Attached files

file filename
EX-31.1 - CERTIFICATION - INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD.f10q0913ex31i_intergrated.htm
EX-32.1 - CERTIFICATION - INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD.f10q0913ex32i_intergrated.htm
EX-31.2 - CERTIFICATION - INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD.f10q0913ex31ii_intergrated.htm
EX-32.2 - CERTIFICATION - INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD.f10q0913ex32ii_intergrated.htm
EXCEL - IDEA: XBRL DOCUMENT - INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD.Financial_Report.xls


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 September 30, 2013

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes ¨     No x

As of November 7, 2013, there were 227,974,830 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 September 30, 2013 and December 31, 2012
2
     
 
  Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2013 and 2012
3
     
 
  Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2013 and 2012
4
     
 
  Notes to the Unaudited Consolidated Financial Statements
5
     
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
14
     
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
19
     
Item 4.
Controls and Procedures
19
     
PART II.
OTHER INFORMATION
 
     
Item 1.
Legal Proceedings
20
     
Item 1A.
Risk Factors
20
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
20
     
Item 3.
Defaults upon Senior Securities
21
     
Item 4.
Mine Safety Disclosures
21
     
Item 5.
Other Information
21
     
Item 6.
Exhibits
21
     
Signatures
22
     
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 objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.

Forward-looking statements may include the words “may”, “could”, “estimate”, “intend”, “continue”, “believe”, “expect” or “anticipate” or other similar words.  These forward-looking statements present our estimates and assumptions only as of the date of this quarterly report on Form 10-Q.  Except as may be required under applicable securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement.  You should, however, consult further disclosures we make in future filings of our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.  Additionally, the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 most likely do not apply to our forward-looking statements because we are considered a penny stock issuer.
 
 
 

 
 
PART I – FINANCIAL INFORMATION

Item 1.    Financial Statements
 
The consolidated balance sheet as of September 30, 2013 and the related consolidated statements of operations and consolidated statements of cash flows for the three and nine months ended September 30, 2013 and 2012 for Integrated Environmental Technologies, Ltd. and its wholly-owned subsidiary I.E.T., Inc. (collectively referred to herein as “IET” or the “Company”) included in Item 1, have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).  Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted from the following consolidated 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.  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, 2012.

The results of operations for the three and nine months ended September 30, 2013 and 2012 are not necessarily indicative of the results of the entire fiscal year or for any other period.
 
 
1

 
 
Integrated Environmental Technologies, Ltd.
Consolidated Balance Sheets
(Unaudited)
 
   
September 30,
   
December 31,
 
   
2013
   
2012
 
Assets
           
Current assets:
           
Cash
  $ 547,782     $ 180,489  
Accounts receivable
    41,836       29,212  
Prepaid expenses and other
    36,357       15,933  
Inventory
    69,447       82,566  
Note receivable
    2,481       7,762  
                 
  Total current assets
    697,903       315,962  
                 
Property and equipment, net
    390,569       282,982  
                 
  Total assets
  $ 1,088,472     $ 598,944  
                 
Liabilities and Stockholders’ Equity (Deficiency)
               
Current liabilities:
               
Accounts payable
  $ 139,969     $ 249,474  
Accrued expenses
    75,897       159,963  
Customer deposits
    38,109       36,109  
Convertible debentures
    25,000       25,000  
Note payable
    74,207       --  
                 
  Total current liabilities
    353,182       470,546  
                 
Convertible debentures
    476,125       476,125  
Note payable
    65,921       --  
                 
  Total liabilities
    895,228       946,671  
Commitments and contingencies
               
Stockholders’ equity (deficiency):
               
Common stock, $.001 par value; 400,000,000 shares authorized; 211,823,315 and 150,368,500 shares issued and outstanding, respectively
    211,823       150,369  
Additional paid-in capital
    19,013,849       17,151,303  
Accumulated deficit
    (19,032,428 )     (17,649,399 )
  Total stockholders' equity (deficiency)
    193,244       (347,727 )
                 
  Total liabilities and stockholders' equity (deficiency)
  $ 1,088,472     $ 598,944  

The accompanying notes are an integral part of these consolidated financial statements.
 
 
2

 
 
Integrated Environmental Technologies, Ltd.
Consolidated Statements of Operations
(Unaudited)

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2013
   
2012
   
2013
   
2012
 
                         
Revenues:
                       
Sales
  $ 31,942     $ 23,049     $ 76,648     $ 71,060  
Leasing and licensing fees
    10,500       13,854       46,500       48,895  
      42,442       36,903       123,148       119,955  
Cost of sales
    9,462       36,425       24,110       53,131  
                                 
Gross profit
    32,980       478       99,038       66,824  
                                 
Operating expenses:
                               
General and administrative
    307,413       252,169       959,217       888,278  
Sales and marketing
    119,669       129,657       334,992       376,693  
Research and development
    55,450       75,573       154,841       234,857  
      482,532       457,399       1,449,050       1,499,828  
                                 
Loss from operations
    (449,552 )     (456,921 )     (1,350,012 )     (1,433,004 )
                                 
Other income (expense):
                               
Interest income
    3       141       55       1,208  
Interest expense
    (12,014 )     (15,932 )     (33,072 )     (59,402 )
Total other income (expense)
    (12,011 )     (15,791 )     (33,017 )     (58,194 )
                                 
Net loss
  $ (461,563 )   $ (472,712 )   $ (1,383,029 )   $ (1,491,198 )
                                 
Net loss per share, basic and diluted
  $ (0.00 )   $ (0.00 )   $ (0.01 )   $ (0.01 )
                                 
Weighted average shares outstanding, basic and diluted
    198,329,568       143,580,929       175,460,264       136,854,527  

The accompanying notes are an integral part of these consolidated financial statements.
 
