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 June 30, 2013
OR
¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number 001-14015
APPLIED ENERGETICS, INC.
| (Exact Name of Registrant as Specified in Its Charter) |
|
Delaware |
77-0262908 | |
|
(State or Other Jurisdiction of Incorporation or Organization) |
(IRS Employer Identification Number) |
| 4585 S Palo Verde Road, Suite 405 | ||
| Tucson, Arizona | 85714 | |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code (520) 628-7415
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an 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. (Check one):
| Large accelerated filer: ¨ | Accelerated filer: ¨ | Non-accelerated filer: ¨ | Smaller reporting company: x | ||||
| (Do not check if a smaller reporting company) | |||||||
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. As of August 2, 2013 there were 91,735,662 shares of the issuer's common stock, par value $.001 per share, outstanding.
APPLIED ENERGETICS, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
| PART I. FINANCIAL INFORMATION | |||
| ITEM 1. | Condensed Consolidated Financial Statements | ||
| Condensed Consolidated Balance Sheets as of June 30, 2013 (Unaudited) and December 31, 2012 | 1 | ||
| Condensed Consolidated Statements of Operations for the three months ended June 30, 2013 and 2012 (Unaudited) | 2 | ||
| Condensed Consolidated Statements of Operations for the six months ended June 30, 2013 and 2012 (Unaudited) | 3 | ||
| Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012 (Unaudited) | 4 | ||
| Notes to Condensed Consolidated Financial Statements | 5 | ||
| ITEM 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 9 | |
| ITEM 4. | Controls and Procedures | 13 | |
| PART II. OTHER INFORMATION | |||
| ITEM 6. | Exhibits | 14 | |
| SIGNATURES | 15 | ||
| i |
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APPLIED ENERGETICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2013 | December 31, 2012 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 1,544,545 | $ | 2,622,142 | ||||
| Accounts receivable | 2,091 | 47,964 | ||||||
| Inventory | 66,719 | 66,884 | ||||||
| Prepaid expenses and deposits | 48,493 | 102,610 | ||||||
| Total current assets | 1,661,848 | 2,839,600 | ||||||
| Property and equipment - net | 45,410 | 81,623 | ||||||
| TOTAL ASSETS | $ | 1,707,258 | $ | 2,921,223 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 65,784 | $ | 116,930 | ||||
| Accrued expenses | 34,789 | 76,188 | ||||||
| Accrued compensation | 47,179 | 140,783 | ||||||
| Total current liabilities | 147,752 | 333,901 | ||||||
| Total liabilities | 147,752 | 333,901 | ||||||
| Commitments and contingencies - See Note 9 | ||||||||
| Stockholders’ equity | ||||||||
| Series A Convertible Preferred Stock, $.001 par value, 2,000,000 shares authorized;107,172 shares issued and outstanding at June 30, 2013 and at December 31, 2012 | 107 | 107 | ||||||
| Common stock, $.001 par value, 500,000,000 shares authorized; 91,735,662 shares issued and outstanding at June 30, 2013 and December 31, 2012 | 91,736 | 91,736 | ||||||
| Additional paid-in capital | 79,233,586 | 79,218,301 | ||||||
| Accumulated deficit | (77,765,923 | ) | (76,722,822 | ) | ||||
| Total stockholders’ equity | 1,559,506 | 2,587,322 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,707,258 | $ | 2,921,223 | ||||
See accompanying notes to condensed consolidated financial statements (unaudited).
| - 1 - |
APPLIED ENERGETICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the three months ended June 30, | ||||||||
| 2013 | 2012 | |||||||
| Revenue | $ | 4,263 | $ | 504,307 | ||||
| Cost of revenue | 6,957 | 389,523 | ||||||
| Gross profit (loss) | (2,694 | ) | 114,784 | |||||
| Operating expenses | ||||||||
| General and administrative | 377,883 | 511,331 | ||||||
| Selling and marketing | 4,500 | 275,937 | ||||||
| Research and development | - | 22,526 | ||||||
| Impairment loss on property held for sale | - | 708,000 | ||||||
| Total operating expenses | 382,383 | 1,517,794 | ||||||
| Operating loss | (385,077 | ) | (1,403,010 | ) | ||||
| Other (expense) income | ||||||||
| Interest expense | - | - | ||||||
| Interest income | 2,269 | 390 | ||||||
| Total other (expense) income | 2,269 | 390 | ||||||
| Net loss | (382,808 | ) | (1,402,620 | ) | ||||
| Preferred stock dividends | (43,539 | ) | (43,539 | ) | ||||
| Net loss attributable to common stockholders | $ | (426,347 | ) | $ | (1,446,159 | ) | ||
| Net loss per common share – basic and diluted | $ | (0.01 | ) | $ | (0.02 | ) | ||
| Weighted average number of shares outstanding, basic and diluted | 91,735,662 | 91,735,440 | ||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
| - 2 - |
APPLIED ENERGETICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the six months ended June 30, | ||||||||
| 2013 | 2012 | |||||||
| Revenue | $ | 38,720 | $ | 903,514 | ||||
| Cost of revenue | 35,852 | 754,591 | ||||||
| Gross profit | 2,868 | 148,923 | ||||||
| Operating expenses | ||||||||
| General and administrative | 881,528 | 1,200,733 | ||||||
| Selling and marketing | 80,286 | 675,502 | ||||||
| Research and development | - | 157,313 | ||||||
| Impairment loss on property held for sale | - | 708,000 | ||||||
| Total operating expenses | 961,814 | 2,741,548 | ||||||
| Operating loss | (958,946 | ) | (2,592,625 | ) | ||||
| Other (expense) income | ||||||||
| Interest expense | - | (1,651 | ) | |||||
| Interest income | 2,922 | 783 | ||||||
| Total other (expense) income | 2,922 | (868 | ) | |||||
| Net loss | (956,024 | ) | (2,593,493 | ) | ||||
| Preferred stock dividends | (87,077 | ) | (87,077 | ) | ||||
| Net loss attributable to common stockholders | $ | (1,043,101 | ) | $ | (2,680,570 | ) | ||
| Net loss per common share – basic and diluted | $ | (0.01 | ) | $ | (0.03 | ) | ||
| Weighted average number of shares outstanding, basic and diluted | 91,735,662 | 91,702,815 | ||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
| - 3 - |
APPLIED ENERGETICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the six months ended June 30, | ||||||||
