Attached files
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| EX-32.1 - CERTIFICATION - INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD. | f10k2010a1ex32i_integenvir.htm |
| EX-32.2 - CERTIFICATION - INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD. | f10k2010a1ex32ii_integenvir.htm |
| EX-31.2 - CERTIFICATION - INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD. | f10k2010a1ex31ii_integenvir.htm |
| EX-31.1 - CERTIFICATION - INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD. | f10k2010a1ex31i_integenvir.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
(Amendment No. 1)
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x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2010
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number 000-26309
INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD.
(Exact name of registrant as specified in its charter)
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Nevada
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98-0200471
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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4235 Commerce Street
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Little River, South Carolina
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29566
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(Address of principal executive offices)
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(Zip Code)
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Registrant's telephone number: (843) 390-2500
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has 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 Website, 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 ¨ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.x
Indicate by check mark whether the registrant a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "small reporting company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ¨
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Accelerated filer ¨
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Non-accelerated filer ¨ (Do not check if a smaller reporting company)
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Smaller reporting company x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of June 30, 2010 (the last business day of the registrant's most recently completed second fiscal quarter) was $23,555,021.62 based on a share value of $0.38.
The number of shares of Common Stock, par value $0.001 per share, outstanding on March 21, 2011 was 117,069,141 shares.
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EXPLANATORY NOTE
Integrated Environmental Technologies, Ltd. (the “Company”) is filing this Amendment No. 1 (this “Amendment”) to its annual report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2011 (the “Original Report”) to amend the following:
1) the Preface section of Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in order to remove the information regarding the effect of the condensed consolidated financial statement adjustments related to the Company’s restatement of its previously reported unaudited condensed consolidated balance sheet as of September 30, 2010 and the related condensed consolidated statements of operations and cash flows for the three and nine months ended September 30, 2010, as previously disclosed in the Company’s current report on Form 8-K filed with the SEC on March 28, 2011;
2) Item 9A of Part II, “Controls and Procedures,” to correct deficiencies in the disclosure previously provided in the Original Report, including the inclusion of management’s annual report on internal control over financial reporting, which was inadvertently omitted from the Original Report; and
3) Item 15 of Part IV, “Exhibits, Financial Statement Schedules,” in order to incorporate by reference certain documents required to be included as exhibits to this report.
This Amendment should be read in conjunction with the Original Report. Except as specifically noted above, this Amendment does not modify or update disclosures in the Original Report.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information included in this Amendment on Form 10-K/A 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 objections 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 report. Except as may be required under applicable securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement. 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. 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. The registrant is under no duty to update any of the forward-looking statements contained herein after the date this Amendment on Form 10-K/A is submitted to the SEC.
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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included with the Original Report. References in the following discussion and throughout this Amendment to “we”, “our”, “us”, “IET”, “the Company”, and similar terms refer to Integrated Environmental Technologies, Ltd. and its wholly-owned subsidiary, I.E.T., Inc., unless otherwise expressly stated or the context otherwise requires. This discussion contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in the Original Report.
OVERVIEW AND OUTLOOK
Integrated Environmental Technologies, Ltd. is a life sciences-focused technology company that commercializes innovative technologies which are focused on the enhancement of the environment and the health, safety, and well-being of current and future generations. Our wholly-owned subsidiary, IET, Inc., designs, manufactures, markets, sells, and installs proprietary EcaFlo® equipment, featuring electro-chemical activation (“ECA”) technology, in the United States and throughout the world. IET’s EcaFlo® technology is a disruptive technology in that it requires customers to re-think the manner in which traditional, hazardous chemicals are utilized in day-to-day cleaning, sanitizing and disinfecting.
Overview
Our Revenues:
The core of our business is the ECA technology. Our equipment and the solutions our equipment produces remain the focus of our revenue strategy. ECA technology is a process of passing a diluted saline solution and ordinary water through an electrolytic cell in order to generate, by electrochemical energy conversion, environmentally-responsible, highly-active, meta-stable solutions which possess electron-donor or electron-acceptor properties known as Catholytes and Anolytes. We produce and sell ECA equipment and related supplies under the EcaFlo® trade name, and in addition we sell and distribute the solutions produced by our equipment through dealers and distributors under the EcaFlo® Anolyte (EcaFlo® Excelyte®, as trademarked by Benchmark Energy Products, LLC) and EcaFlo® Catholyte trade names. Under certain commercial agreements, we sell equipment and support for a fixed price and then receive ongoing payments (royalties) for solutions produced under the agreement.
