INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD. - FORM 10-Q

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD.	Financial_Report.xls
EX-31.1 - CERTIFICATION - INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD.	f10q0312ex31i_intgratedenv.htm
EX-31.2 - CERTIFICATION - INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD.	f10q0312ex31ii_intgratedenv.htm
EX-32.2 - CERTIFICATION - INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD.	f10q0312ex32ii_intgratedenv.htm
EX-10.14 - INCENTIVE OPTION AGREEMENT AND NOTICE OF GRNAT - INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD.	f10q0312ex10xvi_intgratedenv.htm
EX-10.15 - NON-QUALIFIED OPTION AGREEMENT AND NOTICE OF GRANT - INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD.	f10q0312ex10xviii_intgratenv.htm
EX-32.1 - CERTIFICATION - INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD.	f10q0312ex32i_intgratedenv.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-26309

INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD.

(Exact name of registrant as specified in its charter)

Nevada	98-0200471
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

4235 Commerce Street
Little River, South Carolina		29566
(Address of principal executive offices)		(Zip Code)

(843) 390-2500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer ¨

Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ Nox

As of May 11, 2012, there were 135,355,165 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD.

INDEX TO FORM 10-Q

		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Consolidated Balance Sheets (unaudited) as of March 31, 2012 and December 31, 2011	2

	Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31, 2012 and 2011	3

	Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2012 and 2011	4

	Notes to the Unaudited Consolidated Financial Statements	5

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	22

Item 4.	Controls and Procedures	22


PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	23

Item 1A.	Risk Factors	24

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 3.	Defaults upon Senior Securities	25

Item 4.	Mine Safety Disclosures	25

Item 5.	Other Information	25

Item 6.	Exhibits	25

Signatures		26

Index of Exhibits		E-1

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information included in this quarterly report on Form 10-Q and other filings of the registrant under the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as information communicated orally or in writing between the dates of such filings, contains or may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and 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 of the forward-looking statements. 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 quarterly report on Form 10-Q is submitted to the Securities and Exchange Commission (the “SEC”).

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

The consolidated balance sheet as of March 31, 2012 and the related consolidated statements of operations and cash flows for the three months ended March 31, 2012 and 2011 for Integrated Environmental Technologies, Ltd. and its wholly-owned subsidiary IET, Inc. (collectively referred to herein as “IET” or the “Company”) included in Item 1, have been prepared by us, without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted from the following financial statements pursuant to the rules and regulations of the SEC. The consolidated financial statements include our wholly-owned subsidiary and all significant inter-company transactions and balances have been eliminated. In the opinion of management, the accompanying consolidated financial statements include all adjustments, which are of a normal and recurring nature, necessary to present fairly our financial position and results of operations. Certain reclassifications have been made to prior periods to conform to current presentations.

It is suggested that the following consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2011. The Company does not believe there are any recently issued, but not yet effective, accounting standards that would have a significant impact on the Company’s financial position or results of operations as of and for the three-month period ended March 31, 2012.

The results of operations for the three months ended March 31, 2012 and 2011 are not necessarily indicative of the results of the entire fiscal year or for any other period.

Integrated Environmental Technologies, Ltd.

Consolidated Balance Sheets

(Unaudited)

	March 31,			December 31,
	2012			2011
Assets
Current assets:
Cash	$	625,063		$	145,993
Accounts receivable		15,258			7,872
Prepaid expenses		23,312			10,927
Lease receivable		14,076			14,296
Inventory		209,578			219,209
Note receivable		14,489			16,364
Other receivable		12,081			12,081

Total current assets		913,857			426,742

Property and equipment, net		210,937			239,605

Lease receivable, long-term		16,572			19,700
Note receivable, long-term		9,153			10,848

Total assets	$	1,150,519		$	696,895

Liabilities and Stockholders’ Deficiency
Current liabilities:
Accounts payable	$	123,957		$	229,086
Accrued expenses		227,905			166,136
Customer deposits		37,374			41,529
Convertible debentures		25,000			25,000

Total current liabilities		414,236			461,751

Convertible debentures		526,125			526,125
Convertible promissory notes		500,000			500,000

Total liabilities		1,440,361			1,487,876
Commitments and contingencies
Stockholders’ deficiency:
Common stock, $.001 par value; 200,000,000 shares authorized; 135,355,165 and 122,735,165 shares issued and outstanding, respectively		135,355			122,735
Additional paid-in capital		15,767,475			14,810,185
Accumulated deficit		(16,192,672	)		(15,723,901	)
Total stockholders' deficiency		(289,842	)		(790,981	)

Total liabilities and stockholders' deficiency	$	1,150,519		$	696,895

The accompanying notes are an integral part of these consolidated financial statements.

Integrated Environmental Technologies, Ltd.

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended March 31,
	2012			2011

Revenues:
Sales	$	24,258		$	27,510
Leasing and Licensing Fees		21,541			12,000
		45,799			39,510
Cost of sales		6,602			19,814

Gross profit		39,197			19,696

Operating expenses:
General and administrative expense		298,205			329,931
Sales and marketing expense		126,228			122,714
Research and development expense		62,465			74,689
		486,898			527,334

Loss from operations		(447,701	)		(507,638	)

Other income (expense):
Interest income		838			--
Finance fees		--			(9,310	)
Interest expense		(21,908	)		(27,475	)
Total other income (expense)		(21,070	)		(36,785	)

Net loss	$	(468,771	)	$	(544,423	)

Net loss per share, basic and diluted	$	(0.00	)	$	(0.00	)

Weighted average shares outstanding, basic and diluted		131,306,319			111,353,308

The accompanying notes are an integral part of these consolidated financial statements.

Integrated Environmental Technologies, Ltd.

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended March 31,
	2012			2011
Cash flows from operating activities:
Net loss	$	(468,771	)	$	(544,423	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		28,668			2,719
Stock-based compensation expense		43,510			51,565
Accretion of interest on convertible notes		--			9,682
Changes in operating assets and liabilities:
Accounts receivable		(7,386	)		2,297
Lease receivable		3,348			1,143
Note receivable		3,570			--
Inventory		9,631			(24,238	)
Prepaid expenses		(12,385	)		3,632
Accounts payable		(69,129	)		(4,725	)
Accrued expenses		61,769			3,810
Customer deposits		(4,155	)		--
Net cash used in operating activities		(411,330	)		(498,538	)
Cash flows from financing activities:
Proceeds from sale of common stock, net of offering costs		890,400			607,500
Proceeds from issuance of note payable		--			200,000
Net cash provided by financing activities		890,400			807,500
Increase in cash		479,070			308,962
Cash - beginning of period		145,993			65,660
Cash - end of period	$	625,063		$	374,622
Supplemental disclosure of cash flow information:
Cash paid for interest	$	448		$	17,286
Cash paid for income taxes	$	4,687		$	--
Non-cash operating activity:
Issuance of 360,000 shares of common stock as payment of director fees	$	36,000		$	--

The accompanying notes are an integral part of these consolidated financial statements.

