company entered into a loan agreement with this related party which formalized those advances into a note payable. This balance has been included on the balance sheet in related party notes payable as of December 31, 2013. The loan agreement provides for interest at a rate of 10% annually and will mature on November 30, 2014. The outstanding balance under the Loan Agreement is convertible into shares of the Company’s common stock at $0.31 per share and no principal or interest payments are due until maturity. The Loan Agreement provides that accrued interest and the outstanding principal balance can be prepaid, in whole or in part, at any time without premium or penalty. In connection with the negotiation of the Loan Agreement, the Company also granted a warrant to purchase up to 303,300 shares of the Company’s common stock at an exercise of $0.31 per share. The warrant expires in April, 2019. | |
In April 2014, the Company entered into agreements with Water Science and Mr. Ullrich to extend the Senior Convertible Note, the $358,527 Note and the $1,325,000 Note until November 30, 2014. | |
In January 2014, the Company obtained an unsecured short term advance of $285,000 from Peter Ullrich a member of the Board of Directors of the Company. The final agreement to document the advance has not been signed, and the material terms are not final. It is anticipated that the final loan will be at 10% simple interest and conversion rights into Company common stock. The material terms of the final agreement will be disclosed in subsequent filings with the Securities and Exchange Commission. | |
In accordance with ASC 855, management evaluated events subsequent to December 31, 2013 and concluded there were no other events or transactions during this period that required recognition or disclosure in its financial statements. |
1_BUSINESS_DESCRIPTION_AND_SIG1
1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2013 | |
Accounting Policies [Abstract] | ' |
Business Description | ' |
Business Description – EAU Technologies, Inc. (the “Company” or “EAU”), was incorporated on March 6, 2000, under the laws of the state of Delaware and commenced operations in September, 2000 as Primacide, Inc. On May 10, 2001, the Company changed its name from Primacide, Inc., to Electric Aquagenics Unlimited, Inc. On January 17, 2007 the Company changed its name from Electric Aquagenics Unlimited, Inc. to EAU Technologies, Inc. The Company is in the business of developing, manufacturing and marketing equipment that uses water electrolysis to create fluids. These fluids have various commercial applications and may be used in commercial food processing organic or non-organic agricultural and consumer products that clean, disinfect, remediate, hydrate and moisturize. These products, which the Company intends to market nationally and internationally, are for commercial and residential use. The Company’s financial statements are presented in accordance with accounting principles generally accepted in the United States of America. | |
Cash and Cash Equivalents | ' |
Cash and Cash Equivalents - For purposes of the balance sheet and statement of cash flows, the Company considers all highly liquid debt instruments purchased with maturity of three months or less to be cash equivalents. | |
Receivables | ' |
Receivables – Receivables represent valid claims against debtors for sales or other charges arising on or before the balance-sheet date and are reduced to their estimated net realizable value. The Company estimates allowances for doubtful accounts based on the aged receivable balances and historical losses. The Company charges off uncollectible accounts receivable when management estimates no possibility of collecting the related receivable. | |
Inventory | ' |
Inventory – Inventory, consisting primarily of finished goods, is stated at the lower of cost or market; cost is determined on first-in, first-out (FIFO) method. | |
Property and Equipment, and Depreciation | ' |