At the end of 2010, we determined that our sales of EcaFlo® equipment were being impacted (i.e.: delayed) due to the economic recession and because our customers were experiencing certain capital expense restrictions in their own operations. We developed a new business model to address this situation, called the Systems Service Agreement model. Our new business model contains three different manners by which our customers may immediately obtain the benefits of utilizing our EcaFlo® solutions as generated by our EcaFlo® equipment:
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1)
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Traditional Sales – sale of EcaFlo® devices to customers;
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2)
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Systems Service Agreement – “place” EcaFlo® devices with customers under a period-of-time (monthly for “x” months) contract; the monthly charge for IET’s EcaFlo® equipment includes use of the machine, service, and technology fee charges, and IET maintains ownership of the equipment. In this manner, customers can immediately begin saving money by replacing traditionally-used chemicals with EcaFlo® solutions, at a cost-savings with no capital expenditure on their part; and
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3)
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Dealer/Distributor – a continuation of our EcaFlo® equipment and solutions sales through our existing and expanding Dealer/Partner network.
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We have been highly focused on commercialization of our EcaFlo® products in the oil and gas industry, with marked progress during 2010 as our dealer/distributor Benchmark Energy Products, LLC (“BEP”) successfully provided our fluids as their branded product called “Excelyte®” for use in the hydraulic fracture of natural gas wells. Since initial tests began, it has been consistently demonstrated that “Excelyte®” can be successfully used as a “GREEN” biocide for down-hole fracs, and the mixtures have been proven to be more effective – and safer – than other, competing chemical technologies. BEP currently owns nineteen EcaFlo® devices, located in two separate regional distribution centers owned and operated by BEP. We seek productive dialogue with BEP in order to gain better insight into this slow-to-change market so that we may better prepare our financial forecasts and make appropriate commercialization plans.
Our solutions have developed strong commercial interest and substantial market potential:
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EcaFlo® Anolyte – a strong oxidizing solution formed from naturally occurring elements that kills unwanted microorganisms and pathogens, and
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EcaFlo® Catholyte – an anti-oxidizing, mildly alkaline solution ideal for use as a degreaser, cleaner, and detergent.
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EcaFlo® Anolyte, an EPA-registered product, could potentially replace all applications for chlorine-related antimicrobials from an efficacy and efficiency standpoint. Our commercialization of this product is premised upon the compelling economics, given the low cost to produce Anolyte and the environmentally friendly nature of the product. The product can be as much as 100 times more effective than the bleach solutions traditionally used to mitigate pathogens in food processing, water disinfection, and fungicidal control. The product quickly destroys microorganisms and pathogens on fruits, vegetables, and processing equipment without leaving a harmful residue.
Outlook
After several years of product and market development, we have seen strong, but fluctuating, demand for our current generation equipment from commercial users (service companies) in the oil and gas industry. We are focusing on entry into national retail chains, food stores, and agricultural product centers. In addition, we continue our agricultural market plans with the considerable research and development capacities and support of Dole Vegetables. Our sales and marketing plans have always included sales of EcaFlo® equipment to other customers who specialize in, and often dominate, niche markets.
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We have incurred losses since inception. For the fiscal year ended December 31, 2010, we had a net loss of $2,170,906 as compared to a net loss of $2,798,404 for the fiscal year ended December 31, 2009. Our ability to proceed with our plan of operation has continuously been a function of our ability to increase revenues and raise sufficient capital to continue our operations.
Management will closely monitor the costs associated with its operations in order to minimize capital shortages. As we continue to expand operational activities and develop our new Systems Service Agreement plan, we anticipate experiencing positive cash flows from operations in future quarters. Debt borrowings and equity raises have been utilized in the past and may be considered in the future, if determined to be required.
Results of Operations for the Fiscal Year Ended December 31, 2010 and 2009
The following table summarizes selected items from the statement of operations at December 31, 2010 compared to December 31, 2009.