Integrated Environmental Technologies, Ltd.

Notes to Consolidated Financial Statements

1. Basis of Presentation

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred significant recurring operating losses, negative cash flows from operations and an accumulated deficit of $16,192,672 as of March 31, 2012. The Company also has no lending relationships with commercial banks and is dependent on the completion of financings with equity and/or debt investors in order to continue operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company does not anticipate establishing any lending relationships with commercial banks in the foreseeable future due to its limited operations and assets. The Company continues to execute on its strategy of selling anolyte and catholyte solutions and leasing its EcaFlo® equipment to fund its operations and is focused on obtaining additional capital through the private placement of its securities. The Company is pursuing potential equity and/or debt investors and, from time to time, has engaged placement agents to assist it in this initiative. While the Company is pursuing the opportunities and actions described above, there can be no assurance that it will be successful in its efforts. If the Company is unable to secure additional capital, it will explore other strategic alternatives, including, but not limited to, the sale of the Company. Any additional equity financing may result in substantial dilution to the Company’s stockholders.

2. Inventory

As of March 31, 2012 and December 31, 2011, inventory consisted of the following:

	March 31, 2012		December 31, 2011
Parts and materials	$	123,417	$	133,048
Finished goods		86,161		86,161
	$	209,578	$	219,209

3. Lease Receivable

The Company has entered into a lease arrangement with a customer with respect to certain EcaFlo® equipment which the Company has recorded as a sales-type lease. As of March 31, 2012 and December 31, 2011, the Company’s lease receivable consisted of the following:

	March 31, 2012			December 31, 2011
Future minimum lease payments receivable	$	100,000		$	112,000
Unearned revenue		(69,352	)		(78,004	)
Lease receivable	$	30,648		$	33,996
Current portion of lease receivable	$	14,076		$	14,296
Long-term portion of lease receivable	$	16,572		$	19,700

As of March 31, 2012, the future minimum lease payments receivable under this lease arrangement are to be received as follows: $36,000 during the remainder of fiscal 2012; $48,000 in fiscal 2013; and $16,000 in fiscal 2014. During the three months ended March 31, 2012, the Company recognized $658 of interest income related to this lease arrangement.

4. Note Receivable

The Company has a note receivable with a customer relating to the sale of certain EcaFlo® equipment. The note payments are $1,250 per month over a 34-month term which commenced on January 15, 2011. The Company imputed interest on this note receivable at a rate of 3% per annum. During the three months ended March 31, 2012, the Company recognized $180 of interest income related to this note receivable. As of March 31, 2012 and December 31, 2011, the current portion of the note receivable was $14,489 and $16,364, respectively, and the long-term portion was $9,153 and $10,848, respectively.

5. Property and Equipment

As of March 31, 2012 and December 31, 2011, property and equipment, on a net basis, consisted of the following:

	March 31, 2011			December 31, 2011
Leasehold improvements	$	328,977		$	328,977
Equipment		41,240			41,240
		370,217			370,217
Less: Accumulated depreciation		(159,280	)		(130,612	)
	$	210,937		$	239,605

6. Accrued Expenses

As of March 31, 2012 and December 31, 2011, accrued expenses consisted of the following:

	March 31, 2012		December 31, 2011
Accrued compensation	$	149,287	$	128,415
Accrued interest		57,463		36,103
Accrued other expenses		21,155		1,618
	$	227,905	$	166,136

7. Customer Deposits

On March 29, 2011, the Company issued a credit in the amount of $36,109 to a consultant to be used to purchase the Company’s products. This credit was issued as payment to the consultant for consulting services rendered to the Company. The Company has recorded this amount as a customer deposit.

As of March 31, 2012 and December 31, 2011, the Company received $1,265 and $5,420, respectively, of lease payments related to subsequent periods. The Company has recorded these amounts as customer deposits.

8. Convertible Debentures

April 2007 Convertible Debenture

On April 26, 2007, in a private placement, the Company issued a convertible debenture to an individual accredited investor in the principal amount of $25,000. This convertible debenture matured on January 2, 2009. The convertible debenture currently accrues interest at a rate of 12% per annum and is convertible at any time into shares of the Company’s common stock at the option of the holder at a conversion price of $0.40 per share. The Company is in default on this convertible debenture and is attempting to restructure the convertible debenture with the holder.

During the three months ended March 31, 2012, the Company recorded a total of $748 of interest expense related to this convertible debenture. As of March 31, 2012 and December 31, 2011, the outstanding principal on this convertible debenture was $25,000 and the accrued and unpaid interest was $5,190 and $4,442, respectively, which amounts are included as a component of accrued expenses.

Kinsey Convertible Debenture

On July 7, 2011, in a private placement, the Company issued to E. Wayne Kinsey, III, a member of the Company’s board of directors, an 8% convertible debenture in the amount of $150,000 (the “Kinsey Debenture”). As a result of this private placement, the Company received gross proceeds of $150,000. The Kinsey Debenture has a three-year term maturing on July 7, 2014, and bears interest at a rate of 8% per annum. Interest is payable in annual installments in cash or, at the option of the Company, in shares of the Company’s common stock. If the Company elects to pay the interest in shares of its common stock, the number of shares issued as payment will be equal to the quotient of the unpaid interest divided by the market price of the Company’s common stock as defined in the Kinsey Debenture.

The entire principal amount of the Kinsey Debenture is convertible at any time into shares of the Company’s common stock at the option of the holder at a conversion price of $0.10 per share, subject to a weighted average adjustment for certain issuances or sales of the Company’s common stock at a price per share less than $0.08. In addition, at the option of the Company, the entire principal amount of the Kinsey Debenture is convertible into shares of the Company’s common stock at $0.10 per share, subject to a weighted average adjustment for certain issuances or sales of the Company’s common stock at a price per share less than $0.08, upon the occurrence of the merger or acquisition of the Company or if the average closing price of the Company’s common stock for any period of twenty consecutive trading days is greater than or equal to $0.25 per share. The quoted market price of the Company’s common stock as of July 7, 2011 was $0.08 per share. An aggregate of 1,500,000 shares of the Company’s common stock can be issued pursuant to the Kinsey Debenture at the current conversion price of $0.10 per share. The Company has determined that the value attributable to the weighted average adjustment to the conversion price that would result from certain issuances or sales of the Company’s common stock is de minimis.

For the three months ended March 31, 2012, the Company recorded $3,033 of interest expense related to the Kinsey Debenture. As of March 31, 2012 and December 31, 2011, the outstanding principal on the Kinsey Debenture was $150,000 and the accrued and unpaid interest on the Kinsey Debenture was $8,967 and $5,933, respectively, which amounts are included as a component of accrued expenses.

Zanett Convertible Debenture

On July 7, 2011, in a private placement, the Company issued to the Zanett Opportunity Fund, Ltd. (“Zanett”) an 8% convertible debenture in the amount of $376,125 (the “Zanett Debenture”). As a result of this private placement, the Company received gross proceeds of $150,000 and refinanced $200,000 of principal, $11,375 of interest and $14,750 of fees related to a $200,000 promissory note issued to Zanett on January 5, 2011. As a result of the issuance of the Zanett Debenture, the promissory note issued to Zanett on January 5, 2011 was cancelled.

