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4. INTANGIBLE ASSETS AND ASSET ACQUISITION

6 Months Ended

Jun. 30, 2013

Notes to Financial Statements

NOTE 4. INTANGIBLE ASSETS AND ASSET ACQUISITION

On April 15, 2013 the Company completed the acquisition of binary ionization technology and related patents and other assets consisting of personal property and inventory related to implementation of the Binary Ionization Technology related to these patents from L-3 Applied Technologies, Inc. ("L-3"), All of these assets are pledged as collateral for the convertible notes issued as described below in Note 6.

The purchase price allocation is preliminary, pending completion of the full valuation report; however significant changes are not anticipated. The Company intends to have the completed valuation report by year end.

The following sets forth the components of the preliminary purchase price allocation:

Purchase Price
Cash payment		$	3,500,000
Estimated warranty expense		$	10,000
Total purchase price		$	3,510,000

Assets Purchased
Inventory		$	71,700
Fixed assets		$	150,000
Intangible assets		$	3,288,300

Liabilities assumed
Warranty liability		$	10,000

The intangible assets purchased consist of Patents and Trademarks. The intangibles are being amortized over the estimated remaining lives of the related patents, which approximate an average of 9 years. Amortization expense was $76,955 for the quarter ended June 30, 2013. The Company is working with the independent valuation firm to assist in allocating the purchase price associated with the intangibles between the Patents and the Trademarks.

The purchase price allocation will be adjusted if necessary upon the Company receiving the final valuation report from the independent appraisal company.

Definite life intangible assets consist of the following:

		June 30, 2013				December 31,
		(Unaudited)				2012
Intellectual property, patents and trademarks		$	3,389,400			$	111,100

Less: Accumulated Amortization and Impairment Loss			188,055				111,100
		$	3,201,345			$	-

The Company’s definite life intangible assets at December 31, 2012 were being amortized over their estimated useful lives of ten years. At December 31, 2012 the Company determined that the fair value of the intangible assets was impaired. Accordingly, an impairment charge of $69,439 was recorded during the year ended December 31, 2012 on the Company’s definite-life intangibles, reducing the carrying value of these intangible assets to $0. Amortization expense was $5,555 for the quarter ended June 30, 2012.