SALES AND COST OF GOODS SOLD:
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Fiscal Year Ended
December 31,
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Increase (Decrease)
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2010
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2009
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$ | % | |||||||||||||
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Sales
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$ | 768,339 | $ | 295,686 | $ | 472,653 | 160 | % | ||||||||
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Licensing Fees
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68,407 | 52,269 | 16,138 | 31 | % | |||||||||||
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Total Revenue
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836,746 | 347,955 | 488,791 | 140 | % | |||||||||||
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Cost of Goods Sold
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290,292 | 158,648 | 131,644 | 83 | % | |||||||||||
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Gross Profit
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546,454 | 189,307 | 357,147 | 189 | % | |||||||||||
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Gross Profit Percentage of Sales
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65 | % | 54 | % | -- | 11 | % | |||||||||
Sales
Our sales for the fiscal year ended December 31, 2010 were $836,747 compared to sales of $347,955 in the fiscal year ended December 31, 2009. This resulted in an increase in sales of $488,791, or 140%, from the same period a year ago. The increase in sales was as a result of continuing to develop opportunities in targeted markets such as with our Canadian dealer that specializes in the agricultural market, as well as the placement by Benchmark Energy Products of ten EcaFlo® units in their Millwood, West Virginia Regional Distribution Center in anticipation of product deployment in the Marcellus Shale Region.
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According to our oil and gas distributor, Benchmark Energy Products, they continue to market Excelyte® (Benchmark’s product name for EcaFlo® Anolyte), to the oil and gas industry, but the industry, which is resistant to change, continues to use several “old technology” biocides developed during the past 30 years. Benchmark reports having spent significant time and resources educating the industry about the benefits of Excelyte® versus the older biocides. The Company’s Exclusive License and Distributor Agreement with Benchmark Energy Products, LLC continues to be in place. Benchmark has reported to us that they have introduced the product to a major customer for lab testing, field-testing and limited commercial use and that they (BEP) are in negotiations to supply the product (Excelyte®) to that customer. Benchmark has agreed to apprise our board of directors of its sales goals and prospects for the current year, as well as for 2012.
IET continues to attempt to facilitate discussions toward reaching a mutually acceptable agreement regarding the minimum technology fees payable to the Company under the Exclusive License and Distribution Agreement; however, Benchmark and the Company have been unable to reach such an agreement at this point.
Cost of goods sold/Gross profit percentage of sales
Our cost of goods sold for the fiscal year ended December 31, 2010 was $290,292, an increase of $131,644, or 83% from $158,648 for the fiscal year ended December 31, 2009. The increase in our cost of sales is as a result of an increase in sales for this period. The cost of sales did increase less as a percentage of sales, and we anticipate this trend to continue as sales volumes increase. We are continuing to update and upgrade our product line and we closely monitor the cost of all of our products.
Gross profit margins increased by 11% from the prior fiscal year due to our continued efforts to find the most cost-effective components for our equipment.
EXPENSES:
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Fiscal Year Ended
December 31,
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Increase (Decrease)
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2010
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2009
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Expenses:
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Professional and administrative fees
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$ | 793,776 | $ | 495,222 | $ | 298,554 | 60 | % | ||||||||
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Salary
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806,886 | 613,428 | 193,458 | 32 | % | |||||||||||
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Depreciation and amortization
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7,595 | 1,074 | 6,521 | 607 | % | |||||||||||
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Office and miscellaneous
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606,611 | 454,526 | 152,085 | 33 | % | |||||||||||
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Total operating expenses
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2,214,868 | 1,564,250 | 650,618 | 42 | % | |||||||||||
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Loss from operations
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(1,668,414 | ) | (1,374,943 | ) | 293,471 | 21 | % | |||||||||
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Other income (expense):
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Interest expense
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(502,492 | ) | (1,423,461 | ) | (920,969 | ) | (65 | %) | ||||||||
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Total other expenses
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(502,492 | ) | (1,423,461 | ) | (920,969 | ) | (65 | %) | ||||||||
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Net loss
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$ | (2,170,906 | ) | $ | (2,798,404 | ) | $ | (627,498 | ) | (22 | %) | |||||
Professional and Administrative Fees
Professional and administrative fees for the fiscal year ended December 31, 2010 were $793,776, an increase of $298,554, or 60%, from $495,222 for the fiscal year ended December 31, 2009. The increase in professional and administrative fees was the result of utilizing the services of financial consultants to assist us in developing plans for financings and to consultants for assistance with investor relations and market awareness of our company’s progress. Historically, we have endeavored to reduce the use of outside consultants; however, we recognize that entry into certain markets will be expedited if we receive some assistance for areas of our business development. This assistance is best provided by supporters of IET’s goals who have a relationship with decision-makers within target markets.
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Salary Expense
Salary expense for the fiscal year ended December 31, 2010 was $806,886, an increase of $193,458, or 32%, from $613,428 for the fiscal year ended December 31, 2009. The increase in salary expense was the result of having had a period in which we increased our production and administrative staff, as well as the issuance of stock compensation to board members and certain employees pursuant to the terms of contractual agreements for 2008 and 2009. We expect salary expense to increase in the future as the Company grows and as sales volumes increase. We may need to continue issuing stock and stock options in exchange for services and adequate personnel compensation.