| 2013 | 2012 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (956,024 | ) | $ | (2,593,493 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 36,213 | 159,123 | ||||||
| Impairment loss on property held for sale | - | 708,000 | ||||||
| Gain on equipment disposal | - | (21,500 | ) | |||||
| Non-cash stock based compensation expense | 15,284 | 46,459 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | 45,873 | (74,608 | ) | |||||
| Other receivable | - | 99,447 | ||||||
| Inventory | 165 | 50,995 | ||||||
| Prepaid expenses, deposits and other assets | 54,117 | 136,493 | ||||||
| Long term receivables - net | - | 205,313 | ||||||
| Accounts payable | (51,146 | ) | (249,242 | ) | ||||
| Billings in excess of costs | - | 6,828 | ||||||
| Accrued expenses and deposits | (135,002 | ) | (702,931 | ) | ||||
| Net cash used in operating activities | (990,520 | ) | (2,229,116 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Proceeds from disposal of equipment | - | 21,500 | ||||||
| Net cash provided by investing activities | - | 21,500 | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Dividends paid (preferred stock) | (87,077 | ) | (87,077 | ) | ||||
| Net cash provided by (used in) financing activities | (87,077 | ) | (87,077 | ) | ||||
| Net decrease in cash and cash equivalents | (1,077,597 | ) | (2,294,693 | ) | ||||
| Cash and cash equivalents, beginning of period | 2,622,142 | 3,937,135 | ||||||
| Cash and cash equivalents, end of period | $ | 1,544,545 | $ | 1,642,442 | ||||
See accompanying notes to condensed consolidated financial statements (unaudited).
| - 4 - |
APPLIED ENERGETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)
| 1. | BASIS OF PRESENTATION |
The accompanying interim unaudited condensed consolidated financial statements include the accounts of Applied Energetics, Inc. and its wholly owned subsidiaries, Ionatron Technologies, Inc. and North Star Power Engineering, Inc. as of June 30, 2013 (collectively, "company," "Applied Energetics," "we," "our" or "us"). All intercompany balances and transactions have been eliminated. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary for a fair presentation of the results for the interim periods presented have been made. The results for the three-month and six-month periods ended June 30, 2013, may not be indicative of the results for the entire year. The interim unaudited condensed consolidated financial statements should be read in conjunction with the company's audited consolidated financial statements contained in our Annual Report on Form 10-K.
Recent Developments
The U.S. Government has significantly reduced defense spending and we do not anticipate receiving significant additional Government funding in the near future. We have completed our Government contracts and do not have any funded Government contracts for future work. We have also developed our USP laser technologies and systems for commercial markets. We have not generated meaningful sales of our commercial systems and we do not have any existing commercial contracts. We are not investing company funds or resources to further develop and enhance our technologies and systems or market our systems other than the submission of proposals for Government contracts. As of August 7, 2013, our backlog was $0.
As a result of the decrease in U.S. Government funding, we have significantly reduced our workforce to a level consistent with our expected operations.
Since we do not believe we will be able to obtain any meaningful contracts or generate meaningful revenue or profitable operations in our current line of business, we are considering strategic alternatives, including mergers, the acquisition of one or more businesses or technologies, and/or the disposition of one or more of our existing businesses. We do not expect to continue our current businesses for any meaningful period of time and our continuation as a going concern is dependent upon the success of our strategic efforts.
The accompanying unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the six months ended June 30, 2013, the company incurred a net loss of approximately $956,000, had negative cash flows from operations of $991,000 and may incur additional future losses due to the reduction in Government contract activity. These matters raise substantial doubt as to the company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability of assets and the amount or classification of liabilities that might be necessary should the company be unable to continue as a going concern.
As of July 31, 2013, the company had approximately $1.5 million in cash and cash equivalents.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with United States Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management bases its assumptions on historical experiences and on various other estimates that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. In addition, management considers the basis and methodology used in developing and selecting these estimates, the trends in and amounts of these estimates, specific matters affecting the amount of and changes in these estimates, and any other relevant matters related to these estimates, including significant issues concerning accounting principles and financial statement presentation. Such estimates and assumptions could change in the future, as more information becomes known which could materially impact the amounts reported and disclosed herein. Significant estimates include revenue recognition under the percentage of completion method of contract accounting, estimating costs at completion on a contract, the valuation of inventory, carrying amount of long-lived assets, expected forfeiture rate on stock-based compensation and measurements of income tax assets and liabilities.
| - 5 - |
APPLIED ENERGETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)
CASH AND CASH EQUIVALENTS
Cash equivalents are investments in money market funds or securities with an initial maturity of three months or less. These money market funds are invested in government and US treasury based securities.