The Zanett Debenture has a three-year term maturing on July 7, 2014 and bears interest at a rate of 8% per annum. Interest is payable in annual installments in cash or, at the option of the Company, in shares of the Company’s common stock. If the Company elects to pay the interest in shares of its common stock, the number of shares issued as payment will be equal to the quotient of the unpaid interest divided by the market price of the Company’s common stock as defined in the Zanett Debenture.

The entire principal amount of the Zanett Debenture is convertible at any time into shares of the Company’s common stock at the option of the holder at a conversion price of $0.10 per share. In addition, at the option of the Company, the entire principal amount of the Zanett Debenture is convertible into shares of the Company’s common stock at $0.10 per share upon the occurrence of the merger or acquisition of the Company or if the average closing price of the Company’s common stock for any period of twenty consecutive trading days is greater than or equal to $0.25 per share. The quoted market price of the Company’s common stock as of July 7, 2011 was $0.08 per share. An aggregate of 3,761,250 shares of the Company’s common stock can be issued pursuant to the Zanett Debenture at the current conversion price of $0.10 per share.

For the three months ended March 31, 2012, the Company recorded $7,606 of interest expense related to the Zanett Debenture. As of March 31, 2012 and December 31, 2011, the outstanding principal on the Zanett Debenture was $376,125 and the accrued and unpaid interest was $22,484 and $14,878, respectively, which amounts are included as a component of accrued expenses.

9. Convertible Promissory Notes

On September 23, 2011 the Company, E. Wayne Kinsey, III and Zanett entered into a note purchase agreement, pursuant to which Mr. Kinsey and Zanett each purchased an 8% convertible secured promissory note from the Company in the principal amount of $400,000 and $100,000, respectively (each a “Secured Note,” and together, the “Secured Notes”). The Company received gross proceeds of $500,000 in connection with this private placement of the Secured Notes.

Each of the Secured Notes is secured by all of the assets of the Company, including intangible assets such as intellectual property and trademarks, as detailed in a Security Agreement dated September 23, 2011 between the Company and Mr. Kinsey, as agent for the holders of the Secured Notes. Each of the Secured Notes has a three-year term maturing on September 23, 2014 and bears interest at a rate of 8% per annum. Interest is payable in quarterly installments, beginning on October 1, 2011. Until the first anniversary of the Secured Notes, interest may be paid in cash or in shares of the Company’s common stock at the option of the Company and, thereafter, may be paid in cash or shares of the Company’s common stock at the option of the holder. If the Company or the holder elects for the interest to be paid in shares of the Company’s common stock, the number of shares issued as payment will be equal to the quotient of the unpaid interest divided by the market price of the Company’s common stock as defined in the Secured Notes.

The entire principal amount of each of the Secured Notes is convertible at any time into shares of the Company’s common stock at the option of the holder at a conversion price of $0.10 per share, subject to a weighted average adjustment for certain issuances or sales of the Company’s common stock at a price per share less than $0.08. The quoted market price of the Company’s common stock as of September 23, 2011 was $0.08 per share. The Company is not permitted to prepay the Secured Notes unless it raises a specified amount of additional capital. The Company has determined that the value attributable to the weighted average adjustment to the conversion price that would result from certain issuances or sales of the Company’s common stock is de minimis.

The occurrence of any of the following events constitutes a default under the Secured Notes, in which case the entire principal amount thereof and all accrued and unpaid interest will immediately become due and payable: (a) the Company fails to make any principal or interest payment on a Secured Note when such principal and interest becomes due; (b) a court enters judgment or judgments against the Company for the payment of money aggregating in excess of $500,000 of applicable insurance coverage; or (c) the Company commences a voluntary case or a court enters a decree in respect of the Company relating to bankruptcy, insolvency or reorganization.

The occurrence of any of the following events (as well as the occurrence of certain other standard events of default) also constitute a default under the Secured Notes, in which case the entire principal amount thereof and all accrued and unpaid interest will become due and payable, at the option of the holder, if the default remains uncured for a period of 30 days after the Company receives written notice of the default from the holder: (a) Mr. Kinsey ceases to be a member of the Company’s board of directors for any reason other than his death, disability or voluntary resignation; or (b) either David R. LaVance, the Company’s President and Chief Executive Officer, or Thomas S. Gifford, the Company’s Executive Vice President, Chief Financial Officer and Secretary, ceases serving in their respective executive management roles with the Company and is no longer involved in the active management of the Company.

In addition, under the Secured Notes, the Company would have been in default if: (a) the Company failed to raise $750,000 of additional capital through the sale of equity or qualified subordinate debt (as such term is defined in the Secured Notes) by December 31, 2011; or (b) the Company failed to raise $1,000,000 of additional capital through the sale of equity or qualified subordinate debt by March 31, 2012. However, both of these financing requirements were achieved by the Company and, accordingly, these events of default are no longer in effect.

In connection with the execution of the note purchase agreement and the issuance of the Secured Notes, the Company provided certain registration rights to the holders of the Secured Notes. In the event that the Company proposes to register shares of its common stock under the Securities Act, under certain circumstances, Mr. Kinsey and Zanett will be allowed to include in such registration shares of the Company’s common stock held by them. The Company has determined that the value attributable to these registration rights is de minimis.

An aggregate of 5,000,000 shares of the Company’s common stock can be issued pursuant to the Secured Notes at the current conversion price of $0.10 per share. For the three months ended March 31, 2012, the Company recorded a total of $9,973 of interest expense. As of March 31, 2012 and December 31, 2011, the outstanding principal on the Secured Notes was $500,000 and the accrued and unpaid interest was $20,823 and $10,849, respectively, which amounts are included as a component of accrued expense.

10. Stockholders’ Deficiency

Common Stock

On January 24, 2012, the Company sold, to an institutional investor, common stock units that in aggregate consisted of 8,750,000 shares of the Company’s common stock and a warrant to purchase 8,750,000 shares of the Company’s common stock, for an aggregate purchase price of $700,000, or $0.08 per share. The warrant has a three-year term, is exercisable at $0.10 per share and was fully vested at the date of issuance. The quoted market price of the Company’s common stock on the date of closing this transaction was $0.08 per share. The Company incurred offering costs of $70,000 in connection with this transaction.

On February 2, 2012, the Company sold, to an institutional investor, common stock units that in aggregate consisted of 3,125,000 shares of the Company’s common stock and a warrant to purchase 1,562,500 shares of the Company’s common stock, for an aggregate purchase price of $250,000, or $0.08 per share. The warrant has a three-year term, is exercisable at $0.20 per share and was fully vested at the date of issuance. The quoted market price of the Company’s common stock on the date of closing this transaction was $0.08 per share. The Company incurred offering costs of $17,500 in connection with this transaction.

