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Document and Entity Information

v2.4.0.8
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2013
Feb. 24, 2014
Jun. 30, 2013
Document And Entity Information      
Entity Registrant Name Applied Nanotech Holdings, Inc.    
Entity Central Index Key 0000891417    
Document Type 10-K    
Document Period End Date Dec. 31, 2013    
Amendment Flag false    
Current Fiscal Year End Date --12-31    
Is Entity a Well-known Seasoned Issuer? No    
Is Entity a Voluntary Filer? No    
Is Entity's Reporting Status Current? Yes    
Entity Filer Category Smaller Reporting Company    
Entity Public Float     $ 12,000,000
Entity Common Stock, Shares Outstanding   156,517,812  
Document Fiscal Period Focus FY    
Document Fiscal Year Focus 2013    

Consolidated Balance Sheets

v2.4.0.8
Consolidated Balance Sheets (USD $)
Dec. 31, 2013
Dec. 31, 2012
Current assets:    
Cash and cash equivalents $ 119,551 $ 331,579
Accounts receivable, trade - net of allowance for doubtful accounts 462,964 369,409
Prepaid expenses and other current assets 85,499 692,541
Total current assets 668,014 1,393,529
Property and equipment, net 157,772 270,693
Other assets 27,114 28,591
Total assets 852,900 1,692,813
Current liabilities:    
Accounts payable 642,486 813,505
Convertible notes payable, net of discount of $50,211 and $45,000 1,859,912 755,800
Obligations under capital lease 10,427 56,680
Accrued liabilities 1,580,194 855,264
Deferred revenue 143,323 103,370
Total current liabilities 4,236,342 2,584,619
Obligations under capital lease, long-term 0 10,480
Convertible notes payable, net of discount of $0 and $133,186 0 1,631,072
Total long-term liabilities 0 1,641,552
Total liabilities 4,236,342 4,226,171
Stockholders' equity (deficit):    
Preferred stock, $1.00 par value, 2,000,000 shares authorized; no shares issued and outstanding 0 0
Common stock, 160,000,000 shares authorized, .001 par value, 147,825,202 and 119,699,286 shares issued and outstanding, respectively 147,825 119,699
Additional paid-in capital 117,595,024 115,332,346
Accumulated deficit (121,126,291) (117,985,403)
Total stockholders' deficit (3,383,442) (2,533,358)
Total liabilities and stockholders' deficit $ 852,900 $ 1,692,813

Consolidated Balance Sheets (Parenthetical)

v2.4.0.8
Consolidated Balance Sheets (Parenthetical) (USD $)
Dec. 31, 2013
Dec. 31, 2012
Preferred stock par value $ 1.00 $ 1.00
Preferred stock shares authorized 2,000,000 2,000,000
Preferred stock shares issued 0 0
Preferred stock shares outstanding 0 0
Common stock par value $ 0.001 $ 0.001
Common stock shares authorized 160,000,000 160,000,000
Common stock shares issued 147,825,202 119,699,286
Common stock shares outstanding 147,825,202 119,699,286
Discount on convertible notes payable, current $ 50,211 $ 178,186
Current
   
Discount on convertible notes payable, current 50,211 45,000
Noncurrent
   
Discount on convertible notes payable, current $ 0 $ 133,186

Consolidated Statements of Operations

v2.4.0.8
Consolidated Statements of Operations (USD $)
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Revenues      
Contract research $ 1,054,305 $ 309,274 $ 1,102,428
Government contracts 2,048,840 1,733,728 2,956,717
License fees and royalties 488,936 1,183,453 1,999,638
Product sales 286,622 228,200 186,267
Other 39,659 138,713 242,411
Total revenues 3,918,362 3,593,368 6,487,461
Operating costs      
Research and development 3,324,195 4,471,208 5,517,937
Selling, general and administrative expenses 2,517,036 3,800,296 3,172,394
Total operating costs 5,841,231 8,271,504 8,690,331
Gain on sale of assets 800 0 0
Loss from operations (1,922,069) (4,678,136) (2,202,870)
Interest income 3,803 1,587 16,714
Interest expense (1,222,622) (452,601) (384,092)
Total other income (expense) (1,218,819) (451,014) (367,378)
Loss before taxes (3,140,888) (5,129,150) (2,570,248)
Provision for taxes 0 0 0
Net loss applicable to common shareholders $ (3,140,888) $ (5,129,150) $ (2,570,248)
Loss per share - Basic and Diluted $ (0.02) $ (0.04) $ (0.02)
Weighted average shares outstanding      
Basic 131,744,328 119,311,519 116,851,588
Diluted 131,744,328 119,311,519 116,851,588

Consolidated Statements of Shareholder's Equity (Deficit)

v2.4.0.8
Consolidated Statements of Shareholder's Equity (Deficit) (USD $)
Preferred Stock
Common Stock
Additional Paid-In Capital
Accumulated Deficit
Total
Beginning balance, value at Dec. 31, 2010   $ 109,968 $ 110,986,117 $ (110,286,005) $ 810,080
Beginning balance, shares at Dec. 31, 2010 0 109,967,628      
Issuance of common stock options as compensation     462,431   462,431
Employee restricted stock, including committed to be released shares, shares   103,772      
Employee restricted stock, including committed to be released shares, value   104 185,177   185,281
Issuance of shares upon conversion of accounts payable, shares   300,752      
Issuance of shares upon conversion of accounts payable, value   301 119,699   120,000
Issuance of common shares for cash, shares   6,578,948      
Issuance of common shares for cash, value   6,579 2,493,421   2,500,000
Issuance of common stock as the result of the exercise of employee stock options, shares   200,454     200,454
Issuance of common stock as the result of the exercise of employee stock options, value   200 51,551   51,751
Conversion of notes, shares   1,764,144      
Conversion of notes, value   1,764 355,630   357,394
Net loss       (2,570,248) (2,570,248)
Ending balance, value at Dec. 31, 2011 0 118,916 114,654,026 (112,856,253) 1,916,689
Ending balance, shares at Dec. 31, 2011 0 118,915,698      
Issuance of common stock options as compensation     223,025   223,025
Employee restricted stock, including committed to be released shares, shares   143,333      
Employee restricted stock, including committed to be released shares, value   143 24,211   24,354
Issuance of shares upon conversion of accounts payable, shares   494,949      
Issuance of shares upon conversion of accounts payable, value   495 119,505   120,000
Issuance of common stock as the result of the exercise of employee stock options, shares         0
Conversion of notes, shares   145,306      
Conversion of notes, value   145 23,104   23,249
Conversion rights associated with issuance of convertible notes     288,475   288,475
Net loss       (5,129,150) (5,129,150)
Ending balance, value at Dec. 31, 2012 0 119,699 115,332,346 (117,985,403) (2,533,358)
Ending balance, shares at Dec. 31, 2012 0 119,699,286      
Issuance of common stock options as compensation     46,606    
Employee restricted stock, including committed to be released shares, shares   872,965      
Employee restricted stock, including committed to be released shares, value   873 18,419   19,292
Issuance of shares upon conversion of accounts payable, shares   2,600,000      
Issuance of shares upon conversion of accounts payable, value   2,600 107,400   110,000
Issuance of common stock as the result of the exercise of employee stock options, shares         0
Conversion of notes, shares   24,182,866      
Conversion of notes, value   24,183 1,257,098   1,281,281
Conversion rights associated with issuance of convertible notes     777,209   777,209
Net loss       (3,140,888) (3,140,888)
Ending balance, value at Dec. 31, 2013 $ 0 $ 147,825 $ 117,595,024 $ (121,126,291) $ (3,383,442)
Ending balance, shares at Dec. 31, 2013 0 147,825,202      

