Empowered Products, Inc. - FORM 10-K

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - Empowered Products, Inc.	Financial_Report.xls
EX-31.2 - CERTIFICATION - Empowered Products, Inc.	empo_10k-ex3102.htm
EX-10.12 - BUSINESS LOAN AGREEMENT - Empowered Products, Inc.	empo_10k-ex1012.htm
EX-31.1 - CERTIFICATION - Empowered Products, Inc.	empo_10k-ex3101.htm
EX-10.7 - COMMERCIAL LEASE AGREEMENT - Empowered Products, Inc.	empo_10k-ex1007.htm
EX-32.1 - CERTIFICATION - Empowered Products, Inc.	empo_10k-ex3201.htm
EX-23.1 - CONSENT - Empowered Products, Inc.	empo_10k-ex2301.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2013

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

FOR THE TRANSITION PERIOD FROM _______ TO ___________

COMMISSION FILE NO. 000-54661

EMPOWERED PRODUCTS, INC.

(Exact Name Of Registrant As Specified In Its Charter)

Nevada	27-0579647
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3367 West Oquendo Road Las Vegas, Nevada	89118
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (800) 929-0407

Securities registered pursuant to Section 12(b) of the Exchange Act:

None.

Securities registered pursuant to Section 12(g) of the Exchange Act:

Common Stock, $0.001 par value

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes p No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes p No x

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 p

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 p

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. p

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:.

Large accelerated filer	p	Accelerated filer	p
Non-accelerated filer	p	Smaller reporting company	☒

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

The aggregate market value of the registrant’s issued and outstanding shares of common stock held by non-affiliates of the registrant as of June 30, 2013, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $7.3 million.

There were 62,788,856 shares outstanding of the registrant’s common stock, par value $0.001 per share, as of March 31, 2014.

Documents Incorporated by Reference: None.

TABLE OF CONTENTS

EMPOWERED PRODUCTS, INC.

TABLE OF CONTENTS TO ANNUAL REPORT ON FORM 10-K

For the Fiscal Year Ended December 31, 2013

PART I		1
ITEM 1.	BUSINESS	1
ITEM 1A.	RISK FACTORS	8
ITEM 1B.	UNRESOLVED STAFF COMMENTS	21
ITEM 2.	PROPERTIES	21
ITEM 3.	LEGAL PROCEEDINGS	21
ITEM 4.	MINE SAFETY DISCLOSURE	21
PART II		22
ITEM 5.	MARKET FOR REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	22
ITEM 6.	SELECTED CONSOLIDATED FINANCIAL DATA	23
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	28
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	28
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	28
ITEM 9A.	CONTROLS AND PROCEDURES	28
ITEM 9B.	OTHER INFORMATION	29
PART III	..	30
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE	30
ITEM 11.	EXECUTIVE COMPENSATION	32
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	34
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	36
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES.	37
PART IV	..	38
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	38
SIGNATURES		39

Empowered Products and its logos are trademarks and/or registered trademarks.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The information contained in this Form 10-K includes some statements that are not purely historical and that are “forward-looking statements.” Such forward-looking statements include, but are not limited to, statements regarding our company’s and our management’s expectations, hopes, beliefs, intentions or strategies regarding the future, including our financial condition and results of operations. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “possible,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” and similar expressions, or the negatives of such terms, may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

The forward-looking statements contained in this Form 10-K are based on current expectations and beliefs concerning future developments and the potential effects on our company. There can be no assurance that future developments actually affecting us will be those anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements, including the following:

our reliance on third-party contractors to mix our products and manufacture our nutritional supplements;

our ability to grow and increase awareness of our brand;

the success of our new sales strategy to sell products directly to retail stores and consumers;

our ability to control and reduce advertising and marketing costs;

the maintenance of favorable trade relations between China and the U.S.;

our ability to develop a new online marketing strategy for our products;

our ability to obtain certification in individual countries in the European Union;

the occurrence of foul weather that disrupts our operations;

our ability to market our products to end-retailers successfully;

our vulnerability to interruptions in shipping lanes;

our ability to increase our production space, machinery and personnel in line with our expansion plans;

our ability to increase our production capacity in a timely manner;

the willingness of third-parties to conduct business with us given the adult nature of our business;

our ability to protect our trademarks;

exposure to intellectual property claims from third parties;

our ability to manage inventory in an effective manner;

market acceptance of our new line of nutritional supplements;

our reliance on the expected growth in demand for our products;

exposure to product liability claims;

our compliance with FDA regulations and other regulatory requirements;

implementation of new regulations governing our products and operations;

our ability to protect against security breaches and inappropriate behavior of Internet users;

our exposure to credit card fraud;

our reliance on our current president and chief executive officer;

exposure to intellectual property claims from third parties;

our ability to maintain effective disclosure controls and internal control over financial reporting;

our ability to raise additional capital;

the cost of complying with current and future governmental regulations and the impact of any changes in the regulations on our operations;

various other matters, many of which are beyond our control.

and the other factors referenced in this Annual Report, including, without limitation, under the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business.”

These risks and uncertainties, along with others, are also described above under the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and we cannot predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

iii

PART I

ITEM 1. BUSINESS

As used in this report, unless otherwise indicated, the terms “we,” “us,” “our,” “Company” and “EPI” refer to Empowered Products, Inc., a Nevada corporation, and its wholly-owned subsidiary Empowered Products Nevada, Inc., a Nevada corporation (“EP Nevada”), EP Nevada’s wholly-owned subsidiary, Empowered Products Limited, a British Virgin Islands company (“EP BVI”), EP BVI’s wholly-owned subsidiary, Empowered Products Asia Limited, a Hong Kong company (“EP Asia”) and EP Asia’s wholly-owned subsidiary, Empowered Products Pty Ltd. (formerly Polarin Pty Ltd), an Australian company (“EP Australia”).

Overview

Through EP Nevada and its subsidiaries, we offer a line of quality products, including topical gels, lotions and oils, designed to enhance a person’s sex life and make people feel good about their sexual health in general. We currently have 13 exclusively formulated skin lubricants sold under our PINK® for Women and GUN OIL® for Men trademarks and intend to continue to expand our products offerings. Our proprietary formulated products are designed to increase mental focus and to improve the bond of interpersonal relationships. Our trademarked products are currently sold in 30 countries through more than 21,000 retail outlets. We also sell two herbal supplements for women under our PINK® for Women brand, PINK® Elevate Libido and PINK® Elevate Performance, and two herbal supplements for men under our GUN OIL® for Men brand, GUN OIL® High Caliber Drive and GUN OIL® High Caliber Performance.

EP Nevada was founded in March 2002 and opened its first logistical center at its headquarters in Las Vegas, Nevada in April 2004. Since then, we have steadily augmented our bottling and packaging equipment to efficiently process our topically applied gels, lotions and interactive lubricants.

Corporate Information

We were incorporated in the State of Nevada on July 10, 2009. On June 30, 2011, pursuant to an Agreement and Plan of Merger, EP Nevada merged with and into EPI Acquisition Corp., a wholly-owned subsidiary of the Company, with EP Nevada as the surviving company (the “Merger”). Upon the closing of the Merger, we (i) assumed the business and operations of EP Nevada and its subsidiaries, which is now our sole business operations, and (ii) changed our name from On Time Filings, Inc. (“OT Fillings”) to Empowered Products, Inc.

Prior to the Merger, described below, our business included the EDGARization of corporate documents that require filing on EDGAR, the Electronic Data Gathering, Analysis and Retrieval system maintained by the Securities and Exchange Commission (“SEC”), and providing financial reporting and bookkeeping services. Pursuant to an assignment agreement, the assets and liabilities of this business were transferred to OT Filings immediately after the Merger and the shares of OT Filings were transferred to Suzanne Fischer, a former director of our company.

EP Nevada was incorporated in the State of Nevada on April 22, 2004. In March 2011, EP Nevada formed EP Asia to acquire certain assets of Polarin Limited, a company organized under the laws of Hong Kong (“Polarin”). Upon acquiring the assets of Polarin on March 31, 2011, EP Nevada acquired a new indirectly owned subsidiary, EP Australia.

Industry and Market Opportunity

We operate in the rapidly expanding worldwide market of sexual wellness products. This industry's global market value has rapidly expanded as consumers have steadily increased demand for products that enable self-directed therapy and healing. We believe that development of our active and expanding customer niche for our topical gels, lotions and oils in 30 countries thus far demonstrates the growing worldwide appetite for such products. As such, products have continued to gain consumer acceptance, many traditional major retailers, pharmacies and online retailers have begun carrying such products in their stores.

The initial target market for our gel, lotion and oil products was adult males. Our first product launched in 2003 was an exclusively formulated cream that gradually created intense physical satisfaction. Our target market has steadily expanded with each new product added to our line and each addition has been inspired by the needs of customers. For example, both our PINK® and GUN OIL® silicone lubricants were custom formulated according to a plethora of feedback received from women and men that comprise our wholesale buyer network. Both formulas were designed to create intense physical sensation during interaction between two individuals leading to stronger emotional unions among couples.

In the third quarter of 2011, we entered into the growing nutritional supplement market and expanded our product offerings to include four nutritional supplements, two for women under our PINK® for Women brand and two for men under our GUN OIL® for Men brand. Our target market for our nutritional supplements includes consumers of sexual wellness products.

Competitive Strengths

We believe the following strengths contribute to our competitive advantages:

Brand awareness

Our topical gels, lotions and oils marketed under our “PINK” and “GUN OIL” trademarks, have a solid reputation and have become a recognized brand name in the industry, which we expect will assist us in growing our business over the course of the next few years.

In-house bottling and labeling capabilities

At our facility in Las Vegas, Nevada, we conduct all of our bottling and labeling operations, including for our sample size products, which allows us to control our production operations and the costs associated with such operations.

Experienced Chief Executive Officer

Scott Fraser, our President, Chief Executive Officer and founder, has extensive business and industry experience, including an understanding of changing market trends, consumer needs, and our ability to capitalize on the opportunities resulting from these market changes. Mr. Fraser also has significant experience with respect to key aspects of our operations, including research and development, product design, bottling, and sales and marketing.

Our Strategy

As a recognized brand in the sexual wellness products market, our goal is to increase revenue and improve our profitability by using the following strategies:

Continue to utilize our production capacity of our packaging and logistical center

Our current line of packaging equipment, located at our operational headquarters in Las Vegas, has the ability to increase its output and capacity through the addition of shifts and reconfiguration of our bottling line. Therefore, we have significant capacity to fulfill product demand should it escalate in the near future.

Expand our direct sales to consumers

Historically, our main sales channels in the U.S. have been almost exclusively to wholesalers and distributors. In addition to our sales expansion through retail chains in the U.S., we have begun selling directly to retail consumers through our four online shopping venues (www.EmpoweredProducts.com; www.PinkForUs.com; www.GunOil.com; www.empoweredproducts.co.uk).

Increase our market share in Europe

Our objective in Europe is to gain access to the mainstream retail chain stores as we increase our traditional presence in European adult product venues. We believe that a catalyst to reach this objective is to attain CE certification for both our PINK® and GUN OIL® product lines in each of the European Union member-countries. We are actively pursuing this certification and expect to complete the initial approval process within fiscal 2014. To date, our biggest product presence in this region is Germany, Holland, and the United Kingdom.

Enhance brand awareness

We believe that continuing to strengthen our brand is critical to our increasing demand for, and achieving widespread acceptance of, our products. We believe a strong brand offers a competitive advantage and we intend to devote additional resources to strategic marketing promotion in order to increase brand awareness and product recognition and heighten customer loyalty. We will continue to exhibit our products at trade shows around the world and devote additional resources into print and radio advertising to promote our brand. We also have launched our Wellness Stores which are online stores that allow customers to directly buy from us as well as generate internet leads and promote our product lines online. Online sites are based in the U.S. and the U.K. In addition, we recently aired our first television commercial to promote our products.

Pursuing acquisitions to broaden our product offerings

We will consider strategic acquisitions that will provide us with a broader range of product offerings. When evaluating potential acquisition targets, we will consider factors such as market position, growth potential and earnings prospects and strength and experience of management.

Topical Lotion Products and Related Items

We launched our first topically applied wellness cream in 2003 and have kept all of our subsequent products competitive with unique formulations with premium ingredients and aggressive pricing. Each product in our current line provides a unique benefit, in response to ongoing feedback from our customers. Our current line of 13 products is divided between six designed and packaged specifically for women under the PINK® trademark and seven designed and packaged specifically for men under the GUN OIL® trademark. Our current products offerings include:

GUN OIL for Men

GUN OIL Silicone: Silicone-based interactive lubricant

GUN OIL H2O: Water-based interactive lubricant

GUN OIL Force Recon: Combination water and silicone interactive lubricant

GUN OIL Gel: Gelatinous lubricant for men's personal toys

GUN OIL Stroke 29: Self-applied men's personal lubricant

GUN OIL Loaded: Silicone infused cream hybrid interactive lubricant

GUN OIL Jack Jelly: Self-applied men's personal lubricant in gelatinous form

PINK for Women

PINK Silicone: Interactive lubricant with silicone vitamin E and Aloe Vera

PINK Water: Water-based interactive lubricant with vitamin E and Aloe Vera

Hot PINK: An exothermic massage lubricant

PINK Frolic: Women's personal toy lubricant

PINK Unity: Gelatinous hybrid lubricant with silicone and water

PINK Indulgence Crème: Hybrid cream interactive lubricant

We often promote our products in a “Happy-Pack,” which consists of a box set of our complete product line. Our current “Happy Pack” is a demonstration case that contains our complete product line that we send to potential wholesale buyers and potential customers.

We also sell two personal toy cleanser products, Gun Oil Shine and PINK Sparkle through our distributors and wholesalers and through our online Wellness Store at www.EmpoweredProducts.com, www.GunOil.com, www.PinkForUS.com and www.empoweredproducts.co.uk.

Sales of our lubricant and related products represented 99% of our total revenues during the year ended December 31, 2013, compared to 99% during the comparable period in 2012.

Nutritional Supplements

In the third quarter of 2011, we entered into the health supplement market with the introduction of four nutritional supplements, two for women under our PINK® for Women brand and two for men under our GUN OIL® for Men brand. These orally-administered supplements are herbal-based formulas related to sexual performance and desire. Our nutritional supplement products include:

PINK® Elevate Libido

PINK® Elevate Performance

GUN OIL® High Caliber Drive

GUN OIL® High Caliber Performance

We market our primary libido enhancement brands, PINK® Elevate Libido and GunOil® High Caliber Drive, in 30/60-capsule containers, as well as Pink® Elevate Performance and Gun Oil® High Caliber Performance in single and double dosage card packs and 12-capsule bottles. Single and double dosage packs of this style consist of a carded backing with a clear, pre-formed plastic covering allowing the contents to be visually examined by consumers and are typically offered at checkout counters of convenience stores, supermarkets, and various retail outlets. We sell the supplements through our standard distributor and wholesale channels, small retail chains in the adult boutique market, and directly to consumers at our online Wellness Store. Sales of our nutritional supplements represented 1% of our total revenues during each of the years ended December 31, 2013 and 2012.

Additionally, in December 2013, we launched a direct-to-consumer marketing campaign with HBMG Health & Beauty Marketing Group for our nutritional supplements and sensual lubricants. This campaign was designed to market our products directly to U.S. consumers via HBMG’s established direct-sales model with Great Falls Marketing serving as the call center.

Product Sourcing and Bottling

We contract with independent third-party companies to mix our topical gels, lotions and oils. The mixed products are then transported to our bottling facility in Las Vegas, Nevada where we bottle and label the majority of our products. During the year ended December 31, 2013, we purchased all of our mixed lubricant product from three suppliers, Chemsil Silicones, Inc., Biotone, Inc. and Botanic Beauty Products, Inc. Although we obtain our lubricant products from only three suppliers, we believe there are various other manufacturers who could mix our products and we believe that other suppliers could provide similar lubricant on comparable terms. A change in suppliers, however, could cause a delay in manufacturing and a possible loss of sales, which would affect operating results adversely.

We currently obtain the majority of our bottles, disk top caps and pumps for our lotion and gel products from RoundBridge Inc., a company located in China. We obtain our product sleeving and labeling from different third parties for the different sizes and shapes of our bottled lotion products. We do not have long-term agreements with any of our bottle or sleeve suppliers and place orders with such suppliers on an as-needed basis. Although we obtain our bottles from only one supplier, there are many other bottle manufacturers from whom we may purchase bottles for our products.

We currently have one operational bottling line and currently lease additional manufacturing and storage space in which we currently house a sampling machine and can be used to place another bottling line to increase production capacity as the demand for our product increases.

We do not manufacture our nutritional supplement products. Our supplements were previously made in bulk by Creation’s Garden and then shipped to our Las Vegas facility for packing. In 2013, we switched manufacturers from Creation’s Garden to VitaQuest, which produces our GUN OIL® High Caliber Drive formula in ready-to-ship 30-capsule bottles. While we currently obtain our nutritional supplements from one supplier (VitaQuest), we believe there are many other manufacturers that can produce our supplement products on comparable terms, however, any change in our supplier could result in delays in shipments of our nutritional supplement products.

We purchase our bottles, sample cards and labels for our supplements through two US-based vendors, VitaQuest and Ernest Packaging Solutions. We believe such items are readily available from other suppliers, both domestic and foreign, however, any change in suppliers for such items could cause delays in production of such products.