 
3

 

Integrated Environmental Technologies, Ltd.
Consolidated Statements of Cash Flows
(Unaudited)
 
   
Nine Months Ended
September 30,
 
   
2013
   
2012
 
Cash flows from operating activities:
           
Net loss
  $ (1,383,029 )   $ (1,491,198 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
    126,549       89,676  
Stock-based compensation expense
    116,505       132,871  
Stock issued as settlement of litigation
    26,550       --  
Write-down of accounts receivable
    --       813  
Write-down of lease receivable
    --       20,113  
Changes in operating assets and liabilities:
               
Accounts receivable
    (12,624 )     (6,060 )
Lease receivable
    --       13,883  
Note receivable
    1,109       10,760  
Inventory
    (2,510 )     15,311  
Other receivable
    --       12,081  
Prepaid expenses and other
    (20,424 )     (12,626 )
Accounts payable
    (35,083 )     (45,967 )
Accrued expenses
    (45,976 )     52,783  
Customer deposits
    2,000       (5,420 )
Net cash used in operating activities
    (1,226,933 )     (1,212,980 )
Cash flows used in investing activity:
               
Purchase of equipment
    (66,507 )     --  
Cash flows from financing activities:
               
Proceeds from sale of common stock, net of offering costs
    1,672,605       1,529,900  
Repayment of note payable
    (11,872 )     --  
Net cash provided by financing activities
    1,660,733       1,529,900  
Increase in cash
    367,293       316,920  
Cash  - beginning of period
    180,489       145,993  
Cash  - end of period
  $ 547,782     $ 462,913  
Supplemental disclosure of cash flow information:
               
Cash paid for interest
  $ 803     $ 891  
Cash paid for income taxes
  $ 106     $ 5,462  
Non-cash operating activity:
               
Issuance of 1,713,839 and 360,000 shares of common stock, respectively, as payment of director fees
  $ 70,250     $ 36,000  
Issuance of 400,947 shares of common stock as payment of interest on convertible debenture
  $ 38,090     $ --  
Non-cash investing activity:
               
Issuance of note payable as payment for equipment
  $ 152,000     $ --  
Non-cash financing activities:
               
Issuance of 2,185,585 shares of common stock as payment of $150,000 of principal and $47,148 of interest on convertible debentures
  $ --     $ 197,148  
Issuance of 4,602,750 shares of common stock as payment of $400,000 of principal and $36,165 of interest on convertible promissory notes
  $ --     $ 436,165  

The accompanying notes are an integral part of these consolidated financial statements.
 
 
4

 
 
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 and negative cash flows from operations.  The Company had working capital of $344,721 and an accumulated deficit of $19,032,428 as of September 30, 2013.  The Company also has no lending relationships with commercial banks and is dependent on the completion of financings involving the private placement of its securities in order to continue operations.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  The consolidated 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 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 continuing to pursue potential equity and/or debt investors and, from time to time, has engaged placement agents to assist it in this initiative.  While the Company is pursuing the opportunities and actions described above, there can be no assurance that it will be successful in its efforts.  If the Company is unable to secure additional capital, it will explore other strategic alternatives, including, but not limited to, the sale of the Company.  Any additional equity financing may result in substantial dilution to the Company’s stockholders.

2.      Inventory

As of September 30, 2013 and December 31, 2012, inventory consisted of parts and materials totaling $69,447 and $82,566, respectively.

During March 2013 and December 2012, the Company reclassified $17,487 and $138,336, respectively, of EcaFlo™ equipment from finished goods inventory to property and equipment.  The Company no longer intends to sell the EcaFlo™ equipment but rather will either utilize the EcaFlo™ equipment to manufacture anolyte and catholyte solutions to be sold by the Company or lease the EcaFlo™ equipment to third parties.

3.      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 nine months ended September 30, 2013, the Company and the customer agreed to apply $4,172 of accounts payable due by the Company to the customer against the note receivable balance due from the customer to the Company.  The accounts payable amount due by the Company to the customer related to the purchase of certain parts and materials by the Company from the customer.  During the three and nine months ended September 30, 2013, the Company recognized $3 and $55, respectively, of interest income related to this note receivable.  During the three and nine months ended September 30, 2012, the Company recognized $141 and $490, respectively, of interest income related to this note receivable.
 
 
5

 

4.      Property and Equipment

As of September 30, 2013 and December 31, 2012, property and equipment, on a net basis, consisted of the following (see note 8):

   
September 30,
 2013
   
December 31,
2012
 
Leasehold improvements
  $ 328,977     $ 328,977  
Equipment
    437,504       203,368  
      766,481       532,345  
Less:  Accumulated depreciation
    (375,912 )     (249,363 )
    $ 390,569     $ 282,982  

5.      Accrued Expenses

As of September 30, 2013 and December 31, 2012, accrued expenses consisted of the following:

   
September 30,
 2013
   
December 31,
2012
 
Accrued compensation
  $ 57,500     $ 115,000  
Accrued interest
    13,964       21,330  
Accrued auditing fees
    2,800       22,000  
Accrued other expenses
    1,633       1,633  
    $ 75,897     $ 159,963  

6.      Customer Deposits

On March 29, 2011, the Company agreed to issue a credit to purchase equipment to a consultant in the amount of $36,109.  This credit was issued as payment to the consultant for consulting services previously rendered to the Company.  The Company has recorded this amount as a customer deposit.

Effective January 1, 2013, the Company entered into a license agreement with a third party related to the use by the third party of the Company’s United States Environmental Protection Agency (the “EPA”) registration for its anolyte solution.  The Company received a deposit of $2,000 pursuant to the terms of this agreement.

7.      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 and remains unpaid.  The convertible debenture accrues interest at a rate of 12% per annum and is convertible at any time into shares of the Company’s common stock at the option of the holder at a conversion price of $0.40 per share.  An aggregate of 62,500 shares of the Company’s common stock can be issued upon the conversion of the outstanding principal amount due on this convertible debenture at the current conversion price of $0.40 per share.
 
 
6

 

During the three and nine months ended September 30, 2013, the Company recorded a total of $748 and $2,236, respectively, of interest expense related to this convertible debenture.  During the three and nine months ended September 30, 2012, the Company recorded a total of $756 and $2,252, respectively, of interest expense related to this convertible debenture.  As of September 30, 2013, the outstanding principal on this convertible debenture was $25,000 and the accrued and unpaid interest was $9,685, which amount is included as a component of accrued expenses.