Property and Equipment, and Depreciation – Property and equipment are recorded at historical cost. Expenditures for additions and major improvements that extend the life of the asset are capitalized, whereas the cost of maintenance and repairs are expensed as incurred. Depreciation is computed on the straight-line method over the estimated useful lives of the assets ranging from three to seven years. Depreciation expense for the years ended December 31, 2013 and 2012 was $0 and $2,366, respectively. In September 2005, the Company pledged all the assets of the Company as collateral for the Senior Convertible Note, payable to Water Science, a related party. | |
Long-Lived Assets | ' |
Long-Lived Assets – Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the fair value of the asset. Long-lived assets are reported at the lower of carrying or fair value less costs to sell. | |
Fair Value of Financial Instruments | ' |
Fair Value of Financial Instruments – The carrying values of cash on hand, receivables, payables and accrued expenses approximate their fair value due to the short period to maturity of these instruments. | |
Recognition of Sales and Costs of Goods Sold | ' |
Recognition of Sales and Costs of Goods Sold – The Company records sales of its products based upon the terms of the contract; when title passes to its customers; and, when collectability is reasonably assured. The Company provides an allowance for sales returns based on current and historical experience. Cost of goods sold consists of the purchase price of products sold including inbound shipping charges. | |
Sales Taxes | ' |
Sales Taxes - In accordance with FASB ASC 605-45, formerly EITF Issue No. 06-3, How Taxes Collected From Customers and Remitted to Government Authorities Should be Presented in the Income Statement, the Company accounts for sales taxes imposed on its good and services on a gross basis in the statements of operations. For the years ended December 31, 2013 and 2012, respectively, $0 and $2,665 of sales taxes has been reported in revenues. | |
Warranties | ' |
Warranties – The Company warrants its products against defects in materials and workmanship for a period of up to three years. The Company has accrued a reserve for these anticipated future warranty costs. | |
Income Taxes | ' |
Income Taxes – Deferred income taxes are provided using the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment. | |
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. | |
Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the statement of income. | |
Accounting Estimates | ' |
Accounting Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. | |
Research and Development | ' |
Research and Development – Research and development costs are expensed as incurred. Research and development expenses for the years ended December 31, 2013 and 2012 were approximately $18,438 and $7,500, respectively. | |
Patents, Trademarks and Intellectual Property | ' |
Patents, Trademarks and Intellectual Property – Patents, trademarks and intellectual property, consisting of trade secrets and formulas are recorded in accordance with Accounting Standards Codification 350, Intangibles – Goodwill and Other (ASC 350), (formerly Statement of Financial Accounting Standards “SFAS” No. 142, "Goodwill and Other Intangible Assets"). As such, patents and trademarks are initially measured based on their fair values. | |
Loss Per Share | ' |
Loss Per Share – The Company follows the provisions of ASC Topic 260 "Earnings Per Share". Earnings per share (EPS) are computed based on the weighted average number of shares actually outstanding. No changes in the computation of diluted earnings per share amounts are presented because warrants granted would have been anti-dilutive due to the Company’s net reported loss. | |
Stock Based Compensation | ' |