Sales, Marketing and Promotion

Our supplements and personal lubricants are sold through our in-house sales department and contracted sales brokers. Traditionally, our sales staff has focused on selling our lubricant products to distributors and wholesalers, both domestic and foreign. During the past 2 years, we have expanded our sales and distribution channels and have begun selling such products directly to retailers and directly to consumers through our online Wellness Stores.

We recently began selling our personal lubricants directly to mass retail chain stores in the United States. During fiscal 2013, we received purchase orders for our personal lubricant products from Wal-Mart Stores Inc., CVS Caremark, The Kroger Co., Rite Aid, Walgreens, and H-E-B Grocery Stores. Our products are also sold in Europe in such countries as Iceland, Ireland, the United Kingdom, Portugal, Spain, France, Belgium, the Netherlands, Denmark, Germany, Italy and Russia and throughout the Asia-Pacific Rim in Hong Kong, Japan, Korea, Singapore, Taiwan, Thailand, Indonesia, Australia and New Zealand.

Our supplements are sold primarily through our distributors and wholesalers. Gun Oil High Caliber and Pink Elevate nutritional supplements are currently only available through traditional adult market venues, including adult book and video stores, and adult market websites as well as through our online Wellness Store. Gun Oil High Caliber and Pink Elevate are currently only sold in the United States.

Revenues based on the location of our customers as a percentage of total revenue is set forth below:

	Years Ended December 31,
	2013		2012
North America		94.2%		89.5%
Europe		3.8%		5.9%
Asia		2.0%		4.6%
		100.0%		100.0%

Our sales staff works closely with our customers so that we can better address such customers’ needs and improve the quality and features of our products. Our sales staff also visits various retail outlets that sell our products to educate such retailers about our products. We offer a range of discounts to our wholesale, distributor and chain store customers of up to 50% off of our standard MSRP prices to encourage large-volume and long-term customers.

Sales to our wholesale, distributor and retailer customers are based primarily on purchase orders we receive from time to time rather than firm, long-term purchase commitments. Uncertain economic conditions and our general lack of long-term purchase commitments with our customers make it difficult for us to predict revenue accurately over the longer term.

We now take and fulfill orders for all of our products from consumers at our online Wellness Stores in the U.S. and U.K. We use the services of a third party Electronic Data Interchange (“EDI”) processor to receive orders from large chain retail stores.

During the year ended December 31, 2013, 37.3% of our total revenue was attributable to wholesale and distributor customers, 61.1% was attributable to retailers and 1.6% was attributable to consumers through our online store. During the year ended December 31, 2012, 60.7% of our total revenue was attributable to wholesale and distributor customers, 38.5% was attributable to retailers and 0.8% was attributable to consumers through our online store.

We advertise in magazines and through our website to market our products. We believe these activities help to promote our products and brand name among key industry participants as well as buyers from large retail chain stores.

Major Customers

During the years ended December 31, 2013 and 2012, two customers accounted for 26% of revenue in 2013 and for 2012 no customer accounted for more than 10% of our revenues.

Seasonality

Our business is not seasonal in nature.

Product Liability Insurance

We maintain commercial general liability, including product liability coverage, and property insurance. Our policy provides for a general liability limit of $5.0 million per occurrence, and $6.0 million annual aggregate, along with $15.0 million umbrella coverage for a total of $21.0 million. We also have a casualty insurance policy with a limit of $6.2 million blanket coverage for building, inventory and business personal property which covers all our locations.

Government Regulation

The lubricants we sell in the U.S. are regulated by the Food and Drug Administration (“FDA”) as “cosmetics,” as defined by the Federal Food, Drug, and Cosmetic (“FDC”) Act. Cosmetic products do not have FDA premarket submission requirements, but they do need to comply with the requirements of the FDC Act, the Fair Packaging and Labeling Act, and the FDA’s implementing regulations. Cosmetic products must also comply with the FDA’s ingredient, quality and labeling requirements and the Federal Trade Commission’s (“FTC”) requirements pertaining to truthful and non-misleading advertising.

We submitted two 510(k) premarket notifications to the FDA in December 2008 to support condom compatible claims for our water-based and silicone-based lubricants. Upon initial review by the FDA, approval was not granted. We have recently engaged a consultant with expertise in FDA 510(k) filings to guide our company in seeking such approval. In order for the FDA to clear a 510(k) premarket notification, the sponsor must submit information and data demonstrating that the device is “substantially equivalent” to a “predicate” device, which is a device that was either legally marketed prior to May 28, 1976 (the date upon which the Medical Device Amendments of 1976 were enacted) or subsequently cleared through the 510(k) premarket notification process. By statute, the FDA is required to review and clear a 510(k) premarket notification within 90 days of the submission. As a practical matter, clearance often takes considerably longer. A Class II device requiring the submission of a 510(k) premarket notification cannot be marketed in the U.S. without first receiving FDA market clearance.

We believe that our nutritional supplement products qualify as “dietary supplements” covered by the Dietary Supplement Health and Education Act of 1994 (“DSHEA”) and, therefore, do not require FDA approval for their release. While we do not need to obtain FDA approval prior to producing or selling our nutritional supplements, we are responsible for assuring that such supplements are safe prior to marketing such products. The FDA can take action against any of our products that it determines are unsafe after they are marketed. We must also record and report to the FDA any reports of serious adverse side effects associated with our nutritional supplements. We are also responsible for assuring that our label information is truthful and not misleading. The manufacturers of our nutritional supplements must comply with Dietary Supplement Current Good Manufacturing Practices (cGMP). The FDA may inspect the manufacturing facilities of our nutritional supplements. We did not need to make significant modifications to our facilities in connection with entering the nutritional supplement market because we do not blend or mix products in-house and products are delivered to us from our manufacturers sealed. We have and continue to make certain modifications to our facilities to align with GMP protocol, which primarily involve document tracking and amendments to our standard operating procedures.

If the FDA determines we have failed to comply with applicable regulatory requirements, it can impose a variety of enforcement actions including public warning letters, fines, injunctions, consent decrees, seizures of our products, total or partial shutdown of our production, and criminal prosecutions. If any of these events were to occur, it could materially adversely affect us. The FDA or FTC may also disagree with our characterization of one or more of our products as a cosmetic or dietary supplement or question the substantiation for product claims we make. This could result in a variety of enforcement actions which could require the reformulation or relabeling of our products, the submission of information in support of the product claims or the safety and effectiveness of our products, product recalls, or more punitive action, all of which could have a material adverse effect on our business and reputation. Even if we are able to maintain compliance with FDA and FTC regulations, such compliance can be time-consuming, costly and uncertain. For example, we spent over three years and $300,000 for an expert to guide us through the approval process for a 510(k) labeling application with the FDA, but no tangible result or decision was attained.

In January 2000, the FDA issued a regulation that defines the types of statements that can be made concerning the effects of a dietary supplement on the structure or function of the body pursuant to DSHEA. Under DSHEA, dietary supplement labeling may bear structure or function claims, which are claims that the products affect the structure or function of the body, without prior FDA approval, but with notification to the FDA. They may not bear a claim that they can prevent, treat, cure, mitigate or diagnose disease (a disease claim). The regulation describes how the FDA distinguishes disease claims from structure/function claims. During 2004, the FDA issued guidance, paralleling earlier guidance from the FTC, defining a manufacturer’s obligations to substantiate structure/function claims. The FDA also issued a Structure/Function Claims Small Entity Compliance Guide. In addition, the agency permits companies to use FDA-approved full and qualified health claims for products containing specific ingredients that meet stated requirements.

In foreign markets, prior to commencing operations and prior to making or permitting sales of any of our products in the market, we may be required to obtain an approval, license or certification from the relevant country’s ministry of health or comparable agency. Where a formal approval, license or certification is not required, we nonetheless seek the advice of those in the business of selling herbal supplements regarding our compliance with applicable laws. Prior to entering a new market in which a formal approval, license or certificate is required, we work extensively with local authorities in order to obtain the requisite approvals. The approval process generally requires us to present each product and product ingredient to appropriate regulators and, in some instances, arrange for testing of products by local technicians for ingredient analysis. The approvals may be conditioned on reformulation of our products, or may be unavailable with respect to some products or some ingredients. Product reformulation or the inability to introduce some products or ingredients into a particular market may have an adverse effect on sales. We must also comply with product labeling and packaging regulations that vary from country to country. Our failure to comply with these regulations can result in a product being removed from sale in a particular market, either temporarily or permanently.

Polarin previously distributed our products from Hong Kong to Australia and New Zealand through its wholly-owned Australian subsidiary, Empowered Products Pty Ltd. (“EP Australia”) pursuant to permits issued by Australia and New Zealand. When we acquired the assets of Polarin in the first quarter of 2011, we obtained Polarin Pty Ltd’s New Zealand Medsafe Import Permit issued by the New Zealand Medicines and Medical Devices Safety Authority. We also acquired Polarin Pty Ltd’s Certificate of Inclusion of a Medical Device issued by the Therapeutic Goods Administration, Department of Health and Ageing of the Australian Government. Both permits remain current under EP Australia and we will be required to maintain these permits in order to continue to export products to Australia and New Zealand. We will continue to renew such permits via EP Australia prior to their expiration, but cannot guarantee that such permits will be renewed.

Research and Development

For the years ended December 31, 2013 and 2012, we expended $712 and $721, respectively, in research and development costs.

Trademarks

We use trademarks on all of our products to maintain and enhance our competitiveness. We believe that having distinctive identifiable trademarks is an important factor in creating a market for our goods and distinguishing our products from those of other companies. We currently own an aggregate of 74 trademarks for our products registered in the U.S., Australia, Brazil, Canada, China, the European Community, Hong Kong, Iceland, Japan, Mexico, New Zealand, and Taiwan. We consider these trademarks to be of material importance in the operation of our businesses and will protect our trademarks against infringement.

Competition

The markets for the products offered by our company are highly fragmented and are characterized by many small businesses as well as large multi-national companies. With no significant barriers to enter this market, we believe that competition will intensify in both the lubricant and herbal supplement industries. We believe that we compete on the basis of the distinctiveness, quality, performance and price of our products, quality of customer service, promotional activities and brand name recognition. Our products are not covered by patents and our competitors could produce copies of our products.

Many of our competitors market topical lubricant products that are well known and trusted by the consumer marketplace, including Johnson & Johnson with its line of K-Y personal lubricants, which was recently sold to Reckitt Benckiser Group, the maker of the Durex brand. Our lubricant, oil and gel products also compete with Astroglide® made by Biofilm, Inc. and the Wet® line of products made by Trigg Laboratories, Inc.

While there are many competitors in the herbal supplement market, many of our competitors in the nutritional supplement market are smaller companies. Many manufacturers of nutritional supplements in direct competition with our supplements have been subject to recalls required by the FDA due to the inclusion of prescription ingredients in such supplements, such as Viagra or Cialis. Our main competition in the herbal supplement market include Biotab Nutraceutical, Inc., TF Supplements, RockHard Laboratories and The Screaming O.

Many of our competitors have significantly greater financial and other resources than we do and have the ability to spend more aggressively on advertising and marketing, spend more on product development and testing, and have more flexibility than we do to respond to changing business and economic conditions and changes in preferences for sexual wellness products and nutritional supplements.

Employees

As of December 31, 2013, we had 17 employees, all of whom were full time. We have not experienced any work stoppages and we consider our relations with our employees to be good.

Where you can find more information

You are advised to read this Form 10-K in conjunction with other reports and documents that we file from time to time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that we file from time to time. You may obtain copies of these reports directly from us or from the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E. Washington, D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains information for electronic filers at its website http://www.sec.gov.

ITEM 1A. RISK FACTORS

Any investment in our common stock involves a high degree of risk. Potential investors should carefully consider the material risks described below and all of the information contained in this Form 10-K before deciding whether to purchase any of our securities. Our business, financial condition or results of operations could be materially adversely affected by these risks if any of them actually occur. Our common stock is quoted on the OTCQB under the symbol “EMPO”. This market is extremely limited and the prices quoted are not a reliable indication of the value of our common stock. The trading price could decline due to any of these risks, and an investor may lose all or part of his or her investment. Some of these factors have affected our financial condition and operating results in the past or are currently affecting us. This Annual Report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks described below and elsewhere in this report.

If the outside contractors we currently use for bulk production of our lubricant and lotion products and production of our nutritional supplements fail to produce product in the volumes and quality that we require on a timely basis, we may be unable to meet demand for our products and may lose potential revenues.

We currently contract with specially equipped contractors to handle the large-scale mixing of the formulation components in our lubricant and lotion products. We also obtain our nutritional supplements from a third-party manufacturer. These external contractor relationships entail added costs and potential disruption to our finished goods schedule. These third-party contractors may encounter difficulties in production, including problems with quality control, quality assurance testing, shortages of qualified personnel, and compliance with federal, state and or other governmental regulations. Our contractors may not be able to expand capacity or to produce additional product requirements for us in the event that demand for our products increases. There can be no assurance that our contractors will be able to continue purchasing raw materials for our products from current suppliers or any other supplier on terms similar to current terms or at all. If these contractors were to encounter any of these difficulties, or experience any interruption in the availability of certain ingredients or significant increases in the prices paid for such materials, our ability to fulfill orders on a timely basis to our customers would be jeopardized. In the future, we intend to add the necessary industrial level mixing equipment to our current bottling facility to mix our own lubricant and lotion products, however, we cannot assure you when and if we will begin to mix such products in-house.

If we do not manage product inventory in an effective and efficient manner, our profitability could be adversely affected.

Many factors affect the efficient use and planning of product inventory, such as effectiveness of predicting demand, effectiveness of preparing manufacturing to meet demand, efficiently meeting product mix and product demand requirements and product expiration. We may be unable to manage our inventory efficiently, keep inventory within expected budget goals, or keep sufficient product on hand to meet demand. If we fail to manage inventory effectively, we may end up with unsold inventory that is past its expiration date and can no longer be sold. We periodically evaluate the composition of inventory and estimate an allowance to reduce inventory for slow moving, obsolete or damaged inventory. In 2013, we concluded that some of our nutritional supplement product inventory may expire prior to its expected sale and accrued an allowance related to such inventory. In addition, if we fail to anticipate demand for our products accurately, we may be required to record charges for idle plant capacity. We cannot provide you with assurance that we will be able to manage our inventory effectively to avoid future similar charges and allowances in the future. Our failure to manage inventory effectively may lead to increased costs and adversely affect our results of operations.

Developing and increasing awareness of our brand is crucial to increasing our customer base and our revenues.

We believe that increasing awareness of our PINK® and GUN OIL® brands will be critical to expanding our customer base and our revenues, especially as we expand our line of product offerings. If we fail to advertise and market our products effectively, we may not succeed in maintaining or increasing awareness of our brands and we may lose customers and our revenues will decline. The delivery of quality products to our customers is also of utmost importance to maintaining and enhancing the reputation of our brand. If our customers do not perceive our products to be of high quality, demand for our products will decline, which could lead to a decline in revenues and an adverse effect on our financial condition.

Our distribution of products through national retail chains may require additional costs and fees, all of which are not always outlined in a sales agreement, which may result is decreased profitability.

We recently began to sell our products through national retail chains. Unlike other distribution channels, fees and charges back to sales are not always clearly defined in sales agreements with large chain stores. These can be slotting fees, i.e., the cost of placement in a store chain, in store coupons, temporary price reductions and other similar promotions. These fees and costs can lead to a decline in profitability of the products sold through the retail chain. In addition, collection on old and/or short paid invoices can be a long and arduous process, sometimes leaving older invoices uncollectable. Many retail chains also reserve the right to return unsold merchandise should it be slow-moving. This could lead to a decline in revenues and have an adverse effect on our financial condition.

Reliance on selling to national retail chains.

The loss of one or more of the Company's retail chains that may account for a significant portion of the Company's net sales, or any significant decrease in sales to these retail chains, including as a result of consolidation among the Company's retail chains, inventory management by the Company's retail chains, changes in pricing or promotional strategies by the Company's retail chains or space reconfigurations by the Company's retail chains or any significant decrease in the Company's display space, could reduce the Company's net sales and/or operating income and therefore could have a material adverse effect on the Company's business, financial condition and/or results of operations.

Our new sales strategy of selling our products directly to retailers and our new marketing focus toward end consumers might not be successful and may decrease sales to our wholesale customers.

A component of our overall plan to increase sales, through greater inventory capacity and new product genres, includes selling products directly to retailers and direct marketing to the end retail consumers of our products. In 2012, we began selling our lubricant products directly to retailers and in December 2011, we began selling our complete product line directly to consumers through our online Wellness Store. Prior to then, we had not sold any of our products directly to end consumers. We cannot assure you that this new sales and marketing strategy will be successful. As a result of our new sales and marketing strategies, our traditional wholesale and distributor customers may decrease purchases from us, which could lead to reduced sales and revenues from that particular revenue stream. In addition, in implementing our new strategy to sell our products to end consumers, we intend to employ various methods to drive and direct consumer traffic to our retail store, such as issuing coupons redeemable at our retail store. These methods may cause tension with our wholesaler and retailer customers that want to control such consumer traffic and cause such customers to retaliate by decreasing their purchase orders with us, which could have a material adverse effect on our business, financial condition, liquidity and operating results.

Our plan to implement new sales and marketing strategies to reduce sales and marketing related costs may not be successful.