Zanett Convertible Debentures

On August 21, 2012, the Company issued to Zanett Opportunity Fund, Ltd. (“Zanett”) an 8% convertible debenture in the amount of $476,125 (the “Zanett August 2012 Debenture”).  In connection with this private placement, the Company refinanced an 8% convertible debenture, in the principal amount of $376,125, issued to Zanett on July 7, 2011 (the “Zanett July 2011 Debenture”) and refinanced an 8% convertible secured promissory note, in the principal amount of $100,000, issued to Zanett on September 23, 2011 (the “Zanett September 2011 Note”).  As a result of the issuance of the Zanett August 2012 Debenture, the Zanett July 2011 Debenture and the Zanett September 2011 Note were cancelled.

The Zanett August 2012 Debenture has a three-year term maturing on August 21, 2015 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 August 2012 Debenture.

The entire principal amount of the Zanett August 2012 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 August 2012 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 ten consecutive trading days is greater than or equal to $0.15 per share.  The quoted market price of the Company’s common stock on August 21, 2012 was $0.05 per share.  An aggregate of 4,761,250 shares of the Company’s common stock can be issued upon the conversion of the outstanding principal amount due on the Zanett August 2012 Debenture at the current conversion price of $0.10 per share.

On August 22, 2013, the Company issued 400,947 shares of the Company’s common stock to Zanett as payment of $38,090 of accrued interest due on the Zanett August 2012 Debenture for the period commencing August 21, 2012 through August 20, 2013.  The number of shares of the Company’s common stock issued as payment of the accrued interest was calculated based on the market price of the Company’s common stock ($0.095 per share) as defined in the Zanett August 2012 Debenture.
 
 
7

 

During the three and nine months ended September 30, 2013, the Company recorded $9,338 and $28,489, respectively, of interest expense related to the Zanett August 2012 Debenture.  During the three and nine months ended September 30, 2012, the Company recorded $7,989 and $23,201, respectively, of interest expense related to the Zanett August 2012 Debenture and the Zanett July 2011 Debenture.  As of September 30, 2013, the outstanding principal on the Zanett August 2012 Debenture was $476,125 and the accrued and unpaid interest was $4,279, which is included as a component of accrued expenses.

8.      Note Payable

On June 17, 2013, the Company and Benchmark Performance Group, Inc. (“Benchmark”) entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”), whereby the Company purchased nineteen EcaFlo™ machines owned by Benchmark as well as the rights to the Excelyte™ trademark and certain other intangible assets.  The purchase price for the nineteen EcaFlo™ machines, the Excelyte™ trademark and other intangible assets was $190,000.

The Company paid $38,000 in conjunction with the closing of the Asset Purchase Agreement and issued a promissory note with a principal balance of $152,000 (the “Benchmark Note”).  The Benchmark Note bears interest at a rate of 7% per annum and requires the Company to make twenty-four monthly payments of $6,805 commencing August 1, 2013.  The Benchmark Note is secured by the nineteen EcaFlo™ machines.

For the three and nine months ended September 30, 2013, the Company recorded $1,739 of interest expense related to the Benchmark Note.  As of September 30, 2013, the outstanding principal on the Benchmark Note was $140,128 (current portion $74,207; long-term portion $65,921).

9.      Stockholders’ Equity (Deficiency)

Common Stock

On July 11, 2013, the Company sold an aggregate of 2,400,000 shares of its common stock to two individual investors for an aggregate purchase price of $72,000, or $0.03 per share.

On July 31, 2013, the Company sold an aggregate of 7,366,665 shares of its common stock to eleven individual investors for an aggregate purchase price of $221,000, or $0.03 per share.  The Company incurred offering costs of $11,740 in connection with these transactions.

On August 2, 2013, the Company sold an aggregate of 2,803,366 shares of its common stock to six individual investors for an aggregate purchase price of $84,101, or $0.03 per share.  The Company incurred offering costs of $5,808 in connection with these transactions.

On August 5, 2013, the Company sold 3,333,333 shares of its common stock to an institutional investor and 500,000 shares of its common stock to an individual investor for an aggregate purchase price of $115,000, or $0.03 per share.  The Company incurred offering costs of $8,050 in connection with these transactions.
 
 
8

 

On August 9, 2013, the Company sold an aggregate of 4,833,333 shares of its common stock to nine individual investors for an aggregate purchase price of $145,000, or $0.03 per share.  The Company incurred offering costs of $9,100 in connection with these transactions.

On August 16, 2013, the Company sold an aggregate of 6,803,333 shares of its common stock to nine individual investors for an aggregate purchase price of $204,100, or $0.03 per share.  The Company incurred offering costs of $9,588 in connection with these transactions.

On August 23, 2013, the Company sold 1,700,000 shares of its common stock to an institutional investor and 1,533,333 shares of its common stock to four individual investors for an aggregate purchase price of $97,000, or $0.03 per share.  The Company incurred offering costs of $5,460 in connection with these transactions.

On August 30, 2013, the Company sold 1,000,000 shares of its common stock to an individual investor for an aggregate purchase price of $30,000, or $0.03 per share.  The Company incurred offering costs of $2,100 in connection with this transaction.

Stock Options
 
The Company currently has two stock option/stock compensation plans in place:  the 2010 Stock Incentive Plan and the 2012 Equity Incentive Plan (collectively, the “Equity Incentive Plans”).

The 2010 Stock Incentive Plan was approved by the stockholders in September 2010.  The Company had reserved for issuance an aggregate of 10,000,000 shares of common stock under the 2010 Stock Incentive Plan.  As of September 30, 2013, stock options to purchase 5,813,587 shares of the Company’s common stock were outstanding under the 2010 Stock Incentive Plan and 90,500 shares of the Company’s common stock had been issued under the 2010 Stock Incentive Plan.  As a result of the adoption of the Company’s 2012 Equity Incentive Plan, no further awards are permitted under the 2010 Stock Incentive Plan.