Stock Based Compensation - Stock-based compensation is calculated according to FASB ASC Topic 718, Compensation — Stock Compensation, which requires a fair-value-based measurement method to account for stock-based compensation. The Company has modified the price of stock options to employees and directors. The Company accounts for the incremental value of the modified options based on the excess of the fair value of the modified award based on current circumstances. The modifications made to the Company’s equity awards did not result in significant incremental compensation costs, either individually or in the aggregate. | |
Recently Enacted Accounting Standards | ' |
Recently Enacted Accounting Standards | |
In February 2013, the FASB issued Accounting Standard Update (“ASU”) 2013-02, “Comprehensive Income (Topic 220)—Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” which requires entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, entities are required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, entities are required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail on these amounts. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012. Since ASU 2013-02 only impacts presentation and disclosure requirements, the adoption of this guidance did not have a material impact on the Company’s financial position or results of operations. | |
In April 2013, the FASB issued ASU 2013-07, “Presentation of Financial Statements (Topic 205)—Liquidation Basis of Accounting”. These amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. Entitles should apply the requirements prospectively from the day that liquidation becomes imminent. Early adoption is permitted. This is not applicable to the Company. | |
In July 2013, the FASB issued ASU 2013-11, “Income Taxes (Topic 740)—Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” which requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. To the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability. This ASU is effective for annual and interim periods beginning after December 15, 2013, with early adoption permitted. The Company does not expect that the adoption of this guidance will have a material effect on the Company’s financial position or results of operations. |
3_TRADE_ACCOUNTS_RECEIVABLE_Ta
3. TRADE ACCOUNTS RECEIVABLE (Tables) | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Receivables [Abstract] | ' | ||||||||
Schedule of trade accounts receivable | ' | ||||||||
Trade accounts receivable consist of the following at December 31: | |||||||||
2013 | 2012 | ||||||||
Trade accounts receivable | $ | 29,705 | $ | 2,500 | |||||
Trade accounts receivable – related party | 1,500 | 5,500 | |||||||
Less allowance for doubtful accounts | - | - | |||||||
$ | 31,205 | $ | 8,000 |
4_INVENTORIES_Tables
4. INVENTORIES (Tables) | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Inventory Disclosure [Abstract] | ' | ||||||||
Composition of Inventories | ' | ||||||||
The composition of inventories is as follows at December 31: | |||||||||
2013 | 2012 | ||||||||
Finished goods | $ | 536,207 | $ | 645,604 | |||||
Raw materials | 634,015 | 829,362 | |||||||
Allowance for obsolete inventory | (516,255 | ) | (305,000 | ) | |||||
$ | 653,967 | $ | 1,169,966 |
5_PROPERTY_AND_EQUIPMENT_Table
5. PROPERTY AND EQUIPMENT (Tables) | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Property, Plant and Equipment [Abstract] | ' | ||||||||
Schedule of property and equipment | ' | ||||||||
Property and equipment consisted of the following at December 31: | |||||||||
2013 | 2012 | ||||||||
Machinery and equipment | $ | 41,301 | $ | 41,301 | |||||
Furniture and fixtures | 47,284 | 47,284 | |||||||
Leasehold improvements | 32,136 | 32,136 | |||||||
Total property and equipment | 120,721 | 120,721 | |||||||
Less: accumulated depreciation | (120,721 | ) | (120,721 | ) | |||||
Property and equipment, net | $ | - | $ | - |
6_INTANGIBLE_ASSETS_Tables
6. INTANGIBLE ASSETS (Tables) | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | ' | ||||||||