FAIR VALUE OF CURRENT ASSETS AND LIABILITIES
The carrying amount of accounts receivable and accounts payable approximate fair value due to the short maturity of these instruments.
RECENT ACCOUNTING PRONOUNCEMENTS
The company has reviewed issued accounting pronouncements and plans to adopt those that are applicable to it. The company does not expect the adoption of any other pronouncements to have an impact on its results of operations or financial position.
| 2. | ACCOUNTS RECEIVABLE |
Accounts receivable consists of the following:
| June 30, 2013 | December 31, 2012 | |||||||
| Contracts receivable | $ | 2,091 | $ | 46,221 | ||||
| Costs and estimated earnings on uncompleted contracts | - | 1,743 | ||||||
| Accounts receivable, net | $ | 2,091 | $ | 47,964 | ||||
Contracts receivable are expected to be collected within a year.
Costs and Estimated Earnings on Uncompleted Contracts
| June 30, 2013 | December 31, 2012 | |||||||
| Costs incurred on uncompleted contracts | $ | 697,459 | $ | 6,350,706 | ||||
| Estimated earnings | 48,642 | 601,755 | ||||||
| Total billable costs and estimated earnings | 746,101 | 6,952,461 | ||||||
| Less: | ||||||||
| Billings to date | 746,101 | 6,950,718 | ||||||
| Total | $ | - | $ | 1,743 | ||||
| Included in accompanying balance sheet: | ||||||||
| Unbilled costs and estimated earnings on uncompleted contracts included in accounts receivable | $ | - | $ | 1,743 | ||||
| Billings in excess of costs and estimated earnings on uncompleted contracts | - | - | ||||||
| Total | $ | - | $ | 1,743 | ||||
| - 6 - |
APPLIED ENERGETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)
| 3. | INVENTORY |
Our inventories consist of the following:
| June 30, 2013 | December 31, 2012 | |||||||
| Raw materials | $ | 66,719 | $ | 66,719 | ||||
| Work-in-process | - | 165 | ||||||
| Total | $ | 66,719 | $ | 66,884 | ||||
| 4. | PROPERTY AND EQUIPMENT |
Our property and equipment consist of the following:
| June 30, 2013 | December 31, 2012 | |||||||
| Leasehold improvements | $ | 15,141 | $ | 15,141 | ||||
| Equipment | 1,898,920 | 1,898,920 | ||||||
| Furniture | 5,333 | 5,333 | ||||||
| Software | 801,498 | 801,498 | ||||||
| Total | 2,720,892 | 2,720,892 | ||||||
| Less accumulated depreciation and amortization | (2,675,482 | ) | (2,639,269 | ) | ||||
| Net property and equipment | $ | 45,410 | $ | 81,623 | ||||
We review long-lived assets, including intangible assets subject to amortization, for possible impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
We annually assess the recoverability of such long-lived assets by determining whether the amortization of the balances over their remaining lives can be recovered through undiscounted future operating cash flows. The amount of impairment, if any, is measured based on projected discounted future operating cash flows. The assessment of the recoverability of long-lived assets will be impacted if estimated future operating cash flows are not achieved.
| 5. | SHARE-BASED COMPENSATION |
Share-Based Compensation – Employees and Directors
For the three months ended June 30, 2013 and 2012, share-based compensation expense totaled approximately $2,000 and $5,000, respectively. For the six months ended June 30, 2013 and 2012, share-based compensation expense totaled approximately $15,000 and $46,000, respectively.
There was no related income tax benefit recognized because our deferred tax assets are fully offset by a valuation allowance.
| - 7 - |
APPLIED ENERGETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)
As of June 30, 2013, $11,000 of total unrecognized compensation cost related to restricted stock units is expected to be recognized over a weighted average period of approximately 0.72 years.
We determine the fair value of option grant share-based awards at their grant date, using a Black-Scholes-Merton Option-Pricing Model.
During the six months ended June 30, 2013, no restricted stock units were granted, 38,228 shares of restricted stock units were vested and 21,459 shares of restricted stock units were forfeited; no options to purchase shares were granted or exercised and 211,333 options to purchase shares expired; no restricted stock awards were granted or exercised, nor forfeited. At June 30, 2013, 960,833 options with an average exercise price of $0.52 were outstanding.
| 6. | SIGNIFICANT CUSTOMERS |
All of our revenues for the three month period ended June 30, 2013 were derived from two commercial contracts. Approximately 83% of revenue for the three-month periods ended June 30, 2012 was generated from either the U.S. Government or contractors to the U.S. Government. Approximately 98% and 90% of revenue for the six-month periods ended June 30, 2013 and 2012, respectively, were generated from either the U.S. Government or contractors to the U.S. Government.
| 7. | NET LOSS PER SHARE |
Basic net loss per common share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period before giving effect to stock options, stock warrants, restricted stock units and convertible securities outstanding, which are considered to be dilutive common stock equivalents. Diluted net loss per common share is calculated based on the weighted average number of common and potentially dilutive shares outstanding during the period after giving effect to convertible preferred stock, stock options, warrants and restricted stock units. Contingently issuable shares are included in the computation of basic loss per share when issuance of the shares is no longer contingent. Due to the losses from continuing operations for the six months ended June 30, 2013 and 2012, basic and diluted loss per common share were the same, as the effect of potentially dilutive securities would have been anti-dilutive.