On February 28, 2012, the Company sold, to an individual accredited investor, common stock units that in aggregate consisted of 375,000 shares of the Company’s common stock and a warrant to purchase 187,500 shares of the Company’s common stock, for an aggregate purchase price of $30,000, or $0.08 per share. The warrant has a three-year term, is exercisable at $0.20 per share and was fully vested at the date of issuance. The quoted market price of the Company’s common stock on the date of closing this transaction was $0.08 per share. The Company incurred offering costs of $2,100 in connection with this transaction.

On March 27, 2012, the Company issued 10,000 shares of the Company’s common stock as payment for services rendered to the Company by an unaffiliated third party. The total expense associated with the issuance of these shares was $800, representing the fair market value of the shares based on the quoted market price of the Company’s common stock on the date the issuance was authorized ($0.08 per share on March 2, 2012).

On March 27, 2012, the Company issued an aggregate of 360,000 shares of the Company’s common stock to certain of its directors as payment of $36,000 of director fees due for services rendered in fiscal 2011. The aggregate fair market value of these shares, based on the quoted market price of the Company’s common stock on the date of issuance ($0.05 per share), was $18,000. The Company recorded the difference between the total payment owed ($36,000) and the fair market value of the common stock issued ($18,000) as additional paid-in capital.

Stock Options

Stock Option Plans

The Company currently has two stock option/stock compensation plans in place: the 2002 Stock Option Plan and the 2010 Stock Incentive Plan (collectively, the “Equity Incentive Plans”). The Equity Incentive Plans are maintained to allow the Company to compensate employees, directors and consultants and other persons providing bona-fide services to the Company or to compensate officers, directors and employees through the award of shares of the Company’s common stock and securities exercisable for shares of the Company’s common stock.

The 2002 Stock Option Plan was approved by the stockholders in July of 2002. The Company has reserved for issuance an aggregate of 2,000,000 shares of common stock under the 2002 Stock Option Plan. As of March 31, 2012, 25,000 shares of the Company’s common stock had been issued under the 2002 Stock Option Plan and up to 1,975,000 additional shares of the Company’s common stock can be awarded under the 2002 Stock Option Plan.

The 2010 Stock Incentive Plan was approved by the stockholders in September 2010. The Company has reserved for issuance an aggregate of 10,000,000 shares of common stock under the 2010 Stock Incentive Plan. The 2010 Stock Incentive Plan provides for awards in the form of common stock, incentive stock options, non-qualified stock options and restricted common stock to employees, board members, and service providers. As of March 31, 2012, options to purchase 6,646,920 shares of the Company’s common stock were outstanding under the 2010 Stock Incentive Plan, 90,500 shares of the Company’s common stock had been issued under the 2010 Stock Incentive Plan and up to 3,262,580 additional shares of the Company’s common stock can be awarded under the 2010 Stock Incentive Plan.

Common stock grants and stock option awards under the Equity Incentive Plans were issued or granted at prices as determined by the Company’s compensation committee, but such prices were not less than the fair market value of the Company's common stock on the date of grant or issuance. Stock options granted and outstanding to date consist of both incentive stock options and non-qualified options.

Stock Option Transactions

On March 27, 2012, the Company granted incentive stock options to purchase an aggregate of 5,000,000 shares of the Company’s common stock under the 2010 Stock Incentive Plan to the Company’s executive officers as follows: David R. LaVance, President and Chief Executive Officer – 3,000,000 shares, and Thomas S. Gifford, Executive Vice President and Chief Financial Officer – 2,000,000 shares. The shares of common stock underlying the options vest, in aggregate, as follows: 833,333 shares vest on December 31, 2012, 833,333 shares vest on December 31, 2013 and 833,334 vest on December 31, 2014 and may be purchased at a per share exercise price of $0.10, $0.20 and $0.30, respectively; 833,333 shares vest upon the Company attaining breakeven operating results, as defined in the option agreement, for a period of four consecutive months or two consecutive quarters during the year ending December 31, 2012 and may be purchased at a per share exercise price of $0.10 per share; 833,333 shares vest upon the Company achieving at least $5,000,000 of revenues for the twelve-month period ending December 31, 2013 and may be purchased at a per share exercise price of $0.20 per share; and 833,334 shares vest upon the Company achieving at least $10,000,000 of revenues for the twelve-month period ending December 31, 2014 and may be purchased at a per share exercise price of $0.30 per share. Each of the options has a ten-year term, and in the event of a change in control of the Company, as defined in the 2010 Stock Incentive Plan, the options become fully vested. The aggregate fair value of the options on the date of grant not subject to performance measures that will be earned over the requisite service period, as calculated using the Black-Scholes model, was $80,812, using the following weighted average assumptions: exercise price of $0.20 per share; common stock price of $0.05 per share; volatility of 187%; term of ten years; dividend yield of 0%; interest rate of 2.29%; and risk of forfeiture of 35%. This amount is being expensed on a pro-rata basis over the requisite service period.

On March 27, 2012, the Company granted non-qualified stock options to purchase an aggregate of 1,346,920 shares of the Company’s common stock under the 2010 Stock Incentive Plan to the non-executive members of the Company’s board of directors as follows: Raymond C. Kubacki – 541,860 shares; David N. Harry – 309,640 shares; Valgene L. Dunham – 340,600 shares; and E. Wayne Kinsey, III – 154,820 shares. The options were granted as partial consideration for each person’s continuing service in 2012 as a member of the Company’s board of directors and related committees. Each of the options has a five-year term and is exercisable at $0.10 per share. The shares of common stock underlying the options, in aggregate, vest as follows: 673,460 shares vest on December 31, 2012 and 673,460 shares vest on December 31, 2013. The aggregate fair value of the options on the date of grant as calculated using the Black-Scholes model was $37,530, using the following weighted average assumptions: exercise price of $0.10 per share; common stock price of $0.05 per share; volatility of 145%; term of five years; dividend yield of 0%; interest rate of 1.13%; and risk of forfeiture of 35%. The fair value of the option grants is being expensed on a pro-rata basis over the requisite service period.

A summary of stock option transactions under the Equity Incentive Plans during the three months ended March 31, 2012 is set forth below:

	Stock Option Shares		Weighted Average Exercise Price Per Common Share		Aggregate Intrinsic Value
Outstanding at December 31, 2011		300,000	$	0.08	$	--
Granted during the period		6,346,920		0.10
Exercised during the period		--		--
Terminated during the period		--		--
Outstanding at March 31, 2012		6,646,920	$	0.10	$	--
Available for purchase at March 31, 2012		300,000	$	0.08	$	--
Available for purchase at December 31, 2011		300,000	$	0.08	$	--

Information with respect to outstanding options and options exercisable as of March 31, 2012 is as follows:

		Stock Options Outstanding						Stock Options Exercisable
Exercise Price		Number of Shares Available Under Outstanding Stock Options		Weighted Average Exercise Price Per Common Share		Weighted Average Remaining Contractual Life (Years)		Number of Shares Available for Purchase Under Outstanding Stock Options		Weighted Average Exercise Price Per Common Share		Weighted Average Remaining Contractual Life (Years)
$	0.08		300,000	$	0.08		2.0		300,000	$	0.08		2.0
$	0.10		6,346,920	$	0.10		8.9		--		--		--
			6,646,920	$	0.10		8.6		300,000	$	0.08		2.0

A summary of the non-vested shares subject to options granted under the Equity Incentive Plans as of March 31, 2012 is as follows:

	Stock Option Shares		Weighted Average Grant Date Fair Value Per Share
Nonvested at December 31, 2011		--		--
Granted during the period		6,346,920	$	0.05
Vested during the period		--		--
Terminated during the period		--		--
Nonvested at March 31, 2012		6,346,920	$	0.05

As of March 31, 2012, there was $198,089 of total unrecognized compensation cost related to non-vested share based compensation arrangements granted under the Equity Incentive Plans. That cost is expected to be recognized over a weighted average period of thirty-one months.