Scheduule of intangible assets | ' | ||||||||
The amount of intangible assets, consisting of patents, as of December 31, 2012 is as follows: | |||||||||
2013 | 2012 | ||||||||
Gross amount of patents | $ | 136,275 | $ | 141,945 | |||||
Less amount of accumulated amortization | (6,071 | ) | (4,714 | ) | |||||
Net value of patents | $ | 130,204 | $ | 137,231 | |||||
Schedule of amortization expense | ' | ||||||||
The estimated amortization expense, based on current intangible balances, for the next fiscal years beginning January 1, 2014 is as follows: | |||||||||
2014 | $ | 1,357 | |||||||
2015 | $ | 1,357 | |||||||
2016 | $ | 1,357 | |||||||
2017 | $ | 1,357 | |||||||
2018 | $ | 1,357 |
8_WARRANTY_RESERVE_Tables
8. WARRANTY RESERVE (Tables) | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Guarantees [Abstract] | ' | ||||||||
Warranty Reserve | ' | ||||||||
Changes in the warranty reserve are as follows: | |||||||||
For the Year Ended December 31, | |||||||||
2013 | 2012 | ||||||||
Warranty reserve at beginning of period | $ | 145,000 | $ | 120,000 | |||||
Cost accrued for additional warranties | 16,864 | 25,894 | |||||||
Services obligations honored | (1,864 | ) | (894 | ) | |||||
Warranty reserve at end of period | $ | 160,000 | $ | 145,000 |
10_COMMON_STOCK_Tables
10. COMMON STOCK (Tables) | 12 Months Ended | |||||||||||||||||||
Dec. 31, 2013 | ||||||||||||||||||||
Equity [Abstract] | ' | |||||||||||||||||||
Schedule of common stock options and warrants outstanding | ' | |||||||||||||||||||
A summary of the status of common stock options and warrants outstanding at December 31, 2013 and 2012, and changes during the years then ended is presented below. | ||||||||||||||||||||
For the years ended December 31, | ||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||
Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | |||||||||||||||||
Outstanding at beginning of period | 4,897,754 | $ | 0.31 | 3,688,066 | $ | 0.32 | ||||||||||||||
Granted | 2,105,560 | 0.31 | 1,209,688 | 0.31 | ||||||||||||||||
Exercised | - | - | - | - | ||||||||||||||||
Expired or cancelled | (393,460 | ) | - | - | - | |||||||||||||||
Outstanding at end of period | 6,609,854 | $ | 0.31 | 4,897,754 | $ | 0.31 | ||||||||||||||
Weighted average fair value of options and warrants exercisable | 6,513,079 | $ | 0.31 | 4,897,754 | $ | 0.31 | ||||||||||||||
A summary of the status of the options and warrants outstanding at December 31, 2013 is presented below: | ||||||||||||||||||||
Warrants Outstanding | Warrants Exercisable | |||||||||||||||||||
Range of Exercise Prices | Number Outstanding | Weighted-Average Remaining | Weighted-Average | Number Exercisable | Weighted-Average | |||||||||||||||
Contractual Life | Exercise Price | Exercise Price | ||||||||||||||||||
$ | .01-.50 | 6,609,854 | 4.3 years | $ | 0.31 | 6,513,079 | $ | 0.31 |
11_INCOME_TAXES_Tables
11. INCOME TAXES (Tables) | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Income Tax Disclosure [Abstract] | ' | ||||||||
Schedule of income tax from continuing operations | ' | ||||||||
The components of income tax expense from continuing operations for the years ended December 31, 2013 and 2012 consist of the following: | |||||||||
Year Ended December 31, | |||||||||
2013 | 2012 | ||||||||
Current income tax expense: | |||||||||
Federal | $ | - | $ | - | |||||
State | - | - | |||||||
Net current tax expense | $ | - | $ | - | |||||
Deferred tax expense (benefit) arising from: | |||||||||
Net operating income (loss) | $ | (732,200 | ) | $ | (757,900 | ) | |||
Excess of tax over financial accounting depreciation | 113,000 | (43,900 | ) | ||||||
Stock for services | 36,300 | 44,800 | |||||||
Accrued interest | 178,200 | 150,000 | |||||||
Warranty reserve | 5,600 | 9,300 | |||||||
Amortization of debt discounts | 25,200 | 16,700 | |||||||
Section 263(A) | 5,700 | 1,800 | |||||||
Other – meals & entertainment, change in allowance for Obsolete | |||||||||