Depreciation and Amortization Expense
Depreciation and amortization expense for the fiscal year ended December 31, 2010 was $7,595, an increase of $6,521, or 607%, from $1,074 for the fiscal year ended December 31, 2009. The increase in depreciation expense was the result of the purchase of additional depreciable equipment and recent building improvements.
Office and Miscellaneous Expense
Office and miscellaneous expense for the fiscal year ended December 31, 2010 was $606,611, an increase of $152,085, or 33%, from $454,526 for the fiscal year ended December 31, 2009. The increase in office and miscellaneous expense was primarily the result of an increase in expenses necessary to meet the demand of our increased sales volume, such as engineering supplies and freight costs; an increase in travel associated with sales calls, attendance at conferences, and equipment commissioning; an increase in bad debt; and an increase in expenses related to licenses and permits, including registrations and certifications.
Loss from Operations
The loss from operations for the fiscal year ended December 31, 2010 was $1,668,414, versus a loss from operations of $1,374,943 for the fiscal year ended December 31, 2009, a change in loss from operations of $293,471. The increase in the loss from operations was the result of increases in expenses for this period, as outlined above.
Interest Expense
Interest expense for the fiscal year ended December 31, 2010 was $502,492, a decrease of 920,969, or 65%, from $1,423,461 for the same period in 2009. Our interest expense in 2010 decreased as a result of our having paid off a number of our convertible debentures and temporary working capital loans which were accruing interest in 2009.
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Net Loss
Our net loss for the fiscal year ended December 31, 2010 was $2,170,906, a decrease of $627,498, or 22%, from $2,798,404 for the fiscal year ended December 31, 2009. We continue to have a net loss, but believe the loss will be reduced and profitability will be attained in future quarters as the sales of our products increase.
Operation Plan
Electro-chemical activation (ECA) is the technology that drives our short-term and long-term plans, and is the center point of our EcaFlo® systems. Our plan of operation focuses on continuing the process of commercialization of EcaFlo® equipment and EcaFlo® fluid solutions, known as EcaFlo® Anolyte and EcaFlo® Catholyte.
Our direct attention continues to be focused on providing our EcaFlo® devices to the markets at-hand: the oil and gas industry, food safety and agricultural applications, storm-water treatment, water and wastewater treatment, and other hard-surface sanitation opportunities within the retail sector. In many cases, clinical and laboratory and “bench” testing and research has moved forward into field trials and commercial uses by end-users. Recently achieved positive results in field testing, specifically related to hard surface disinfection within retail stores, should result in increased revenues in future quarters. As a new “green” product, regulatory constraints continue to provide unforeseen challenges, which we address and overcome systematically.
Liquidity and Capital Resources
The following table summarizes total current assets, total current liabilities and working capital at December 31, 2010 compared to December 31, 2009.
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December 31,
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December 31,
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Increase / (Decrease)
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2010
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2009
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$ | % | |||||||||||||
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Current Assets
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$ | 346,904 | $ | 1,034,152 | $ | (687,248 | ) | (66 | %) | |||||||
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Current Liabilities
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$ | 920,887 | $ | 888,743 | $ | (32,144 | ) | (4 | %) | |||||||
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Working Capital (deficit)
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$ | (573,983 | ) | $ | 145,409 | $ | (719,392 | ) | (494 | %) | ||||||
Liquidity is a measure of a company’s ability to meet potential cash requirements. We have historically met our capital requirements through the issuance of stock to accredited investors, by borrowings, and through sales-generated revenue. In the future, we anticipate we will be able to provide the necessary liquidity we need by the revenues generated from the sales of our products. We will continue to consider financing opportunities with strategic industry partners.
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As of December 31, 2010, we continue to use equity sales and debt financing, in addition to sales-generated revenue, to provide the capital we need to run the business. In the future, we intend to generate enough revenues from the sales of our products in order for us to not have to sell additional stock or obtain additional loans.
Loans and Promissory Notes
On August 17, 2006, we received an unsecured loan of $25,000 from a shareholder at a variable interest rate. Pursuant to the note agreement, we agreed to issue 100,000 shares of common stock as a loan fee. On April 3, 2007, the shares were issued. The remaining principal balance and interest were converted to restricted shares of the Company’s common stock at $0.25 per share on March 5, 2010. The 106,740 shares were issued on March 10, 2010.