Our sales and marketing strategies, which have predominantly focused on trade conventions and extensive travel to onsite visits to wholesale account customers, must become more efficient to increase profit margins. We implemented a new sales and marketing strategy to increase sales and lower our costs per new account added and per order attained by using mass-contact methods such as, direct mail and online order solicitation from our customer contact management program on our proprietary server. These marketing and sales strategies apply to both of our product lines, personal lubricants and herbal supplements. For our lubricant product line only, we have embarked on a campaign to expand our presence in the large retail chain sector. This has been done through retail chain store industry shows and the establishment of a broker network for communicating with retail chain store buyers. We cannot assure you that these new sales and marketing methods will result in increased sales or decreased costs.

If we are unsuccessful in developing an online marketing strategy for our products, our sales may decline and cause an adverse effect on our results of operations.

Over recent years, we have observed a gradual decline in the number of onsite adult product stores in the U.S. and within our active wholesale customer database. Although many of these adult trade retail outlets have transformed into online sales venues, we have had to continually update and convert our marketing materials from point-of-purchase displays to online promotional graphics in HTML format. Our marketing strength for our lubricant and lotion products has traditionally been physical, point-of-purchase displays where consumers can physically see and hold our unique product packaging. It is uncertain whether our new online marketing strategy for such products will be as successful as our physical marketing displays. Our failure to implement a successful online marketing strategy may lead to fewer sales of such products and an adverse effect on our results of operations.

Governmental regulation of Internet-based commerce and the collection and use of personal information may adversely affect the growth of our business or hinder our marketing efforts.

Any new law or regulation, or the application or interpretation of existing laws, regarding Internet-based commerce may decrease the growth in the use of the Internet-based commerce or our online Wellness Store. Governmental regulation of Internet-based commerce continues to evolve in areas such as taxation, privacy, data protection, copyrights, patents, mobile communications and the provision of online payment services. We expect there will be an increasing number of laws and regulations implemented that govern Internet-based commerce, both in the United States and abroad. Unfavorable changes to regulations in these areas could harm our business.

The FTC has regulations regarding the collection and use of personal identifying information obtained from individuals when accessing websites, with particular emphasis on access by minors. In addition, other governmental authorities have regulations governing the collection and use of personal information that may be obtained from customers or visitors to websites. These regulations include requirements that procedures be established to disclose and notify users of our websites of our privacy and security policies, obtain consent from users for collection and use of personal information and provide users with the ability to access, correct or delete personal information stored by us. In addition, the FTC and other governmental authorities have made inquiries and begun investigations of companies’ practices with respect to their users’ personal information collection and dissemination practices to confirm these are consistent with stated privacy policies and to determine whether precautions are taken to secure consumer’s personal information. The FTC and certain state agencies also have made inquiries, and, in a number of situations, brought actions against companies to enforce the privacy policies of these companies, including policies relating to security of consumers' personal information. If we become a party to a similar investigation or become the subject of the FTC’s regulatory and enforcement efforts or those of other governmental bodies, our ability to collect demographic and personal information from users may be adversely affected, which could harm our marketing efforts.

A deterioration in trade relations between U.S. and China could negatively impact our inventory production capacity.

The majority of components for our personal lubricant product line, including bottles, caps and labels, are purchased from manufacturers based in China. Any deterioration in relations between the U.S. and China could adversely affect our ability to continue obtaining such components from our current Chinese suppliers or cause delays in obtaining shipments from such suppliers. Delays in obtaining such items could cause delays in fulfilling orders which could negatively affect our reputation and business. While there are alternative domestic sources for the components that we currently buy from China, obtaining components from domestic suppliers could increase costs and negatively affect our results of operations.

We intend to increase sales by expanding sales of our products to new international markets. We could incur substantial costs in connection with such expansion and may not be successful in expanding into new markets, which could materially adversely affect our growth and business operations.

We intend to expand sales of our products to new international markets in which we will become subject to different political, cultural, regulatory, economic, legal and operational risks. We may need to comply with the need to overcome regulatory and legal barriers in order to sell our products in such jurisdictions and we cannot assure you that we will be able to overcome such barriers. For example, our entry into the South American markets continues to be difficult which could negatively impact our expansion plans. We have been attempting to gain initial shelf space for our lubricant products in South America for the past several years without success. The requirements to attain import licenses, such as the "anavisa" program in Brazil, continue to change without clear explanation. We may incur substantial costs in attempting to expand sales of our products to new international markets or in ensuring that are products are compliant with regulations in such areas, which could negatively affect our results of operations. We cannot assure you that consumers in such new markets will accept or purchase our products or that expanding into these new markets will generate significant revenues.

If the growth rate of the nutritional supplement industry slows, sales of our nutritional supplements could decrease and have a negative impact on our business.

The nutritional supplement industry has been steadily growing over the past few years. Any negative news regarding nutritional supplements, including reported medical problems associated with ingredients in our products or used in other nutritional supplements, could negatively impact demand for our nutritional supplement products. A decrease in demand for our products would negatively affect our sales growth.

Impediments to global shipping lanes can delay crucial deliveries and negatively impact our business, financial condition and results of operations.

Both our receipt of product packaging components and our shipment of finished goods depend heavily on ship cargo container delivery. Threats of dock workers’ strikes highlight our potential vulnerability to shipping interruption. Any shipment delays in obtaining our product packaging or shipping our finished products to our customers could negatively impact our business, financial condition and results of operations.

Our Las Vegas logistical center can be impacted by foul weather which can disrupt our operations.

Our product bottling and order fulfillment shipping operations can be interrupted by abnormal weather conditions in the high desert environment of Las Vegas, Nevada. In the past, a rare snow storm caused enough roof damage to one of our warehouse facilities to temporarily halt personnel and machinery functioning inside. The occurrence of any future abnormal weather conditions could cause damage to our facility and possibly cause us to have to stop or delay operations again. Although we have insurance to cover damage to our facilities, we may incur expenses relating to such damages, which could have a material adverse effect on our business and results of operations.

Our reliance on third party distributors could have a material adverse effect on us.

We sell a substantial percentage of our products through independent distributors. We have little or no control over third party distributors and the failure of such third parties to provide services and our products to retailers or consumers on a timely basis could have a material adverse effect on our business, financial condition and operating results. In addition, if we replace existing third party distributors with new third party distributors or with our own distribution arrangements, then transition issues could have a material adverse effect on our business, financial condition and operating results.

The adult nature of our products may prevent some companies from doing business with us.

Some companies we seek to provide products and services to us may be concerned that associating with our company due to the adult nature of our products may prevent them from doing business with us. These companies may be reluctant to enter into or continue business relationships with us. We cannot assure you that we will be able to maintain our existing business relationships with the companies that currently provide services and products to us. We could be forced to enter into business arrangements on terms less favorable to us than we might otherwise obtain, which could lead to higher costs. If we are unable to maintain our existing business relationships or enter into business relationships with other product and service providers in the future, our business, financial condition and results of operations may be materially adversely affected.

We may not be successful in attracting new consumer groups for our new nutritional supplement product line.

The retail consumers of our current topical gels, lotions and oils products are predominately onsite and online customers of adult products stores, independent and chain drugstores and women’s accessory boutiques. The success of our new lines of nutritional supplements will depend upon attracting a consumer following from customers of onsite and online grocery stores and wellness product merchants. The appeal of our new nutritional supplement products and the recognition of our trademarked logos by these new consumer groups could be less than we currently anticipate. Our failure to attract new consumers for these products may result in increased costs and cause a material adverse effect on our results of operations.

The success of our line of nutritional supplements depends on retailer and consumer acceptance of such products.

The nutritional supplement market is highly fragmented and competitive. The success of our new line of supplement products will depend on our ability to market our new products successfully. Market acceptance of such products by retailers and consumers is critical to the success of our new product line. We cannot assure you that consumers and retailers will purchase our products or that demand will increase for such products. Our failure to convince retailers to carry our products and/or consumers to purchase our products may negatively impact our results of operations.

Our current management has no experience in developing and selling nutritional supplements.

From March 2002 to present time, the core of our sales revenues has been derived from our line of topically applied gels, lotions and interactive lubricants. Our current management has drawn on this specific product-scope experience in launching products in the nutritional supplement category. We cannot assure you that the sales and marketing strategies employed by our current management and sales staff that have been successful for our traditional product lines will be as effective for our sale of products in these new categories. Any failure to convince consumers to purchase our nutritional supplements could have a material adverse effect on our business and future prospects.

Our current trademark protections might not translate over to our new nutritional supplement products categories.

Our current trademarks cover our product line in category 25 for topical applications in 30 countries under the PINK® and GUN OIL® logos. Our product line expansion into nutritional supplements will qualify under new product categories for trademark protection. We have not yet determined the need and cost for additional trademark registrations for new products under our current logos that may be needed. We plan on expanding our trademark protection in foreign jurisdictions as the host governments approve our supplements for import and our in-country sales justify the process and expenditure. The increased costs associated with any new needed trademark registrations would negatively affect our results of operations.

If we are unable to protect our trademarks, we may not be able to compete as effectively and our business and financial prospects may be harmed.

We believe that our trademarks, in particular PINK® and GUN OIL®, are crucial to our success, growth potential and competitiveness. Our products are currently sold under these trademarks in over 30 countries. There is no assurance that there will not be any infringement of our brand name or other registered trademarks. We cannot guarantee the protection of our trademark rights and if infringement of trademarks occurs, including counterfeiting of our products, our reputation and business may be adversely affected. We may also incur significant expenses and substantial amounts of time and effort to enforce our trademark rights in the future. Such diversion of our resources may adversely affect our existing business and future expansion plans.

If we are subject to intellectual property litigation, we could incur significant costs and liabilities which could disrupt our business and negatively affect our financial condition and results of operations.

We may be subject to claims of infringement or other violations of intellectual property rights. Whether or not such a claim is valid, receipt of these notices could result in significant costs and diversion of the attention of management from our business operations. To the extent that any claim brought against us is successful, we may have to pay monetary damages or discontinue sales of any of our products that are found to be in violation of another party’s rights, which could result in a material adverse effect on our financial condition and results of operations.

Our inexperience in dealing with the Food & Drug Administration (the “FDA”) may harm our ability to offer nutritional supplement products.

Our product expansion into nutritional supplements requires expert guidance with respect to FDA rules and procedures. During a previous labeling application with the FDA to obtain 510(k) certification for one of our products, we spent over three years and $300,000 for a selected expert to guide us through the approval process. We have sought the assistance of an expert in FDA regulations in connection with the introduction of our nutritional supplements to assist us with compliance with FDA and other regulations related to our sale of such products. Obtaining advice and guidance from experts with respect to FDA and other governmental rules and regulations may result in increased costs, which may adversely affect our results of operations.

If we fail to comply with regulations governing the labeling of our products, then our business and operating results may be harmed.

Our products, including our nutritional supplements, are subject to rigorous FDA and other regulatory requirements regarding the types of therapeutic claims we can make regarding our products. If we fail to comply with these regulations, we could be subjected to claims, financial penalties, product recalls or relabeling requirements, which could have a negative effect on our sales and results of operations.

We may be subject to product liability claims from our products, which could result in costly litigation, harm to our reputation, and a material adverse effect on our business and results of operations.

The development and sale of our topical lubrication and nutritional supplement products exposes us to the risk of damages from product liability or other consumer claims. Such claims may arise despite our quality controls, proper testing and instruction for use of our products. In addition, our nutritional supplement products, which are not subject to pre-market regulatory approval in the U.S., may contain ingredients that cause adverse reactions in people that ingest such supplements. As a marketer and seller of nutritional supplements, we may be subject to various product liability claims, including claims that our supplements contain contaminants or do not include adequate warnings regarding side effects and interactions with other substances. If a product liability claim is brought against us, regardless of merit or eventual outcome, or a recall of one of our products is required, such claim or recall may result in breaches of contracts with our customers, decreased demand for our products, costly litigation, additional product recalls, loss of revenue, and the inability to commercialize some products. Any product liability claims related to our products would harm our reputation, which could cause a decrease in sales of our products and negative effect on our business operations. Although we have obtained product liability insurance as well as certificates of insurance from our suppliers of lubricant and herbal supplements that name us as an additional insured, we may not be able to obtain sufficient amounts from our insurance policies to cover a product liability claim. Any reduction in revenues or substantial costs related to product liability claims would materially adversely affect our business and results of operations.

We will be subject to competition from numerous companies, including a number of multi-national companies that have significantly greater financial and other resources.

The sexual wellness and nutritional supplement industries are highly competitive and very fragmented. With no significant barriers to enter these markets, we believe that competition in these industries will intensify. We compete with hundreds of large and small companies, including large multi-national companies in the topical lubricant and gel market, such as Johnson & Johnson, the maker the most recognized personal lubricant product, K-Y Jelly, and numerous other multi-national manufacturers. The K-Y brand was recently sold to Reckitt Benckiser Group, the maker of the Durex brand. Most of our competitors market products that are well known and trusted by the consumer marketplace. Since many of our competitors have significantly greater financial and other resources than we do, our competitors have the ability to spend more aggressively on advertising and marketing, spend more on product development and testing, and have more flexibility than we do to respond to changing business and economic conditions and changes in preferences for sexual wellness products and nutritional supplements. Any delays in our development or release of new products in response to changing customer preferences could materially adversely affect our operating results and financial condition. Our existing competitors and future potential competitors may develop or market products that will be more accepted in the marketplace than our products. Competition in the sexual wellness business is based on product price, quality of the products, promotional activities, advertising, new product introductions, name recognition, and other factors. It is difficult for us to predict how we will be able to effectively compete with our competitors’ actions in these areas. We cannot assure you that we will have the resources to compete successfully with our competitors.

The implementation of new regulations governing the marketing and sale of nutritional supplements could harm our business.

There has been an increasing movement in the U.S. and other jurisdictions to increase the regulation of dietary supplements, which could impose additional restrictions or requirements on the marketing and sale of such products. For example, in the U.S., there has been a push to increase the FDA’s regulatory authority of nutritional supplements. Our business could be harmed if more restrictive legislation is successfully introduced and adopted in the future. Currently, our nutritional supplement products are not subject to pre-market FDA approval. If regulations are adopted to require pre-market approval supplements or ingredients, our sale and release of new nutritional supplements cold be delayed or inhibited. The adoption of similar laws in other countries in which we intend to expand sales of our nutritional supplements could also harm our business. The FTC approved revisions to its Guides Concerning the Use of Endorsements and Testimonials in Advertising (“Guides”) in December 2009. The Guides state that advertisements that feature a consumer and his or her atypical experience with a product must clearly disclose the results that consumers generally can expect with such product. In addition, the Guides require disclosure of any material connections between an endorser and the company whose products he or she is endorsing. If we fail to comply with the Guides, the FTC could bring an enforcement action against us and we could be fined and/or forced to alter our marketing strategy.

Our or our third-party manufacturers’ failure to comply with good manufacturing practices could harm our business operations.

All manufacturers and suppliers of nutritional supplements must comply with applicable current good manufacturing practice, or cGMP, regulations for the manufacture of our nutritional supplement products, which are enforced by the FDA through its facilities inspection program. The FDA may conduct inspections of our third party manufacturers to assure they are in compliance with such regulations. These cGMP requirements include quality control, quality assurance and the maintenance of records and documentation, among other items. Our manufacturers may be unable to comply with these cGMP requirements and with other regulatory requirements. A failure to comply with these requirements may result in fines, product recalls or seizures and related publicity requirements, injunctions, total or partial suspension of production, civil penalties, warning or untitled letters, import or export bans or restrictions, and criminal prosecution and penalties. Any of these penalties could delay or prevent the promotion, marketing or sale of our products. If the safety of any products supplied to us is compromised due to a third party manufacturer’s failure to adhere to applicable laws or for other reasons, we may not be able to successfully sell our products. We cannot assure you that our third-party manufacturers will continue to reliably supply products to us at the levels of quality, or the quantities, we require, and in compliance with applicable laws and regulations, including cGMP requirements.

Failure to protect against security breaches and inappropriate use by Internet users could adversely affect our company.

We collect and retain a large amount of internal and customer data, including credit card numbers and other personally identifiable information of our customers, as well as personally identifiable information about our employees. The security of this data may potentially be breached due to a number of risks, including cyber-attack, system failure, human error, computer virus, or unauthorized or fraudulent use by customers or company employees. Any failure on our part to effectively prevent security breaches could significantly harm our business, reputation and results of operations and could expose us to lawsuits by state and federal consumer protection agencies, by governmental authorities in the jurisdictions in which we operate, and by consumers. Anyone who is able to circumvent our security measures could misappropriate proprietary information, including customer credit card and personal data, cause interruptions in our operations or damage our brand and reputation. Such breach of our security measures could involve the disclosure of personally identifiable information and could expose us to a material risk of litigation, liability or governmental enforcement proceedings. We cannot assure you that our systems are completely secure from security breaches or sabotage. We may be required to incur significant additional costs to protect against security breaches or to alleviate problems caused by such breaches. Any well-publicized compromise of our security or the security of any other Internet provider could deter people from using our online Wellness Store to purchase our products, which could adversely affect our sales and results of operations.

Computer viruses may cause delays or other service interruptions, which may materially adversely affect our ability to operate our business and result in damage to our reputation. If a computer virus affecting the Internet in general is highly publicized or particularly damaging, our customers may not use the Internet or may be prevented from using the Internet to access our Wellness Store, which would have an adverse effect on sales of our products. The inadvertent transmission of computer viruses could also expose us to a material risk of loss or litigation and possible liability. The Company may be required to expend capital and resources to protect against or alleviate system failures or disruptions, which could negatively affect our results of operations.