inventory, gain on settlement of accrued contingent liability | 79,600 | (128,200 | ) | ||||||
Valuation allowance | 286,600 | 707,400 | |||||||
Net deferred tax expense | $ | - | $ | - | |||||
Schedule of temporary tax differences | ' | ||||||||
The temporary differences gave rise to the following deferred tax asset (liability) at December 31, 2013 and 2012: | |||||||||
December 31, | |||||||||
2013 | 2012 | ||||||||
Excess of book accounting depreciation over tax | $ | (142,800 | ) | $ | 10,200 | ||||
Obsolete inventory | 192,600 | 113,800 | |||||||
Accrued interest – related party | 764,900 | 586,700 | |||||||
Warranty reserve | 59,700 | 54,100 | |||||||
263(A) capitalization | 21,800 | 27,500 | |||||||
NOL carryforwards | 15,982,800 | 15,643,600 | |||||||
Valuation allowance | (16,879,000 | ) | (16,435,900 | ) | |||||
Net deferred tax expense | $ | - | $ | - |
14_LOSS_PER_SHARE_Tables
14. LOSS PER SHARE (Tables) | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Earnings Per Share [Abstract] | ' | ||||||||
Schedule of earnings per share | ' | ||||||||
The following data shows the amounts used in computing loss per share: | |||||||||
For the Year Ended December 31, | |||||||||
2013 | 2012 | ||||||||
Net (loss) (numerator) | $ | (1,963,000 | ) | $ | (2,031,881 | ) | |||
Shares (denominator) | |||||||||
Basic | 28,575,371 | 28,575,371 | |||||||
Per share amount | |||||||||
Basic | $ | (0.07 | ) | $ | (0.07 | ) |
1_BUSINESS_DESCRIPTION_AND_SIG2
1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Accounting Policies [Abstract] | ' | ' |
Depreciation expense | $0 | $2,366 |
Sales taxes | 0 | 2,665 |
Research and development expenses | $18,438 | $7,500 |
3_TRADE_ACCOUNTS_RECEIVABLE_De
3. TRADE ACCOUNTS RECEIVABLE (Details) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Receivables [Abstract] | ' | ' |
Trade accounts receivable | $29,705 | $2,500 |
Trade accounts receivable - related party | 1,500 | 5,500 |
Less allowance for doubtful accounts | ' | ' |
Total trade accounts receivable | $31,205 | $8,000 |
3_TRADE_ACCOUNTS_RECEIVABLE_De1
3. TRADE ACCOUNTS RECEIVABLE (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Receivables [Abstract] | ' | ' |
Bad debt expense | $0 | $0 |
4_INVENTORIES_Details
4. INVENTORIES (Details) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Inventory Disclosure [Abstract] | ' | ' |
Finished goods | $536,207 | $645,604 |
Raw materials | 634,015 | 829,362 |
Allowance for obsolete inventory | -516,255 | -305,000 |
Total | $653,967 | $1,169,966 |
5_PROPERTY_AND_EQUIPMENT_Detai
5. PROPERTY AND EQUIPMENT (Details) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Property, Plant and Equipment [Abstract] | ' | ' |
Machinery and equipment | $41,301 | $41,301 |
Furniture and fixtures | 47,284 | 47,284 |
Leasehold improvements | 32,136 | 32,136 |
Total property and equipment | 120,721 | 120,721 |
Less: accumulated depreciation | -120,721 | -120,721 |
Property and equipment, net | ' | ' |
5_PROPERTY_AND_EQUIPMENT_Detai1
5. PROPERTY AND EQUIPMENT (Details Narrative) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Property, Plant and Equipment [Abstract] | ' | ' |
Depreciation expense | $0 | $1,009 |
6_INTANGIBLE_ASSETS_Details
6. INTANGIBLE ASSETS (Details) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Goodwill and Intangible Assets Disclosure [Abstract] | ' | ' |
Gross amount of patents | $136,275 | $141,945 |
Less amount of accumulated amortization | -6,071 | -4,714 |
Net value of patents | $130,204 | $137,231 |
6_INTANGIBLE_ASSETS_Details_1
6. INTANGIBLE ASSETS (Details 1) (USD $) | Dec. 31, 2013 |
Goodwill and Intangible Assets Disclosure [Abstract] | ' |
2014 | $1,357 |
2015 | 1,357 |
2016 | 1,357 |
2017 | 1,357 |
2018 | $1,357 |
6_INTANGIBLE_ASSETS_Details_Na
6. INTANGIBLE ASSETS (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Goodwill and Intangible Assets Disclosure [Abstract] | ' | ' |
Amortization expense | $1,357 | $1,357 |
Accrued costs written off | $34,005 | ' |
7_RELATED_PARTY_TRANSACTIONS_D