Potentially dilutive securities not included in the diluted loss per share calculation, due to net losses from continuing operations, were as follows:
| Six Months Ended June 30, | ||||||||
| 2013 | 2012 | |||||||
| Options to purchase common shares | 960,833 | 2,661,334 | ||||||
| Unvested restricted stock units | 16,771 | 88,440 | ||||||
| Convertible preferred stock | 107,172 | 107,172 | ||||||
| Total potentially dilutive securities | 1,084,776 | 2,856,946 | ||||||
| 8. | DIVIDENDS |
As of June 30, 2013, we had 107,172 shares of our 6.5% Series A Convertible Preferred Stock outstanding. The company’s Board of Directors did not declare the dividend due August 1, 2013. Accordingly, the company did not pay the August 1, 2013 quarterly dividend.
Dividends on Preferred Stock are accrued when the amount and kind of the dividend is determined and are payable quarterly on the first day of February, May, August and November, in cash or shares of common stock.
| 9. | SUBSEQUENT EVENTS |
The company’s management has evaluated subsequent events occurring after June 30, 2013, the date of our most recent balance sheet, through the date our financial statements were issued.
| - 8 - |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our discussion and analysis of the financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related disclosures included elsewhere herein and in Management’s Discussion and Analysis of Financial Condition and Results of Operations included as part of our Annual Report on Form 10-K for the year ended December 31, 2012.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the securities laws. Forward-looking statements include all statements that do not relate solely to the historical or current facts, and can be identified by the use of forward looking words such as "may", "believe", "will", “would”, “could”, “should”, "expect", "project", "anticipate", “estimates", “possible”, "plan", "strategy", "target", "prospect" or "continue" and other similar terms and phrases. These forward looking statements are based on the current plans and expectations of our management and are subject to a number of uncertainties and risks that could significantly affect our current plans and expectations, as well as future results of operations and financial condition and may cause our actual results, performances or achievements to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Important factors that could cause our actual results to differ materially from our expectations are described in Item 1A. (Risk Factors) of our Annual Report on Form 10-K, for the year ended December 31, 2012. Although we believe that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to have been correct. We do not assume any obligation to update these forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting such forward-looking statements.
OVERVIEW
Applied Energetics, Inc. (“company”, “Applied Energetics”, “we”, “our” or “us”) has developed and manufactured solid state Ultra Short Pulse (“USP”) lasers for commercial applications and applied energy systems for military applications. Through our technology development efforts, we have gained expertise and proprietary knowledge in high performance lasers and high-voltage electronics.
We are not investing company funds to further develop and enhance our technologies of systems or market our systems other than the submission of proposals for Government contracts. We have completed our Government contracts and do not have any remaining funded Government contracts due to the lack of Government funding. We have not generated meaningful sales of our commercial systems and we do not have any existing commercial contracts.
| - 9 - |
RESULTS OF OPERATIONS
COMPARISON OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2013 AND 2012:
| 2013 | 2012 | |||||||
| Revenue | $ | 4,263 | $ | 504,307 | ||||
| Cost of revenue | 6,957 | 389,523 | ||||||
| General and administrative | 377,883 | 511,331 | ||||||
| Selling and marketing | 4,500 | 275,937 | ||||||
| Research and development | - | 22,526 | ||||||
| Impairment loss on property held for sale | - | 708,000 | ||||||
| Other (expense) income: | ||||||||
| Interest income | 2,269 | 390 | ||||||
| Net loss | $ | (382,808 | ) | $ | (1,402,620 | ) | ||
REVENUE
Revenue decreased by approximately $500,000 to $4,000 for the three months ended June 30, 2013 compared to $504,000 for the three months ended June 30, 2012. Revenue from the LGE product line decreased by $250,000 to $4,000 and High Voltage revenue decreased by $250,000 to $0 for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. There was no revenue from Laser or the C-IED product line for the quarters. We have completed substantially all work under our Government contracts and do not have any funded Government contracts for future work due to the lack of Government funding and are not investing company funds or resources to develop or enhance our technologies or systems. Although we continue to make proposals for Government contracts we do not anticipate receiving additional Government funding in the near future and expect our revenue to remain at these reduced levels because of the significant reduction in U.S. Government spending.
COST OF REVENUE
Cost of revenue includes manufacturing labor, benefits and overhead, and an allocation of allowable general and administration and research and development costs in accordance with the terms of our government contracts.