On August 19, 2009, we borrowed $590,000 from an affiliated, accredited company at an annual interest rate of 12%, plus a loan fee of $14,750, due on November 16, 2009. In consideration for the loan, we agreed to issue 5,900,000 warrants exercisable for $0.10 per share, expiring on August 14, 2014. The Lender was granted the right to convert the note (including interest) to restricted shares of the Company’s common stock at $0.10 per share for additional consideration of 2,950,000 warrants exercisable at $0.20 per share. These warrants would be effective on the conversion date and would expire on August 14, 2014. In the event that the principal and interest were not paid by the due date, the Company would have incurred a penalty of $3,000 per month until the balance was paid in full. Furthermore, in the event that the principal and interest were not paid by February 16, 2010, the Lender would have had the right to convert the unpaid portion of the note, including interest, to restricted shares of the Company’s common stock at $0.05 per share, and a pro rata portion of the 5,900,000 warrants would have been exercisable at $0.05 per share. On November 20, 2009, both parties executed an amendment to the promissory note, whereby the due date was extended to December 31, 2009. As of December 31, 2009, the note and accrued interest totaling $615,992 were converted into 6,159,923 restricted shares of common stock. These shares were issued on January 6, 2010. Further, pursuant to the loan agreement, 2,950,000 warrants, exercisable at $0.20 per share and expiring August 14, 2014, were issued in consideration for this conversion.
On August 19, 2009, we borrowed $10,000 from an affiliated, accredited company at an annual interest rate of 12%, plus a loan fee of $250, due on November 16, 2009. In consideration for the loan, we agreed to issue 100,000 warrants exercisable for $0.10 per share, expiring on August 14, 2014. The Lender was granted the right to convert the note (including interest) to restricted shares of the Company’s common stock at $0.10 per share for additional consideration of 50,000 warrants exercisable at $0.20 per share. These warrants would be effective on the conversion date and would expire on August 14, 2014. In the event that the principal and interest were not paid by the due date, the Company would have incurred a penalty of $3,000 per month until the balance was paid in full. Furthermore, in the event that the principal and interest were not paid by February 16, 2010, the Lender would have had the right to convert the unpaid portion of the note, including interest, to restricted shares of the Company’s common stock at $0.05 per share, and a pro rata portion of the 100,000 warrants would have been exercisable at $0.05 per share. As of December 31, 2009, the note and accrued interest totaling $10,441 were converted into 104,406 restricted shares of common stock. These shares were issued on January 6, 2010. Further, pursuant to the loan agreement, 50,000 warrants, exercisable at $0.20 per share and expiring August 14, 2014, were issued in consideration for this conversion.
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On April 12, 2010, we entered into a promissory note agreement, whereby we borrowed $250,000 from a non-affiliated, accredited individual at an annual interest rate based on a publicly published base rate plus 3.25% (currently 9.825%), plus a loan fee of $2,500. Pursuant to the terms of the note agreement, we agreed to issue warrants to purchase 150,000 restricted shares of our common stock at an exercise price of $0.60 per share through December 31, 2010, or $1.00 per share from January 1, 2011 through the warrant expiration date of June 1, 2011. This note is secured by personal property of the Company and was due on November 1, 2010. The loan is currently in default, although both parties are operating under a mutually acceptable informal extension.
On September 10, 2010, we entered into a convertible note and Exchange Agreement for $167,339, whereby a non-affiliated, accredited Lender purchased from certain debenture holders $164,500 in convertible debentures, plus accrued but unpaid interest, thereby correcting our default position on the previous 10% debentures. The note accrued interest at a rate of 10% per annum, and had a term of one year. The per share conversion price was established as the lesser of a) $0.40 and b) 80% of the average of the three lowest daily volume-weighted average sale prices for the Common Stock (VWAPs) during the twenty consecutive trading days immediately preceding the date on which the Holder elects to convert all or part of the Note. We had a beneficial conversion totaling $41,835, which was expensed in the year ended December 31, 2010. $100,000 of the loan amount, plus accrued but unpaid interest to date of $1,310, was converted into 566,748 shares of the Company’s common stock. The remaining principal amount was paid in full on December 7, 2010.
Satisfaction of our cash obligations for the next 12 months.
As of December 31, 2010, our cash balance was $65,660. As the result of the receipt of funds associated with an equity raise as well as the collection of some Accounts Receivable, our cash balance as of March 21, 2011, including funds held in an escrow account awaiting disbursement to us, is $520,647. Our plan for satisfying our cash requirements for the next twelve months is through sales-generated income, sales of our common stock, third-party financing, and/or traditional bank financing. We intend to make appropriate plans to insure sources of additional capital in the future to fund growth and expansion, and may consider additional equity or debt financing or credit facilities.