Consolidated Statements of Cash Flows

v2.4.0.8
Consolidated Statements of Cash Flows (USD $)
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Cash flows from operating activites:      
Net loss $ (3,140,888) $ (5,129,150) $ (2,570,248)
Adjustments to reconcile net loss to net cash used in operating activities:      
Depreciation and amortization expense 95,721 111,327 75,741
Gain on sale of equipment (800) 0 0
Stock and options issued for services 65,898 247,379 647,712
Amortization of discount on debt 1,022,100 253,779 241,939
Changes in assets and liabilities:      
Accounts receivable, trade (93,555) 470,454 (82,356)
Prepaid expenses and other assets 608,519 (539,366) (42,749)
Accounts payable (61,019) 609,172 (101,640)
Accrued expenses 848,201 508,196 (155,554)
Deferred revenue and other current liabilities 39,953 (96,630) (120,000)
Total adjustments 2,525,018 1,564,311 463,093
Net cash used in operating activities (615,870) (3,564,839) (2,107,155)
Cash flows from investing activities:      
Proceeds from sale of equipment 18,000 0 0
Capital expenditures 0 (50,398) (78,138)
Net cash provided by (used in) investing activities 18,000 (50,398) (78,138)
Cash flows from financing activities:      
Proceeds from issuance of common stock 0 0 2,551,751
Proceeds from long-term debt 513,375 935,700 0
Repayment of capital lease obligations and long term debt (127,533) (60,667) (27,245)
Net cash provided by financing activities 385,842 875,033 2,524,506
Net increase (decrease) in cash and cash equivalents (212,028) (2,740,204) 339,213
Cash and cash equivalents, beginning of year 331,579 3,071,783 2,732,570
Cash and cash equivalents, end of year $ 119,551 $ 331,579 $ 3,071,783

1. Organization, Operations, and Liquidity

v2.4.0.8
1. Organization, Operations, and Liquidity
12 Months Ended
Dec. 31, 2013
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization, Operations and Liquidity

Applied Nanotech Holdings, Inc. and its subsidiaries (“the Company”) are engaged in using nanotechnology to develop products for applications in the thermal management, nanomaterials, nanosensors, and nanoelectronics areas, as well as the performance of significant research in those areas. We intend to obtain development revenues for applying our technology to specific applications for our development partners, to obtain royalty revenues from licensing this technology to those partners and others, and to sell products using this technology.

 

We incurred an operating loss in 2013, but expect to at least breakeven in 2014; however, unless we are able to operate profitably on a continuous basis as a result of revenues from either reimbursed research or license agreements, we likely will be required to seek additional funds through the equity markets, or raise funds through debt instruments to allow us to maintain operations. There is no assurance that additional license agreements will be signed, that commercialization of our technology and products will result in income from operations, or that funds will be available in the equity or debt markets, if needed. Management believes it will be able to operate at breakeven and if not, be able to secure additional funding, if needed.

 

The principal source of our liquidity since the time of our initial public offering in 1993 has been from the funds received from exempt offerings of common stock, preferred stock, and convertible debt securities, as well as license and development revenues. We may receive additional funds from the exercise of employee stock options. We may also seek to increase our liquidity through bank borrowings or other financings, although this is not likely. There can be no assurance that any of these financing alternatives can be arranged on commercially acceptable terms. We believe that our success in reaching sustained profitability will depend on the viability of our technology and products using that technology, their acceptance in the marketplace, and our ability to obtain additional debt or equity financings in the future, if needed.

 

A portion of our research and development has been funded by others. To the extent that other funding is not available, research and development may be internally funded by us or curtailed. Our primary objective is to focus our resources on projects for which we receive funding and we have significantly curtailed our research in each of the last two years.

 

The Company has a history of net losses and negative cash flow from operations. We have had losses in each of the last three years, but we have a plan to reach at least breakeven in 2014. We have also signed a letter of intent to merge with Nanofilm, Ltd., a privately held nanotechnology company. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern, and do not include any adjustments that may be required if it were unable to continue as a going concern. Management believes that actions currently being taken will allow the Company to achieve profitability and allow the Company to continue as a going concern. These actions include both cutting expenses and merging with Nanofilm, which will allow for further expense cuts.

2. Summary of Significant Accounting Policies

v2.4.0.8
2. Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2013
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

Principles of consolidation

 

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, Applied Nanotech, Inc. (“ANI”), EZDiagnostix, Inc. (“EZDX”), after the elimination of all significant intercompany accounts and transactions. ANI is primarily involved in developing products for applications using the Company’s proprietary nanocomposites, nanosensors, nanoelectronics, thermal management, and field emission technologies. EZDX was focused on commercializing the Company’s sensor technology, but ceased operations in 2013.

 

Management’s estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Significant estimates include deferred tax asset reserves, bad debt reserves, assumptions used in calculating share based compensation, and depreciation.

Revenue recognition

 

Our revenues include reimbursements under agreements to perform research and development for government agencies and others. We do not perform research contracts that are contingent upon successful results. Larger projects are sometimes broken down in phases to allow the customer to determine at the end of each phase if they wish to move to the next phase. The agreements with federal government agencies generally provide that, upon completion of a technology development program, the funding agency is granted a royalty-free license to use any technology developed during the course of the program for its own purposes, but not any preexisting technology that we use in connection with the program. We retain all other rights to use, develop, and commercialize the technology and recognize revenue when it is earned pursuant to the terms of the contract. Agreements with nongovernmental entities generally allow the entity the first opportunity to license the technology from us upon completion of the project.

 

The Company’s revenues also include royalties from licensing its technology, revenue from the sale of products, and other miscellaneous revenues. Many of the Company’s projects may involve a combination of these types of revenues. Revenues are recognized as follows:

 

Government Contracts - Revenue from government contracts is recognized when it is earned pursuant to the terms of the contract. Long-term projects, such as SBIR Phase II grants that usually range from $500,000 to $1,000,000 in total and usually extend for a period of approximately two years, are generally based on reimbursement of costs. These projects are usually billed monthly based on costs, hours, or some other measure of activity during the month. As a general rule, we recognize revenue on these contracts based on the activity level of the contract during the period as compared with total estimated activity. This generally would be a measure of proportional performance on the contract, such as cost incurred compared with total expected cost. The recognition of revenue may not correspond with the billings allowable under the contract. To the extent that billings exceed revenue earned, a portion of the revenue is deferred until such time as it is earned. Short-term projects, such as SBIR Phase I grants that usually are less than $100,000 and usually extend for a period of approximately 6 months, are billed at periodic intervals as specified in the contract.

 

Other Research Contracts - Revenue from nongovernmental contracts is recognized when it is earned pursuant to the terms of the contract. Each contract is unique and tailored to the needs of the customer and goals of the project. Some contracts may call for a monthly payment for a fixed period of time. Other contracts may be for a fixed dollar amount with an unspecified time period, although there is frequently a targeted completion date. These contracts generally involve some sort of up-front payment. Some contracts may call for the delivery of samples, or may call for the transfer of equipment or other items developed during the project to the customer. As a general rule, we recognize revenue on long term contracts based on the activity level of the contract during the period as compared with total estimated activity. This generally would be a measure of proportional performance on the contract, such as cost incurred compared with total expected cost. However, to the extent there are other significant contract provisions such as the delivery of more than a nominal amount of samples or delivery of equipment, we would modify this as appropriate. For other short term contracts, generally less than $50,000, we recognize revenue when it is billed under the terms of the contract.

 

Royalty Revenue - The Company recognizes royalty revenues based on the shipment of products by a licensee at the time the underlying product upon which the royalty is based is shipped by the entity paying the royalty, if that is able to be ascertained at the time. For minimum royalty payments paid by a licensee that are required for the licensee to maintain exclusivity, royalty revenue is recognized at the time the minimum royalty payment is due, which normally corresponds somewhat with the time that the payment is received. The Company recognizes license fees due at the time of the signing of a royalty agreement when the licensee has an enforceable commitment to pay. This normally corresponds with, or is reasonably close to, the time of receipt of the payment.

 

Product Sales - Revenue from product sales is recognized at the time the product shipped. The Company’s primary business is research and development and the licensing of its technology, not the sale of products. Product sales are generally insignificant in number, and are usually limited to the sale of samples, proofs of concepts, prototypes, or other items resulting from its research.

 

Other Revenue - Other miscellaneous revenue is recognized as deemed appropriate given the facts of the situation and is generally not material.

 

Cash and cash equivalents

 

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

 

Accounts receivable

 

The Company occasionally provides services or sells products to others on credit; however most services or sales are to large financially stable companies, or the U.S. Federal government. It is the Company’s policy to record reserves for potential credit losses. Since inception, the Company has experienced minimal credit losses. The Company considered no reserves to be necessary for any of the years presented.

 

Property and equipment

 

Property and equipment are recorded at cost, net of accumulated depreciation and amortization. Depreciation is provided on the straight-line method over the estimated useful lives of the assets, which range from three to seven years, or the remaining lease term for leasehold improvements, if less. Expenses for major renewals and betterments that extend the original estimated economic useful lives of the applicable assets are capitalized. Expenses for normal repairs and maintenance are charged to operations as incurred. The cost and related accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts, and any gain or loss is included in income.