Cost of revenue decreased by approximately $383,000 to $7,000 for the three months ended June 30, 2013, compared to $390,000 for the three months ended June 30, 2012. The decrease in cost of revenue is directly tied to the decrease in sales activity of approximately 99%.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased approximately $133,000 to $378,000 for the three months ended June 30, 2013 compared to $511,000 for the three months ended June 30, 2012. Salaries, wages and benefits decreased by approximately $288,000, which is reflective of our reduction in workforce; professional services decreased by approximately $148,000; depreciation and amortization decreased by $61,000, reflecting the sale of our building and the sale of other depreciable assets as we downsized to a smaller facility; supplies and building related expenses decreased by approximately $60,000; insurance and miscellaneous fees decreased by $40,000; and non-cash compensation costs decreased by approximately $4,000. Offsetting these reductions in operating expenses totaling approximately $601,000 was a decrease in absorption of labor and overheads of approximately $462,000 previously charged to Government contracts. Cost saving measures were initiated in 2011 and have continued, in response to the decrease in revenue and lack of Government contracts, including reductions of our workforce and reductions in other operating expenses.
SELLING AND MARKETING
Selling and marketing expenses decreased by $271,000 to $5,000 for the three months ended June 30, 2013 compared to $276,000 for the three months ended June 30, 2012. The decrease in sales and marketing expenses is represented by decreases in business development expense of $193,000, marketing expenses of $60,000 and bid and proposal expenses of $18,000 predominantly due to our headcount reductions.
| - 10 - |
RESEARCH AND DEVELOPMENT
There were no research and development expenses during the three months ended June 30, 2013 as compared to $23,000 for the three months ended June 30, 2012. This decrease reflects our goal to limit the investment of our own resources in research and development efforts as a cost reduction measure.
IMPAIRMENT LOSS
The impairment loss is the recognition that, in 2012, we did not expect to recover the carrying value of our land and building through expected future operating cash flows. In July 2012, we entered into an agreement to sell our principal office, manufacturing, storage, and primary research and development facility in Tucson, Arizona for approximately $1.4 million which was approximately $708,000 less than the carrying amount of these assets.
INTEREST INCOME AND INTEREST EXPENSE
Net interest income for the three months ended June 30, 2013 was higher by approximately $2,000 as compared to the three months ended June 30, 2012.
NET LOSS
Our operations for the three months ended June 30, 2013 resulted in a net loss of approximately $383,000, a decrease of approximately $1.0 million compared to the $1.4 million loss for the three months ended June 30, 2012.
COMPARISON OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012:
| 2013 | 2012 | |||||||
| Revenue | $ | 38,720 | $ | 903,514 | ||||
| Cost of revenue | 35,852 | 754,591 | ||||||
| General and administrative | 881,528 | 1,200,733 | ||||||
| Selling and marketing | 80,286 | 675,502 | ||||||
| Research and development | - | 157,313 | ||||||
| Impairment loss on property held for sale | - | 708,000 | ||||||
| Other (expense) income: | ||||||||
| Interest expense | - | (1,651 | ) | |||||
| Interest income | 2,922 | 783 | ||||||
| Net loss | $ | (956,024 | ) | $ | (2,593,493 | ) | ||
REVENUE
Revenue decreased by approximately $865,000 to $39,000 for the six months ended June 30, 2013 compared to $904,000 for the six months ended June 30, 2012. Revenue from the LGE product line decreased by $462,000 to $4,000 and High Voltage revenue decreased by $404,000 to $33,000 for the six months ended June 30, 2013 compared to the six months ended June 30, 2012. There was no revenue from Laser or the C-IED product line for the quarters. There was no revenue from Laser or the C-IED product line for the six months ended June 30, 2013. We have completed substantially all work under our Government contracts and do not have any funded Government contracts for future work due to the lack of Government funding and are not investing company funds or resources to develop or enhance our technologies or systems. Although we continue to make proposals for Government contracts we do not anticipate receiving additional Government funding in the near future and expect our revenue to remain at these reduced levels because of the significant reduction in U.S. Government spending.
| - 11 - |
COST OF REVENUE
Cost of revenue includes manufacturing labor, benefits and overhead, and an allocation of allowable general and administration and research and development costs in accordance with the terms of our government contracts.
Cost of revenue decreased by approximately $719,000 to $36,000 for the six months ended June 30, 2013, compared to $755,000 for the six months ended June 30, 2012. The decrease in cost of revenue is directly tied to the decrease in sales activity of approximately 96%.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased approximately $318,000 to $882,000 for the six months ended June 30, 2013 compared to $1.2 million for the six months ended June 30, 2012. Salaries, wages and benefits decreased by approximately $724,000, which is reflective of our reduction in workforce; professional services decreased by approximately $298,000; depreciation and amortization decreased by $123,000, reflecting the sale of our building and the sale of other depreciable assets as we downsized to a smaller facility; supplies and building related expenses decreased by approximately $109,000; insurance and miscellaneous fees decreased by $72,000; and non-cash compensation costs decreased by approximately $31,000. Offsetting these reductions in operating expenses totaling approximately $1.4 million was a decrease in absorption of labor and overheads of approximately $1.1 million previously charged to Government contracts. Cost saving measures were initiated in 2011 and have continued, in response to the decrease in revenue and lack of Government contracts, including reductions of our workforce and reductions in other operating expenses.
SELLING AND MARKETING
Selling and marketing expenses decreased by $595,000 to $80,000 for the six months ended June 30, 2013 compared to $675,000 for the six months ended June 30, 2012. The decrease in sales and marketing expenses is represented by decreases in business development expense of $426,000, marketing expenses of $98,000 and bid and proposal expenses of $71,000 predominantly due to our headcount reductions.
RESEARCH AND DEVELOPMENT
There were no research and development expenses during the six months ended June 30, 2013 as compared to $157,000 for the six months ended June 30, 2012. This decrease reflects our goal to limit the investment of our own resources in research and development efforts as a cost reduction measure.