Warrant to Purchase Common Stock

On March 2, 2012, the Company issued a warrant to purchase 175,000 shares of the Company’s common stock to a third-party service provider as partial consideration for services rendered to the Company in connection with a financing. The warrant is exercisable at $0.20 per share and has a term of three years. The warrant vested upon issuance. The fair value of the warrant on the date of issuance as calculated using the Black-Scholes model was $5,600, using the following weighted average assumptions: exercise price of $0.20 per share; common stock price of $0.08 per share; volatility of 131%; term of three years; dividend yield of 0%; interest rate of 0.41%; and risk of forfeiture of 35%.

A summary of warrant transactions during the three months ended March 31, 2012 is as follows:

	Warrant Shares		Weighted Average Exercise Price Per Common Share		Aggregate Intrinsic Value
Outstanding at December 31, 2011		33,381,748	$	0.18	$	46,061
Issued during the period		10,675,000	$	0.12
Exercised during the period		--		--
Terminated during the period		--		--
Outstanding at March 31, 2012		44,056,748	$	0.17		--
Available for purchase at March 31, 2012		40,828,968	$	0.17		--
Available for purchase at December 31, 2011		29,487,302	$	0.19	$	46,061

Warrants issued by the Company contain exercise prices as determined by the Company’s board of directors, but such exercise prices were not less than the fair market value of the Company's common stock on the date of issuance. Warrants currently issued may vest over a period of up to three years and have a maximum term of ten years from the date of issuance.

Information with respect to outstanding warrants and warrants exercisable at March 31, 2012 is as follows:

		Warrants Outstanding						Warrants Exercisable
Range of Exercise Prices		Number of Shares Available Under Outstanding Warrants		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price Per Common Share		Number of Shares Available for Purchase Under Outstanding Warrants		Weighted Average Exercise Price Per Common Share		Weighted Average Remaining Contractual Life (Years)
$	0.07 - 0.10		23,806,061		5.6	$	0.09		22,428,281	$	0.09		5.3
$	0.20 - 0.35		17,618,187		2.3	$	0.23		15,768,187	$	0.23		2.3
$ 0.40 & 0.50			2,632,500		1.7	$	0.50		2,632,500	$	0.50		1.7
			44,056,748		4.1	$	0.17		40,828,968	$	0.17		3.9

A summary of the non-vested shares subject to warrants as of March 31, 2012 is as follows:

	Warrant Shares			Weighted Average Grant Date Fair Value Per Share
Non-vested at December 31, 2011		3,894,446		$	0.08
Issued during the period		10,675,000		$	0.08
Vested during the period		(11,341,666	)	$	0.08
Terminated during the period		--			--
Non-vested at March 31, 2012		3,227,780		$	0.08

As of March 31, 2012, there was $123,350 of total unrecognized compensation cost related to non-vested stock-based compensation arrangements involving warrants. That cost is expected to be recognized over a weighted average period of sixteen months.

11. Stock-Based Compensation

During the three months ended March 31, 2012 and 2011, the Company recorded stock-based compensation expense as follows:

	Three Months Ended March 31,
	2012		2011
General and administrative	$	15,230	$	44,149
Sales and marketing		23,791		--
Research and development		4,489		--
Finance fees		--		7,416
	$	43,510	$	51,565

For the three months ended March 31, 2012 and 2011, the Company recorded stock-based compensation expense related to stock options and warrants granted to employees and directors of $30,193 and $0, respectively. For the three months ended March 31, 2012 and 2011, the Company recorded stock-based compensation expense related to stock options and warrants granted to non-employees of $13,317 and $51,565, respectively.

12. Net Loss Per Common Share

Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the impact of common shares issuable upon exercise of stock options and warrants and conversion of convertible debt that are not deemed to be anti-dilutive. The dilutive effect of the outstanding stock options and warrants is computed using the treasury stock method.

For the three months ended March 31, 2012, diluted net loss per share did not include the effect of 6,646,920 shares of common stock issuable upon the exercise of outstanding options, 44,056,748 shares of common stock issuable upon the exercise of outstanding warrants and 10,323,750 shares of common stock issuable upon the conversion of convertible debt, as their effect would be anti-dilutive.

For the three months ended March 31, 2011, diluted net loss per share did not include the effect of 1,050,000 shares of common stock issuable upon the exercise of outstanding options, 24,827,082 shares of common stock issuable upon the exercise of outstanding warrants and 479,167 shares of common stock issuable upon the conversion of convertible debt, as their effect would be anti-dilutive.

13. Commitments and Contingencies

Lease Agreement – South Carolina

The Company entered into a lease agreement for its premises located in Little River, South Carolina on January 1, 2006. The lease agreement had an original term of three years. In January 2009, the Company agreed to renew the lease agreement for a term of five years at $71,291 per year. The renewal term contained the same covenants, conditions, and provisions as provided in the original lease agreement. As of March 31, 2012, the future minimum lease payments due under this lease agreement are to be paid as follows: $53,468 during the remainder of fiscal 2012 and $71,291 in fiscal 2013.

Litigation with Former Chief Executive Officer

On September 23, 2011, a civil complaint was filed against the Company and one of its directors, E. Wayne Kinsey, III, in the Court of Common Pleas, County of Horry, State of South Carolina (the “South Carolina State Court”), by William E. Prince, the Company’s former President and Chief Executive Officer. In his complaint, Mr. Prince alleges breach of contract and fraudulent inducement by the Company against him with regard to his employment contract and the termination of his employment. Mr. Prince claims that he is owed additional compensation under his terminated employment agreement, and is seeking the recovery of such compensation as well as attorney’s fees and punitive damages.

On December 28, 2011, the Company filed a motion to dismiss this action in the South Carolina State Court due to the binding arbitration clause contained in Mr. Prince’s employment contract.

On February 10, 2012, Mr. Prince filed a motion to amend his complaint in the South Carolina Court. The amended complaint included additional causes of action for civil conspiracy, tortious interference and unfair trade practices. This motion was granted by the South Carolina Court on March 19, 2012.