 

Impairment

 

At each balance sheet date, the Company evaluates the carrying amount and the amortization period for its long-lived assets. If an indicator of impairment exists, it is recorded at that time. There have been no impairment charges recorded in any of the years presented in these consolidated financial statements.

 

Income taxes

 

The Company accounts for income taxes using the asset and liability method. Under this method, deferred income taxes are recorded to reflect the tax consequences on future years of temporary differences between the tax basis of the assets and liabilities and their financial amounts at year-end. The Company provides a valuation allowance to reduce deferred tax assets to their net realizable value. The Company has determined that no reserve for uncertain tax positions is required; however, tax years 2010 through 2013 remain open for examination by the taxing authorities.

 

Research and development expenses

 

Costs of research and development for Company-sponsored projects are expensed as incurred.

 

Disclosures about fair value of financial instruments

 

The following methods and assumptions were used to estimate the fair value of each class of certain financial instruments for which it is practicable to estimate that fair value. For cash equivalents and accounts receivable, the carrying amount approximates fair value because of the short-term nature of these instruments. The fair value of the Company’s capital lease obligations and notes payable is estimated based on the quoted market prices for the same, or similar issues, or on the current rates offered to the Company for obligations of the same remaining maturities with similar collateral requirements. For all years presented, the fair value of the Company’s capital lease obligations and notes payable approximate their carrying values.

 

Income (loss) per common share

 

Basic per share amounts are computed, generally, by dividing net income or loss by the weighted average number of common shares outstanding. Diluted per-share amounts assume the conversion, exercise, or issuance of all potential common stock instruments unless the effect is anti-dilutive, thereby reducing the loss or increasing the income per common share. As described in Notes 8, 9 and 10, the Company had options and warrants outstanding as indicated in the table below. In addition, the Company has convertible notes payable, which if converted, would have resulted in additional shares outstanding as indicated in the table below.

 

However, because of the interest expense associated with the notes payable, inclusion of the notes payable in the calculation of diluted earnings per share would have an anti-dilutive effect. In addition, since the Company incurred losses in all years, the inclusion of any potential common shares in the calculation of diluted loss per-share would have an anti-dilutive effect in those years. Basic and diluted per-share amounts are the same in all years presented.

 

    2013   2012   2011
             
Options   5,967,339    6,447,254   6,378,495
Warrants   -     181,524   181,524
Weighted average exercise price   $0.62   $0.80   $0.82
Convertible notes payable   23,283,932   16,469,961   9,079,530

 

Recently issued accounting pronouncements

 

There are no recently issued accounting pronouncements which have not been implemented in our consolidated financial statements that would have a material impact on our financial statements.

 

Share-based payments

 

The Company has a stock based compensation plan described in greater detail in Note 9 to these financial statements. The Company uses the fair value method to account for stock-based compensation. The fair value of each award is estimated on the date of each grant. For restricted stock the fair market value is based on the market value of the stock granted on the date of the grant. For options, it is estimated using the Black Scholes option pricing model that uses the assumptions noted in the following table. Estimated volatilities are based on the historical volatility of the Company’s stock over the same period as the expected term of the options. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The Company uses historical data to estimate option exercise behavior and to determine this term. The risk free rate used is based on the U.S. Treasury yield curve in effect at the time of the grant using a time period equal to the expected option term. The Company has never paid dividends and does not expect to pay any dividends in the future.

 

    2013   2012   2011
             
Expected dividend yield   0%   0%   0%
Risk free interest rate   0.39%-0.51%   0.39%-0.51%   0.35%-1.28%
Expected option term (in years)   3.5   3.5 – 5.0   3.5 – 5.0
Turnover/forfeiture rate   0%   0%   0%
Expected volatility   94% - 101%   94% - 100%   93% - 99%
Weighted-average volatility   96%   96%   96%

 

The Black-Scholes option valuation model and other existing models were developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. These option valuation models require the input of, and are highly sensitive to, subjective assumptions including the expected stock price volatility. Applied Nanotech Holdings’ stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions could materially affect the fair value estimate.

3. Operating Lease Obligations

v2.4.0.8
3. Operating Lease Obligations
12 Months Ended
Dec. 31, 2013
Leases [Abstract]  
Operating Lease Obligations

The Company leases various facilities and equipment under operating lease agreements having terms expiring at various dates through 2019. Rental expense was $281,449; $274,538; and $251,566 for the years ended December 31, 2013, 2012, and 2011, respectively.

 

Future minimum lease payments under operating leases that have initial or remaining noncancellable lease terms of one year or more at December 31, 2013, were as follows:

 

 2014    220,896 
 2015    200,424 
 2016    199,742 
 2017    186,804 
 2018    191,744 
 2019    32,122 
        
 Total future minimum lease payments   $1,031,732 

 

4. Convertible Notes Payable

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4. Convertible Notes Payable
12 Months Ended
Dec. 31, 2013
Debt Disclosure [Abstract]  
Convertible Notes Payable

   2013   2012 
Notes payable to shareholders, convertible to common stock, along with accrued interest, at fixed rates ranging from $0.08 to $0.25 per share. In both years, three notes totaling $500,000 are secured by all assets of the Company, with the remainder of the notes unsecured. The notes bear interest at a rate of 8%. A total of $420,000 of the notes are demand notes, and $1,293,058 of the notes are due in January 2014. The notes due in January 2014 have been extended to March 2014.  $1,713,058   $2,455,058 
           
Unsecured notes payable, convertible to common stock, along with accrued interest, at variable rates at a discount to market at the time of conversion under five separate note agreements. Discounts range from 30% to 50% from market as defined by the specific note agreement. Market is defined based on a trailing average or specific price covering the preceding 5-15 days at the time of conversion. Notes can be prepaid in cash with prepayment penalties ranging from 0-50% of principal outstanding at the time of payment. The notes bear interest at rates ranging from 5% to 8%. The notes are due at various dates in 2014.   197,065    110,000 
Total face amount of notes payable   1,910,123    2,565,058 
Less unamortized discount   50,211    178,186 
Net notes payable   1,859,912    2,386,872 
Less current portion   1,859,912    755,800 
Long-term notes payable  $   $1,631,072 

 

The convertible notes above were issued from 2009 through 2013. At the time of issuance, the value of the conversion rights were recorded as a discount to the note and amortized over the term of the notes. In addition, during 2013, the company lowered the conversion price of certain notes to below market prices to induce conversion. The value of this reduced conversion rate was recognized as an expense at the time of conversion. The following table shows the notes issues, converted, discount recorded, and discount amortized for each of the last years, as well as the unamortized discount at the end of each year.

 

   Year Ended December 31, 
   2013   2012   2011 
             
Face amount of notes issued  $553,875   $945,700   $ 
Discount recorded at time of issuance  $409,577   $298,475   $ 
Discount recorded at time of conversion  $428,132   $   $ 
Discount amortized to interest expense  $1,022,100   $253,779   $241,939 
Face amount of notes converted to common stock  $1,148,010   $19,200   $326,000 
Unamortized discount at December 31  $50,211   $178,186   $133,490 

 

5. Capital Lease Obligations

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5. Capital Lease Obligations
12 Months Ended
Dec. 31, 2013
Capital Lease Obligations [Abstract]  
Capital Lease Obligations

Capital leases payable at December 31, 2013 and 2012 consisted of the following:

 

   2013   2012 
Capital lease equipment due in monthly installments of $3,322 through February 2014. The equipment value and lease obligation was determined using a discount rate of 12.35%. The equipment is included in property and equipment at December 31, 2013 at a cost of $118,700 and with accumulated amortization of $58,150.  $6,644   $46,508 
           
Capital lease equipment due in monthly installments of $816 through July 2013. The equipment value and lease obligation was determined using a discount rate of 14.08%. Ownership of the equipment transferred to the Company in July 2013.  $   $5,712 
           
Capital lease equipment due in monthly installments of $1,338 through March 2014. The equipment value and lease obligation was determined using a discount rate of 11.46%. The equipment is included in property and equipment at December 31, 2013 at a cost of $33,177, with accumulated amortization of $11,612.   4,014    20,070 
Total capital leases   10,658    72,290 
Less interest   231    5,130 
Less current portion   10,427    56,680 
Capital lease obligations, long-term  $   $10,480 

 

These leases result in minimum payments of $10,658 in 2014.