The 2012 Equity Incentive Plan was approved by the stockholders in May 2012.  The Company has reserved for issuance an aggregate of 14,000,000 shares of common stock under the 2012 Stock Incentive Plan.  The 2012 Equity Incentive Plan is designed to encourage and enable employees and directors of the Company to acquire or increase their holdings of common stock and other proprietary interests in the Company.  It is intended to promote these individuals’ interests in the Company, thereby enhancing the efficiency, soundness, profitability, growth and stockholder value of the Company.  The 2012 Equity Incentive Plan provides for grants and/or awards in the form of incentive and non-qualified stock option grants, stock appreciation rights, restricted stock awards, performance share awards, phantom stock awards and dividend equivalent awards.  As of September 30, 2013, no grants or awards had been made under the 2012 Equity Incentive Plan.

Common stock grants and stock option awards under the Equity Incentive Plans were granted or issued at prices as determined by the Company’s compensation committee, but such prices were not less than the fair market value of the Company's common stock on the date of grant or issuance.  Stock options granted and outstanding to date consist of both incentive stock options and non-qualified stock options.
 
 
9

 
 
A summary of stock option transactions under the Equity Incentive Plans during the nine months ended September 30, 2013 is set forth below:

   
Stock
Option
Shares
   
Weighted
Average
Exercise
Price Per
Common Share
   
Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2012
    5,813,587     $ 0.18     $ --  
Granted during the period
    --       --       --  
Exercised during the period
    --       --       --  
Terminated during the period
    --       --       --  
Outstanding at September 30, 2013
    5,813,587     $ 0.18     $ --  
Available for purchase at September 30, 2013
    1,806,793     $ 0.10     $ --  
Available for purchase at December 31, 2012
    1,806,793     $ 0.10     $ --  

Information with respect to stock options outstanding and stock options exercisable as of September 30, 2013 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       0.5       300,000     $ 0.08       0.5  
$      0.10
    2,180,253     $ 0.10       5.4       1,506,793     $ 0.10       6.3  
$      0.20
    1,666,666     $ 0.20       8.5       --       --       --  
$      0.30
    1,666,668     $ 0.30       8.5       --       --       --  
      5,813,587     $ 0.18       6.9       1,806,793     $ 0.10       5.3  

A summary of the non-vested shares subject to stock options granted under the Equity Incentive Plans as of September 30, 2013 is as follows:

   
Stock
Option Shares
   
Weighted Average Grant Date Fair Value
Per Share
 
Non-vested at December 31, 2012
    4,006,794     $ 0.05  
Granted during the period
    --       --  
Vested during the period
    --       --  
Terminated during the period
    --       --  
Non-vested at September 30, 2013
    4,006,794     $ 0.05  

As of September 30, 2013, there was $44,703 of total unrecognized compensation cost related to non-vested stock-based compensation arrangements granted under the Equity Incentive Plans.  That cost is expected to be recognized over a weighted average period of thirteen months.
 
 
10

 

Warrants to Purchase Common Stock

On August 2, 2013, the Company issued a warrant to purchase 401,567 shares of the Company’s common stock in connection with a placement agent and advisory services agreement.  The warrant is exercisable at $0.0345 per share and has a term of five 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 $23,188.  This fair value calculation used the following weighted average assumptions:  exercise price of $0.0345 per share; common stock price of $0.095 per share; volatility of 141%; term of five years; dividend yield of 0%; interest rate of 1.36%; and risk of forfeiture of 35%.

A summary of warrant transactions during the nine months ended September 30, 2013 is as follows:
 
   
Warrant
Shares
   
Weighted Average
Exercise
Price Per
Common
Share
   
Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2012
    45,852,998     $ 0.17     $ --  
Issued during the period
    1,151,567     $ 0.04       --  
Exercised during the period
    --       --       --  
Terminated during the period
    (225,000 )   $ 0.28       --  
Outstanding at September 30, 2013
    46,779,565     $ 0.17     $ 95,582  
Available for purchase at September 30, 2013
    46,779,565     $ 0.17     $ 95,582  
Available for purchase at December 31, 2012
    45,852,998     $ 0.17     $ --  

Warrants issued by the Company contain exercise prices that were approved by the Company’s board of directors.  Such exercise prices are generally not less than the quoted market price of the Company's common stock on the date of issuance.  Warrants currently issued either vested immediately or over a period of up to three years and have a maximum term of ten years from the date of issuance.
 
 
11

 
 
Information with respect to warrants outstanding and warrants exercisable at September 30, 2013 is as follows:
 
   
Warrants Outstanding
   
Warrants Exercisable
 
Range of
Exercise Prices
 
Number of Shares
Available
Under
Outstanding
Warrants
   
Weighted
Average
Exercise
Price Per
Common
Share
   
Weighted
Average
Remaining
Contractual
Life (Years)
   
Number of Shares
Available for
Purchase
Under
Outstanding
Warrants
   
Weighted
Average
Exercise
Price Per
Common
Share
   
Weighted
Average
Remaining
Contractual
Life (Years)
 
$     0.03 - 0.10
    24,207,628     $ 0.09       4.2       24,207,628     $ 0.09       4.2  
$     0.20 - 0.35
    19,949,437     $ 0.22       1.0       19,949,437     $ 0.22       1.0  
$               0.50
    2,622,500     $ 0.50       0.2       2,622,500     $ 0.50       0.2  
      46,779,565     $ 0.17       2.6       46,779,565     $ 0.17       2.6  

As of September 30, 2013, there were no non-vested shares subject to warrants and there was no unrecognized compensation cost.

10.   Stock-Based Compensation

During the three and nine months ended September 30, 2013 and 2012, the Company recorded stock-based compensation expense as follows:
 
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2013
   
2012
   
2013
   
2012
 
General and administrative
  $ 31,760     $ 23,135     $ 105,585     $ 61,206  
Sales and marketing
    2,576       15,625       7,644       56,302  
Research and development
    1,104       5,473       3,276       15,363  
    $ 35,440     $ 44,233     $ 116,505     $ 132,871  

 
For the three and nine months ended September 30, 2013, the Company recorded stock-based compensation expense related to stock options granted to employees and directors of $12,252 and $36,355, respectively.  For the three and nine months ended September 30, 2013, the Company recorded stock-based compensation expense related to common stock and warrants granted to non-employees of $23,188 and $80,150, respectively.