Credit card and debit card fraud and other fraud could adversely affect our business.

Our consumer customers typically pay for their online orders through our Wellness Site with debit or credit cards. Our revenues and gross margins could decrease if we experienced significant credit card and debit card fraud. Failure to adequately detect and avoid fraudulent credit card and debit card transactions could cause us to lose our ability to accept credit cards or debit cards as forms of payment and/or result in charge-backs of the fraudulently charged amounts and/or significantly decrease revenues. Furthermore, widespread credit card and debit card fraud may lessen our customers’ willingness to purchase products through our online Wellness Store, which could materially adversely affect our sales, financial condition and results of operations.

We may need additional capital to implement our current business strategy, which may not be available to us.

We currently depend on net revenues and borrowings under our line of credit to meet our short-term cash requirements. In order to grow revenues, sustain profitability and remain a going concern, we will need additional capital. Obtaining additional financing will be subject to a number of factors, including market conditions, our operating performance and investor sentiment. These factors may make the timing, amount, terms and conditions of additional financing unattractive or unavailable to us. We cannot assure you that we will be able to obtain any additional financing. If we are unable to obtain the financing needed to implement our business strategy, we may have to delay, modify or abandon some of our expansion plans. This could slow our growth, negatively affect our ability to compete in the marketplace and adversely affect our financial condition.

Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights.

We may seek additional capital through a combination of private and public equity offerings, debt financings and collaborations and strategic and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring debt, making capital expenditures or declaring dividends.

We may not be able to extend or renew our current revolving credit facility with The Bank of Nevada on terms reasonably acceptable to us, if at all.

We have generally financed our operations through contributions from our majority stockholder, sales of equity securities, and borrowings under a line of credit, previously with Wells Fargo Bank and now with The Bank of Nevada. Our revolving line of credit with The Bank of Nevada provides for borrowings of up to $500,000. If we are unable to renew our line of credit with The Bank of Nevada and cannot locate additional financing sources to replace such line of credit, our cash flow could be adversely affected.

We rely heavily on the founder of EP Nevada, Scott Fraser, our current President and Chief Executive Officer. The loss of his services would have a material adverse effect upon the Company and its business and prospects.

Our success depends, to a significant extent, upon the continued services of Scott Fraser, who is the founder of EP Nevada and our current President and Chief Executive Officer. Mr. Fraser is not subject to any agreement that prevents him from soliciting our existing customers or disclosing information deemed confidential to us, we do not have any agreement with Mr. Fraser or any key employees that would prohibit them from joining our competitors or forming competing companies. If Mr. Fraser or any key employee resigns to join a competitor or form a competing company, the loss of such personnel, together with the loss of any customers or potential customers due to such executive’s departure, could materially and adversely affect our business and results of operations.

Our failure to effectively manage growth could harm our business.

We have rapidly and significantly expanded our operations since our inception and will endeavor to further expand our operations in the future with our current plans to triple our output capacity at our bottling facility. Any additional significant growth in the market for our products or our entry into new markets may require and expansion of our employee base for managerial, operational, financial, sales and marketing and other purposes. During any growth phase, we may face problems related to our operational and financial systems and controls, including quality control and customer service capacities. We would also need to continue to expand, train and manage our employee base. Continued future growth will impose significant added responsibilities upon the members of management to identify, recruit, maintain, integrate, and motivate new employees.

Aside from increased difficulties in the management of human resources, we may also encounter working capital issues, as we will need increased liquidity to finance the development of new products, to increase our output capacity and to hire additional employees. For effective growth management, we will be required to continue improving our operations, management, and financial systems and controls. Our failure to manage growth effectively may lead to operational and financial inefficiencies that will have a negative effect on our profitability. We cannot assure investors that we will be able to timely and effectively meet that demand and maintain the quality standards required by our existing and potential customers.

Our business and results of operations may be negatively impacted by general economic and financial market conditions and such conditions may exacerbate the other risks that affect our business.

The global economy is currently struggling to recover from a pronounced economic downturn. Global financial markets are continuing to experience disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, continued high unemployment, and uncertainty about economic stability. Given these uncertainties, there is no assurance that there will not be further deterioration in the global economy, the global financial markets and consumer confidence. Although we believe we have adequate liquidity and capital resources to fund our operations internally, in light of current market conditions, our inability to access the capital markets on favorable terms, or at all, may adversely affect our financial performance. Current market conditions could impair our ability to raise additional capital when needed for our operations and planned expansion. The inability to obtain adequate financing from debt or capital sources could force us to self-fund strategic initiatives or even forego certain opportunities, which in turn could potentially harm our performance.

We may pursue future growth through strategic acquisitions and alliances which may not yield anticipated benefits and may adversely affect our operating results, financial condition and existing business.

We may seek to grow in the future through strategic acquisitions in order to complement and expand our business. The success of our acquisition strategy will depend on, among other things:

the availability of suitable candidates;

competition from other companies for the purchase of available candidates;

our ability to value those candidates accurately and negotiate favorable terms for those acquisitions;

the availability of funds to finance acquisitions;

the ability to establish new informational, operational and financial systems to meet the needs of our business;

the ability to achieve anticipated synergies, including with respect to complementary products; and

the availability of management resources to oversee the integration and operation of the acquired businesses.

If we are not successful in integrating acquired businesses and completing acquisitions in the future, we may be required to reevaluate our acquisition strategy. We also may incur substantial expenses and devote significant management time and resources in seeking to complete acquisitions. Acquired businesses may fail to meet our performance expectations. If we do not achieve the anticipated benefits of an acquisition as rapidly as expected, or at all, investors or analysts may not perceive the same benefits of the acquisition as we do. If these risks materialize, our stock price could be materially adversely affected.

Since the adoption of our Omnibus Incentive Plan in April of 2012, we have granted Empowered Products related securities to compensate employees and other service providers that resulted in share-based compensation and, therefore, reduced net income.

In April of 2012, we adopted the 2012 Omnibus Incentive Plan under which we may grant equity awards to qualified employees, directors and service providers. We began granting equity awards to qualified employees, directors, and service providers in 2013. Under current accounting rules, we have been required to recognize share-based compensation as a compensation expense in our statement of operations, based on the fair value of equity awards on the date of the grant, and recognize the compensation expense over the period in which the recipient is required to provide service in exchange of the equity award. These non-cash charges adversely affected our net income in the first quarter of 2013. If we grant equity compensation to attract and retain key personnel, the expenses associated with share-based compensation may adversely affect our net income. However, if we do not grant equity compensation, we may not be able to attract and retain key personnel or be forced to expend cash or other compensation instead. Furthermore, the issuance of equity awards dilutes the stockholders’ ownership interests in our company.

RISKS RELATED TO OUR CAPITAL STRUCTURE

There is no liquid market for our common stock, and there is no assurance of an established public trading market, which would adversely affect the ability of our investors to sell their securities in the public market.

Our common stock is quoted on the OTCQB under the symbol “EMPO” and the trading volume has been low. This market is extremely limited and the prices quoted are not a reliable indication of the value of our common stock. FINRA has enacted changes that limit quotations on the OTCQB to securities of issuers that are current in their reports filed with the SEC. The OTCQB is an inter-dealer, over-the-counter market that provides significantly less liquidity than the NASDAQ Global Market and NYSE MKT. Quotes for stocks included on the OTCQB are not listed in the financial sections of newspapers as are those for the NASDAQ Stock Market and NYSE MKT. Therefore, prices for securities traded solely on the OTCQB may be difficult to obtain and holders of common stock may be unable to resell their securities at or near their original purchase price or at any price. We cannot predict how actively our shares will trade on the OTCQB or whether the price of our shares in the public market will reflect our financial performance.

The market price and trading volume of shares of our common stock may be volatile.

Our common stock is quoted on the OTCQB under the symbol “EMPO”. This market is extremely limited and the prices quoted are not a reliable indication of the value of our common stock. The market price of our common stock could fluctuate significantly for many reasons, including reasons unrelated to our specific performance, such as reports by industry analysts, investor perceptions, or announcements by our competitors regarding their own performance, as well as general economic and industry conditions. For example, to the extent that other companies within our industry experience declines in their share price, our share price may decline as well. Fluctuations in operating results or the failure of operating results to meet the expectations of public market analysts and investors may negatively impact the price of our securities. Quarterly operating results may fluctuate in the future due to a variety of factors that could negatively affect revenues or expenses in any particular quarter, including vulnerability of our business to a general economic downturn; changes in the laws that affect our products or operations; competition; compensation related expenses; application of accounting standards; and our ability to obtain and maintain all necessary government certifications and/or licenses to conduct our business. In addition, when the market price of a company’s shares drops significantly, shareholders could institute securities class action lawsuits against the company. A lawsuit against us could cause us to incur substantial costs and could divert the time and attention of our management and other resources.

Shares eligible for future sale may adversely affect the market price of our common stock, as the future sale of a substantial amount of outstanding stock in the public marketplace could reduce the price of our common stock.

The former shareholder of EP Nevada, Scott Fraser, may be eligible to sell all or some of our shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144, promulgated under the Securities Act of 1933, as amended (“Rule 144”), subject to certain limitations. Under Rule 144, an affiliate stockholder who has satisfied the required holding period may, under certain circumstances, sell within any three-month period a number of securities which does not exceed the greater of 1% of the then outstanding shares of common stock or the average weekly trading volume of the class during the four calendar weeks prior to such sale. As of March 31, 2014, 1% of our issued and outstanding shares of common stock was approximately 627,889 shares. Non-affiliate stockholders are not subject to volume limitations. Any substantial sale of common stock pursuant to Rule 144, or pursuant to any registration statement declared effective by the SEC, may have an adverse effect on the market price of our common stock by creating an excessive supply.

Members of our management team have significant influence over us.

Mr. Fraser, our President, Chief Executive Officer and Chairman of the Board, owns approximately 63.7% of our outstanding common stock. Mr. Fraser has a controlling influence in determining the outcome of any corporate transaction or other matters submitted to our stockholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors, and other significant corporate actions. Mr. Fraser may also have the power to prevent or cause a change in control. In addition, without the consent of Mr. Fraser, we could be prevented from entering into transactions that could be beneficial to us. The interests of Mr. Fraser may differ from the interests of our other stockholders.

We are not subject to certain corporate governance provisions of the Sarbanes-Oxley Act of 2002 and without voluntary compliance with such provisions, our stockholders will not receive the benefits and protections they were enacted to provide.

Since our common stock is not listed for trading on a national securities exchange, we are not subject to certain of the corporate governance requirements established by the national securities exchanges pursuant to the Sarbanes-Oxley Act of 2002. These include rules relating to independent directors, and independent director nomination, audit and compensation committees. Unless we voluntarily elect to comply with those obligations, investors in our shares will not have the protections offered by those corporate governance provisions. As of the date of this report, we have not elected to comply with any regulations that do not apply to us. We currently have a board of directors that consists of two members, neither of which are considered independent pursuant to the rules of the NYSE, NYSE MKT or NASDAQ. While we may make an application to have our securities listed for trading on a national securities exchange, which would require us to comply with those obligations, we cannot assure that we will do so or that such application will be approved.

If we fail to maintain effective internal controls over financial reporting, the price of our common stock may be adversely affected.

As a public company, we are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely impact our public disclosures regarding our business, financial condition or results of operations. Any failure of these controls could also prevent us from maintaining accurate accounting records and discovering accounting errors and financial frauds. Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require annual assessment of our internal control over financial reporting. The standards that must be met for management to assess the internal control over financial reporting as effective complex, and require significant documentation, testing and possible remediation to meet the detailed standards.

We identified material weaknesses in our internal control over financial reporting as of December 31, 2013, as disclosed in “Item 9A. Controls and Procedures” and concluded that our internal control over financial reporting was ineffective as of December 31, 2013. We determined that we had material weaknesses due to (a) ineffective procedures and controls over reserves and allowances, (b) inadequate segregation of duties, (c) an inadequate number of independent board members and lack of an independent audit committee, and (d) an insufficient complement of personnel with appropriate levels of knowledge and experience. Due to the actual and potential errors on financial statement balances and disclosures, management has concluded that these deficiencies in internal controls over the period-end financial close and reporting processes constituted material weaknesses in internal control over financial reporting.

Management has retained an outside, independent financial consultant to review all financial data, as well as help us prepare our financial reports, in order to mitigate this weakness. This will create a position whereby certain aspects of the operations will become more segregated, which is consistent with our control objectives and will increase our personnel resources and technical accounting expertise within the accounting function. We also plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us. Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board.

Our charter documents may have anti-takeover effects that could prevent a change in control, which may cause our stock price to decline.

Our articles of incorporation or our bylaws could make it more difficult for a third party to acquire us, even if closing such a transaction would be beneficial to our stockholders. We are authorized to issue up to 5,000,000 shares of preferred stock. This preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by our board of directors without further action by stockholders. The terms of any series of preferred stock may include voting rights (including the right to vote as a series on particular matters), preferences as to dividend, liquidation, conversion and redemption rights and sinking fund provisions. No preferred stock is currently outstanding. The issuance of any preferred stock could materially adversely affect the rights of the holders of our common stock, and therefore, reduce the value of our common stock. In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell our assets to, a third party and thereby preserve control by the present management.

Our articles of incorporation and bylaws also contain provisions that could have the effect of discouraging potential acquisition proposals or making a tender offer or delaying or preventing a change in control, including changes a stockholder might consider favorable. In particular, the articles of incorporation and bylaws, as applicable, among other things:

provide the board of directors with the ability to alter the bylaws without stockholder approval; and

provide that vacancies on the board of directors may be filled by a majority of directors in office, although less than a quorum.

These provisions are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of our company to first negotiate with its Board. These provisions may delay or prevent someone from acquiring or merging with us, which may cause the market price of our common stock to decline.

Compliance with changing regulation of corporate governance and public disclosure will result in additional expenses.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the public markets and public reporting. For example, on January 30, 2009, the SEC adopted rules requiring companies to provide their financial statements in interactive data format using the eXtensible Business Reporting Language, or XBRL. We began complying with these rules in 2011. In 2012, we began complying with the rules for detailed footnote tagging. Our management team will need to invest significant management time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities.

Our common stock may be considered a “penny stock,” and thereby be subject to additional sale and trading regulations that may make it more difficult to sell.

Our common stock, which is currently quoted for trading on the OTCQB may be considered to be a “penny stock” if it does not qualify for one of the exemptions from the definition of “penny stock” under Section 3a51-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our common stock may be a “penny stock” if it meets one or more of the following conditions (i) the stock trades at a price less than $5.00 per share; (ii) it is NOT traded on a “recognized” national exchange; (iii) it is NOT quoted on the Nasdaq Capital Market, or even if so, has a price less than $5.00 per share; or (iv) is issued by a company that has been in business less than three years with net tangible assets less than $5 million.

The principal result or effect of being designated a “penny stock” is that securities broker-dealers participating in sales of our common stock will be subject to the “penny stock” regulations set forth in Rules 15-2 through 15g-9 promulgated under the Exchange Act. For example, Rule 15g-2 requires broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document at least two business days before effecting any transaction in a penny stock for the investor’s account. Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult and time consuming for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.

We do not foresee paying cash dividends in the foreseeable future and, as a result, our investors’ sole source of gain, if any, will depend on capital appreciation, if any.

We do not plan to declare or pay any cash dividends on our shares of common stock in the foreseeable future and currently intend to retain any future earnings for funding growth. As a result, investors should not rely on an investment in our securities if they require the investment to produce dividend income. Capital appreciation, if any, of our shares may be investors’ sole source of gain for the foreseeable future. Moreover, investors may not be able to resell their shares of our common stock at or above the price they paid for them.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable to smaller reporting companies.

ITEM 2. PROPERTIES

We rent approximately 11,000 square feet of office and manufacturing space at our headquarters located at 3367 West Oquendo Road, Las Vegas, Nevada 89118 from an affiliate that is controlled by Scott Fraser, our Chief Executive Officer, under a triple net lease expiring on February 28, 2016. Monthly base rent under the lease is $7,000. We do not expect to experience any difficulties in renewing our leases, or finding additional or replacement office and warehouse space, at their current or more favorable rates.

We also lease approximately 3,800 square feet of additional manufacturing facility space at 3375 W. Oquendo Road in Las Vegas, which is located next to our other manufacturing facilities. Pursuant to the lease, which expires on May 31, 2015, our annual rent is $48,000, which is payable in equal monthly installments. Pursuant to the lease, we were also granted an option to purchase the leased premises, which we may exercise at any time until the expiration date of the lease.

The Company also leases office equipment under a non-cancelable operating lease agreement that provides for monthly rental payments of $280 through February 2016.

Our facilities are adequate and suitable for our current needs though additional space may be required for our current expansion plans.

ITEM 3. LEGAL PROCEEDINGS

We are not involved in any material legal proceedings outside of the ordinary course of our business.

ITEM 4. MINE SAFETY DISCLOSURE

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is quoted on the OTCQB under the symbol “EMPO”. This market is extremely limited and the prices quoted are not a reliable indication of the value of our common stock.

The following table sets forth the high and low trade information for our common stock for each quarter since the Company’s stock began trading. The prices reflect inter-dealer quotations, do not include retail mark-ups, markdowns or commissions and do not necessarily reflect actual transactions.