IMPAIRMENT LOSS
The impairment loss is the recognition that, in 2012, we did not expect to recover the carrying value of our land and building through expected future operating cash flows. In July 2012, we entered into an agreement to sell our principal office, manufacturing, storage, and primary research and development facility in Tucson, Arizona for approximately $1.4 million which was approximately $708,000 less than the carrying amount of these assets.
INTEREST INCOME AND INTEREST EXPENSE
Net interest income for the six months ended June 30, 2013 was higher by approximately $4,000 as compared to the six months ended June 30, 2012.
NET LOSS
Our operations for the six months ended June 30, 2013 resulted in a net loss of approximately $956,000, a decrease of approximately $1.6 million compared to the $2.6 million loss for the six months ended June 30, 2012.
| - 12 - |
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2013, we had approximately $1.5 million of cash and cash equivalents, a decrease of approximately $1.1 million from December 31, 2012. During the first six months of 2013 the net cash outflow from operating activities was approximately $991,000. This amount is comprised primarily of our net loss of $956,000 and decreases in our accrued expenses and deposits of $135,000 and accounts payable of $51,000, partially offset by the decreases in prepaid expenses, deposits and other assets of $54,000, accounts receivables of $46,000 and depreciation and amortization of $36,000 and noncash stock based compensation of $15,000. Investing activities had no activity while financing activities reflected the cash dividend payment of $87,000, resulting in net cash outflow of approximately $1.1 million.
The U.S. Government has significantly reduced defense spending and we do not anticipate receiving significant additional Government funding in the near future. We have completed our Government contracts and do not have any funded Government contracts for future work. We have also developed our USP laser technologies and systems for commercial markets. We have not generated meaningful sales of our commercial systems and we do not have any existing commercial contracts. We are not investing company funds or resources to further develop and enhance our technologies and systems or market our systems other than the submission of proposals for Government contracts. As of August 7, 2013, our backlog was $0.
As a result of the decrease in U.S. Government funding, we have significantly reduced our workforce to a level consistent with our expected operations.
Since we do not believe we will be able to obtain any meaningful contracts or generate meaningful revenue or profitable operations in our current businesses, we are considering strategic alternatives, including mergers, the acquisition of one or more businesses or technologies, and/or the disposition of one or more of our existing businesses. We do not expect to continue our current businesses for any meaningful period of time and our continuation as a going concern is dependent upon the success of our strategic efforts.
In their report accompanying our financial statements, our independent auditors stated that our financial statements for the year ended December 31, 2012 were prepared assuming that we would continue as a going concern, and that they have substantial doubt as to our ability to continue as a going concern. Our auditors’ have noted that our recurring losses from operations and negative cash flow from operations and the concern that we may incur additional losses due to the reduction in Government contract activity raise substantial doubt about our ability to continue as a going concern.
BACKLOG OF ORDERS
At August 7 2013, we had a backlog (workload remaining on signed contracts) of approximately $0, to be completed within the next twelve months.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2013. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer has concluded that our disclosure controls and procedures as of June 30, 2013 are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
During the six months ended June 30, 2013, there was no significant change in our internal controls over financial reporting that has materially affected or which is reasonably likely to materially affect our internal controls over financial reporting.
| - 13 - |
PART II – OTHER INFORMATION
ITEM 6. EXHIBITS
| EXHIBIT NUMBER |
DESCRIPTION | |
| 31.1 | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1 | Principal Executive Officer and Principal Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Schema Document | |
| 101.CAL | XBRL Calculation Linkbase Document | |
| 101.LAB | XBRL Label Linkbase Document | |
| 101.PRE | XBRL Presentation Linkbase Document |
| - 14 - |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| APPLIED ENERGETICS, INC. | ||
| By | /s/ Joseph C. Hayden | |
| Joseph C. Hayden | ||
| Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer | ||
Date: August 14, 2013
| - 15 - |
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Joseph C. Hayden, the Principal Executive Officer and Principal Financial Officer of Applied Energetics, Inc., certify that:
1. I have reviewed this report on Form 10-Q of Applied Energetics Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| /s/ Joseph C. Hayden | |
| Joseph C. Hayden | |
| Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer | |
| Date: August 14, 2013 | |
EXHIBIT 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing by Applied Energetics, Inc. (the “company”) of its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013 (the “Report”) I, Joseph C. Hayden, Principal Executive Officer and Principal Financial Officer of the company, certify pursuant to 18 U.S.C. Section. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:
(i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the company.