For the three and nine months ended September 30, 2012, the Company recorded stock-based compensation expense related to stock options and warrants granted to employees and directors of $41,378 and $112,416, respectively.  For the three and nine months ended September 30, 2012, the Company recorded stock-based compensation expense related to stock options and warrants granted to non-employees of $2,855 and $20,455, respectively.
 
 
12

 
 
11.   Net Loss Per Common Share
 
Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted earnings per share reflect, in periods in which they have a dilutive effect, the impact of common shares issuable upon exercise of stock options and warrants and conversion of convertible debt that are not deemed to be anti-dilutive.  The dilutive effect of the outstanding stock options and warrants is computed using the treasury stock method.
 
For the three and nine months ended September 30, 2013, diluted net loss per share did not include the effect of 5,813,587 shares of common stock issuable upon the exercise of outstanding stock options, 46,779,565 shares of common stock issuable upon the exercise of outstanding warrants and 4,823,750 shares of common stock issuable upon the conversion of convertible debt, as their effect would be anti-dilutive.
 
For the three and nine months ended September 30, 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, 45,862,998 shares of common stock issuable upon the exercise of outstanding warrants and 4,823,750 shares of common stock issuable upon the conversion of convertible debt, as their effect would be anti-dilutive.
 
12.   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, terminating December 31, 2013, at $71,291 per year.  The renewal term contained the same covenants, conditions, and provisions as provided in the original lease agreement.  The future minimum lease payments due under this lease for the remainder of fiscal 2013 total $17,823.

13.   Subsequent Events

On November 5, 2013, the Company sold 1,000,000 shares of its common stock to an individual investor for an aggregate purchase price of $66,000, or $0.066 per share.
 
On November 7, 2013, the Company sold 15,151,515 shares of its common stock to an individual investor for an aggregate purchase price of $1,000,000, or $0.066 per share.
 
 
13

 

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 a hypochlorous acid-based disinfecting solution (“Anolyte”) as well as an anti-oxidizing, mildly alkaline solution (“Catholyte” and, together with Anolyte, the “Solutions”).  Our Solutions provide an environmentally responsible and effective 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 and can be used safely anywhere there is a need to control pathogens, bacteria, viruses, and germs.  The non-toxic and non-corrosive nature of our Anolyte makes it an excellent replacement for quaternary ammonia, sodium hypochlorite (bleach) and other hazardous chemicals currently being used as disinfectants and sanitizers.  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 92% hypochlorous acid to 8% hypochlorite.  Our Anolyte kills various pathogens including, but not limited to, Mycobacterium bovis (Tuberculosis), Salmonella, Pseudomonas aeruginosa, Staphylococcus aureus (MRSA), swine influenza virus (H1N1) and anthrax.  Our Anolyte also kills hospital-acquired pathogens such as C. difficile spores and Vacomycin-Resistant Enterococcus (VRE) as well as two Carbapenem-Resistant Enterobacteriaceae (CRE) known as Klebsiella Pneumonia Carbapenemase (KPC) and New Delhi Metallo-Beta Lactamase (NDM).  Our Anolyte also kills the high-risk blood-borne pathogen HIV and food-borne pathogens including Listeria moncytogenes and Escherichia coli (E. coli).  Our Anolyte is registered with the EPA as a hard surface disinfectant and sanitizer for hospital-level use and as a biocide for use in oil and gas drilling (EPA Registration No. 82341-1).  We also produce Catholyte that is an anti-oxidizing and mild alkaline solution, which is effective as a degreaser and cleaner for janitorial, sanitation and food processing uses.  We market and sell Anolyte under the brand name Excelyte™ and under the brand name EcaFlo™ and we sell Catholyte under the brand name Catholyte Zero™.

The Company also leases EcaFlo™ equipment when the customer’s business model or required volume of Solutions warrants such an arrangement.  Under these agreements, we lease equipment and provide 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.
 
 
14

 

Business Strategy
 
Our business model is focused on selling Solutions directly to customers.  We target commercial customers that require bulk quantities of Solutions.  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.  We currently focus on three markets:  oil and gas; agriculture and dairy; and healthcare facilities.
 
Critical Accounting Policies and Estimates

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

The critical accounting estimates that we believe affect the more significant judgments and estimates used in preparation of the consolidated financial statements contained elsewhere herein are described in the Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the Consolidated Financial Statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2012.  There have been no material changes to the critical accounting policies.

Results of Operations

Revenue.  Total revenue for the three months ended September 30, 2013 was $42,442, as compared to $36,903 for the three months ended September 30, 2012.  The $5,539, or 15%, increase in revenue for the three months ended September 30, 2013 was primarily due to a $10,851 increase in sales of EcaFlo™ equipment parts, a $5,647 increase in license revenue and a $3,006 increase in sales of Solutions, offset by a $9,000 decrease in EcaFlo™ equipment leasing revenue and a $4,600 decrease in sales of Solutions-related products.

Total revenue for the nine months ended September 30, 2013 was $123,148 as compared to $119,955 for the nine months ended September 30, 2012.  The $3,193, or 3%, increase in revenue for the nine months ended September 30, 2013 was primarily due to a $7,882 increase in sales of Solutions, a $6,606 increase in license revenue and a $1,168 increase in sales of Solutions-related products, offset by a $9,000 decrease in EcaFlo™ equipment leasing revenue and a $3,757 decrease in sales of EcaFlo™ equipment parts.

Cost of Sales.  Cost of sales for the three months ended September 30, 2013 was $9,462, as compared to $36,425 for the three months ended September 30, 2012.  The $26,963, or 74%, decrease in cost of sales for the three months ended September 30, 2013 was primarily attributable to a decrease in sales of certain EcaFlo™ equipment parts with high associated cost of sales.

Cost of sales for the nine months ended September 30, 2013 was $24,110, as compared to $53,131 for the nine months ended September 30, 2012.  The $29,021, or 55%, decrease in cost of sales for the nine months ended September 30, 2013 was primarily attributable to the decrease in sales of certain EcaFlo™ equipment parts with high associated cost of sales.
 