 

6. Details of Certain Balance Sheet Accounts

v2.4.0.8
6. Details of Certain Balance Sheet Accounts
12 Months Ended
Dec. 31, 2013
Disclosure Text Block Supplement [Abstract]  
Details of Certain Balance Sheet Accounts

Additional information regarding certain balance sheet accounts at December 31, 2013 and 2012 is as follows:

 

   December 31, 
   2013   2012 
Property and equipment:          
Plant and equipment  $656,072   $822,273 
Furniture and office equipment   106,821    110,534 
Leasehold improvements   41,627    41,627 
Total carrying cost   804,520    974,434 
Less accumulated depreciation   (646,748)   (703,741)
   $157,772   $270,693 
           
Accrued liabilities:          
Payroll and related accruals  $1,120,045   $468,441 
Other (primarily interest)   460,149    386,823 
Total  $1,580,194   $855,264 

 

Depreciation and amortization for the years ended December 31, 2013, 2012, and 2011 was $95,721; $111,327; and $75,741, respectively. Equipment held under capital leases and accumulated amortization on that equipment is included in these totals.

7. Income Taxes

v2.4.0.8
7. Income Taxes
12 Months Ended
Dec. 31, 2013
Income Tax Disclosure [Abstract]  
Income Taxes

The components of deferred tax assets (liabilities) at December 31, 2013 and 2012, were as follows:

 

   December 31, 
   2013   2012 
Deferred tax assets:          
Net operating loss carry forwards  $22,974,000   $22,173,000 
Stock based compensation   2,244,000    2,228,000 
Partnership asset   39,000    39,000 
Capitalized intangible assets   8,000    14,000 
Difference in tax basis of assets   18,000    6,000 
Foreign tax credit   619,000    619,000 
Accrued expenses not deductible until paid   448,000    202,000 
Total deferred tax assets   26,350,000    25,281,000 
           
Deferred tax liabilities:        
           
Net deferred tax assets before valuation allowance   26,350,000    25,281,000 
           
Valuation allowance   (26,350,000)   (25,281,000)
           
Net deferred tax asset          
   $   $ 

 

The following is a reconciliation of the amount of the income tax expense (benefit) that would result from applying the statutory federal income tax rates to pretax income (loss) and the reported amount of income tax expense (benefit) for the periods ended December 31, 2013, 2012, and 2011.

 

   December 31, 
   2013   2012   2011 
             
Expected income tax expense (benefit)  $(1,068,000)  $(1,744,000)  $(874,000)
Non-deductible expenses and miscellaneous   (1,000)   13,000    12,000 
Expiration of tax credit carryforwards           61,000 
Expiration of NOL carryforwards       2,142,000    4,055,000 
Increase (decrease) in valuation allowance   1,069,000    (411,000)   (3,254,000)
Total tax  $   $   $ 

 

As of December 31, 2013, the Company had net operating loss carry forwards of approximately $68 million that expire from 2017 through 2032, that are available to offset future taxable income. Additionally, the Company has tax credit carry forwards related to foreign taxes of $619,000 that expire in 2019.

 

Under certain circumstances issuance of common shares can result in an ownership change under Internal Revenue Code Section 382 which limits the Company’s ability to utilize carry forwards from prior to the ownership change. Any such ownership change resulting from stock issuances could limit the Company’s ability to utilize any net operating loss carry forwards or credits generated before this change in ownership. These limitations can limit both the timing of usage of these laws, as well as the loss of the ability to use these net operating losses. If the Company completes its contemplated merger, it is likely the ability to use these losses will be limited.

8. Capital Stock

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8. Capital Stock
12 Months Ended
Dec. 31, 2013
Equity [Abstract]  
Capital Stock

Preferred stock

 

The Company has authorization for the issuance of 2,000,000 shares of $1.00 par value preferred stock. There were no shares of preferred stock outstanding for any of the years presented.

 

Common stock

 

The Company has authorization for the issuance of 160,000,000 shares of $0.001 par value common stock.

 

No shares were issued in private placements in 2012 or 2013; however, during 2011, the Company issued shares of its common stock in a private placement in an exempt offering under Regulation D of the Securities Act of 1933. The 2011 shares were issued at the market price at the time of the offering and have not been registered for sale. A total of 6,578,948 shares were issued and proceeds of $2.5 million were received.

 

Committed to be released common shares

 

As discussed in Note 9, the Company awards restricted stock to employees as compensation. Shares awarded, but not yet issued and outstanding are accounted for as committed to be released shares.

 

At December 31, 2013, common stock was reserved for the following reasons:

 

Conversion of notes payable and accrued interest   23,283,932 
Exercise and future grants of stock options   10,049,746 
      
Total shares reserved   33,333,678 

 

The shares reserved exceed the shares available for issuance under the current authorized shares. However; the majority of shares issuable upon conversion of the convertible notes are convertible at prices well in excess of the current market price of the stock and are unlikely to be converted. As of December 31, 2013, there are no options with exercise prices at or below the current market price of the stock and options are unlikely to be exercised. The Company intends to request an increase in the number of its authorized shares at its next shareholder meeting.

9. Stock Options

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9. Stock Options
12 Months Ended
Dec. 31, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock Options

The Company sponsors a stock-based incentive compensation plan, the 2012 Equity Compensation Plan (the “Plan”), which was established by the Board of Directors of the Company in April 2012. A total of 5,000,000 shares were initially reserved for issuance under the plan. A total of 4,082,407 shares remain available for grant under this plan at December 31, 2013. This plan replaced the 2002 Equity Compensation Plan, which expired in March 2012. The compensation cost that has been charged against income for both plans for the years ended December 31, 2013, 2012, and 2011 was $65,898; $247,379; and $647,712, respectively. No income tax benefit was recognized in the income statement and no compensation was capitalized in any of the years presented.

 

The plan allows the Company to grant incentive stock options, non-qualified stock options, or restricted stock. The incentive stock options are exercisable for up to ten years, at an option price per share not less than the fair market value on the date the option is granted. The incentive stock options are limited to persons who have been regular full-time employees of the Company or its present and future subsidiaries for more than one (1) year and at the date of the grant of any option are in the employ of the Company or its present and future subsidiaries. Historically, the Company has not granted incentive stock options. Non-qualified options may be granted to any person, including, but not limited to, employees, independent agents, consultants and attorneys, who the Company’s Compensation Committee believes have contributed, or will contribute, to the success of the Company. Non-qualified options may be issued at option prices of less than fair market value on the date of grant and are exercisable for up to ten years from date of grant. The option vesting schedule for options granted is determined by the Compensation Committee of the Board of Directors at the time of the grant. The Plan provides for accelerated vesting of unvested options if there is a change in control, as defined in the plan.

 

The company issues new shares for all options exercised. It does not expect to repurchase any shares to facilitate future option exercises. The following table summarizes information about stock options outstanding, some of which may not ultimately vest, and options currently exercisble under the option plan at December 31, 2013:

 

  Options Outstanding Options Exercisable
             
Range of Exercise Prices Number
Outstanding
at 12/31/13
Wgtd. Avg. Remaining
Contractual
Life
Wgtd. Avg.
Exercise
Price
Number
Exercisable
at 12/31/13
Wgtd. Avg. Remaining
Contractual
Life
Wgtd. Avg.
Exercise
Price
$0.00 - $0.25 1,054,349 6.1 Years $0.19  1,054,349 6.1 Years $0.19
$0.26 - $0.50 3,546,805 5.3 Years $0.37 3,546,805 5.3 Years $0.37
$0.51 - $1.00 182,748 5.0 Years $0.56 182,748 5.0 Years $0.56
$1.01 - $2.00 588,396 3.0 Years $1.32 588,396 3.0 Years $1.32
$2.01 - $3.00  595,041 1.1 Years $2.18 595,041 1.1 Years $2.18
Total 5,967,339 4.8 Years $0.62 5,967,339 4.8 Years $0.62
Aggregate intrinsic value   $0.00     $0.00  

 

The following is a summary of stock option plan activity:

 

  Number of
Shares
  Wgtd. Ave.
Exercise
Price
       
Options outstanding at December 31, 2010 6,222,972    $0.86
       
Granted 1,303,498    $0.43
Exercised (200,454)   $0.26
Cancelled (947,521)   $0.68
       
Options outstanding at December 31, 2011 6,378,495    $0.82
       
Granted 325,000    $0.30
Exercised –    $0.00
Cancelled (256,241)   $0.53
       
Options outstanding at December 31, 2012 6,447,254    $0.80
       
Granted 475,000    $0.13
Exercised –    $0.00
Cancelled (954,915)   $1.62
       
Options outstanding at December 31, 2013 5,967,339    $0.62

 

The weighted-average grant-date fair value of options granted during the years ended December 31, 2013, 2012, and 2011 was $0.05, $0.19, and $0.28, respectively. The total intrinsic value of options exercised during the years ended December 31, 2011 was $59,635. No options were exercised in the years ended December 31, 2012 or 2013. As of December 31, 2013, there was no unrecognized compensation cost related any non-vested options granted under the plan. The fair value of shares vested during the years ended December 31, 2013, 2012, and 2011 was $46,606; $223,025; and $462,431, respectively.