On April 26, 2012, the Company filed a motion to dismiss the amended complaint in the South Carolina State Court due to the binding arbitration clause contained in Mr. Prince’s employment contract. This motion is pending and supersedes the Company’s prior motion to dismiss the original complaint. In the event the South Carolina Court does not grant this motion, the Company will file an answer to the amended complaint.

The Company does not believe there is any merit to Mr. Prince’s allegations and will vigorously defend this action. In addition, the Company is reviewing the actions, if any, it will institute against Mr. Prince relating to his conduct while an executive officer and director of the Company.

Litigation with Crystal Enterprises

On January 12, 2012, a civil complaint was filed against the Company in the United States District Court for the Western District of Washington (the “Washington Federal Court”) by Crystal Enterprises, Inc. (“Crystal”). In its complaint, Crystal alleges interference with prospective advantage or business expectancy, tortious interference with contract, breach of fiduciary duty, breach of non-disclosure agreement and breach of contact. Crystal’s allegations center on discussions between the Company, Crystal, Pendred, Inc. (an affiliate of Crystal’s) and Biolize Products, LLC, regarding the establishment of a business relationship involving the distribution of the Company’s anolyte and catholyte solutions. Crystal is seeking monetary damages as well as attorney fees.

On April 2, 2012, Crystal filed an amended complaint in the Washington Federal Court. The amended complaint added a request for an accounting of the proceeds that the Company has received or may receive related to the sale of the Company’s anolyte and catholyte solutions.

On April 19, 2012, the Company filed a motion in the Washington Federal Court to dismiss the amended complaint asserting, among other things, that all of Crystal’s claims are based on a phantom joint venture or contract.

On May 7, 2012, Crystal filed a response to the Company’s motion to dismiss in which it attempts to refute the assertions made by the Company in its motion to dismiss filing.

The Company does not believe there is any merit to Crystal’s allegations and will vigorously defend this action.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

IET was originally incorporated in Delaware on February 2, 1999 and is currently a Nevada corporation. The Company is headquartered in Little River, South Carolina and operates through its wholly-owned subsidiary, I.E.T., Inc., a Nevada corporation incorporated on January 11, 2002.

IET produces and sells hypochlorous acid (“Anolyte”) as well as an anti-oxidizing, mildly alkaline solution (“Catholyte” and, together with Anolyte, the “Solutions”), that provide an environmentally friendly alternative for cleaning, sanitizing and disinfecting as compared to the hazardous chemicals traditionally prevalent in commercial use. The Company manufactures proprietary EcaFlo® equipment that is used to produce the Solutions for distribution by the Company and, under certain circumstances, such equipment is leased by the Company to customers for use at a customer’s facility.

Products

We produce Anolyte that is effective as a disinfectant without leaving a harmful residue. Our Anolyte contains an active killing agent that is produced with a pH of 6.5 and contains a ratio of free available chlorine of approximately 98% hypochlorous acid to 2% hypochlorite. Our Anolyte kills various pathogens including, but not limited to, Salmonella, Pseudomonas aeruginosa, Staphylococcus aureus, Staphylococcus aureus MRSA, swine influenza virus H1N1, Escherichia coli, anthrax and Listeria moncytogenes. We also produce Catholyte that is effective as a degreaser and cleaner. Catholyte is an anti-oxidizing, mild alkaline solution with a pH range of 10.5 to 12.0.

The Company markets and sells Anolyte under the brand name Excelyte®, as trademarked by Benchmark Energy Products, LLC, and under the brand name EcaFlo®. We sell Catholyte under the brand name Catholyte Zero. The Solutions provide an environmentally friendly alternative for cleaning, sanitizing and disinfecting as compared to the hazardous chemicals traditionally prevalent in commercial use. Our Anolyte is registered with the U.S. Environmental Protection Agency (the “EPA”) as a hospital-level surface disinfectant and can be used safely anywhere there is a need to control pathogens, bacteria, viruses, and germs. Our Catholyte is an anti-oxidizing, mildly alkaline solution ideal for use as a degreaser, cleaner, and detergent.

The Company also leases EcaFlo® equipment to a customer when the customer’s business model or required volume of Solutions warrants such an arrangement. Under these agreements, we lease equipment and service support for a fixed monthly price and, in certain agreements, we receive ongoing payments (royalties) for the Solutions produced under the agreement. We also license to certain customers the right to utilize our EPA registration pursuant to which the customer is required to pay us a monthly fee based on the number of gallons of Solutions produced by our EcaFlo® equipment.

Our business model is focused on selling Solutions directly to customers. In situations where a customer desires to have EcaFlo® equipment on-site, we lease the equipment and maintain ownership as opposed to selling the EcaFlo® equipment outright.

Critical Accounting Policies and Estimates

The discussion and analysis of the Company’s financial condition and results of operations are based upon the interim financial statements contained elsewhere herein, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements required us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to bad debts, income taxes, contingencies and litigation. We based our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The critical accounting estimates that we believe affect the more significant judgments and estimates used in preparation of the financial statements contained elsewhere herein are described in the Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the Consolidated Financial Statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2011. There have been no material changes to the critical accounting policies.

Results of Operations

Revenue. Total revenue for the three months ended March 31, 2012 was $45,799, an increase of $6,289, or 16%, from total revenue of $39,510 for the three months ended March 31, 2011. The increase in revenue for the three months ended March 31, 2012 was primarily due to an increase in leasing and licensing revenue related to our EcaFlo® equipment.

Cost of Sales. Cost of sales for the three months ended March 31, 2012 was $6,602, a decrease of $13,212, or 67%, from cost of sales of $19,814 for the three months ended March 31, 2011. The decrease in our cost of sales for the three months ended March 31, 2012 was primarily attributable to the increase in leasing and licensing revenue.

Gross Profit. For the three months ended March 31, 2012 and 2011, gross profit margins were 86% and 50%, respectively.

General and Administrative Expenses. For the three months ended March 31, 2012, general and administrative expenses were $298,205, a decrease of $31,726, or 10%, from general and administrative expenses of $329,931 for the three months ended March 31, 2011. The decrease in general and administrative expenses for the three months ended March 31, 2012 was primarily the result of a $66,217 reduction in stock-based compensation expense for consultants, a $24,902 decrease in taxes primarily related to a reduction in local property taxes and state franchise taxes, a $22,716 decrease in professional fees primarily related to a reduction in consulting expenses and a $13,733 decrease in bad debt expense, offset by an increase of $29,898 in employee payroll and related tax and benefit costs, a $25,949 increase in depreciation expense, a $16,500 increase in director fees and a $15,230 increase in stock-based compensation expense for employees and directors.

Sales and Marketing Expenses. For the three months ended March 31, 2012, sales and marketing expenses were $126,228, an increase of $3,514, or 3%, from sales and marketing expenses of $122,714 for the three months ended March 31, 2011. The increase in sales and marketing expenses for the three months ended March 31, 2012 was primarily the result of a $23,791 increase in stock-based compensation expense for employees and consultants and a $6,453 increase in equipment warranty expense, offset by a $17,043 decrease in travel expenses and an $11,330 decrease in consulting expenses.