 
15

 
 
Gross Profit.  For the three months ended September 30, 2013 and 2012, the gross profit margin was 78% and 1%, respectively.  For the nine months ended September 30, 2013 and 2012, the gross profit margin was 80% and 56%, respectively.  The increase in gross profit margin for both the three and nine months ended September 30, 2013 was primarily attributable to the increase in licensing revenue with minimal cost of sales and the decrease in sales of certain EcaFlo™ equipment parts with high associated cost of sales.

General and Administrative Expenses.  For the three months ended September 30, 2013, general and administrative expenses were $307,413, as compared to $252,169 for the three months ended September 30, 2012.  The $55,244, or 22%, increase in general and administrative expenses for the three months ended September 30, 2013 was primarily the result of a $23,188 increase in stock-based compensation expense to consultants related to investor relations, a $20,418 increase in depreciation costs related to the reclassification of EcaFlo™ equipment from inventory to property and equipment, a $13,938 increase in office-related expenses, an $8,000 increase in consulting fees primarily related to investor relations services and a $2,760 increase in employee payroll and related benefit costs, offset by a $14,563 decrease in stock-based compensation expense to employees.

For the nine months ended September 30, 2013, general and administrative expenses were $959,217, as compared to $888,278 for the nine months ended September 30, 2012.  The $70,939, or 8%, increase in general and administrative expenses for the nine months ended September 30, 2013 was primarily the result of an $80,150 increase in stock-based compensation expense to consultants related to investor relations, a $36,872 increase in depreciation costs related to the reclassification of EcaFlo™ equipment from inventory to property and equipment, a $27,829 increase in employee payroll and related benefit costs, a $26,742 increase in office-related expenses and a $26,550 increase in litigation settlement expense related to the Crystal Enterprises, Inc. dispute, offset by a $35,770 decrease in stock-based compensation expense for employees and directors, a $35,622 decrease in legal fees primarily related to annual meeting and proxy activities, a $27,717 decrease in annual meeting and proxy costs, a $20,926 decrease in bad debt expense and a $6,457 decrease in travel expenses.

Sales and Marketing Expenses.  For the three months ended September 30, 2013, sales and marketing expenses were $119,669 as compared to $129,657 for the three months ended September 30, 2012.  The $9,988, or 8%, decrease in sales and marketing expenses for the three months ended September 30, 2013 was primarily the result of a $10,194 decrease in stock-based compensation for employees and a $9,000 decrease in consulting fees primarily related to independent sales representatives, offset by a $5,910 increase in marketing-related shipping costs and a $3,277 increase in equipment and office-related expenses.

For the nine months ended September 30, 2013, sales and marketing expenses were $334,992, as compared to $376,693 for the nine months ended September 30, 2012.  The $41,701, or 11%, decrease in sales and marketing expenses for the nine months ended September 30, 2013 was primarily the result of a $28,203 decrease in stock-based compensation for employees, a $20,455 decrease in stock-based compensation expense to consultants, a $9,759 decrease in employee payroll and related benefit costs and a $7,767 decrease in equipment warranty expenses, offset by a $7,501 increase in marketing-related shipping costs, a $3,742 increase in equipment and office-related expenses, a $9,234 increase in consulting fees primarily related to marketing and a $7,625 increase in sales conference fees.
 
 
16

 

Research and Development Expenses.  For the three months ended September 30, 2013, research and development expenses were $55,450, as compared to $75,573 for the three months ended September 30, 2012.  The $20,123, or 27%, decrease in research and development expenses for the three months ended September 30, 2013 was primarily the result of a $23,025 decrease in laboratory testing fees and a $4,369 decrease in stock-based compensation for employees, offset by a $2,714 increase in equipment and office-related expenses, a $2,295 increase in employee payroll and related benefit costs and a $2,266 increase in consulting fees related to product development.

For the nine months ended September 30, 2013, research and development expenses were $154,841, as compared to $234,857 for the nine months ended September 30, 2012.  The $80,016, or 34%, decrease in research and development expenses for the nine months ended September 30, 2013 was primarily the result of a $56,744 decrease in laboratory testing fees, a $12,087 decrease in stock-based compensation for employees, a $7,772 decrease in employee payroll and related benefit costs and a $6,223 decrease in consulting fees related to regulatory and patent consultants, offset by a $3,023 increase in equipment and office-related expenses.

Loss from Operations. For the three months ended September 30, 2013, the loss from operations was $449,552, as compared to $456,921 for the three months ended September 30, 2012.  The $7,369, or 2%, decrease in the loss from operations for the three months ended September 30, 2013 was attributable to a $32,502 increase in gross profit on revenue resulting from a $5,539 increase in revenue and a $26,963 decrease in cost of sales, a $20,123 decrease in research and development expenses and a $9,988 decrease in sales and marketing expenses, offset by a $55,244 increase in general and administrative expenses.

For the nine months ended September 30, 2013, the loss from operations was $1,350,012, as compared to $1,433,004 for the nine months ended September 30, 2012.  The $82,992, or 6%, decrease in the loss from operations for the nine months ended September 30, 2013 was attributable to a $32,214 increase in gross profit on revenue resulting from a $3,193 increase in revenue and a $29,021 decrease in cost of sales, an $80,016 decrease in research and development expenses and a $41,701 decrease in sales and marketing expenses, offset by a $70,939 increase in general and administrative expenses.

Interest Income.  For the three months ended September 30, 2013, interest income was $3, as compared to $141 for the three months ended September 30, 2012.  For the nine months ended September 30, 2013, interest income was $55, as compared to $1,208 for the nine months ended September 30, 2012.  The decrease in interest income for both the three and nine months ended September 30, 2013 was primarily the result of the default by a customer on a capital lease agreement.
 
 
17

 

Interest Expense. For the three months ended September 30, 2013, interest expense was $12,014, as compared to $15,932 for the three months ended September 30, 2012.  The $3,918, or 25%, decrease in interest expense for the three months ended September 30, 2013 was primarily attributable to a decrease in interest expense on convertible debentures and notes payable resulting from the conversion to common stock or payoff of outstanding principal.