Since inception, we have financed cash flow requirements through debt financing and the issuance of common stock for cash and services. As we continue to expand operational activities, we may continue to experience net negative cash flows from operations, pending receipt of sales or development fees, and will be required to obtain additional financing to fund operations through common stock offerings and debt borrowings, giving consideration to loans and working diligently to move sales ahead to the extent necessary to provide working capital.
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We may continue to incur operating losses over the majority or some portion of the next twelve months. Our limited operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in light of the risks, expenses, and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving technology markets. Such risks include, but are not limited to, an evolving and unpredictable business model and the management of growth. To address these risks we must, among other things, implement and successfully execute our business and marketing strategy, continue to develop and upgrade technology and products, respond to competitive developments, and continue to attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.
As a result of our cash requirements and our lack of working capital, although not anticipated, we may continue to issue stock in exchange for loans and/or equity, which may have a substantial dilutive impact on our existing stockholders.
Going Concern
The financial statements included in this filing have been prepared in conformity with generally accepted accounting principles that contemplate the continuance of the Company as a going concern. The Company’s ability to continue as a going concern is dependent on attaining profitable operations. The Company's cash position may be inadequate to pay all of the costs associated with testing, production and marketing of products. Management will consider borrowings and security sales to mitigate the effects of its cash position; however, no assurance can be given that debt or equity financing, if and when required, will be available. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should the Company be unable to continue existence.
Critical Accounting Policies and Estimates
Our discussion of financial conditions and results of operations is based upon the information reported in our financial statements. The preparation of these statements requires us to make assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities at the date of our financial statements. We base our assumptions and estimates on historical experience and other sources that we believe to be reasonable at the time. Actual results may vary from our estimates due to changes in circumstances, weather, politics, global economics, mechanical problems, general business conditions and other factors. Our significant estimates are related to the valuation of warrants and options.
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States ("US GAAP"). US GAAP requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expenses amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
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We believe the following are among the most critical accounting policies that impact our consolidated financial statements. We suggest that our significant accounting policies, as described in our condensed consolidated financial statements in the Summary of Significant Accounting Policies, be read in conjunction with this Management's Discussion and Analysis of Financial Condition and Results of Operations. See also Note 2 to our consolidated financial statements for further discussion of our accounting policies.
We experienced little pressure from inflation in 2010. We anticipate fuel costs and possibly interest costs to increase in fiscal 2011 and 2012. These additional costs may not be transferable to our customers, which could result in lower income in the future.
Revenue Recognition
We recognize sales revenue when title passes and all significant risks of ownership change, which occurs either upon shipment or delivery based on contractual terms. The Company's revenue recognition policies are in compliance with Staff Accounting Bulletin ("SAB") 104, "Revenue Recognition." Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.
Allowance for Doubtful Accounts
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.
Inventory
Management compares the cost of inventories with the market value. We record the value of our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand, future pricing and market conditions.
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Property and Equipment
Property and equipment are stated at historical cost less accumulated depreciation and amortization. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Judgment is required to determine the estimated useful lives of assets, including determining how long existing equipment can function and when new technologies will be introduced at cost-effective price points to replace existing equipment. Changes in these estimates and assumptions could materially impact the financial position and results of operations.
Off-Balance-Sheet Arrangements
As of December 31, 2010, we did not have any off-balance sheet arrangements that had or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Recent Accounting Pronouncements
In March 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-11, Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives. The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010. Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after issuance of this Update.
In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-06, Improving Disclosures about Fair Value Measurements. ASU No. 2010-06 amends FASB Accounting Standards Codification (“ASC”) 820 and clarifies and provides additional disclosure requirements related to recurring and non-recurring fair value measurements and employers’ disclosures about post-retirement benefit plan assets. This ASU is effective for interim and annual reporting periods beginning after December 15, 2009.