Research and Development Expenses. For the three months ended March 31, 2012, research and development expenses were $62,465, a decrease of $12,224, or 16%, from research and development expenses of $74,689 for the three months ended March 31, 2011. The decrease in research and development expenses for the three months ended March 31, 2012 was primarily the result of an $11,975 decrease in laboratory testing costs, a $7,323 decrease in research supplies and a $3,189 decrease in employee payroll and related tax and benefit costs, offset by a $4,489 increase in stock-based compensation expense for employees and a $5,698 increase in consulting expenses.

Loss from Operations. During the three months ended March 31, 2012, the loss from operations was $447,701, a decrease of $59,937, or 12%, from the loss from operations of $507,638 for the three months ended March 31, 2011. The decrease in the loss from operations for the three months ended March 31, 2012 was primarily attributable to a $6,289 increase in revenue, a $13,212 decrease in cost of sales, a $31,726 decrease in general and administrative expenses and a $12,224 decrease in research and development expenses, offset by a $3,514 increase in sales and marketing expense.

Interest Income. For the three months ended March 31, 2012, interest income was $838 as compared to $107 for the three months ended March 31, 2011. This increase relates to interest recognized by the Company on its capital lease sales of equipment.

Finance Fees. For the three months ended March 31, 2012, finance fees were $0 as compared to $9,310 for the three months ended March 31, 2011. The decrease in finance fees for the three months ended March 31, 2012 was due to a decrease in warrants issued as loan fees related to temporary working capital loans.

Interest Expense. For the three months ended March 31, 2012, interest expense was $21,908, a decrease of $5,567, or 20%, from interest expense of $27,475 for the three months ended March 31, 2011. The decrease in interest expense for the three months ended March 31, 2012 was the result of a decrease in temporary working capital loans during the period.

Net Loss. For the three months ended March 31, 2012, the Company’s net loss was $468,771, a decrease of $75,652, or 14%, from the net loss of $544,423 for the three months ended March 31, 2011. The decrease in the net loss for the three months ended March 31, 2012 was primarily attributable to a $6,289 increase in revenue, a $13,212 decrease in cost of sales, a $31,726 decrease in general and administrative expenses, a $12,224 decrease in research and development expenses, a $9,310 decrease in finance fees and a $5,567 decrease in interest expense, offset by a $3,514 increase in sales and marketing expense.

Liquidity and Capital Resources

As of March 31, 2012, IET had working capital of $499,621 and cash on hand of $625,063. The $479,070 increase in cash on hand from December 31, 2011 was primarily due to the receipt of $890,400 of net proceeds from the sale of common stock units, offset by our continuing operating expenses.

During the past several years, IET has generally sustained recurring losses and negative cash flows from operations. We currently do not generate sufficient revenue from the sale of our products to fund our operations and have funded this shortfall through a combination of the sale of our convertible debentures, convertible promissory notes and common stock.

During the three months ended March 31, 2012, we received $890,400 of net proceeds related to the sale of common stock units ($630,000 in January 2012 and $260,400 in February 2012). As of May 11, 2012, our cash position was approximately $503,000. If we are not able to generate profitable operations from the sale of our products or we are not able to obtain additional financing, we will only be able to continue our operations for approximately four months from the filing date of this quarterly report on Form 10-Q. The Company has no lending relationships with commercial banks and is dependent on its ability to attain profitable operations and raise additional capital through one or more equity and/or debt financings in order to continue operations. While we are working toward attaining profitability for our continuing operations and aggressively pursuing potential equity and/or debt investors, there can be no assurance that we will be successful in our efforts. From time to time, we engage placement agents to assist us in our financing initiatives. The current economic slowdown has made financing more difficult to obtain, and, even if obtained, any such equity financing may result in substantial dilution to the Company’s stockholders. If the Company is unable to attain profitable operations or secure additional capital, it will explore strategic alternatives, including, but not limited to, the possible sale of the Company.

Our independent registered public accounting firm included an emphasis of a matter paragraph in their report included in our annual report on Form 10-K for the year ended December 31, 2011, which expressed substantial doubt about our ability to continue as a going concern. Our consolidated interim financial statements included herein do not include any adjustments related to this uncertainty.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

IET is a smaller reporting company and is therefore not required to provide this information.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

As required by Rule 13a-15 under the Exchange Act, as of the end of the Company’s last fiscal quarter, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company’s current management, including the Company’s President and Chief Executive Officer and the Company’s Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer), who concluded that the Company’s disclosure controls and procedures are effective.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s President and Chief Executive Officer and the Chief Financial Officer (Principal Financial and Accounting Officer), as appropriate, to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting.

Management reviews the Company’s system of internal control over financial reporting and makes changes to the Company’s processes and systems to improve controls and increase efficiency, while ensuring that the Company maintains an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities and migrating processes.

During the Company’s last fiscal quarter, there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Litigation with Former Chief Executive Officer

On September 23, 2011, a civil complaint was filed against the Company and one of its directors, E. Wayne Kinsey, III, in the South Carolina State Court, by William E. Prince, the Company’s former President and Chief Executive Officer. In his complaint, Mr. Prince alleges breach of contract and fraudulent inducement by the Company against him with regard to his employment contract and the termination of his employment. Mr. Prince claims that he is owed additional compensation under his terminated employment agreement, and is seeking the recovery of such compensation as well as attorney’s fees and punitive damages.

On December 28, 2011, the Company filed a motion to dismiss this action in the South Carolina State Court due to the binding arbitration clause contained in Mr. Prince’s employment contract.

Litigation with Crystal Enterprises

On January 12, 2012, a civil complaint was filed against the Company in the Washington Federal Court by Crystal. In its complaint, Crystal alleges interference with prospective advantage or business expectancy, tortious interference with contract, breach of fiduciary duty, breach of non-disclosure agreement and breach of contact. Crystal’s allegations center on discussions between the Company, Crystal, Pendred, Inc. (an affiliate of Crystal’s) and Biolize Products, LLC, regarding the establishment of a business relationship involving the distribution of the Company’s anolyte and catholyte solutions. Crystal is seeking monetary damages as well as attorney fees.

On May 7, 2012, Crystal filed a response to the Company’s motion to dismiss in which it attempts to refute the assertions made by the Company in its motion to dismiss filing.

The Company does not believe there is any merit to Crystal’s allegations and will vigorously defend this action.

Item 1A. Risk Factors

IET is a smaller reporting company and is therefore not required to provide this information.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Sale of Common Stock Units

The Company will use the net proceeds from the aforementioned offerings for working capital purposes, including the continued roll out of its previously disclosed sales and marketing strategy. In connection with the issuances of the Company’s common stock and the warrants to purchase the Company’s common stock described above, the Company relied on the exemption from registration for a private transaction not involving a public distribution provided by Section 4(2) of the Securities Act.

Issuance of Common Stock as Payment for Services

In connection with the aforementioned issuances of the Company’s common stock, the Company relied on the exemption from registration for a private transaction not involving a public distribution provided by Section 4(2) of the Securities Act.