This certificate is being made for the exclusive purpose of compliance by the principal executive officer of Applied Energetics, Inc. with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and may not be used for any other purposes. A signed original of this written statement required by Section 906 has been provided to Applied Energetics, Inc. and will be retained by Applied Energetics, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
| /s/ Joseph C. Hayden | |
| Joseph C. Hayden | |
| Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer | |
| Date: August 14, 2013 | |
|
INVENTORY (Tables)
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jun. 30, 2013
|
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| INVENTORY [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Inventories | Our inventories consist of the following:
|
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|
Condensed Consolidated Statements of Operations (Unaudited) (USD $)
|
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
| Condensed Consolidated Statements of Operations [Abstract] | ||||
| Revenue | $ 4,263 | $ 504,307 | $ 38,720 | $ 903,514 |
| Cost of revenue | 6,957 | 389,523 | 35,852 | 754,591 |
| Gross profit (loss) | (2,694) | 114,784 | 2,868 | 148,923 |
| Operating expenses | ||||
| General and administrative | 377,883 | 511,331 | 881,528 | 1,200,733 |
| Selling and marketing | 4,500 | 275,937 | 80,286 | 675,502 |
| Research and development | 0 | 22,526 | 0 | 157,313 |
| Impairment loss on property held for sale | 0 | 708,000 | 0 | 708,000 |
| Total operating expenses | 382,383 | 1,517,794 | 961,814 | 2,741,548 |
| Operating loss | (385,077) | (1,403,010) | (958,946) | (2,592,625) |
| Other (expense) income | ||||
| Interest expense | 0 | 0 | 0 | (1,651) |
| Interest income | 2,269 | 390 | 2,922 | 783 |
| Total other (expense) income | 2,269 | 390 | 2,922 | (868) |
| Net loss | (382,808) | (1,402,620) | (956,024) | (2,593,493) |
| Preferred stock dividends | (43,539) | (43,539) | (87,077) | (87,077) |
| Net loss attributable to common stockholders | $ (426,347) | $ (1,446,159) | $ (1,043,101) | $ (2,680,570) |
| Net loss per common share - basic and diluted (in Dollars per Share) | $ (0.01) | $ (0.02) | $ (0.01) | $ (0.03) |
| Weighted average number of shares outstanding, basic and diluted (in Shares) | 91,735,662 | 91,735,440 | 91,735,662 | 91,702,815 |
|
SHARE-BASED COMPENSATION
|
6 Months Ended | ||
|---|---|---|---|
|
Jun. 30, 2013
|
|||
| SHARE-BASED COMPENSATION [Abstract] | |||
| SHARE-BASED COMPENSATION |
Share-Based Compensation – Employees and Directors
For the three months ended June 30, 2013 and 2012, share-based compensation expense totaled approximately $2,000 and $5,000, respectively. For the six months ended June 30, 2013 and 2012, share-based compensation expense totaled approximately $15,000 and $46,000, respectively.
There was no related income tax benefit recognized because our deferred tax assets are fully offset by a valuation allowance.
As of June 30, 2013, $11,000 of total unrecognized compensation cost related to restricted stock units is expected to be recognized over a weighted average period of approximately 0.72 years.
We determine the fair value of option grant share-based awards at their grant date, using a Black-Scholes-Merton Option-Pricing Model.
During the six months ended June 30, 2013, no restricted stock units were granted, 38,228 shares of restricted stock units were vested and 21,459 shares of restricted stock units were forfeited; no options to purchase shares were granted or exercised and 211,333 options to purchase shares expired; no restricted stock awards were granted or exercised, nor forfeited. At June 30, 2013, 960,833 options with an average exercise price of $0.52 were outstanding. |
|
PROPERTY AND EQUIPMENT (Schedule of Property and Equipment) (Details) (USD $)
|
Jun. 30, 2013
|
Dec. 31, 2012
|
|||
|---|---|---|---|---|---|
| PROPERTY AND EQUIPMENT [Abstract] | |||||
| Leasehold improvements | $ 15,141 | $ 15,141 | |||
| Equipment | 1,898,920 | 1,898,920 | |||
| Furniture | 5,333 | 5,333 | |||
| Software | 801,498 | 801,498 | |||
| Total | 2,720,892 | 2,720,892 | |||
| Less accumulated depreciation and amortization | (2,675,482) | (2,639,269) | |||
| Net property and equipment | $ 45,410 | [1] | $ 81,623 | ||
|
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|
PROPERTY AND EQUIPMENT (Tables)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jun. 30, 2013
|
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| PROPERTY AND EQUIPMENT [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Property and Equipment | Our property and equipment consist of the following:
|
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|
NET LOSS PER SHARE (Schedule of Potentially Dilutive Securities not Included in Diluted Loss Per Share Calculation) (Details)
|
6 Months Ended | |
|---|---|---|
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
| Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items] | ||
| Total potentially dilutive securities (in Shares) | 1,084,776 | 2,856,946 |
|
Options to purchase common shares [Member]
|
||
| Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items] | ||
| Total potentially dilutive securities (in Shares) | 960,833 | 2,661,334 |
|
Unvested restricted stock units [Member]
|
||
| Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items] | ||
| Total potentially dilutive securities (in Shares) | 16,771 | 88,440 |
|
Convertible preferred stock [Member]
|
||
| Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items] | ||
| Total potentially dilutive securities (in Shares) | 107,172 | 107,172 |
|
SIGNIFICANT CUSTOMERS (Narrative) (Details) (Revenue [Member])
|
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
|
Jun. 30, 2013
Two Commercial Contracts [Member]
|
Jun. 30, 2012
U.S. Government or Contractors to the U.S. Government [Member]
|
Jun. 30, 2013
U.S. Government or Contractors to the U.S. Government [Member]
|
Jun. 30, 2012
U.S. Government or Contractors to the U.S. Government [Member]
|
|
| Concentration Risk [Line Items] | ||||
| Concentration risk, percentage | 100.00% | 83.00% | 98.00% | 90.00% |
|
BASIS OF PRESENTATION
|
6 Months Ended | ||
|---|---|---|---|
|
Jun. 30, 2013
|
|||
| BASIS OF PRESENTATION [Abstract] | |||
| BASIS OF PRESENTATION |
The accompanying interim unaudited condensed consolidated financial statements include the accounts of Applied Energetics, Inc. and its wholly owned subsidiaries, Ionatron Technologies, Inc. and North Star Power Engineering, Inc. as of June 30, 2013 (collectively, "company," "Applied Energetics," "we," "our" or "us"). All intercompany balances and transactions have been eliminated. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary for a fair presentation of the results for the interim periods presented have been made. The results for the three-month and six-month periods ended June 30, 2013, may not be indicative of the results for the entire year. The interim unaudited condensed consolidated financial statements should be read in conjunction with the company's audited consolidated financial statements contained in our Annual Report on Form 10-K.