For the nine months ended September 30, 2013, interest expense was $33,072, as compared to $59,402 for the nine months ended September 30, 2012.  The $26,330, or 44%, decrease in interest expense for the nine months ended September 30, 2013 was primarily attributable to a decrease in interest expense on convertible debentures and notes payable resulting from the conversion to common stock or payoff of outstanding principal.

Net Loss.  For the three months ended September 30, 2013, net loss was $461,563, as compared to $472,712 for the three months ended September 30, 2012.  The $11,149, or 2%, decrease in net loss for the three months ended September 30, 2013 was primarily attributable to a $32,502 increase in gross profit on sales resulting from a $5,539 increase in revenue and a $26,963 decrease in cost of sales, a $20,123 decrease in research and development expenses, a $9,988 decrease in sales and marketing expenses and a $3,918 decrease in interest expense, offset by a $55,244 increase in general and administrative expenses.

For the nine months ended September 30, 2013, net loss was $1,383,029, as compared to $1,491,198 for the nine months ended September 30, 2012.  The $108,169, or 7%, decrease in net loss for the nine months ended September 30, 2013 was primarily attributable to a $32,214 increase in gross profit on sales resulting from a $3,193 increase in revenue and a $29,021 decrease in cost of sales, an $80,016 decrease in research and development expenses, a $41,701 decrease in sales and marketing expenses and a $26,330 decrease in interest expense, offset by a $70,939 increase in general and administrative expenses.

Liquidity and Capital Resources

As of September 30, 2013, IET had working capital of $344,721 and cash on hand of $547,782.  The $367,293 increase in cash on hand from December 31, 2012 was primarily due to the receipt of $1,672,605 of net proceeds from the sale of our common stock ($218,000 in February 2013, $93,750 in March 2013, $215,000 in April 2013, $180,000 in May 2013, $49,500 in June 2013, $281,260 in July 2013 and $635,095 in August 2013), offset by our continuing operating expenses.  On November 5, 2013 and November 7, 2013, we received $66,000 and $1,000,000, respectively, of net proceeds related to the sale of shares of our common stock.

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 the sale of our convertible debentures, convertible promissory notes and common stock.

As of November 7, 2013, our cash position was approximately $1,460,000.  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 ten 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.  Any additional 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 former independent registered public accounting firm included an emphasis of a matter paragraph in its report included in our annual report on Form 10-K for the year ended December 31, 2012, which expressed substantial doubt about our ability to continue as a going concern.  Our consolidated financial statements included herein do not include any adjustments related to this uncertainty.
 
 
18

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

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

Item 4.  Controls and Procedures

Evaluation of disclosure controls and procedures

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

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s President and Chief Executive Officer and the Company’s Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer), as appropriate, to allow timely decisions regarding required disclosure.
 
Changes in internal control over financial reporting.
 
Management reviews the Company’s system of internal control over financial reporting and makes changes to the Company’s processes and systems to improve controls and increase efficiency, while ensuring that the Company maintains an effective internal control environment.  Changes may include such activities as implementing new, more efficient systems, consolidating activities and migrating processes.
 
During the Company’s last fiscal quarter, there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
 
19

 
 
PART II – OTHER INFORMATION

Item 1.         Legal Proceedings

None.

Item 1A.  Risk Factors

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

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

On July 11, 2013, the Company sold an aggregate of 2,400,000 shares of its common stock to two individual investors for an aggregate purchase price of $72,000, or $0.03 per share.

On July 31, 2013, the Company sold an aggregate of 7,366,665 shares of its common stock to eleven individual investors for an aggregate purchase price of $221,000, or $0.03 per share.  The Company incurred offering costs of $11,740 in connection with these transactions.

On August 2, 2013, the Company sold an aggregate of 2,803,366 shares of its common stock to six individual investors for an aggregate purchase price of $84,101, or $0.03 per share.  The Company incurred offering costs of $5,808 in connection with these transactions.

On August 2, 2013, the Company issued a warrant to purchase 401,567 shares of the Company’s common stock in connection with a placement agent and advisory services agreement.  The warrant is exercisable at $0.0345 per share and has a term of five years.  The warrant vested upon issuance.

On August 5, 2013, the Company sold 3,333,333 shares of its common stock to an institutional investor and 500,000 shares of its common stock to an individual investor for an aggregate purchase price of $115,000, or $0.03 per share.  The Company incurred offering costs of $8,050 in connection with these transactions.

On August 9, 2013, the Company sold an aggregate of 4,833,333 shares of its common stock to nine individual investors for an aggregate purchase price of $145,000, or $0.03 per share.  The Company incurred offering costs of $9,100 in connection with these transactions.

On August 16, 2013, the Company sold an aggregate of 6,803,333 shares of its common stock to nine individual investors for an aggregate purchase price of $204,100, or $0.03 per share.  The Company incurred offering costs of $9,588 in connection with these transactions.

On August 23, 2013, the Company sold 1,700,000 shares of its common stock to an institutional investor and 1,533,333 shares of its common stock to four individual investors for an aggregate purchase price of $97,000, or $0.03 per share.  The Company incurred offering costs of $5,460 in connection with these transactions.

On August 30, 2013, the Company sold 1,000,000 shares of its common stock to an individual investor for an aggregate purchase price of $30,000, or $0.03 per share.  The Company incurred offering costs of $2,100 in connection with this transaction. The Company will use the net proceeds received from the aforementioned transactions 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 described above, the Company relied on the exemption from registration for a private transaction not involving a public distribution provided by Section 4(a)(2) of the Securities Act.
 
 
20

 

Item 3.          Defaults Upon Senior Securities
 
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 and remains unpaid.  The convertible debenture accrues interest at a rate of 12% per annum and is convertible at any time into shares of the Company’s common stock at the option of the holder at a conversion price of $0.40 per share.  An aggregate of 62,500 shares of the Company’s common stock can be issued upon the conversion of the outstanding principal amount due on this convertible debenture at the current conversion price of $0.40 per share.  As of September 30, 2013, the accrued and unpaid interest on this convertible debenture was $9,685.