Item 3. Defaults Upon Senior Securities

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

See Index of Exhibits Commencing on Page E-1.

SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD.

May 15, 2012	By:	/s/ David R. LaVance
		David R. LaVance
		President and Chief Executive Officer

May 15, 2012	By:	/s/ Thomas S. Gifford
		Thomas S. Gifford
		Executive Vice President,
		Chief Financial Officer and Secretary

INDEX OF EXHIBITS

Exhibit No.		Description

3.1		Articles of Incorporation of Integrated Environmental Technologies, Ltd. (the “Company”) (incorporated by reference to Exhibit 3(i)(h) to the Company’s current report on Form 8-K that was filed with the Securities and Exchange Commission (the “SEC”) on March 10, 2008).

3.2		Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2011 that was filed with the SEC on August 22, 2011).

4.1		Convertible Debenture Unit Purchase Agreement between the Company and L.J. Tichacek dated April 26, 2007 (incorporated by reference to Exhibit 4.1 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2011 that was filed with the SEC on August 22, 2011).

4.2		10% Convertible Debenture in the principal amount of $25,000 issued to L.J. Tichacek dated April 26, 2007 (incorporated by reference to Exhibit 4.2 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2011 that was filed with the SEC on August 22, 2011).

4.3		8% Convertible Debenture in the principal amount of $150,000 issued by the Company to E. Wayne Kinsey, III (“Kinsey”) dated July 7, 2011 (incorporated by reference to Exhibit 4.1 to the Company’s current report on Form 8-K that was filed with the SEC on July 13, 2011).

4.4		8% Convertible Debenture in the principal amount of $150,000 issued by the Company to Zanett dated July 7, 2011 (incorporated by reference to Exhibit 4.2 to the Company’s current report Form 8-K that was filed with the SEC on July 13, 2011).

4.5		Note Purchase Agreement, dated September 23, 2011, among the Company, Kinsey and Zanett (incorporated by reference to Exhibit 10.1 to the Company’s current report Form 8-K that was filed with the SEC on October 3, 2011).

4.6		Form of 8% Convertible Secured Promissory Note issued by the Company to each of Kinsey ($400,000) and Zanett ($100,000) on September 23, 2011 (incorporated by reference to Exhibit 10.2 to the Company’s current report Form 8-K that was filed with the SEC on October 3, 2011).

4.7		Security Agreement, dated September 23, 2011, between the Company and Kinsey, as agent for the Secured Note holders. Upon the request of the SEC, the Company agrees to furnish copies of each of the following schedules and exhibits: Schedule I – Capital Securities; Schedule II – Grantors; Schedule III – Patents; Schedule IV – Trademarks; Schedule V – Copyrights; Exhibit A – Form of Patent Security Agreement; Exhibit B – Form of Trademark Security Agreement; Exhibit C – Form of Copyright Security Agreement; Annex I – Form of Supplement to Security Agreement (incorporated by reference to Exhibit 10.3 to the Company’s current report Form 8-K that was filed with the SEC on October 3, 2011).

E-1

Exhibit No.		Description

10.1		Exclusive License and Distribution Agreement between I.E.T., Inc. and Benchmark Energy Products, L.P. dated June 20, 2007 (incorporated by reference to Exhibit 10.3 to the Company’s current report on Form 8-K that was filed with the SEC on August 21, 2007).

10.2		Amendment to the Exclusive License and Distribution Agreement between I.E.T., Inc. and Benchmark Energy Products, L.P. dated December 1, 2011 (incorporated by reference to Exhibit 10.3 to the Company’s annual report on Form 10-K for the year ended December 31, 2011 that was filed with the SEC on March 30, 2012).

10.3		Amended and Restated Registration Rights Agreement between the Company and E. Wayne Kinsey, III and Zanett dated September 23, 2011 (incorporated by reference to Exhibit 10.4 to the Company’s annual report on Form 10-K for the year ended December 31, 2011 that was filed with the SEC on March 30, 2012).

10.4		2002 Stock Option Plan of the Company (incorporated by reference to Exhibit 10.4 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2011 that was filed with the SEC on August 22, 2011).

10.5		2010 Stock Incentive Plan of the Company (incorporated by reference to Exhibit 10.5 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2011 that was filed with the SEC on August 22, 2011).

10.6		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 quarterly report on Form 10-Q for the quarter ended June 30, 2011 that was filed with the SEC on August 22, 2011).

10.7		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 quarterly report on Form 10-Q for the quarter ended June 30, 2011 that was filed with the SEC on August 22, 2011).

10.8		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 quarterly report on Form 10-Q for the quarter ended June 30, 2011 that was filed with the SEC on August 22, 2011).

10.9		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 quarterly report on Form 10-Q for the quarter ended June 30, 2011 that was filed with the SEC on August 22, 2011).

E-2

Exhibit No.		Description

10.10		Form of Warrant, dated April 21, 2011, issued by the Company to each of David R. LaVance (for the purchase of 1,818,182 shares of the Company’s common stock), Raymond C. Kubacki (for the purchase of 1,818,182 shares of the Company’s common stock) and Valgene L. Dunham (for the purchase of 969,697 shares of the Company’s common stock) (incorporated by reference to Exhibit 10.12 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2011 that was filed with the SEC on August 22, 2011).

10.11		Form of Warrant, dated May 23, 2011, issued by the Company to each of David R. LaVance (for the purchase of 3,100,000 shares of the Company’s common stock) and Thomas S. Gifford (for the purchase of 3,100,000 shares of the Company’s common stock) (incorporated by reference to Exhibit 10.13 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2011 that was filed with the SEC on August 22, 2011).

10.12		Sales Management Services Agreement, dated as of December 6, 2011, by and between I.E.T., Inc. and TrueLogix, LLC (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K that was filed with the SEC on December 6, 2011).

10.13		Warrant, dated October 27, 2011, issued by the Company to Raymond C. Kubacki for the purchase of 468,750 shares of the Company’s common stock (incorporated by reference to Exhibit 10.4 to the Company’s annual report on Form 10-K for the year ended December 31, 2011 that was filed with the SEC on March 30, 2012).

10.14		Form of Incentive Stock Option Agreement, dated March 27, 2012, issued by the Company to each of David R. LaVance (for the purchase of 3,000,000 shares of the Company’s common stock) and Thomas S. Gifford (for the purchase of 2,000,000 shares of the Company’s common stock) (filed herewith).

10.15		Form of Non-Qualified Stock Option Agreement, dated March 27, 2012, issued by the Company to each of: Raymond C. Kubacki (for the purchase of 541,860 shares of the Company’s common stock); David N. Harry (for the purchase of 309,640 shares of the Company’s common stock); Valgene L. Dunham (for the purchase of 340,600 shares of the Company’s common stock); and E. Wayne Kinsey, III (for the purchase of 154,820 shares of the Company’s common stock) (filed herewith).

31.1		Section 302 Certification of Principal Executive Officer.

31.2		Section 302 Certification of Principal Financial Officer.

32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.

32.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.

E-3

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