Quarter ended	High		Low
March 31, 2012	$	1.25	$	1.15
June 30, 2012	$	1.32	$	0.80
September 30, 2012	$	1.20	$	0.70
December 31, 2012	$	1.11	$	0.12
March 31, 2013	$	0.50	$	0.15
June 30, 2013	$	0.50	$	0.23
September 30, 2013	$	0.55	$	0.24
December 31, 2013	$	0.48	$	0.11

The stock market in general has experienced extreme stock price fluctuations in the past few years. In some cases, these fluctuations have been unrelated to the operating performance of the affected companies. Many companies have experienced dramatic volatility in the market prices of their common stock. We believe that a number of factors, both within and outside its control, could cause the price of our common stock to fluctuate, perhaps substantially. Factors such as the following could have a significant adverse impact on the market price of our common stock:

Our financial position and results of operations;

Our ability to obtain additional financing and, if available, the terms and conditions of the financing;

Concern as to, or other evidence of, the reliability and efficiency of our proposed products or our competitors’ products;

Announcements of innovations or new products by us or our competitors;

Federal and state governmental regulatory actions and the impact of such requirements on our business;

The development of litigation against us;

Period-to-period fluctuations in our operating results;

Changes in estimates of our performance by any securities analysts;

The issuance of new equity securities pursuant to a future offering or acquisition;

Changes in interest rates;

Competitive developments, including announcements by competitors of new products or significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;

Investor perceptions of our company; and

General economic and other national conditions.

Stockholders

As of March 31, 2014 we had 48 stockholders of record. This number does not include an indeterminate number of stockholders whose shares are held by brokers in street name.

Dividends

We do not expect to declare or pay any cash dividends on our common stock in the foreseeable future, and we currently intend to retain future earnings, if any, to finance the expansion of our business. The decision whether to pay cash dividends on our common stock will be made by our board of directors, in its discretion, and will depend on our financial condition, operating results, capital requirements and other factors that the board of directors considers significant.

We did not pay cash dividends in the years ended December 31, 2013 or 2012.

Transfer Agent

The transfer agent and registrar for our common stock is Island Stock Transfer, Inc.

Equity Compensation Plan Information

Our equity compensation plan information is provided as set forth in Part III, Item 11 herein.

Additional Information

Copies of our annual reports, quarterly reports, current reports, and any amendments to those reports, are available free of charge on the Internet at www.sec.gov. All statements made in any of our filings, including all forward-looking statements, are made as of the date of the document in which the statement is included, and we do not assume or undertake any obligation to update any of those statements or documents unless we are required to do so by law.

ITEM 6.

SELECTED CONSOLIDATED FINANCIAL DATA

Not applicable for a smaller reporting company.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The following discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. This report contains forward-looking statements. The words “anticipated,” “believe,” “expect,” “plan,” “intend,” “seek,” “estimate,” “project,” “could,” “may,” and similar expressions are intended to identify forward-looking statements. These statements include, among others, information regarding future operations, future capital expenditures, and future net cash flow. Such statements reflect our management’s current views with respect to future events and financial performance and involve risks and uncertainties, including, without limitation, general economic and business conditions, changes in foreign, political, social, and economic conditions, regulatory initiatives and compliance with governmental regulations, the ability to achieve further market penetration and additional customers, and various other matters, many of which are beyond our control. Our actual results could differ materially from those anticipated in these forward-looking statements, which are subject to a number of risks, uncertainties and assumptions described in the “Risk Factors” section and elsewhere in this report. Consequently, all of the forward-looking statements made in this report are qualified by these cautionary statements and there can be no assurance of the actual results or developments.

Overview

Through EP Nevada, we offer a line of topical gels, lotions and oils, designed to enhance a person’s sex life and make people feel good about their sexual health in general. We currently have 13 exclusively formulated skin lubricants sold under our PINK® for Women and GUN OIL® for Men trademarks and intend to continue to expand our products offerings. Our proprietary formulated products are designed to increase mental focus and to improve the bond of interpersonal relationships. Our trademarked lubricant and lotion products are currently sold in 30 countries through more than 21,000 retail outlets. We also offer a line of nutritional supplements under our PINK® for Women and GUN OIL® for Men trademarks, which are currently sold in the U.S.

We also offer a line of nutritional supplements under the “Elevate for Women” and “High Caliber for Men” brands. We intend to expand our proprietary line of supplements by targeting the growing number of people who we believe are socially incapacitated and/or subdued by prescription anti-depressants.

Recent Events

During 2013, we began to distribute our products through national retail chain stores. Walgreens placed orders for our PINK® Silicone and PINK® Water feminine lubricants to be distributed to over 7,000 of its drugstore locations across the United States. Rite Aid placed orders for our PINK® Silicone lubricant for placement in 4,548 U.S. stores and our PINK® Water lubricant for placement in 3,705 U.S. stores. The Kroger Co. placed an order for our PINK® Silicone and PINK® Water personal lubricants to be distributed to approximately 1,400 Kroger retail locations across the United States. CVS Caremark (CVS) expanded the number of stores carrying our GunOil® Silicone, GunOil® H20, PINK® Silicone, and PINK® Water to over 5,000 retail locations across the United States. Wal-Mart Stores, Inc. placed an order for our PINK® Water and GunOil® H2O water-based lubricants to 39 of Wal-Mart’s U.S. distribution centers.

To support our products being available at more than 21,000 U.S. retail locations carrying our products, we initiated our largest marketing and advertising campaign. In late 2013, we launched our first national direct-to-consumer marketing campaign with HBMG Health & Beauty Marketing Group for our full line of sexual lubricants and high potency sexual enhancement supplements for the U.S. consumer market. HBMG is a leading advertising agency offering full service solutions to the health and beauty consumer markets worldwide. We also expanded the circulation of our SmartSource FSI ad campaign to more than 10 million homes.

Results of Operations

The following table sets forth a summary of certain key components of our results of operations for the periods indicated, in dollars and as a percentage of revenues.

	Years Ended December 31,
	2013				2012
	(in thousands)
Revenues	$	4,610		100.0%	$	3,000		100.0%
Cost of revenue		1,721		37.3%		1,348		44.9%
Gross profit		2,889		62.7%		1,652		55.1%

Selling and distribution		1,174		25.5%		897		29.9%
Research and development		1		*		1		*
General and administrative		1,567		34.0%		1,039		34.7%

Income (loss) from operations		147		3.2%		(285	)	(9.5%)

Interest income		–		*		–		*
Interest expense		(13	)	(0.3%)		(22	)	(.8%)

Net income (loss)	$	134		2.9%	$	(307	)	(10.3%)

* Less than 0.1%.

Years Ended December 31, 2013 and 2012

Revenue. Revenues for the year ended December 31, 2013 were approximately $4.6 million, compared to revenues of approximately $3.0 million in the comparable period in 2012, an increase of 53.6%. The increase in revenue was primarily due to new sales of Pink, Pink Water, Gunoil and Gunoil H2O to national retail chains throughout the United States. The major chain stores now carrying our lubricant products are Walgreens, CVS, Rite Aid, Kroger/Fred Meyer, HEB and Wal-Mart. We also saw a 7.8% increase in sales through our established distributor channels.

Cost of revenue. Cost of revenue primarily consists of costs related to the production or purchase of products for sale. Cost of revenue for the year ended December 31, 2013 was approximately $1.7 million as compared to approximately $1.3 million in the comparable period in 2012, a 27.6% increase. The increase in cost of revenue for the year ended December 31, 2013 relative to 2012, was primarily due to increased sales to national retail chains and the resulting costs associated with those sales.

Gross profit. In the year ended December 31, 2013, our gross profit increased to approximately $2.9 million, from approximately $1.7 million in the year ended December 31, 2012. During the same period, our gross profit margin increased to 62.7%, up from 55.1% in the previous year. The gross profit margin increase was attributable to an increase in sales made directly to retailers, including national retail chains, at our standard rates, based on our manufacturer suggested retail price as compared to sales made through our wholesale distribution channels which are made at lower prices due to higher discounts given to such customers. The percentage of sales to national retail chains for the years ended December 31, 2013 and 2012 were approximately 61.1% and 38.5% respectively.

Selling and distribution expenses. Selling and distribution expenses for the year ended December 31, 2013 were approximately $1.2 million, or 25.5% of revenues, which increased from selling and distribution expenses of approximately $900,000, or 29.9% of revenues, for 2012. The increase in selling and distribution expenses was primarily the result of an increase in marketing fees charged back from the national retail chains for in store promotion of our product, increased freight expense and increased sales commissions.

Research and development expenses. Research and development expenses for the year ended December 31, 2013 were approximately $1,000 compared to approximately $1,000 for the year ended December 31, 2012, We added no new products in 2013 and 2012, as we concentrated on promoting our existing product line, resulting in no changes to the research and development expenses.

General and administrative expenses. General and administrative expenses for the year ended December 31, 2013 were approximately $1.6 million, or 34.0% of revenues, compared to approximately $1.0 million, or 34.7% of revenues, for the year ended December 31, 2012, an increase of $0.6 million. The increase in general and administrative expenses was primarily due to approximately $670,000 in expenses related to share based compensation during the year ended December 31, 2013 and an increase of approximately $141,000 in investor relations for the same period. This was offset by approximately $180,000 of expenses that were absorbed into costs of sales as part of the Company’s overhead allocation process due to increases in production and reductions in legal and professional fees of approximately $30,000.

Income taxes. No expense or benefit from income taxes was recorded in the years ended December 31, 2013 or 2012 due to the utilization of net operating loss carryforwards in 2013 and the net loss in 2012.

Net income (loss). We had net income of approximately $134,000 for the year ended December 31, 2013 compared with net loss of approximately $307,000 for the year ended December 31, 2012. The increase in our net income was primarily due to increased sales to national retail chains.

Liquidity and Capital Resources

We had cash and cash equivalents of approximately $157,000 as of December 31, 2013, as compared to approximately $117,000 as of December 31, 2012.

We have in the past financed our operations through contributions from our majority stockholder, sales of equity securities, and borrowings under a line of credit. Currently we have relied on the Company’s operations to generate sufficient income and cash to fund our operations, along with borrowings under our line of credit. We have a line of credit with Bank of Nevada providing for borrowings of up to $500,000. As of December 31, 2013, we had borrowings of approximately $100,000 outstanding under this line of credit. The Company did have approximately $502,000 of cash that is restricted and tied to its line of credit.

For the year ended December 31, 2013, net cash provided by operating activities was approximately $315,000, as compared to net cash used in operating activities of approximately $590,000 for the comparable period in 2012. The increase in net cash provided by operating activities was primarily attributable to an increase in net income of approximately $442,000 due mainly to sales to national retail chains, deferred revenue and non-cash expenses. This was offset by increases in accounts receivable, inventory and prepaid and other assets.

Net cash used in investing activities was approximately $28,000 for the year ended December 31, 2013 compared to approximately $35,000 for the comparable period in 2012. The decrease of cash used in investing activities was primarily attributable to reduced legal fees for trademarks.

Net cash used in financing activities was approximately $246,000 for the year ended December 31, 2013 as compared to net cash used in financing activities of approximately $122,000 for the comparable period in 2012. The increase in net cash used in financing activities is primarily attributable to repayments on the line of credit.

For the years ended December 31, 2013 and 2012, our inventory turnover was 1.7 and 1.6 times, respectively. The average days outstanding of our accounts receivable as of December 31, 2013 was 40 days, as compared to 44 days as of December 31, 2012.

In 2013, no upgrades to our bottling equipment were required. Purchases of additional equipment will be based on demand.

Off-Balance-Sheet Arrangements

In August 2011, the Company entered into a commitment to purchase product sample packets of Gun Oil and PINK products. In connection with the commitment, the related party vendor provides the manufacturing equipment, machine operator, and administration of production. Purchases under this contract result in a minimum monthly order of $5,880. Through December 31, 2013, the Company made purchases of approximately $165,000 under the purchase obligation.

Critical Accounting Policies

Management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments, including those described below. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates.

While our significant accounting policies are more fully described in Note 3 to our audited financial statements included beginning on page F-7 of this Annual Report, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our financial statements.

Revenue recognition

We recognize revenue when all significant contractual obligations, which involve the shipment of the products sold and reasonable assurance as to the collectability of the resulting account receivable, have been satisfied. Returns are permitted for damaged or unsalable items only. Revenue is shown after deductions for prompt payment, volume discounts and returns. We estimate that these discounts and returns will approximate 2% of gross revenues and the costs are accrued accordingly. We participate in various promotional activities in conjunction with our retailers and wholesalers, primarily through the use of discounts. The allowances for sales returns are established based on our estimate of the amounts necessary to settle future and existing obligations for such items on products sold as of the balance sheet date.

Accounts receivable

Accounts receivable are carried at the outstanding amount due less an allowance for doubtful accounts, if an allowance is deemed necessary. Allowance for doubtful accounts are established when there is a basis to doubt the full collectability of the accounts receivable. We periodically evaluate our accounts receivable and determine the requirement for an allowance, based on its history of past write-offs, collections and current conditions. When an account receivable is ultimately determined to be uncollectible and due diligence for collection has taken place, the account receivable is written-off.

Inventory

Inventory consists primarily of raw materials and finished goods that we hold for sale in the ordinary course of business. Inventory is stated at the lower of cost (determined on the first-in, first-out basis) or market. Other manufacturing overhead costs are also allocated to finished goods inventory. We periodically evaluate the composition of inventory and estimates an allowance to reduce inventory for slow moving, obsolete or damaged inventory. An allowance of approximately $65,000 was made at December 31, 2013. There was an allowance of approximately $57,000 at December 31, 2012.

Trademarks and other intangibles

Share-Based Compensation

The Company’s incentive compensation plan allows the Company to grant awards to employees, directors, and consultants in the form of stock options, stock awards, warrants, restricted stock units, and stock appreciation rights. Compensation related to these awards is determined based on the fair value on the date of grant and is amortized to expense over the vesting period. For warrants granted to non-employees, the Company recognizes compensation expense as the performance or services are completed. For restricted stock units, the Company recognizes compensation expense based on the earlier of the vesting date or the date when the employee becomes eligible to retire.

Recent accounting pronouncements

See Note 5 to our consolidated financial statements for a listing of adopted and soon to be adopted accounting pronouncements.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for a smaller reporting company.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item 8 is incorporated by reference to information beginning on Page F-1 of this Form 10-K.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.

CONTROLS AND PROCEDURES

a) Evaluation of disclosure controls and procedures

Disclosure controls and procedures are internal controls and other internal audit procedures that are designed and adopted by management to ensure that information required to be disclosed by us in the reports that we file or submit under the Security Exchange Act 1934 is properly recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and regulations. Disclosure controls and procedures include, without limitation, internal controls and internal audit procedures designed to ensure that all necessary information required to be disclosed by the Company in the reports that we file or submit under the Security Exchange Act 1934 is properly recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosures.

As of the end of the period covered by this Annual Report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective due to the material weaknesses in our internal control over financial reporting described below.

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which exempts smaller reporting companies from the auditor attestation requirement.

b) Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), is a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use of disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework of 1992. Based on this assessment, management believes that as of December 31, 2013, our internal control over financial reporting was not effective based on those criteria because of the existence of the following material weaknesses.

We did not maintain effective controls over the period-end financial close and reporting processes. The specific deficiencies contributing to these material weaknesses related to (a) ineffective procedures and controls over reserves and allowances, (b) inadequate segregation of duties, (c) an inadequate number of independent board members and lack of an independent audit committee, and (d) an insufficient complement of personnel with appropriate levels of knowledge and experience. Due to the actual and potential errors on financial statement balances and disclosures, management has concluded that these deficiencies in internal controls over the period-end financial close and reporting processes constituted a material weakness in internal control over financial reporting.

Management has retained an outside, independent financial consultant to review all financial data, as well as help us prepare our financial reports, in order to mitigate this weaknesses. This will create a position whereby certain aspects of the operations will become more segregated, which is consistent with our control objectives and will increase our personnel resources and technical accounting expertise within the accounting function. At an undeterminded time in the future, we also plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us. Management believes that the appointment of one or more outside directors will assist in remedying the lack of a functioning audit committee and a lack of a majority of outside directors on our Board. We originally anticipated that these initiatives will be at least partially, if not fully, implemented by December 31, 2013; however, due to limited resources and varying Company business priorities, we currently intend to take action during fiscal 2014.

c) Changes in Internal Control over Financial Reporting

The Company has made no changes in its internal controls during its fourth quarter or in other factors that could significantly affect the Company’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

On October 23, 2013, the Company entered into a business loan agreement with The Bank of Nevada for a $500,000 line of credit. The loan will mature on October 28, 2014. The Company did not renew its letter of credit with Wells Fargo Bank which matured on November 1, 2013.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

Executive Officers, Directors and Key Employees

The following individuals constitute our board of directors and executive management:

Name	Age	Position
Scott Fraser	49	President, Chief Executive Officer and Chairman of the Board
Kurt Weber	60	Chief Financial Officer, Chief of Operations and Director

Background of Officers and Directors

The following is a brief summary of the background of each director and executive officer of the Company:

Scott Fraser. Mr. Fraser has served as the President, Chief Executive Officer, and Chairman of the Board of Empowered Products, Inc. since June 2011. He has served as the President, Treasurer, Secretary and sole Director of EP Nevada since March 2004. Since October 1999, Mr. Fraser has also served as the President of Contrarian Press, LLC. Mr. Fraser received a bachelor’s degree in Speech Communication from San Diego State University in 1988. Mr. Fraser, as the founder of EP Nevada in 2002, has extensive knowledge of our business operations which qualifies him to serve on our board of directors.