For information regarding these accounting pronouncements and their expected impact on our future financial condition or results of operations, see Note 2 to our consolidated financial statements.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our former Chief Executive Officer and Principal Financial Officer, William E. Prince, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by the Original Report. Based on that evaluation, Mr. Prince concluded that our disclosure controls and procedures were not effective in timely alerting him to material information relating to us (including our consolidated subsidiaries) required to be included in our periodic SEC filings and in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is
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accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Specifically, certain financial information included in the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2010 filed with the SEC on November 15, 2010 was incorrect. As previously disclosed in the Company’s current report on Form 8-K filed on March 28, 2011, after discussions between the Company and the Company’s independent registered public accounting firm, the Company concluded that the previously issued unaudited condensed consolidated balance sheet as of September 30, 2010 and the related condensed consolidated statements of operations and cash flows for the three and nine months ended September 30, 2010 included in the quarterly report on Form 10-Q for the quarter ended September 30, 2010 should be restated. Accordingly, Amendment No. 1 to our quarterly report on Form 10-Q for the quarter ended September 30, 2010 was filed with the SEC on August 15, 2011. In addition, during the review of the circumstances surrounding the amendment of the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2010 and this Amendment to the Original Report, the Board of Directors of the Company determined that the Company’s disclosure controls and procedures were not effective due to the lack of sufficient internal resources.
During the review of the circumstances surrounding the amendment of the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2010 and this Amendment to the Original Report, the Board of Directors of the Company determined that the Company lacked sufficient internal resources during the quarter ended December 31, 2010, and, consequently, the Company’s disclosure controls and procedures were not effective as of December 31, 2010. Accordingly, effective May 22, 2011, the Company hired a Chief Financial Officer experienced in public company accounting and reporting.
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 Chief Financial Officer (Principal Financial and Accounting Officer), as appropriate, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal controls over financial reporting include those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
We do not believe that Mr. Prince, our former Chief Executive Officer and Principal Financial Officer, conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010. However, in consideration of the deficiencies in the Company’s financial reporting as discussed above, and in connection with the preparation of this Amendment to the Original Report, the Board of Directors determined that management lacked sufficient internal resources as of December 31, 2010 to have effective internal controls over financial reporting. Therefore, the Company’s internal control over financial reporting was not effective as of December 31, 2010.
Current management does not believe that there was any change in the Company’s internal control over financial reporting during the three months ended December 31, 2010 that materially affected, or was reasonably likely to materially affect, the Company’s internal control over financial reporting. However, effective April 21, 2011, the Company formed an audit committee consisting of independent directors, as defined by NASDAQ and the SEC, and chaired by a financial expert as defined by the SEC. In addition, effective May 22, 2011, the Company hired a Chief Financial Officer experienced in public company accounting and reporting. The Company believes that the addition of these internal resources will make the Company’s internal controls over financial reporting effective on a going forward basis.
Part IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
Reference is made to the Index of Exhibits beginning on page E-1 of this report.
(b) Financial Statement Schedules
Reference is made to the Index of Financial Statements on page F-1 of the Original Report. No schedules are included with the financial statements because the required information is inapplicable or is presented in the financial statements or notes thereto.
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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.
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INTEGRATED ENVIRONMENTAL
TECHNOLOGIES, LTD.
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August 26, 2011
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By:
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/s/ David R. LaVance | |
| David R. LaVance | |||
| President and Chief Executive Officer | |||
| August 26, 2011 | By: | /s/ Thomas S. Gifford | |
| Thomas S. Gifford | |||
| Executive Vice President, | |||
| Chief Financial Officer and Secretary | |||
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INDEX OF EXHIBITS
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Exhibit No.
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Description
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3.1
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Articles of Incorporation of Integrated Environmental Technologies, Ltd. (the “Company”) (incorporated by reference to Exhibit 3(i)(h) to the Company’s Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on March 10, 2008).
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3.2
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Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Form 10-Q filed with the SEC on August 22, 2011).
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4.1
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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 Form 10-Q filed with the SEC on August 22, 2011).
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4.2
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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 Form 10-Q filed with the SEC on August 22, 2011).
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4.3
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Secured Promissory Note in the principal amount of $590,000 issued by the Company to Zanett Opportunity Fund, Ltd. (“Zanett”) dated August 19, 2009 (incorporated by reference to Exhibit 4.3 to the Company’s Form 10-Q filed with the SEC on August 22, 2011).
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4.4
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First Amendment dated November 20, 2009 to Secured Promissory Note in the principal amount of $590,000 issued by the Company to Zanett dated August 19, 2009 (incorporated by reference to Exhibit 4.4 to the Company’s Form 10-Q filed with the SEC on August 22, 2011).
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4.5
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Form of Convertible Debenture Purchase Agreement and 8% Convertible Debenture issued by the Company to each of Green Energy Metals Fund, LP (principal amount of $50,000) dated April 12, 2010; Odysseus Fund, LP (principal amount of $50,000) dated April 12, 2010 and David G. Snow (principal amount of $50,000) dated April 12, 2010 (incorporated by reference to Exhibit 4.5 to the Company’s Form 10-Q filed with the SEC on August 22, 2011).