Recent Developments
The U.S. Government has significantly reduced defense spending and we do not anticipate receiving significant additional Government funding in the near future. We have completed our Government contracts and do not have any funded Government contracts for future work. We have also developed our USP laser technologies and systems for commercial markets. We have not generated meaningful sales of our commercial systems and we do not have any existing commercial contracts. We are not investing company funds or resources to further develop and enhance our technologies and systems or market our systems other than the submission of proposals for Government contracts. As of August 7, 2013, our backlog was $0.
As a result of the decrease in U.S. Government funding, we have significantly reduced our workforce to a level consistent with our expected operations.
Since we do not believe we will be able to obtain any meaningful contracts or generate meaningful revenue or profitable operations in our current line of business, we are considering strategic alternatives, including mergers, the acquisition of one or more businesses or technologies, and/or the disposition of one or more of our existing businesses. We do not expect to continue our current businesses for any meaningful period of time and our continuation as a going concern is dependent upon the success of our strategic efforts.
The accompanying unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the six months ended June 30, 2013, the company incurred a net loss of approximately $956,000, had negative cash flows from operations of $991,000 and may incur additional future losses due to the reduction in Government contract activity. These matters raise substantial doubt as to the company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability of assets and the amount or classification of liabilities that might be necessary should the company be unable to continue as a going concern.
As of July 31, 2013, the company had approximately $1.5 million in cash and cash equivalents.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with United States Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management bases its assumptions on historical experiences and on various other estimates that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. In addition, management considers the basis and methodology used in developing and selecting these estimates, the trends in and amounts of these estimates, specific matters affecting the amount of and changes in these estimates, and any other relevant matters related to these estimates, including significant issues concerning accounting principles and financial statement presentation. Such estimates and assumptions could change in the future, as more information becomes known which could materially impact the amounts reported and disclosed herein. Significant estimates include revenue recognition under the percentage of completion method of contract accounting, estimating costs at completion on a contract, the valuation of inventory, carrying amount of long-lived assets, expected forfeiture rate on stock-based compensation and measurements of income tax assets and liabilities.
CASH AND CASH EQUIVALENTS
Cash equivalents are investments in money market funds or securities with an initial maturity of three months or less. These money market funds are invested in government and US treasury based securities.
FAIR VALUE OF CURRENT ASSETS AND LIABILITIES
The carrying amount of accounts receivable and accounts payable approximate fair value due to the short maturity of these instruments.
RECENT ACCOUNTING PRONOUNCEMENTS
The company has reviewed issued accounting pronouncements and plans to adopt those that are applicable to it. The company does not expect the adoption of any other pronouncements to have an impact on its results of operations or financial position. |
|
INVENTORY
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jun. 30, 2013
|
||||||||||||||||||||||||||||||||||||||||||||||||
| INVENTORY [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||
| INVENTORY |
Our inventories consist of the following:
|
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|
SIGNIFICANT CUSTOMERS
|
6 Months Ended | ||
|---|---|---|---|
|
Jun. 30, 2013
|
|||
| SIGNIFICANT CUSTOMERS [Abstract] | |||
| SIGNIFICANT CUSTOMERS |
All of our revenues for the three month period ended June 30, 2013 were derived from two commercial contracts. Approximately 83% of revenue for the three-month periods ended June 30, 2012 was generated from either the U.S. Government or contractors to the U.S. Government. Approximately 98% and 90% of revenue for the six-month periods ended June 30, 2013 and 2012, respectively, were generated from either the U.S. Government or contractors to the U.S. Government. |
|
PROPERTY AND EQUIPMENT
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jun. 30, 2013
|
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| PROPERTY AND EQUIPMENT [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PROPERTY AND EQUIPMENT |
Our property and equipment consist of the following:
We review long-lived assets, including intangible assets subject to amortization, for possible impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
We annually assess the recoverability of such long-lived assets by determining whether the amortization of the balances over their remaining lives can be recovered through undiscounted future operating cash flows. The amount of impairment, if any, is measured based on projected discounted future operating cash flows. The assessment of the recoverability of long-lived assets will be impacted if estimated future operating cash flows are not achieved. |
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|
DIVIDENDS (Narrative) (Details)
|
6 Months Ended | ||||
|---|---|---|---|---|---|
|
Jun. 30, 2013
|
Dec. 31, 2012
|
||||
| DIVIDENDS [Abstract] | |||||
| Series A convertible preferred stock, shares outstanding (in Shares) | 107,172 | [1] | 107,172 | ||
| Series A convertible preferred stock, dividend rate (in Percent) | 6.50% | ||||
|
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