Kurt Weber. Mr. Weber has served as the Company’s Controller and Chief of Operations since June 2011 and as the Chief of Operations and Controller of EP Nevada since October 2006. He was promoted to Chief Financial Officer in 2012. He was appointed as a director of the Company in February 2013. Mr. Weber received a bachelor’s degree in history from Stonehill College in 1976, a Master of Divinity from St. Michael’s in Toronto, Canada in 1981 and an MBA from the University of Phoenix in 2004. We believe that Mr. Weber is qualified to serve as a director of the Company due to his experience in the retail and service industries and his extensive knowledge of the Company and its operations.

Family Relationships

There are no family relationships among any of the officers and directors.

Involvement in Certain Legal Proceedings

There have been no events under any bankruptcy act, no criminal proceedings and no judgments, injunctions, orders or decrees material to the evaluation of the ability and integrity of any director, executive officer, promoter or control person of the Company during the past ten years.

The Company is not aware of any legal proceedings in which any director, nominee, officer or affiliate of the Company, any owner of record or beneficially of more than five percent of any class of voting securities of the Company, or any associate of any such director, nominee, officer, affiliate of the Company, or security holder is a party adverse to the Company or any of its subsidiaries or has a material interest adverse to the Company or any of its subsidiaries.

Board of Directors and Committees and Director Independence

Neither of our directors are considered independent directors under Section 803A(2) of the NYSE MKT Company Guide, even though such definition does not currently apply to us because we are not listed on the NYSE MKT.

Nominating Committee

Our board of directors participate in consideration of director nominees. The board of directors will consider candidates who have experience as a board member or senior officer of a company or who are generally recognized in a relevant field as a well-regarded practitioner, faculty member or senior government officer. The board of directors will also evaluate whether the candidates’ skills and experience are complementary to the existing board’s skills and experience as well as the board of directors’ need for operational, management, financial, international, technological or other expertise. The board of directors will interview candidates that meet the criteria and then select nominees that the board of directors believes best suit our needs.

The board of directors will consider nominees for the board of directors recommended in good faith by stockholders of the Company, provided those nominees meet the requirements of the Listing Standards. Stockholders should submit the candidate’s name, credentials, contact information and his or her written consent to be considered as a candidate. These recommendations should be submitted in writing to the Company’s secretary. The proposing stockholder should also include his or her contact information and a statement of his or her share ownership (how many shares owned and for how long). The board of directors may request further information about stockholder recommended nominees in order to comply with any applicable laws, rules or regulations or to the extent such information is required to be provided by such stockholder pursuant to any applicable laws, rules or regulations.

Compensation Committee

The board of directors does not have a compensation committee. Our Chief Executive Officer determines the compensation of our executive officers.

Audit Committee and Audit Committee Financial Expert

Presently, the board of directors acts as the audit committee. The board of directors does not have an audit committee financial expert. The board of directors has not yet recruited an audit committee financial expert to join the board of directors.

Code of Business Conduct and Ethics

We do not currently have a Code of Ethics that applies to all employees, including our principal executive officer, principal financial officer, or principal accounting officer, or persons performing similar functions.

Section 16(a) Beneficial Ownership Reporting Compliance

The Company’s securities are currently registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As a result, and pursuant to Rule 16a-2, the Company’s directors and officers and holders of 10% or more of its common stock are currently required to file statements of beneficial ownership with regards to their ownership of equity securities under Sections 13 or 16 of the Exchange Act. Based on a review of written representations from our executive officers and directors and a review of Forms 3, 4 and 5 furnished to us, we believe that during the fiscal year ended December 31, 2013, all filing requirements were timely satisfied.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation earned for services rendered to us and EP Nevada for the two fiscal years ended December 31, 2013 and 2012 of the principal executive officer, in addition to our two most highly compensated officers whose annual compensation exceeded $100,000, and up to two additional individuals, as applicable, for whom disclosure would have been required but for the fact that the individual was not serving as an executive officer of the registrant at the end of the last fiscal year.

Name and Position	Year	Salary ($)		Bonus ($)		All Other Compensation ($)(2)		Total ($)

Scott Fraser	2013		188,120		19,500		–		207,620
President, Chief Executive	2012		177,792		–		–		177,792
Officer and Chairman of the Board

Kurt Weber (1)	2013		106,204		18,750		175,000		299,954
Chief Financial Officer, Chief of Operations and Director	2012		100,254		–		–		100,254

(1)

Mr. Weber was appointed as a director in February 2013.

(2)

The amount disclosed reflects the full fair value of the options issued at the grant date in accordance with FASB ASC Topic 718. For assumptions used in calculation of option awards, see Note 10 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013. Also see “Terms of 2012 Option Grants” for a description of the material terms of each grant.

Our officers are eligible to receive, from time to time, grants of options to purchase shares of our common stock and other awards under our 2012 Omnibus Incentive Plan (the “Plan”). Grants of such awards are at the discretion of our board of directors.

Outstanding Equity Awards at 2013 Fiscal Year End

The following table presents the outstanding equity awards held by each of the named executive officers as of the year ended December 31, 2013.

Name

Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable

Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable

Option
Exercise
Price

Grant Date

Option
Expiration
Date

Kurt Weber

Chief Financial Officer, Chief of Operations and Director

1,000,000

–

$0.28

03/11/2013

03/11/2023

Employment Agreements

We have no employment agreements with any of our executive officers.

Director Compensation

The following table shows information regarding the compensation earned during the fiscal year ended December 31, 2013 by our non-employee members of our board of directors.

Name

Fees Earned
or Paid in
Cash
($)

Stock
Awards
($)

Option
Awards
($)

Non-Equity
Incentive Plan
Compensation
($)

Change in
Pension Value and Nonqualified
Deferred
Compensation
Earnings
($)

All Other
Compensation
($)

Total
($)

Suzanne Fischer (1)

–

(1) Ms. Fischer resigned as a director of the Company on January 7, 2013.

We currently do not pay our directors for their service on our board of directors, as each of our current directors is an officer of the Company.

Directors are eligible to receive, from time to time, grants of options to purchase shares of our common stock and other awards under the Plan.

Securities Authorized for Issuance under Equity Compensation Plans

The following table provides information as of December 31, 2013 regarding compensation plans, including any individual compensation arrangements, under which equity securities of Empowered Products, Inc. are authorized for issuance.

Plan Category	Number of Securities to be issued upon exercise of outstanding options, warrants and rights		Weighted- average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders(1)		2,700,000	$	0.28		1,900,000
Equity compensation plans not approved by security holders		–		–		–
Total		2,700,000	$	0.28		1,900,000

(1)

In April 2012, the Company adopted the Plan. As of December 31, 2013, the Plan had 5,000,000 shares authorized for issuance. In March 2013, we granted 2.7 million options to employees of the Company. During fiscal 2013, we also issued 400,000 shares of common stock under the Plan to a service provider.

2012 Omnibus Incentive

The Plan is administered by the board of directors or by a committee of the board of directors consisting of not less than two (2) directors (the “Committee”). The Plan administrator has the authority to determine, within the limits of the express provisions of the Plan, the individuals to whom awards will be granted, the nature, amount and terms of such awards and the objectives and conditions for earning such awards. The Committee generally has discretion to delegate its authority under the Plan to another committee of the Board or a subcommittee, or to such other party or parties, including officers of the Company, as the Committee deems appropriate.

The Plan administrator may grant awards to any employee, director, consultant or other person providing services to the Company or its affiliates. An aggregate of 5,000,000 shares of the Company’s common stock is reserved for issuance and available for awards under the Plan, including incentive stock options granted under the Plan. Awards under the Incentive Plan may include incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted shares of common stock, restricted stock units, performance share or unit awards, other stock-based awards and cash-based incentive awards.

•	Stock Options. The Plan administrator may grant to a participant options to purchase Company common stock that qualify as incentive stock options for purposes of Section 422 of the Internal Revenue Code (“incentive stock options”), options that do not qualify as incentive stock options (“non-qualified stock options”) or a combination thereof. The exercise price for stock options will be determined by the Plan administrator in its discretion, but non-qualified stock options and incentive stock options may not be less than 100% of the fair market value of one share of the Company’s common stock on the date when the stock option is granted. Additionally, in the case of incentive stock options granted to a holder of more than 10% of the total combined voting power of all classes of stock of the Company on the date of grant, the exercise price may not be less than 110% of the fair market value of one share of common stock on the date the stock option is granted.

•	Stock Appreciation Rights. The Plan administrator may grant to a participant an award of SARs, which entitles the participant to receive, upon its exercise, a payment equal to (i) the excess of the fair market value of a share of common stock on the exercise date over the SAR exercise price, times (ii) the number of shares of common stock with respect to which the SAR is exercised. The exercise price for a SAR will be determined by the Plan administrator in its discretion; provided, however, that in no event shall the exercise price be less than the fair market value of our common stock on the date of grant.

•	Restricted Shares and Restricted Units. The Plan administrator may award to a participant shares of common stock subject to specified restrictions (“restricted shares”). Restricted shares are subject to forfeiture if the participant does not meet certain conditions such as continued employment over a specified forfeiture period and/or the attainment of specified performance targets over the forfeiture period. The Plan administrator also may award to a participant units representing the right to receive shares of common stock in the future subject to the achievement of one or more goals relating to the completion of service by the participant and/or the achievement of performance or other objectives (“restricted units”). The terms and conditions of restricted share and restricted unit awards are determined by the Plan administrator.

•	Performance Awards. The Plan administrator may grant performance awards to participants under such terms and conditions as the Plan administrator deems appropriate. A performance award entitles a participant to receive a payment from the Company, the amount of which is based upon the attainment of predetermined performance targets over a specified award period. Award periods will be established at the discretion of the Plan administrator. The performance targets will also be determined by the Plan administrator.

•	Other Stock-Based Awards. The Plan administrator may grant equity-based or equity-related awards, referred to as “other stock-based awards,” other than options, SARs, restricted shares, restricted units, or performance awards. The terms and conditions of each other stock-based award will be determined by the Plan administrator.

•	Cash-Based Awards. The Plan administrator may grant cash-based incentive compensation awards, which would include performance-based annual cash incentive compensation to be paid to covered employees subject to Section 162(m) of the Code. The terms and conditions of each cash-based award will be determined by the Plan administrator.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage of ownership of that person, shares of common stock subject to options and warrants held by that person that are currently exercisable or become exercisable within 60 days are deemed outstanding even if they have not actually been exercised. Those shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person.

The following table sets forth certain information with respect to beneficial ownership of our common stock based on issued and outstanding shares of common stock as of March 31, 2014, by:

Each person known to be the beneficial owner of 5% or more of our outstanding common stock;

Each executive officer;

Each director; and

All of the executive officers and directors as a group.

The number of shares of our common stock outstanding as of March 31, 2014, excludes 3,000,000 shares of common stock underlying outstanding warrants and 3,725,000 shares of common stock underlying outstanding options. Unless otherwise indicated, the persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite the stockholder’s name, subject to community property laws, where applicable. Unless otherwise indicated, the address of each stockholder listed in the table is c/o Empowered Products, Inc. 3367 West Oquendo Road, Las Vegas, Nevada 89118.

Name and Address of Beneficial Owner	Title	Beneficially Owned			Percent of Class (1)

Directors and Named Executive Officers
Scott Fraser	President, Chief Executive Officer and Chairman of the Board		40,004,000	(2)		63.7%

Kurt Weber	Chief Financial Officer, Chief of Operations and Director		1,502,500	(3)		2.4%

Officers and Directors as a Group (total of 2 persons)			41,506,500	(3)		66.1%
5% or More Owners

New Kaiser Limited			4,000,000	(4)		6.4%

	(1)	Each stockholder’s percentage of ownership in the above table is based upon 62,788,856 shares of the Company’s common stock outstanding as of March 31, 2014.
	(2)	Includes 2,000,000 shares of common stock held in trust for the benefit of his minor children. Mr. Fraser does not have voting or dispositive rights to the shares held by the trust, but has the right to acquire direct ownership of such shares at any time.
	(3)	Includes options to purchase 1,500,000 shares of common stock.
	(4)	Includes warrants to purchase 2,000,000 shares of common stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Empowered Products, Inc.

Empowered Products, Inc. and its subsidiary, EP Nevada, have interlocking executive and director positions with us. Scott Fraser, a director and the President and Chief Executive Officer of our company, is also the sole director and officer of EP Nevada. Kurt Weber, our Chief Financial Officer and Chief of Operations, is also the Controller and Chief of Operations of EP Nevada.

Lease with Affiliated Party

The Company rents office space from an affiliate, EGA Research, LLC, that is controlled by the Company’s majority stockholder under a triple net lease expiring on February 28, 2014 and was renewed through February 28, 2016. The lease calls for monthly rental payments of $7,000. Total rent expense under this lease for each of the years ended December 31, 2013 and 2012 was $84,000.

Purchase of Samples from Related Party

The Company purchased sample products from a related party of approximately $65,000 and $100,000 for the years ended December 31, 2013 and 2012, respectively. Payments of approximately $41,000 and $34,000 are included in prepaid and other current assets at December 31, 2013 and 2012, respectively, and payments of approximately $44,000 and $32,000, respectively, are included in other assets.

Investor Relations/Sales & Marketing Services Agreement

In July 2011, we entered into an Investor Relations/Sales and Marketing Services Agreement (“IR & Sales Agreement”) with Contrarian Press, LLC (dba Contrarian Wealth Coalition) (“Contrarian Press”), a company wholly-owned by Scott Fraser, our President and Chief Executive Officer and majority stockholder. The term of the agreement is one year, unless terminated by either party on a material breach by the other party that is not cured by the breaching partying within 14 days after receiving written notice of the breach by the non-breaching party. Pursuant to the IR & Sales Agreement, Contrarian Press provides advice and counsel to our officers and employees concerning our stockholder and consumer base and feedback received from our stockholders and consumers. We will also pay Contrarian Press a monthly consulting and service fee of $19,500 and reimburse Contrarian Press for certain expenses it incurs while performing its obligations under the agreement. In 2013 and 2012, we paid Contrarian Press an aggregate of $311,879 and $227,819, respectively, pursuant to the IR & Sales Agreement.

Guarantee by President and Chief Executive Officer

Our President and Chief Executive Officer, Scott Fraser, provided a personal guarantee for a prior line of credit that we had with Wells Fargo Bank, which matured on November 1, 2013. We replaced the Wells Fargo line of credit with a line of credit from The Bank of Nevada in the amount of $500,000. Mr. Fraser does not provide a personal guarantee on our line of credit with The Bank of Nevada.

Policy for Approval of Related Party Transactions

We do not currently have a formal related party approval policy for review and approval of transactions required to be disclosed pursuant to Item 404(a) of Regulation S-K. We expect our board of directors to adopt such a policy in the near future.

Director Independence

See Item 10 “Directors, Officers and Corporation Governance” for a discussion of board member independence.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

The following table presents fees, including reimbursements for expenses, for professional audit services rendered by PKF Certified Public Accountants (“PKF”) for the audits of the Company’s annual financial statements and interim reviews of the Company’s quarterly financial statements for the years ended December 31, 2013 and December 31, 2012 and fees billed for other services rendered by PKF during those periods.

	Year ended December 31,
	2013		2012

Audit Fees	$	74,041	$	62,486
Audit-Related Fees		–		–
Tax Fees		5,322		5,949
All Other Fees		–		–
Total	$	79,363	$	68,435

Pre-Approval Policy

The Company’s board of directors on an annual basis reviews audit and non-audit services performed by the independent registered public accounting firm for such services. The board of directors pre-approves (i) auditing services (including those performed for purposes of providing comfort letters and statutory audits) and (ii) non-auditing services that exceed a de minimis standard established by the committee, which are rendered to the Company by its outside auditors (including fees).

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

1. Financial Statements: See “Index to Consolidated Financial Statements” in Part II, Item 8 of this annual report on Form 10-K.

2. Financial Statement Schedule: Not applicable.

3. Exhibits: The exhibits listed in the accompanying “Exhibit Index” are filed or incorporated by reference as part of this Form 10-K.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Las Vegas on March 31, 2014.

	Empowered Products, Inc. (Registrant)

Dated: March 31, 2014	By:	/s/ Scott Fraser
		Scott Fraser Chief Executive Officer and Chairman of the Board (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company in the capacities and on the dates indicated.