 

The 2012 Equity Compensation Plan also allows the issuance of restricted shares of common stock and we granted restricted stock to non-officer employees as part of their compensation. We granted a total of 443,544 shares with a value of $185,281 in 2011, a total of 125,577 shares with a value of $24,354 in 2012, and 244,830 shares with a value of $19,292 in 2013, which represents the market price at the date of grant. Shares are not necessarily issued at the time of the grant. A total of 103,772 shares, 143,333 shares, and 872,965 shares were issued to employees in 2011, 2012, and 2013, respectively, and are included in issued and outstanding shares at the end of each of the respective years. All shares granted have been issued as of December 31, 2013, and there are no remaining committed to be released shares at December 31, 2013.

10. Stock Warrants

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10. Stock Warrants
12 Months Ended
Dec. 31, 2013
Other Liabilities Disclosure [Abstract]  
Stock Warrants

Common stock warrants

 

In 2007, we issued 1,304,353 warrants in connection with a private placement of the Company’s stock. These warrants enabled the holder to purchase shares of the Company’s common stock at a price of $2.50 per share through the earlier of April 2013, or the date that the shares acquired in the private placement were sold by the shareholder. None of the warrants issued were ever exercised and all expired. In January 2013, we issued 1,692,307 warrants in connection with the issuance of a convertible note payable. These warrants enabled the holder to purchase shares of the Company’s common stock at a price of $0.13 per share through January 2018. These warrants were exercised in a cashless transaction in January 2013 whereby 470,085 shares of restricted common stock were issued in full satisfaction of the warrants.

11. Supplemental Cash Flow Information

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11. Supplemental Cash Flow Information
12 Months Ended
Dec. 31, 2013
Supplemental Cash Flow Elements [Abstract]  
Supplemental Cash Flow Information

Cash paid for interest was $46,025; $6,274; and $5,764 for 2013, 2012, and 2011, respectively. The following non-cash transactions have been excluded from the accompanying consolidated statement of cash flows:

 

   2013   2012   2011 
                
Non-cash financing activities:               
Issuance of common shares in payment of accounts payable  $110,000   $120,000   $120,000 
Issuance of note payable in payment of accrued interest  $10,000   $32,558   $ 
Conversion of notes payable and accrued interest  $1,281,281   $23,249   $357,394 
Capital lease transactions  $   $28,567   $85,369 

 

12. Retirement Plan

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12. Retirement Plan
12 Months Ended
Dec. 31, 2013
Retirement Plan  
Retirement Plan

The Company sponsors a defined contribution 401(k) profit sharing plan. Company contributions are discretionary and no company contributions were made in any of the years presented.

13. Commitments and Contingencies

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13. Commitments and Contingencies
12 Months Ended
Dec. 31, 2013
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

Till Keesmann Agreement

 

In May 2000, we licensed the rights, including the exclusive right to sublicense, to 6 carbon nanotube patents from Till Keesmann. The agreement was amended in 2008 and in May 2010, the sublicensing rights to the patent reverted to Mr. Keesmann. We will receive 50% of any licensing revenue received by Mr. Keesmann up to a maximum of $1.2 million of revenue to us. In 2008, we also sold a portion of our potential future royalty stream related to the Keesmann patents to IP Verwertungs GmbH (“IPV”) for $1.4 million. A total of $1.226 million has been received and the remaining $174,000 will be offset against future royalties due IPV. IPV will receive 25% of our portion of the Keesmann royalties, if any are received. If we received the maximum potential amount of $1.2 million from Mr. Keesmann, we would be obligated to pay IPV $126,000. We believe it is extremely unlikely that we will receive any licensing revenue, or pay any royalties under these agreements.

 

Research and development commitments

 

As of December 31, 2013, the Company had several research contracts pending and in process. The total amount of those contracts is $5,771,084. Of that total, $2,959,191 has been recognized as revenue and $2,811,893 will be recognized in the future. The revenue to be recognized from these research contracts in 2014 is expected to exceed the cost of this research during this period.

 

Government contracts

 

Governmental contractors are subject to many levels of audit and investigation. Among United States agencies that oversee contract performance are: the Defense Contract Audit Agency, the Inspector General, the Defense Criminal Investigative Service, the General Accounting Office, the Department of Commerce, the Department of Justice and Congressional Committees. The Company’s management believes that an audit or investigation, if any, as a result of such oversight would not have any material adverse effect upon the Company’s financial condition or results of operations.

 

Legal proceedings

 

From time to time the Company and its subsidiaries are also defendants in various lawsuits that may arise related to minor matters. It is expected that all such lawsuits will be settled for an amount no greater than the liability recorded in the financial statements for such matters. If resolution of any of these suits results in a liability greater than that recorded, it could have a material impact on the Company.

 

Authorized shares

 

The Company has potential commitments to issue shares in excess of its current authorized share limit. It intends to increase its authorized shares at the next shareholder meeting, however; if its share price increases significantly prior to an increase in the authorized limit, the Company may be liable to convertible note holders or optionees for damages equal to their lost profits if it is unable to deliver shares in accordance with its existing agreements.

14. Research and Development Contracts

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14. Research and Development Contracts
12 Months Ended
Dec. 31, 2013
Research and Development [Abstract]  
Research and Development Contracts

The Company makes significant expenditures for research and development. We seek funding for our research and development costs to reduce the cost of such expenditures to the Company. We only seek funding for projects that fit within our strategic vision. A substantial portion of our funded research has been from government contracts. Under government contracts, the government has the right to utilize the results for its purposes, and we have the right to utilize the technology for commercial purposes. Generally, when we contract with other entities, the entity is also conducting its own internal research related to application of our technology to its products and such expenditures by the entity frequently exceeds the amount of funding provided to the Company. Usually the entity has the first opportunity to license the technology at the conclusion of the project, if they desire. The costs of a particular research program may exceed the funding received; however, since the goal of the research is to ultimately lead to a license, our willingness to share part of the development cost is evaluated on a case by case basis.

 

The following schedule summarizes certain information with respect to research and development contracts:

 

    2013    2012    2011 
Contract research revenues  $3,103,145   $2,043,002   $4,059,145 
Direct costs incurred included in research and development expense  $1,303,401   $1,421,542   $2,338,863 
Amount of additional funding commitments at December 31  $2,811,893   $2,929,281   $2,268,173 

 

15. Significant Customers

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15. Significant Customers
12 Months Ended
Dec. 31, 2013
Significant Customers  
Significant Customers

Applied Nanotech, Inc. received research and development revenues from the U.S. Government in the three years as disclosed on the income statement. In addition to the U.S. Government, the Company had three customers from which it has received in excess of 10% of its consolidated revenues in one or more of the past three years as set forth in the following table.

 

   Year ended December 31 
Customer  2013   2012   2011 
Sichuan Anxian Yinhee Construction and Chemical Company  $260,000   $750,000   $1,500,000 
Northeast Gas Association  $567,357   $56,732   $734,428 
California Citrus Research Board  $463,448   $   $ 

 

The Company does not have any significant receivables from these customers at December 31, of the years presented  

 

16. Concentrations of Credit Risk

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16. Concentrations of Credit Risk
12 Months Ended
Dec. 31, 2013
Risks and Uncertainties [Abstract]  
Concentrations of Credit Risk

The Company’s financial instruments that are exposed to concentrations of credit risk consist of cash and cash equivalents and receivables. The Company places its cash and cash equivalents with high credit quality financial institutions; however for periods of time during the year, bank balances on deposit were in excess of the Federal Deposit Insurance Corporation insurance limit. There were no funds in excess of the FDIC limit at December 31, 2012 or 2013. There were no funds in excess of the SIPC limit at December 31, 2012 or 2013.