7. RELATED PARTY TRANSACTIONS (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Related Party Transactions [Abstract] | ' | ' |
Sales | $132,574 | $273,011 |
Received and recorded advance from Water Science | 433,540 | 515,383 |
Advances to employees | $1,500 | $5,500 |
8_WARRANTY_RESERVE_Details
8. WARRANTY RESERVE (Details) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Guarantees [Abstract] | ' | ' |
Warranty reserve at beginning of period | $145,000 | $120,000 |
Costs accrued for additional warranties | 16,864 | 25,894 |
Service obligations honored | -1,864 | -894 |
Warranty reserve at end of period | $160,000 | $145,000 |
10_COMMON_STOCK_Details
10. COMMON STOCK (Details) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Number of Options and Warrants | ' | ' |
Outstanding at beginning of period | 4,897,754 | 3,688,066 |
Granted | 2,105,560 | 1,209,688 |
Exercised | ' | ' |
Expired | -393,460 | ' |
Outstanding at end of period | 6,609,854 | 4,897,754 |
Weighted average fair value of options and warrants exercisable | 6,513,079 | 4,897,754 |
Weighted Average Exercise Price | ' | ' |
Outstanding at beginning of period | $0.31 | $0.32 |
Granted | $0.31 | $0.31 |
Exercised | ' | ' |
Expired | ' | ' |
Outstanding at end of period | $0.31 | $0.31 |
Weighted average fair value of options and warrants exercisable | $0.31 | $0.31 |
10_COMMON_STOCK_Details_1
10. COMMON STOCK (Details 1) (USD $) | Dec. 31, 2013 |
Equity [Abstract] | ' |
Exercise Prices, Range Minimum | $0.01 |
Exercise Prices, Range Maximum | $0.50 |
Warrants Outstanding | ' |
Weighted-Average Remaining Contractual Life | '4 years 3 months 18 days |
Weighted-Average Exercise Price | $0.31 |
Warrants Exercisable | ' |
Number Exercisable | 6,513,079 |
Weighted-Average Exercise Price | $0.31 |
10_COMMON_STOCK_Details_Narrat
10. COMMON STOCK (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Equity [Abstract] | ' | ' |
Stock-based compensation expense recognized | $97,283 | $120,000 |
11_INCOME_TAXES_Details
11. INCOME TAXES (Details) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Current income tax expense: | ' | ' |
Federal | ' | ' |
State | ' | ' |
Net current tax expense | ' | ' |
Deferred tax expense (benefit) arising from: | ' | ' |
Net operating income (loss) | -732,200 | -757,900 |
Excess of tax over financial accounting depreciation | 113,000 | -43,900 |
Stock for services | 36,300 | 44,800 |
Accrued interest | 178,200 | 150,000 |
Warranty reserve | 5,600 | 9,300 |
Amortization of debt discounts | 25,200 | 16,700 |
Section 263(A) | 5,700 | 1,800 |
Other - meals & entertainment, change in allowance for Obsolete | 79,600 | -128,200 |
Valuation allowance | 286,600 | 707,400 |
Net deferred tax expense | ' | ' |
11_INCOME_TAXES_Details_1
11. INCOME TAXES (Details 1) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Income Tax Disclosure [Abstract] | ' | ' |
Excess of book accounting depreciation over tax | ($142,800) | $10,200 |
Obsolete inventory | 192,600 | 113,800 |
Accrued interest - related party | 764,900 | 586,700 |
Warranty reserve | 59,700 | 54,100 |
263A capitalization | 21,800 | 27,500 |
NOL carryforwards | 15,982,800 | 15,643,600 |
Valuation allowance | -16,879,000 | -16,435,900 |
Net deferred tax expense | ' | ' |
11_INCOME_TAXES_Details_Narrat
11. INCOME TAXES (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Income Tax Disclosure [Abstract] | ' | ' |
Deferred tax assets | $17,022,000 | $16,436,000 |
Deferred tax liabilities | 143,000 | 0 |
Valuation allowance | 167,879,000 | 16,436,000 |
Change in the valuation allowance | 443,000 | ' |
Operating loss carryforwards | $42,849,000 | ' |
14_LOSS_PER_SHARE_Details
14. LOSS PER SHARE (Details) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Earnings Per Share [Abstract] | ' | ' |
Net (loss) (numerator) | ($1,963,000) | ($2,031,881) |
Shares (denominator) | ' | ' |
Basic | 28,575,371 | 28,575,371 |
Per share amount | ' | ' |
Basic | ($0.07) | ($0.07) |