Signature	Capacity	Date

/s/ Scott Fraser	Chief Executive Officer and	March 31, 2014
By: Scott Fraser	Chairman of the Board
	(Principal Executive Officer)

/s/ Kurt Weber	Chief Financial Officer and Director	March 31, 2014
By: Kurt Weber	(Principal Financial and Accounting Officer)

EXHIBIT INDEX

Exhibit No.		Exhibit Description

2.1		Merger Agreement dated as of June 30, 2011 by and among the Empowered Products, Inc., EPI Acquisition Corp., EPI Name Change Corp. and Empowered Products Nevada, Inc. (incorporated by reference from Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 7, 2011).
2.2*		Asset Purchase Agreement dated March 31, 2011 by and among Empowered Products Nevada, Inc., Empowered Products Asia Limited and Polarin Limited (incorporated by reference from Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 7, 2011).
3.1		Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the registrant’s Form S-1 filed with the Securities and Exchange Commission on April 6, 2010).
3.2		Certificate of Change to Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the registrant’s Form S-1 filed with the Securities and Exchange Commission on May 13, 2011).
3.3		Bylaws (incorporated by reference from Exhibit 3.2 to the registrant’s Form S-1 filed with the Securities and Exchange Commission on April 6, 2010).
3.4		Articles of Merger (incorporated by reference from Exhibit 3.4 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 7, 2011).
4.1		Warrant issued to New Kaiser Limited dated July 7, 2011 (incorporated by reference from Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 7, 2011).
10.1		Assignment and Assumption Agreement dated as of June 30, 2011 by and between the registrant and OT Filings, Inc. (incorporated by reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 7, 2011).
10.2		Share Repurchase and Cancellation Agreement dated as of June 30, 2011 by and among the registrant, OT Filings, Inc. and Suzanne Fischer (incorporated by reference from Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 7, 2011).
10.3		Promissory Note made by Empowered Products Nevada, Inc. in favor of New Kaiser Limited dated May 31, 2011 (incorporated by reference from Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 7, 2011).
10.4		Security Agreement by and between the Empowered Products Nevada, Inc. and New Kaiser Limited dated May 31, 2011 (incorporated by reference from Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 7, 2011).
10.5		Subscription Agreement dated June 30, 2011 by and between Empowered Products, Inc., and New Kaiser Limited (incorporated by reference from Exhibit 10.6 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 7, 2011).
10.6(a)		Commercial Triple Net Lease with Purchase Option dated as of June 8, 2011 by and between Empowered Products Nevada, Inc. and Reich Family Trust B5 (incorporated by reference from Exhibit 10.7 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 7, 2011).
10.6(b)		Renewal of the Commercial Triple Net Lease with Purchase Option dated as of June 8, 2011 by and between Empowered Products Nevada, Inc. and Reich Family Trust B (incorporated by reference from Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 14, 2013).
10.7(a)		Commercial Lease Agreement dated March 1, 2012 by and between Empowered Products, Inc. and EGA Research LLC (incorporated by reference from Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 15, 2012).
10.7(b)		Renewal of the Commercial Lease Agreement dated March 1, 2014 by and between Empowered Products, Inc. and EGA Research LLC.
10.8		Investor Relations/Sales & Marketing Services Agreement dated as of July 1, 2011 by and between the registrant and Contrarian Press, LLC (incorporated by reference from Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 16, 2012).
10.9		Agreement for Manufacture and Sale of Goods dated as of August 1, 2011 by and between the registrant and Mobile Samples America Corp. (incorporated by reference from Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 16, 2012).

10.10		Empowered Products, Inc. 2012 Omnibus Incentive Plan (incorporated by reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 20, 2012).
10.10(a)		Form of Stock Option Agreement for. 2012 Omnibus Incentive Plan (incorporated by reference from Exhibit 10.1(a) to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 20, 2012).
10.10(b)		Form of Restricted Stock Award Agreement for 2012 Omnibus Incentive Plan (incorporated by reference from Exhibit 10.1(b) to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 20, 2012).
10.10(c)		Form of Restricted Stock Unit Award Agreement for 2012 Omnibus Incentive Plan (incorporated by reference from Exhibit 10.1(c) to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 20, 2012).
10.10(d)		Form of Stock Appreciate Right Award Agreement for 2012 Omnibus Incentive Plan (incorporated by reference from Exhibit 10.1(d) to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 20, 2012).
10.11(a)		Business Lending Confirmation for Line of Credit dated February 9, 2011 by and between for Empowered Products Nevada, Inc. and Wells Fargo Bank, National Association (incorporated by reference from Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 7, 2011).
10.11(b)		Renewal Notice for Line of Credit from Wells Fargo Bank, National Associated dated November 5, 2012.
10.12		Business Loan Agreement dated October 23, 2013 entered into by and between Empowered Products Nevada, Inc. and The Bank of Nevada.
21.1		List of Subsidiaries (incorporated by reference from Exhibit 21.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 14, 2012).
23.1		Consent of PKF Certified Public Accountants.
31.1		Certification of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certifications of Chief Executive Officer and Chief Financial Officer 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 Taxonomy Extension Schema Document
101.CAL	**	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	**	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	**	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	**	XBRL Taxonomy Extension Presentation Linkbase Document

* Schedules to the Asset Purchase Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant undertakes to furnish on a supplemental basis a copy of any omitted schedules to the Securities and Exchange Commission upon request.

** This exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

EMPOWERED PRODUCTS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Report of Independent Registered Public Accounting Firm		F-2

Consolidated Balance Sheets as of December 31, 2013 and 2012		F-3

Consolidated Statements of Operations for the years ended December 31, 2013 and 2012		F-4

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2013 and 2012		F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012		F-6

Notes to Consolidated Financial Statements		F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of

Empowered Products, Inc.

We have audited the accompanying consolidated balance sheets of Empowered Products, Inc. and Subsidiaries (the “Company”) as of December 31, 2013 and 2012 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the two years in the period ended December 31, 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Empowered Products, Inc. and Subsidiaries at December 31, 2013 and 2012, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.

/s/ PKF

March 31, 2014

PKF

San Diego, California

Certified Public Accountants

A Professional Corporation

F-2

Empowered Products, Inc. and Subsidiaries

Consolidated Balance Sheets

	December 31,
	2013			2012

Assets
Current Assets:
Cash and cash equivalents	$	157,396		$	116,990
Restricted cash		502,000			561,530
Accounts receivable, less allowance for doubtful accounts of $36,532 in 2013 and $33,271 in 2012		661,135			357,039
Inventory, net		1,093,466			873,881
Prepaid and other current assets		343,873			65,107
Total current assets		2,757,870			1,974,547

Plant and equipment, net		183,106			229,769
Trademarks and other intangibles, net		544,507			542,202
Other assets		48,397			34,606
Total assets	$	3,533,880		$	2,781,124

Liabilities and Stockholders' Equity
Current Liabilities:
Line of credit	$	100,000		$	346,042
Accounts payable and other accrued expenses		193,417			124,714
Deferred revenue		125,712			–
Total current liabilities		419,129			470,756

Commitments and contingencies

Stockholders' Equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized, no shares issued and outstanding		–			–
Common stock, $0.001 par value, 2,200,000,000 shares authorized, 62,788,856, and 62,388,856 shares issued and outstanding at December 31, 2013 and 2012, respectively		62,789			62,389
Additional paid-in capital		6,759,633			6,089,899
Accumulated deficit		(3,707,671	)		(3,841,920	)
Total stockholders' equity		3,114,751			2,310,368
Total liabilities and stockholders' equity	$	3,533,880		$	2,781,124

See Notes to Consolidated Financial Statements.

F-3

Empowered Products, Inc. and Subsidiaries

Consolidated Statements of Operations

	Years Ended December 31,
	2013			2012

Revenue	$	4,609,722		$	3,000,451
Cost of revenue		1,720,703			1,348,616
Gross profit		2,889,019			1,651,835

Selling and distribution		1,173,707			897,055
Research and development		712			721
General and administrative		1,567,621			1,039,312

Income (loss) from operations		146,979			(285,253	)

Interest income		395			121
Interest expense		(13,125	)		(22,275	)

Net income (loss)	$	134,249		$	(307,407	)

Net income (loss) per share:
Basic	$	0.00		$	(0.00	)
Diluted	$	0.00		$	(0.00	)

Weighted average common shares outstanding for basic		62,588,856			62,388,856
Weighted average common shares outstanding for diluted		62,841,458			62,388,856

See Notes to Consolidated Financial Statements.

F-4

Empowered Products, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

For the Years Ended December 31, 2013 and 2012

	Common Stock				Additional					Total
	Number				Paid-In		Accumulated			Stockholders’
	of Shares		Amount		Capital		Deficit			Equity

Balance, December 31, 2011		62,388,856	$	62,389	$	6,089,899	$	(3,534,513	)	$	2,617,775

Net loss		–		–		–		(307,407	)		(307,407	)

Balance, December 31, 2012		62,388,856		62,389		6,089,899		(3,841,920	)		2,310,368

Share based compensation		–		–		518,134		–			518,134

Issuance of common stock		400,000		400		151,600		–			152,000

Net income		–		–		–		134,249			134,249

Balance, December 31, 2013		62,788,856	$	62,789	$	6,759,633	$	(3,707,671	)	$	3,114,751

See Notes to Consolidated Financial Statements.

F-5

Empowered Products, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

	Years Ended December 31,
	2013			2012
Cash flows provided by (used in) operating activities:
Net income (loss)	$	134,249		$	(307,407	)
Adjustments to reconcile net loss to cash flows used in operating activities:
Depreciation and amortization		72,848			68,922
Share based compensation		670,134			–
Provision for doubtful accounts		47,486			(15,729	)
Inventory write down		8,254			56,746
Changes in assets and liabilities:
Decrease (Increase) in restricted cash		59,530			(119	)
(Increase) Decrease in accounts receivable		(351,582	)		5,022
Increase in inventory		(227,839	)		(162,872	)
Decrease (increase) in prepaid and other current assets		(278,766	)		96,237
Increase in other assets		(13,791	)		(28,946	)
(Decrease) increase in accounts payable and other accrued expenses		68,703			(301,526	)
Increase in deferred revenue		125,712			–
Cash flows provided by (used in) operating activities		314,938			(589,672	)

Cash flows used in investing activities:
Purchases of plant and equipment		(15,084	)		(8,198	)
Payment of fees for trademarks and other intangibles		(13,405	)		(26,427	)
Cash flows used in investing activities		(28,490	)		(34,625	)

Cash flows used in financing activities:
Line of credit (repayments) draws, net		(246,042	)		(122,479	)
Cash flows used in financing activities		(246,042	)		(122,479	)

Net increase (decrease) in cash and cash equivalents		40,406			(746,776	)

Cash and cash equivalents at the beginning of the year		116,990			863,766

Cash and cash equivalents at the end of the year	$	157,396		$	116,990

Supplementary disclosure of cash flow information:
Cash paid for interest	$	13,124		$	22,275

See Notes to Consolidated Financial Statements.

F-6

Empowered Products, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years Ended December 31, 2013 and 2012

Note 1. Nature of Operations

Empowered Products, Inc. and Subsidiaries (“the Company”) is engaged in the manufacture, sale and distribution of personal care products, principally throughout the United States, Europe and Asia. All of its business has been categorized as one segment.

Note 2. Recapitalization and Merger

On June 30, 2011, the Company completed a reverse merger transaction, pursuant to an Agreement and Plan of Merger, dated June 30, 2011 (the “Merger Agreement”), by and among the Company, EPI Acquisition Corp. (“Acquisition Sub”), EPI Name Change Corp. (“Name Change Merger Sub”), and Empowered Products Nevada, Inc. (“EP Nevada”) pursuant to which EP Nevada merged with and into Acquisition Sub with EP Nevada continuing as the surviving entity (the “Merger”). In contemplation of the Merger, the Company effectuated a 44-to-1 forward stock split whereby each share of its issued and outstanding common stock was converted into forty-four shares of common stock. In connection with this stock split, the Company’s board of directors approved an increase in the total authorized shares of common stock of the Company from 50,000,000 to 2,200,000,000. Upon the closing of the Merger, the Company changed its name from “On Time Filings, Inc.” to “Empowered Products, Inc.” Upon consummation of the Merger, each outstanding share of EP Nevada common stock was exchanged for 4 shares of the Company’s common stock. As a result of the Merger, the sole stockholder of EP Nevada common stock received 40,000,000 shares of the Company’s common stock. Immediately after the closing of the Merger, the Private Placement (see Note 10) and the cancellation of 223,370,000 shares of common stock pursuant to the Repurchase Agreement, described below, the Company had 62,388,856 shares of common stock issued and outstanding, no issued shares of preferred stock, no options and warrants to purchase 2,000,000 shares of common stock issued and outstanding.

In addition, in accordance with the terms of the Merger, upon the effective time of the Merger, members of the board of directors and officers of EP Nevada became directors and officers of the Company. The business of EDGARizing corporate documents was abandoned and the business plan of the EP Nevada was adopted. The transaction was therefore recorded as a reverse acquisition with EP Nevada as the acquiring party and the Company as the acquired party for accounting purposes.

Pursuant to a Share Repurchase and Cancellation Agreement dated June 30, 2011 (the “Repurchase Agreement”) by and between the Company, OT Filings Inc., a wholly owned subsidiary of the Company (“OT Filings”) and Suzanne Fischer, the Company repurchased 223,370,000 shares of its common stock (the “Repurchased Shares”) from Suzanne Fischer for a repurchase price of $50,000 and all of the issued and outstanding shares of OT Filings. Upon the repurchase, all of the Repurchased Shares were cancelled and the repurchase price of $5,000 was recorded as expense in the period. The remaining $45,000 was paid out of OT Filings cash on-hand prior to the transfer of operating assets and liabilities of the pre-merged OT Filings to Suzanne Fischer.

Note 3. Basis of Presentation and Accounting Policies

Liquidity

As of December 31, 2013, the Company has cash and cash equivalents of approximately $157,000 and an accumulated deficit of approximately $3,708,000. For 2013, the Company generated net income of approximately $134,000 which included certain non-cash transactions, which included stock compensation expenses costs, which ultimately increased the cash provided from operations. In addition, the Company has an available line of credit from which it can borrow up to $500,000. The Company has invested cash into its inventory levels to ensure that customer demand can be met. With the accounts receivable balances from retail chain customers and based on its current year results and anticipated 2014 results, management believes that it has sufficient evidence that it can continue as a going concern.

Consolidation

The consolidated financial statements include the accounts of Empowered Products, Inc. and its direct and indirect wholly-owned subsidiaries, Empowered Products Nevada, Inc., Empowered Products Limited, Empowered Products Asia Limited, and Empowered Products Pty Ltd. All material intercompany balances have been eliminated in consolidation.

F-7

Empowered Products, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years Ended December 31, 2013 and 2012

Revenue recognition

Revenue is recognized when all significant contractual obligations, which involve the shipment of the products sold and reasonable assurance as to the collectability of the resulting account receivable have been satisfied. Returns are permitted primarily due to damaged or unsalable items. Revenue is shown after deductions for prompt payment, volume discounts and returns. The Company participates in various promotional activities in conjunction with its retailers and distributors, primarily through the use of trade discounts and customer allowances, which include costs associated with off-invoice mark-downs and other price reductions, as well as trade promotions and coupons. These incentive costs are recognized at the later of the date on which the Company recognizes the related revenue or the date on which the Company offers the incentive. These costs have been subtracted from revenue and for the years ended December 31, 2013 and 2012 approximated $125,000 and $39,000, respectively. The allowances for sales returns are established based on the Company’s estimate of the amounts necessary to settle future and existing obligations for such items on products sold as of the balance sheet date. The Company regularly reviews and revises, when deemed necessary, its estimates of sales returns based primarily upon the historical rate of actual product returns, planned product discontinuances, new product launches and estimates of customer inventory and promotional sales. The Company records deferred revenue when cash is received or goods are shipped in advance of the revenue recognition criteria being met.

Sales tax

Sales tax collected from customers and remitted to various government agencies is on a net basis (excluded from revenues) in the statements of operations.

Cost of revenue

Cost of revenue includes the cost of raw materials, packaging, inbound freight, direct labor, manufacturing facility costs, and depreciation. Other overhead costs, including purchasing, receiving, quality control, and warehousing are classified as selling and distribution or general and administrative expenses.

At times the Company provides free products to its customers. These free products are accounted for in accordance with Accounting Standards Codification (“ASC”) 605-50 Revenue Recognition-Customer Payments and Incentives and the cost of the product is recognized in cost of revenue.

Shipping and delivery costs

Expenses for shipping and delivery of products sold to customers are billed to and collected from customers. These expenses are recognized in the period in which they occur and are classified as revenue if billed to the customer and cost of revenue if incurred by the Company.

Research and development

Research and development expenditures are charged to expense as incurred.

Advertising

Advertising costs are expensed as incurred. For the years ended December 31, 2013 and 2012, the Company incurred approximately $490,000 and $347,000, respectively, in advertising and marketing expenses which are reflected in selling and distribution expenses in the accompanying consolidated statements of operations.

F-8

Empowered Products, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years Ended December 31, 2013 and 2012

The Company enters into transactions related to advertising, product promotions and demonstrations, some of which involve cooperative relationships with customers and free product. These activities may be arranged either with unrelated third parties or in conjunction with the customer. The Company’s share of the cost of these transactions (regardless of to whom they were paid) are reflected in the advertising and marketing expenses noted above were approximately $88,000 and $16,000 for the years ended December 31, 2013 and 2012, respectively.

Depreciation

Plant and equipment are recorded at cost and depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated useful lives on the straight-line method.

Income taxes

The Company utilizes the asset and liability method of accounting for income taxes pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, Income Taxes. FASB ACS 740 requires the recognition of deferred tax assets and liabilities for both the expected future tax impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. FASB ASC 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. The Company has evaluated the net deferred tax asset, taking into consideration operating results, and determined that a full valuation allowance should be maintained.

Uncertain tax positions

The Company accounts for uncertain tax positions in accordance with FASB ASC 740. FASB ASC 740 prescribes a recognition threshold and measurement process for financial statement recognition of uncertain tax positions taken or expected to be taken in a tax return. The interpretation also provides guidance on recognition, de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company has determined that there are no uncertain tax positions, and therefore no interest or penalties related to uncertain tax positions, to recognize at December 31, 2013 and 2012.