Item 4.          Mine Safety Disclosures
 
Not applicable.

Item 5.          Other Information
 
On November 5, 2013, the Company sold 1,000,000 shares of its common stock to an individual investor for an aggregate purchase price of $66,000, or $0.066 per share.
 
On November 7, 2013, the Company sold 15,151,515 shares of its common stock to an individual investor for an aggregate purchase price of $1,000,000, or $0.066 per share.

The Company will use the net proceeds received from the aforementioned transactions 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 described above, the Company relied on the exemption from registration for a private transaction not involving a public distribution provided by Section 4(a)(2) of the Securities Act.

Item 6.          Exhibits
 
See Index of Exhibits Commencing on Page E-1.
 
 
21

 
 
SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
INTEGRATED ENVIRONMENTAL TECHNOLOGIES, LTD.
 
       
November 8, 2013
By:
/s/ David R. LaVance  
   
David R. LaVance
 
   
President and Chief Executive Officer
 
 
November 8, 2013
By:
/s/ Thomas S. Gifford   
   
Thomas S. Gifford
 
   
Executive Vice President,
Chief Financial Officer and Secretary
 
 
22

 
 
INDEX OF EXHIBITS
 
Exhibit
No.
 
Description
3.1
 
Amended and Restated Articles of Incorporation of Integrated Environmental Technologies, Ltd. (the “Company”) (incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K that was filed with the Securities and Exchange Commission (the “SEC”) on May 22, 2012).
3.2
 
Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s current report on Form 8-K that was filed with the SEC on May 22, 2012).
4.1
 
Convertible Debenture Unit Purchase Agreement between the Company and L.J. Tichacek dated April 26, 2007 (incorporated by reference to Exhibit 4.1 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2011 that was filed with the SEC on August 22, 2011).
4.2
 
10% Convertible Debenture in the principal amount of $25,000 issued to L.J. Tichacek dated April 26, 2007 (incorporated by reference to Exhibit 4.2 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2011 that was filed with the SEC on August 22, 2011).
4.3
 
8% Convertible Debenture, dated as of August 21, 2012, issued to Zanett Opportunity Fund, Ltd. Agreement (incorporated by reference to Exhibit 4.1 to the Company’s current report on Form 8-K that was filed with the SEC on August 23, 2012).
4.4
 
7% Secured Promissory Note in the principal amount of $152,000 issued by I.E.T., Inc. to Benchmark Performance Group, Inc. dated June 17, 2013 (incorporated by reference to Exhibit 4.1 to the Company’s current report on Form 8-K that was filed with the SEC on June 19, 2013).
10.1
 
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).
10.2
 
2010 Stock Incentive Plan of the Company (incorporated by reference to Exhibit 10.5 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2011 that was filed with the SEC on August 22, 2011).
10.3
 
2012 Equity Incentive Plan of the Company (incorporated by reference to Exhibit 10.3 to the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2013 that was filed with the SEC on May 15, 2013).
10.4
 
Form of Warrant, dated April 21, 2011, issued by the Company to each of David R. LaVance (for the purchase of 1,818,182 shares of the Company’s common stock), Raymond C. Kubacki (for the purchase of 1,818,182 shares of the Company’s common stock) and Valgene L. Dunham (for the purchase of 969,697 shares of the Company’s common stock) (incorporated by reference to Exhibit 10.12 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2011 that was filed with the SEC on August 22, 2011).
10.5
 
Form of Warrant, dated May 23, 2011, issued by the Company to each of David R. LaVance (for the purchase of 3,100,000 shares of the Company’s common stock) and Thomas S. Gifford (for the purchase of 3,100,000 shares of the Company’s common stock) (incorporated by reference to Exhibit 10.13 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2011 that was filed with the SEC on August 22, 2011).
10.6
 
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).
 
 
E-1

 
 
Exhibit
No.
 
Description
10.6.1
 
Mutual Termination of Sales Management Services Agreement, dated as of August 31, 2012, among I.E.T., Inc., TrueLogix, LLC, Colby J. Sanders, Patrick T. Lewis and Howard B. Gee (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K that was filed with the SEC on September 25, 2012).
10.7
 
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).
10.8
 
Form of Incentive Stock Option Agreement, dated March 27, 2012, issued by the Company to each of David R. LaVance (for the purchase of 3,000,000 shares of the Company’s common stock) and Thomas S. Gifford (for the purchase of 2,000,000 shares of the Company’s common stock) (incorporated by reference to Exhibit 10.14 to the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2012 that was filed with the SEC on May 15, 2012).
10.9
 
Form of Non-Qualified Stock Option Agreement, dated March 27, 2012, issued by the Company to each of:  Raymond C. Kubacki (for the purchase of 541,860 shares of the Company’s common stock); David N. Harry (for the purchase of 309,640 shares of the Company’s common stock); Valgene L. Dunham (for the purchase of 340,600 shares of the Company’s common stock); and E. Wayne Kinsey, III  (for the purchase of 154,820 shares of the Company’s common stock) (incorporated by reference to Exhibit 10.15 to the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2012 that was filed with the SEC on May 15, 2012).
10.10
 
Asset Purchase Agreement, dated as of June 17, 2013, by and between I.E.T., Inc. and Benchmark Performance Group, Inc.  Upon the request of the Securities and Exchange Commission, the Company agrees to furnish copies of each of the following schedules and exhibits:  Schedule I – Equipment; Schedule II – Intangible Property; Exhibit A – Form of Secured Promissory Note; Exhibit B – Form of Trademark Assignment; Exhibit C – Form of Domain Name Assignment; Exhibit D – Form of State Registration Assignment  (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K that was filed with the SEC on June 19, 2013).
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.
101*
 
The following materials from the Company’s quarterly report on Form 10-Q for the period ended September 30, 2013, formatted in Extensible Business Reporting Language (XBRL):  (i) consolidated balance sheets; (ii) consolidated statements of operations; (iii) consolidated statements of cash flows; and (iv) notes to the consolidated financial statements.
 
*  Pursuant to Rule 406T of Regulation S-T, the interactive data files included as Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
 
E-2