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4.6
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Promissory Note Agreement between the Company and RHI Family Trust dated April 12, 2010 (incorporated by reference to Exhibit 4.6 to the Company’s Form 10-Q filed with the SEC on August 22, 2011).
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4.7
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Security Agreement between the Company and RHI Family Trust dated April 12, 2010 (incorporated by reference to Exhibit 4.7 to the Company’s Form 10-Q filed with the SEC on August 22, 2011).
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4.8
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Interest Only Six Month Term Note with Balloon Payment in the principal amount of $250,000 issued by the Company to RHI Family Trust dated April 12, 2010 (incorporated by reference to Exhibit 4.8 to the Company’s Form 10-Q filed with the SEC on August 22, 2011).
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Exhibit No.
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Description
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4.9
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10% Convertible Note in the principal amount of $167,339 issued to Gemini Master Fund, Ltd. (“Gemini”) dated September 10, 2010 (incorporated by reference to Exhibit 4.9 to the Company’s Form 10-Q filed with the SEC on August 22, 2011).
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4.10
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Exchange Agreement between the Company and Gemini dated September 10, 2010 (incorporated by reference to Exhibit 4.10 to the Company’s Form 10-Q filed with the SEC on August 22, 2011).
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4.11
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Loan Agreement between the Company and Zanett dated January 5, 2011 (incorporated by reference to Exhibit 99.i to the Company’s Form 8-K filed with the SEC on January 24, 2011).
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4.12
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Promissory Note in the principal amount of $200,000 issued to Zanett dated January 5, 2011 (incorporated by reference to Exhibit 99.ii to the Company’s Form 8-K filed with the SEC on January 24, 2011).
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10.1
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Stock Acquisition Agreement between the Company and Benchmark Performance Group, Inc. (“Benchmark”) dated June 20, 2007 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on August 21, 2007).
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10.2
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Exclusive License and Distribution Agreement between IET, Inc. and Benchmark Energy Products, L.P. dated June 20, 2007 (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed with the SEC on August 21, 2007).
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10.3
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Registration Rights Agreement between the Company and Benchmark dated June 21, 2007 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the SEC on August 21, 2007).
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*10.4
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2002 Stock Option Plan of the Company (incorporated by reference to Exhibit 10.4 to the Company’s Form 10-Q filed with the SEC on August 22, 2011).
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*10.5
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2010 Stock Incentive Plan of the Company (incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q filed with the SEC on August 22, 2011).
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10.6
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Non-Exclusive Independent Sales Representative Agreement between the Company and Gary J. Grieco, dba 3GC, Ltd., dated November 20, 2009 (incorporated by reference to Exhibit 10.6 to the Company’s Form 10-Q filed with the SEC on August 22, 2011).
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10.7
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Investor Relations Consulting Agreement between the Company and Gary J. Grieco, dba 3GC, Ltd., dated March 1, 2010 (incorporated by reference to Exhibit 10.7 to the Company’s Form 10-Q filed with the SEC on August 22, 2011).
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10.8
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Addendum dated May 19, 2010 to Investor Relations Consulting Agreement between the Company and Gary J. Grieco, dba 3GC, Ltd., dated March 1, 2010 (incorporated by reference to Exhibit 10.8 to the Company’s Form 10-Q filed with the SEC on August 22, 2011).
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Exhibit No.
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Description
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10.9
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Addendum dated September 1, 2010 to Investor Relations Consulting Agreement between the Company and Gary J. Grieco, dba 3GC, Ltd., dated March 1, 2010 (incorporated by reference to Exhibit 10.9 to the Company’s Form 10-Q filed with the SEC on August 22, 2011).
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10.10
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Non-Exclusive Independent Sales Representative Agreement between the Company and Gary J. Grieco, dba 3GC, Ltd., dated February 1, 2011 (incorporated by reference to Exhibit 10.10 to the Company’s Form 10-Q filed with the SEC on August 22, 2011).
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10.11
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Corporate Services Agreement between the Company and Catalyst Financial Resources LLC dated February 23, 2010 (incorporated by reference to Exhibit 10.11 to the Company’s Form 10-Q filed with the SEC on August 22, 2011).
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31.1
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Section 302 Certification of Principal Executive Officer.
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31.2
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Section 302 Certification of Principal Financial Officer.
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32.1
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Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.
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32.2
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Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.
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* Constitutes a management contract under Section 601 of Regulation S-K.
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