 

The Company’s receivables are uncollateralized and result primarily from its research and development projects performed primarily for U.S. Federal Government Agencies, services performed for large U.S. and multinational corporations, and royalties from large U.S. and multinational corporations. The Company has not incurred any material losses on these receivables.

17. Related Party Transaction

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17. Related Party Transaction
12 Months Ended
Dec. 31, 2013
Related Party Transactions [Abstract]  
Related Party Transaction

As of December 31, 2013 and 2012, $195,000 of the convertible notes payable were payable to Officers of the Company. These notes are convertible at a rate of $0.25 per share.

18. Quarterly Financial Information

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18. Quarterly Financial Information
12 Months Ended
Dec. 31, 2013
Quarterly Financial Information Disclosure [Abstract]  
Quarterly Financial Information

   First   Second   Third   Fourth   Total 
   Quarter   Quarter   Quarter   Quarter   Year 
2013                         
Revenues  $948,710   $1,066,772   $1,175,214   $727,666   $3,918,362 
Operating income (loss)   (666,743)   (480,403)   (217,775)   (557,948)   (1,922,869)
Net (loss)   (1,374,940)   (643,918)   (396,650)   (725,380)    (3,140,888)
Earnings (loss) per share                         
Basic and Diluted   (0.01)   (0.00)   (0.00)   (0.01)   (0.02)
                          
2012                         
Revenues  $777,136   $1,129,951   $705,505   $980,776   $3,593,368 
Operating income (loss)   (1,518,134)   (1,453,482)   (1,114,252)   (592,268)   (4,678,136)
Net (loss)   (1,607,199)   (1,550,805)   (1,245,809)   (725,337)    (5,129,150)
Earnings (loss) per share                         
Basic and Diluted   (0.01)   (0.01)   (0.01)   (0.01)   (0.04)
                          
2011                         
Revenues  $1,936,981   $1,662,534   $2,249,019   $638,927   $6,487,461 
Operating income (loss)   (482,308)   (367,513)   22,350    (1,375,399)   (2,202,870)
Net (loss)   (613,797)   (433,119)   (62,066)   (1,461,266)   (2,570,248)
Earnings (loss) per share                         
Basic and Diluted   (0.01)   (0.00)   (0.00)   (0.01)   (0.02)

 

Annual earnings (loss) per share may not equal the sum of the four quarterly amounts due to rounding.

19. Subsequent Events

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19. Subsequent Events
12 Months Ended
Dec. 31, 2013
Subsequent Events [Abstract]  
Subsequent Events

From January 1, 2014 through February 26, 2014, we issued 1.2 million shares of common stock to our patent attorney in payment of an accounts payable of $30,000 under a longstanding agreement where a portion of the fees are paid in common stock. In addition, we issued 7,492,610 shares of common stock upon conversion of a notes payable with face amounts totaling $150,815 and accrued interest totaling $4,016.

 

In 2014, we received additional funding in the amount of $55,000 under convertible notes payable.

2. Summary of Significant Accounting Policies (Policies)

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2. Summary of Significant Accounting Policies (Policies)
12 Months Ended
Dec. 31, 2013
Accounting Policies [Abstract]  
Principles of consolidation

Principles of consolidation

 

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, Applied Nanotech, Inc. (“ANI”), EZDiagnostix, Inc. (“EZDX”), after the elimination of all significant intercompany accounts and transactions. ANI is primarily involved in developing products for applications using the Company’s proprietary nanocomposites, nanosensors, nanoelectronics, thermal management, and field emission technologies. EZDX was focused on commercializing the Company’s sensor technology, but ceased operations in 2013.

Management's estimates

Management’s estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Significant estimates include deferred tax asset reserves, bad debt reserves, assumptions used in calculating share based compensation, and depreciation.

Revenue recognition

 

Our revenues include reimbursements under agreements to perform research and development for government agencies and others. We do not perform research contracts that are contingent upon successful results. Larger projects are sometimes broken down in phases to allow the customer to determine at the end of each phase if they wish to move to the next phase. The agreements with federal government agencies generally provide that, upon completion of a technology development program, the funding agency is granted a royalty-free license to use any technology developed during the course of the program for its own purposes, but not any preexisting technology that we use in connection with the program. We retain all other rights to use, develop, and commercialize the technology and recognize revenue when it is earned pursuant to the terms of the contract. Agreements with nongovernmental entities generally allow the entity the first opportunity to license the technology from us upon completion of the project.

 

The Company’s revenues also include royalties from licensing its technology, revenue from the sale of products, and other miscellaneous revenues. Many of the Company’s projects may involve a combination of these types of revenues. Revenues are recognized as follows:

 

Government Contracts - Revenue from government contracts is recognized when it is earned pursuant to the terms of the contract. Long-term projects, such as SBIR Phase II grants that usually range from $500,000 to $1,000,000 in total and usually extend for a period of approximately two years, are generally based on reimbursement of costs. These projects are usually billed monthly based on costs, hours, or some other measure of activity during the month. As a general rule, we recognize revenue on these contracts based on the activity level of the contract during the period as compared with total estimated activity. This generally would be a measure of proportional performance on the contract, such as cost incurred compared with total expected cost. The recognition of revenue may not correspond with the billings allowable under the contract. To the extent that billings exceed revenue earned, a portion of the revenue is deferred until such time as it is earned. Short-term projects, such as SBIR Phase I grants that usually are less than $100,000 and usually extend for a period of approximately 6 months, are billed at periodic intervals as specified in the contract.

 

Other Research Contracts - Revenue from nongovernmental contracts is recognized when it is earned pursuant to the terms of the contract. Each contract is unique and tailored to the needs of the customer and goals of the project. Some contracts may call for a monthly payment for a fixed period of time. Other contracts may be for a fixed dollar amount with an unspecified time period, although there is frequently a targeted completion date. These contracts generally involve some sort of up-front payment. Some contracts may call for the delivery of samples, or may call for the transfer of equipment or other items developed during the project to the customer. As a general rule, we recognize revenue on long term contracts based on the activity level of the contract during the period as compared with total estimated activity. This generally would be a measure of proportional performance on the contract, such as cost incurred compared with total expected cost. However, to the extent there are other significant contract provisions such as the delivery of more than a nominal amount of samples or delivery of equipment, we would modify this as appropriate. For other short term contracts, generally less than $50,000, we recognize revenue when it is billed under the terms of the contract.

 

Royalty Revenue - The Company recognizes royalty revenues based on the shipment of products by a licensee at the time the underlying product upon which the royalty is based is shipped by the entity paying the royalty, if that is able to be ascertained at the time. For minimum royalty payments paid by a licensee that are required for the licensee to maintain exclusivity, royalty revenue is recognized at the time the minimum royalty payment is due, which normally corresponds somewhat with the time that the payment is received. The Company recognizes license fees due at the time of the signing of a royalty agreement when the licensee has an enforceable commitment to pay. This normally corresponds with, or is reasonably close to, the time of receipt of the payment.

 

Product Sales - Revenue from product sales is recognized at the time the product shipped. The Company’s primary business is research and development and the licensing of its technology, not the sale of products. Product sales are generally insignificant in number, and are usually limited to the sale of samples, proofs of concepts, prototypes, or other items resulting from its research.

 

Other Revenue - Other miscellaneous revenue is recognized as deemed appropriate given the facts of the situation and is generally not material.

Cash and cash equivalents

Cash and cash equivalents

 

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Accounts receivable

Accounts receivable

 

The Company occasionally provides services or sells products to others on credit; however most services or sales are to large financially stable companies, or the U.S. Federal government. It is the Company’s policy to record reserves for potential credit losses. Since inception, the Company has experienced minimal credit losses. The Company considered no reserves to be necessary for any of the years presented.

Property and equipment

Property and equipment

 

Property and equipment are recorded at cost, net of accumulated depreciation and amortization. Depreciation is provided on the straight-line method over the estimated useful lives of the assets, which range from three to seven years, or the remaining lease term for leasehold improvements, if less. Expenses for major renewals and betterments that extend the original estimated economic useful lives of the applicable assets are capitalized. Expenses for normal repairs and maintenance are charged to operations as incurred. The cost and related accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts, and any gain or loss is included in income.