Use of estimates

Management uses estimates and assumptions in preparing these financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities and the reported revenues and expenses. Such estimates primarily relate to the collectability of accounts receivable, provision for sales returns and allowances, inventory obsolescence, useful life of plant and equipment and the valuation of warrants. Actual results could vary from the estimates that were used.

Fair value of financial instruments

The Company’s financial instruments are cash and cash equivalents, restricted cash, accounts receivable, line of credit, and accounts payable. The recorded values of cash and cash equivalents, restricted cash, accounts receivable, line of credit and accounts payable approximate their fair values based on their short-term nature.

Cash and cash equivalents

For the purpose of reporting cash flows, the Company has defined cash equivalents as those highly liquid investments purchased with an original maturity of three months or less.

Restricted cash

Included in restricted cash is a certificate of deposit securing the Company’s line of credit.

F-9

Empowered Products, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years Ended December 31, 2013 and 2012

Accounts receivable

Accounts receivable are carried at the outstanding amount due less an allowance for doubtful accounts, if an allowance is deemed necessary. Allowance for doubtful accounts are established when there is a basis to doubt the full collectability of the accounts receivable. On a periodic basis, the Company evaluates its accounts receivable and determines the requirement for an allowance, based on its history of past write-offs, collections and current conditions. When an account receivable is ultimately determined to be uncollectible and due diligence for collection has taken place, the account receivable is written-off.

Inventory

Inventory consists primarily of raw materials and finished goods that the Company holds for sale in the ordinary course of business. Inventory is stated at the lower of cost (determined on the first-in, first-out basis) or market. Other manufacturing overhead costs are also allocated to finished goods inventory. The amount of these allocations to inventory was approximately $239,000 and $111,000 at December 31, 2013 and 2012, respectively. Management periodically evaluates the composition of inventory and estimates an allowance to reduce inventory for slow moving, obsolete or damaged inventory. An allowance of approximately $65,000 and $57,000 was recorded at December 31, 2013 and 2012.

Concentration of credit risk

The Company had three vendors that made up approximately 14%, 12% and 11% of total purchases during the year ended December 31, 2013. The Company had two vendors that made up approximately 14% and 11% of total purchases during the year ended December 31, 2012.

Trademarks and other intangibles, net

The Company capitalizes fees in connection with the development of various product trademarks. These assets are considered indefinite lived intangible assets and are reviewed for impairment annually or when circumstances indicate that the carrying amount of the trademark may not be fully recoverable. The amount attributable to trademarks at December 31, 2013 and 2012 was approximately $530,000 and $516,000, respectively. An impairment loss would be recorded if the carrying amount of the indefinite lived intangible asset exceeds its estimated fair value. The Company performed an impairment test as of December 31, 2013 and concluded that based on its undiscounted cash flows, the related trademarks were not impaired. Other intangibles consisted of customer lists acquired in 2011 and website development costs incurred in 2012. At December 31, 2013 and 2012, customer lists of approximately $6,000 and $9,000, respectively, are being amortized on the straight-line basis over the next four years. For the years ended December 31, 2013 and 2012, the amortization expense associated with these assets were $2,700 and $2,700, respectively. At December 31, 2013 and 2012, website development costs of approximately $9,000 and $17,000, respectively, are being amortized over the estimated useful life of two years. For the years ended December 31, 2013 and 2012, the amortization expense associated with these assets were $8,400 and $0, respectively.

Long-lived assets

The Company follows accounting standards concerning accounting for the impairment or disposal of long-lived assets in adjusting the book value of plant and equipment. These accounting standards establish a single accounting model for long-lived assets to be disposed of by sale which includes measuring a long-lived asset classified as held for sale at the lower of its carrying amount or its fair value less costs to sell. For assets to be held and used, these accounting standards require the recognition of an impairment loss whenever events or changes in circumstances have indicated that an asset may be impaired and the future cash flows from that asset are less than the asset’s carrying amount. If the fair value less costs to sell is less than the carrying amount of the asset, an impairment loss must be recognized to write down the asset to its estimated fair value. At December 31, 2013 and 2012, no impairment losses were recorded.

F-10

Empowered Products, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years Ended December 31, 2013 and 2012

Note 4. Earnings (Loss) per Share (“EPS”)

Earnings (loss) per share are calculated in accordance with the FASB ACS 260, Earnings Per Share. Basic net earnings (loss) per share are based upon the weighted average number of common shares outstanding, but excluding shares issued as compensation that have not yet vested. Diluted net earnings (loss) per share are based on the assumption that all dilutive convertible shares and stock options were converted or exercised, and that all unvested shares have vested. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.

The following table illustrates the required disclosure of the reconciliation of the numerators and denominators of the basic and diluted earnings per share computations.

	Years Ended December 31,
	2013		2012

Net income (loss) available to common shares	$	134,249	$	(307,407	)
Basic:
Weighted average shares		62,588,856		62,388,856
Diluted:
Weighted average shares, basic		62,588,856		62,388,856
Dilutive effect of options and shares		252,602		–
Weighted average shares, diluted		62,841,458		62,388,856

Basic income (loss) per share	$	0.00	$	(0.00	)
Diluted income (loss) per share	$	0.00	$	(0.00	)

Weighted average anti-dilutive shares excluded from diluted EPS		3,000,000		2,000,000

Note 5. Recent Accounting Pronouncements

The Company has evaluated the recent accounting pronouncements through December 2013 and believes that none of them will have a material effect on the company’s financial statements.

Note 6. Concentrations of Credit Risk

The Company maintains its cash balances, including restricted cash, at two financial institutions. The balance may at times exceed insured limits.

There were revenues earned from two customers in excess of 10% of total revenue for the year ended December 31, 2013. There were no such customers for the year ended December 31, 2012. Accounts receivable included approximately 50% due from two customers and 12% due from one customer at December 31, 2013 and 2012, respectively. The Company performs ongoing credit evaluation of its customers’ financial condition and, generally, requires no collateral. The Company does not believe that its customers’ credit risk represents a material risk of loss to the Company.

The Company currently buys all of its lubricant from three suppliers. In addition, the Company currently buys all of its bottling and dispensing materials from one supplier. Although there are a limited number of manufacturers of this particular product, management believes that other suppliers could provide similar lubricant on comparable terms. A change in suppliers, however, could cause a delay in manufacturing and a possible loss of sales, which would affect operating results adversely.

F-11

Empowered Products, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years Ended December 31, 2013 and 2012

Note 7. Inventory

Inventory consists of the following at:

	December 31,
	2013			2012

Raw materials	$	328,345		$	515,451
Finished goods		830,121			415,176
		1,158,466			930,627
Less: inventory reserve		(65,000	)		(56,746	)
	$	1,093,466		$	873,881

Note 8. Plant and Equipment, net

Depreciation for the years ended December 31, 2013 and 2012 was approximately $62,000 and $66,000, respectively. Cost, accumulated depreciation and estimated useful lives are as follows:

	Estimated	December 31,
Category	Useful Lives	2013			2012

Manufacturing and computer equipment	5 - 7 Years	$	388,190		$	381,618
Office furniture and computer software	3 - 7 Years		87,003			78,490
Vehicles	5 Years		19,442			19,442
			494,635			479,550
Less: accumulated depreciation			(311,529	)		(249,781	)
		$	183,106		$	229,769

Note 9. Line of Credit

The Company has a new $500,000 line of credit with a financial institution bearing interest at 2.3%, secured by restricted cash with a maturity date of October 28, 2014. The prior line of credit was for $500,000 and bore interest at prime plus 1% (prime was 3.25% at December 31, 2012) and an interest rate floor of 5%. The balance was $100,000 and $346,042 at December 31, 2013 and 2012, respectively.

Note 10. Stockholders’ Equity

On June 30, 2011, the Company entered into a subscription agreement with New Kaiser Limited (the “Investor”) to sell an aggregate of 2,000,000 shares of common stock for $1.00 per share. In connection with the shares being issued, the Investor received five-year warrants which allow the Investor to purchase 2,000,000 shares of its common stock at an exercise price of $1.25 per share. The closing of the sale occurred subsequent to June 30, 2011 and included an exchange of the $500,000 note payable and the receipt of $1,500,000 in cash in exchange for 2,000,000 shares of the Company’s common stock and the warrants. The warrants were deemed to have a fair value of approximately $885,000 and are included in additional paid-in capital. The warrants have been valued using the Black-Scholes pricing model with assumptions of a five year term, common stock price of $1.00 per share, 58% expected volatility, 1.54% risk-free interest rate and a dividend yield of 0%. Expected volatility was based on average volatilities of a sampling of four companies with similar attributes to the Company. The risk free rate for the contractual life of the warrants was based on the U.S. Treasury yield at the time of grant.

On February 22, 2013, the Company entered into an agreement with a related party, whereby, the Company agreed to grant to the individual as partial consideration of services to be rendered to the Company and/or its subsidiaries, an aggregate of 400,000 shares of the Company’s common stock, pursuant to the Company’s stock incentive plan below, to be granted in equal installments of 200,000 shares on April 1, 2013 and October 1, 2013, respectively. The Company valued the 400,000 shares at $152,000 based on the Company’s stock price at the dates of the grants.

F-12

Empowered Products, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years Ended December 31, 2013 and 2012

Share-Based Compensation

Stock Options

In April 2012, the Board of Directors adopted and the shareholders approved the Empowered Products, Inc. 2012 Omnibus Incentive Plan (the “Plan”). The Plan provides for the grant of stock options, stock appreciation rights (none issued), restricted stock, and other stock awards, including short-term cash incentive awards (none issued). In addition, the Plan provides for the grant of restricted stock units of which none are currently issued. Awards granted under the Plan may be granted individually or in any combination. Stock options may not be granted at an exercise price less than the market value of our common stock on the date of grant and may be subsequently re-priced by the Plan Administrator without stockholder consent. Equity granted under the Plan vests in various increments generally over one to three years and stock options expire in ten years.

The Plan provides for grants of awards to our directors, employees and consultants. The maximum number of awards which may be granted is 5.0 million of which 2.7 million have been granted as of December 31, 2013.

On March 12, 2013, the Board of Directors adopted resolutions and granted non-qualified stock options to five of the Company’s employees pursuant to the Plan. A summary of activity related to stock options is presented below:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2012		–	$	–		–	$	–
Granted		2,700,000		0.28		9.2		–
Exercised		–		–
Forfeited		–		–
Expired		–		–
Outstanding at December 31, 2013		2,700,000	$	0.28		9.2	$	–

Fully vested and expected to vest at December 31, 2013		1,566,669	$	0.28		9.2	$	–

Exercisable at December 31, 2013		1,566,669	$	0.28		9.2	$	–

For the year ended December 31, 2013, 2.7 million non-qualified stock options were granted with an aggregate fair market value of approximately $484,000. For the year ended December 31, 2013, no stock options were exercised; therefore, the tax effect/benefit from stock option exercises had no effect on our additional paid-in capital or income tax provision. As of December 31, 2013, there was approximately $206,000 of unamortized compensation expense related to stock options that is expected to be recognized as an expense over a weighted average period of 1.19 years.

Option valuation models require the input of certain assumptions and changes in assumptions used can materially affect the fair value estimate. The options have been valued using the Black-Scholes pricing model with assumptions of five to five and a half year term, common stock price of $0.28 per share, 78% expected volatility, 0.88% risk-free interest rate and a dividend yield of 0%. Expected volatility was based on average volatilities of a sampling of four companies with similar attributes to the Company as the Company has a limited trading history. The risk free rate for the contractual life of the options was based on the U.S. Treasury yield at the time of grant. The expected term of the options granted is derived using the “simplified method” which computes the expected term as the average of the sum of the vesting term and the contract term, as the Company had limited activity surrounding its options to provide a historical term.

F-13

Empowered Products, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years Ended December 31, 2013 and 2012

Warrants

In July 2013, the Company entered into Service Agreements with two companies agreeing to issue five-year warrants to purchase an aggregate of three million shares of the Company’s common stock for services to be rendered. Of the issuable warrants, warrants equivalent to one million shares were granted on July 29, 2013, warrants to purchase one million shares will be issued in July 2014, and warrants to purchase one million shares will be issued in July 2015. If the Service Agreements are terminated prior to the issuance date, the Company has no obligation to issue the remaining unissued warrants. The Company valued the warrants at $240,000 based on the Company’s stock price on July 12, 2013, the date of the service contracts.

Warrant valuation models require the input of certain assumptions and changes in assumptions used can materially affect the fair value estimate. The warrants have been valued using the Black-Scholes pricing model with assumptions of a two and a half year term, common stock price of $0.43 per share, exercise price of $0.33 per share, 83% expected volatility, 0.52% risk-free interest rate and a dividend yield of 0%. Expected volatility was based on average volatilities of a sampling of four companies with similar attributes to the Company as the Company has a limited trading history. The risk free rate for the contractual life of the warrants was based on the U.S. Treasury yield at the time of grant.

Note 11. Revenue by Geographic Area

Revenues by geographic area are determined based on the location of the Company’s customers. The following provides financial information concerning the Company’s operations by geographic area for the years ended December 31:

	December 31,
	2013			2012
Revenue:
United States	$	4,339,007	94.2%	$	2,686,507	89.5%
Europe		176,681	3.8%		177,679	5.9%
Asia		94,034	2.0%		136,265	4.6%
	$	4,609,722	100.0%	$	3,000,451	100.0%

Note 12. Related Party Transactions and Operating Leases

The Company entered into an office lease with an unrelated party for additional rental space in 2011 which expired on May 31, 2013 and was renewed through May 31, 2015. The lease calls for monthly rental payments of $4,000. The Company has an option to purchase the building for fair value at any time during the term of the lease. Total rent expense under this lease for the years ended December 31, 2013 and 2012 was $48,000 and $48,000, respectively.

Included in selling and distribution expenses for the years ended December 31, 2013 and 2012 are marketing fees of $311,879 and $227,819, respectively, paid to a company owned by the Company’s majority stockholder. There remains $60,105 payable for marketing fees to this company.

F-14

Empowered Products, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years Ended December 31, 2013 and 2012

Approximate minimum future rentals under the lease agreements are as follows:

Year ending
2014	$	135,000
2015		107,000
2016		15,000
	$	257,000

Note 13. Income Taxes

Income taxes are calculated using the asset and liability method of accounting. Deferred income taxes are computed by multiplying statutory rates applicable to estimated future year differences between the financial statement and tax basis carrying amounts of assets and liabilities.

The income tax provision is summarized as follows:

		Years Ended December 31,
		2013		2012

Current	$	–	$	–
Deferred		–		–
Total tax expense (benefit)	$	–	$	–

The tax effects of significant items comprising the Company’s deferred taxes are as follows:

	Years Ended December 31,
	2013			2012

Deferred tax assets:
Allowance for bad debt	$	18,000		$	11,300
Accrued expenses		6,000			4,200
Stock compensation		228,000			–
Inventory reserves		22,000			19,300
Net operating losses		1,024,000			1,271,500
		1,298,000			1,306,300
Less: valuation allowance for deferred tax asset		(1,223,000	)		(1,222,600	)
		75,000			83,700
Deferred tax liabilities:
Depreciation		(54,000	)		(63,200	)
Amortization		(21,000	)		(20,500	)
		(75,000	)		(83,700	)
Net deferred tax asset	$	–		$	–

F-15

Empowered Products, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years Ended December 31, 2013 and 2012

The Company has federal net operating loss (“NOL”) carry forwards of approximately $3,014,000 and $3,570,000 at December 31, 2013 and 2012, respectively. The federal net operating loss carry forwards begin to expire in 2024. A 34% statutory federal income tax rate was used for the calculation of the deferred tax asset. Management has established a valuation allowance equal to the estimated deferred tax asset due to uncertainties related to the ability to realize these tax assets. The valuation allowance increased by approximately $400 and $99,000 during the years ended December 31, 2013 and 2012, respectively.

The NOL carry forwards may be significantly limited under Section 382 of the Internal Revenue Code (“IRC”) as a result of the Company’s merger on June 30, 2011. The limitation imposed by Section 382 would place an annual limitation on the amount of the NOL carry forwards that can be utilized. The Company has not performed any analysis of whether or not there has been a cumulative change in ownership of greater than 50%. If this analysis were to be completed and it was determined that there has been a change in ownership, the amount of the NOL carry forwards available may be reduced significantly. However, since the valuation allowance fully reserves for all available carry forwards, the effect of the reduction would be offset by a reduction in the valuation allowance. Thus, the resolution of this matter would have no effect on the reported assets, liabilities, revenues, and expenses for the periods presented.

	Years Ended December 31,
	2013			2012

Federal tax rate		34%			(34%	)
Change in valuation allowance		(34%	)		34%
Effective tax rate		0%			0%

For the years ended December 31, 2013 and 2012, the Company did an analysis of its ASC 740 position and has not identified any uncertain tax positions as defined under ASC 740. Should such position be identified in the future and should the Company owe interest and penalties as a result of this, these would be recognized as interest expense and other expense, respectively, in the financial statements. The Company is no longer subject to any significant U.S. federal tax examinations by tax authorities for years before fiscal year 2009.

Note 14. Subsequent Event

The Company issued 1,025,000 options to two employees during January 2014 with exercise prices of $0.40 per share. Of these options issued 275,000 vest immediately and the remaining vest at 250,000 every three months.

F-16

Empowered Products, Inc. - FORM 10-K - March 31, 2014

Attached files

Empowered Products, Inc. Reports