Impairment

Impairment

 

At each balance sheet date, the Company evaluates the carrying amount and the amortization period for its long-lived assets. If an indicator of impairment exists, it is recorded at that time. There have been no impairment charges recorded in any of the years presented in these consolidated financial statements.

Income taxes

Income taxes

 

The Company accounts for income taxes using the asset and liability method. Under this method, deferred income taxes are recorded to reflect the tax consequences on future years of temporary differences between the tax basis of the assets and liabilities and their financial amounts at year-end. The Company provides a valuation allowance to reduce deferred tax assets to their net realizable value. The Company has determined that no reserve for uncertain tax positions is required; however, tax years 2010 through 2013 remain open for examination by the taxing authorities.

Research and development expenses

Research and development expenses

 

Costs of research and development for Company-sponsored projects are expensed as incurred.

Disclosures about fair value of financial instruments

Disclosures about fair value of financial instruments

 

The following methods and assumptions were used to estimate the fair value of each class of certain financial instruments for which it is practicable to estimate that fair value. For cash equivalents and accounts receivable, the carrying amount approximates fair value because of the short-term nature of these instruments. The fair value of the Company’s capital lease obligations and notes payable is estimated based on the quoted market prices for the same, or similar issues, or on the current rates offered to the Company for obligations of the same remaining maturities with similar collateral requirements. For all years presented, the fair value of the Company’s capital lease obligations and notes payable approximate their carrying values.

Income (loss) per common share

Income (loss) per common share

 

Basic per share amounts are computed, generally, by dividing net income or loss by the weighted average number of common shares outstanding. Diluted per-share amounts assume the conversion, exercise, or issuance of all potential common stock instruments unless the effect is anti-dilutive, thereby reducing the loss or increasing the income per common share. As described in Notes 8, 9 and 10, the Company had options and warrants outstanding as indicated in the table below. In addition, the Company has convertible notes payable, which if converted, would have resulted in additional shares outstanding as indicated in the table below.

 

However, because of the interest expense associated with the notes payable, inclusion of the notes payable in the calculation of diluted earnings per share would have an anti-dilutive effect. In addition, since the Company incurred losses in all years, the inclusion of any potential common shares in the calculation of diluted loss per-share would have an anti-dilutive effect in those years. Basic and diluted per-share amounts are the same in all years presented.

 

    2013   2012   2011
             
Options   5,967,339    6,447,254   6,378,495
Warrants   -     181,524   181,524
Weighted average exercise price   $0.62   $0.80   $0.82
Convertible notes payable   23,283,932   16,469,961   9,079,530

 

Recently issued accounting pronouncements

Recently issued accounting pronouncements

 

There are no recently issued accounting pronouncements which have not been implemented in our consolidated financial statements that would have a material impact on our financial statements.

Share-based payments

Share-based payments

 

The Company has a stock based compensation plan described in greater detail in Note 9 to these financial statements. The Company uses the fair value method to account for stock-based compensation. The fair value of each award is estimated on the date of each grant. For restricted stock the fair market value is based on the market value of the stock granted on the date of the grant. For options, it is estimated using the Black Scholes option pricing model that uses the assumptions noted in the following table. Estimated volatilities are based on the historical volatility of the Company’s stock over the same period as the expected term of the options. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The Company uses historical data to estimate option exercise behavior and to determine this term. The risk free rate used is based on the U.S. Treasury yield curve in effect at the time of the grant using a time period equal to the expected option term. The Company has never paid dividends and does not expect to pay any dividends in the future.

 

    2013   2012   2011
             
Expected dividend yield   0%   0%   0%
Risk free interest rate   0.39%-0.51%   0.39%-0.51%   0.35%-1.28%
Expected option term (in years)   3.5   3.5 – 5.0   3.5 – 5.0
Turnover/forfeiture rate   0%   0%   0%
Expected volatility   94% - 101%   94% - 100%   93% - 99%
Weighted-average volatility   96%   96%   96%

 

The Black-Scholes option valuation model and other existing models were developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. These option valuation models require the input of, and are highly sensitive to, subjective assumptions including the expected stock price volatility. Applied Nanotech Holdings’ stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions could materially affect the fair value estimate.

2. Summary of Significant Accounting Policies (Tables)

v2.4.0.8
2. Summary of Significant Accounting Policies (Tables)
12 Months Ended
Dec. 31, 2013
Accounting Policies [Abstract]  
Anti-dilutive per share information
    2013   2012   2011
             
Options   5,967,339    6,447,254   6,378,495
Warrants   -     181,524   181,524
Weighted average exercise price   $0.62   $0.80   $0.82
Convertible notes payable   23,283,932   16,469,961   9,079,530
Assumptions used for share-based payments
    2013   2012   2011
             
Expected dividend yield   0%   0%   0%
Risk free interest rate   0.39%-0.51%   0.39%-0.51%   0.35%-1.28%
Expected option term (in years)   3.5   3.5 – 5.0   3.5 – 5.0
Turnover/forfeiture rate   0%   0%   0%
Expected volatility   94% - 101%   94% - 100%   93% - 99%
Weighted-average volatility   96%   96%   96%

3. Operating Lease Obligations (Tables)

v2.4.0.8
3. Operating Lease Obligations (Tables)
12 Months Ended
Dec. 31, 2013
Leases [Abstract]  
Schedule of future minimum lease payments
 2014    220,896 
 2015    200,424 
 2016    199,742 
 2017    186,804 
 2018    191,744 
 2019    32,122 
        
 Total future minimum lease payments   $1,031,732 

4. Convertible Notes Payable (Tables)

v2.4.0.8
4. Convertible Notes Payable (Tables)
12 Months Ended
Dec. 31, 2013
Debt Disclosure [Abstract]  
Convertible notes payable
   2013   2012 
Notes payable to shareholders, convertible to common stock, along with accrued interest, at fixed rates ranging from $0.08 to $0.25 per share. In both years, three notes totaling $500,000 are secured by all assets of the Company, with the remainder of the notes unsecured. The notes bear interest at a rate of 8%. A total of $420,000 of the notes are demand notes, and $1,293,058 of the notes are due in January 2014. The notes due in January 2014 have been extended to March 2014.  $1,713,058   $2,455,058 
           
Unsecured notes payable, convertible to common stock, along with accrued interest, at variable rates at a discount to market at the time of conversion under five separate note agreements. Discounts range from 30% to 50% from market as defined by the specific note agreement. Market is defined based on a trailing average or specific price covering the preceding 5-15 days at the time of conversion. Notes can be prepaid in cash with prepayment penalties ranging from 0-50% of principal outstanding at the time of payment. The notes bear interest at rates ranging from 5% to 8%. The notes are due at various dates in 2014.   197,065    110,000 
Total face amount of notes payable   1,910,123    2,565,058 
Less unamortized discount   50,211    178,186 
Net notes payable   1,859,912    2,386,872 
Less current portion   1,859,912    755,800 
Long-term notes payable  $   $1,631,072 
Notes issued, converted, discount recorded and discount amortized
   Year Ended December 31, 
   2013   2012   2011 
             
Face amount of notes issued  $553,875   $945,700   $ 
Discount recorded at time of issuance  $409,577   $298,475   $ 
Discount recorded at time of conversion  $428,132   $   $ 
Discount amortized to interest expense  $1,022,100   $253,779   $241,939 
Face amount of notes converted to common stock  $1,148,010   $19,200   $326,000 
Unamortized discount at December 31  $50,211   $178,186   $133,490 

5. Capital Lease Obligations (Tables)

v2.4.0.8
5. Capital Lease Obligations (Tables)
12 Months Ended
Dec. 31, 2013
Capital Lease Obligations [Abstract]  
Capital lease obligations
   2013   2012 
Capital lease equipment due in monthly installments of $3,322 through February 2014. The equipment value and lease obligation was determined using a discount rate of 12.35%. The equipment is included in property and equipment at December 31, 2013 at a cost of $118,700 and with accumulated amortization of $58,150.  $6,644   $46,508 
           
Capital lease equipment due in monthly installments of $816 through July 2013. The equipment value and lease obligation was determined using a discount rate of 14.08%. Ownership of the equipment transferred to the Company in July 2013.  $   $5,712 
           
Capital lease equipment due in monthly installments of $1,338 through March 2014. The equipment value and lease obligation was determined using a discount rate of 11.46%. The equipment is included in property and equipment at December 31, 2013 at a cost of $33,177, with accumulated amortization of $11,612.   4,014    20,070 
Total capital leases   10,658    72,290 
Less interest   231    5,130 
Less current portion   10,427    56,680 
Capital lease obligations, long-term  $   $10,480 

6. Details of Certain Balance Sheet Accounts (Tables)

v2.4.0.8
6. Details of Certain Balance Sheet Accounts (Tables)
12 Months Ended
Dec. 31, 2013
Disclosure Text Block Supplement [Abstract]  
Property and equipment
   December 31, 
   2013   2012 
Property and equipment:          
Plant and equipment  $656,072   $822,273 
Furniture and office equipment   106,821    110,534 
Leasehold improvements   41,627    41,627 
Total carrying cost   804,520    974,434 
Less accumulated depreciation   (646,748)   (703,741)
   $157,772   $270,693 

 

Accrued liabilities

           
Accrued liabilities:          
Payroll and related accruals  $1,120,045   $468,441 
Other (primarily interest)   460,149    386,823 
Total  $1,580,194   $855,264 

7. Income Taxes (Tables)

v2.4.0.8
7. Income Taxes (Tables)
12 Months Ended
Dec. 31, 2013
Income Tax Disclosure [Abstract]  
Components of deferred tax assets and liabilities
   December 31, 
   2013   2012 
Deferred tax assets:          
Net operating loss carry forwards  $22,974,000   $22,173,000 
Stock based compensation   2,244,000    2,228,000 
Partnership asset   39,000    39,000 
Capitalized intangible assets   8,000    14,000 
Difference in tax basis of assets   18,000    6,000 
Foreign tax credit   619,000    619,000 
Accrued expenses not deductible until paid   448,000    202,000 
Total deferred tax assets   26,350,000    25,281,000 
           
Deferred tax liabilities:        
           
Net deferred tax assets before valuation allowance   26,350,000    25,281,000 
           
Valuation allowance   (26,350,000)   (25,281,000)
           
Net deferred tax asset          
   $   $ 
Income tax expense reconciliation
   December 31, 
   2013   2012   2011 
             
Expected income tax expense (benefit)  $(1,068,000)  $(1,744,000)  $(874,000)
Non-deductible expenses and miscellaneous   (1,000)   13,000    12,000 
Expiration of tax credit carryforwards           61,000 
Expiration of NOL carryforwards       2,142,000    4,055,000 
Increase (decrease) in valuation allowance   1,069,000    (411,000)   (3,254,000)
Total tax  $   $   $ 

8. Capital Stock (Tables)

v2.4.0.8
8. Capital Stock (Tables)
12 Months Ended
Dec. 31, 2013
Equity [Abstract]  
Common stock reserved
Conversion of notes payable and accrued interest   23,283,932 
Exercise and future grants of stock options   10,049,746 
      
Total shares reserved   33,333,678 

9. Stock Options (Tables)

v2.4.0.8
9. Stock Options (Tables)
12 Months Ended
Dec. 31, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock options outstanding
  Options Outstanding Options Exercisable
             
Range of Exercise Prices Number
Outstanding
at 12/31/13
Wgtd. Avg. Remaining
Contractual
Life
Wgtd. Avg.
Exercise
Price
Number
Exercisable
at 12/31/13
Wgtd. Avg. Remaining
Contractual
Life
Wgtd. Avg.
Exercise
Price
$0.00 - $0.25 1,054,349 6.1 Years $0.19  1,054,349 6.1 Years $0.19
$0.26 - $0.50 3,546,805 5.3 Years $0.37 3,546,805 5.3 Years $0.37
$0.51 - $1.00 182,748 5.0 Years $0.56 182,748 5.0 Years $0.56
$1.01 - $2.00 588,396 3.0 Years $1.32 588,396 3.0 Years $1.32
$2.01 - $3.00  595,041 1.1 Years $2.18 595,041 1.1 Years $2.18
Total 5,967,339 4.8 Years $0.62 5,967,339 4.8 Years $0.62
Aggregate intrinsic value   $0.00     $0.00  
Stock option plan activity
  Number of
Shares
  Wgtd. Ave.
Exercise
Price
       
Options outstanding at December 31, 2010 6,222,972    $0.86
       
Granted 1,303,498    $0.43
Exercised (200,454)   $0.26
Cancelled (947,521)   $0.68
       
Options outstanding at December 31, 2011 6,378,495    $0.82
       
Granted 325,000    $0.30
Exercised –    $0.00
Cancelled (256,241)   $0.53
       
Options outstanding at December 31, 2012 6,447,254    $0.80
       
Granted 475,000    $0.13
Exercised –    $0.00
Cancelled (954,915)   $1.62
       
Options outstanding at December 31, 2013 5,967,339    $0.62

11. Supplemental Cash Flow Information (Tables)

v2.4.0.8
11. Supplemental Cash Flow Information (Tables)
12 Months Ended
Dec. 31, 2013
Supplemental Cash Flow Elements [Abstract]  
Schedule of non-cash transactions
   2013   2012   2011 
                
Non-cash financing activities:               
Issuance of common shares in payment of accounts payable  $110,000   $120,000   $120,000 
Issuance of note payable in payment of accrued interest  $10,000   $32,558   $ 
Conversion of notes payable and accrued interest  $1,281,281   $23,249   $357,394 
Capital lease transactions  $   $28,567   $85,369 

14. Research and Development Contracts (Tables)

v2.4.0.8
14. Research and Development Contracts (Tables)
12 Months Ended
Dec. 31, 2013
Research and Development [Abstract]  
Research and development contracts
    2013    2012    2011 
Contract research revenues  $3,103,145   $2,043,002   $4,059,145 
Direct costs incurred included in research and development expense  $1,303,401   $1,421,542   $2,338,863 
Amount of additional funding commitments at December 31  $2,811,893   $2,929,281   $2,268,173 

15. Significant Customers (Tables)

v2.4.0.8
15. Significant Customers (Tables)
12 Months Ended
Dec. 31, 2013
Significant Customers  
Revenue from significant customers
   Year ended December 31 
Customer  2013   2012   2011 
Sichuan Anxian Yinhee Construction and Chemical Company  $260,000   $750,000   $1,500,000 
Northeast Gas Association  $567,357   $56,732   $734,428 
California Citrus Research Board  $463,448   $   $ 

18. Quarterly Financial Information (Tables)

v2.4.0.8
18. Quarterly Financial Information (Tables)
12 Months Ended
Dec. 31, 2013
Quarterly Financial Information Disclosure [Abstract]  
Schedule of Quarterly Financial Information
   First   Second   Third   Fourth   Total 
   Quarter   Quarter   Quarter   Quarter   Year 
2013                         
Revenues  $948,710   $1,066,772   $1,175,214   $727,666   $3,918,362 
Operating income (loss)   (666,743)   (480,403)   (217,775)   (557,948)   (1,922,869)
Net (loss)   (1,374,940)   (643,918)   (396,650)   (725,380)    (3,140,888)
Earnings (loss) per share                         
Basic and Diluted   (0.01)   (0.00)   (0.00)   (0.01)   (0.02)
                          
2012                         
Revenues  $777,136   $1,129,951   $705,505   $980,776   $3,593,368 
Operating income (loss)   (1,518,134)   (1,453,482)   (1,114,252)   (592,268)   (4,678,136)
Net (loss)   (1,607,199)   (1,550,805)   (1,245,809)   (725,337)    (5,129,150)
Earnings (loss) per share                         
Basic and Diluted   (0.01)   (0.01)   (0.01)   (0.01)   (0.04)
                          
2011                         
Revenues  $1,936,981   $1,662,534   $2,249,019   $638,927   $6,487,461 
Operating income (loss)   (482,308)   (367,513)   22,350    (1,375,399)   (2,202,870)
Net (loss)   (613,797)   (433,119)   (62,066)   (1,461,266)   (2,570,248)
Earnings (loss) per share                         
Basic and Diluted   (0.01)   (0.00)   (0.00)   (0.01)   (0.02)

2. Summary of Significant Accounting Policies (Details-Antidilutive shares)

v2.4.0.8
2. Summary of Significant Accounting Policies (Details-Antidilutive shares) (USD $)
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2010
Dec. 31, 2013
Options
Dec. 31, 2012
Options
Dec. 31, 2011
Options
Dec. 31, 2013
Warrants
Dec. 31, 2012
Warrants