Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jun. 30, 2016 | Jul. 31, 2016 | |
Document And Entity Information | ||
Entity Registrant Name | TELKONET INC | |
Entity Central Index Key | 1,094,084 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 132,266,390 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2,016 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($) | Jun. 30, 2016 | Dec. 31, 2015 |
Current assets: | ||
Cash and cash equivalents | $ 899,088 | $ 951,249 |
Restricted cash on deposit | 0 | 31,277 |
Accounts receivable, net | 2,772,498 | 2,263,347 |
Inventories | 1,116,728 | 812,052 |
Prepaid expenses and other current assets | 212,411 | 157,500 |
Total current assets | 5,000,725 | 4,215,425 |
Property and equipment, net | 128,326 | 142,004 |
Other assets: | ||
Goodwill | 5,796,430 | 5,796,430 |
Intangible assets, net | 654,417 | 775,257 |
Deposits | 10,130 | 34,001 |
Deferred financing costs, net | 5,159 | 14,633 |
Total other assets | 6,466,136 | 6,620,321 |
Total Assets | 11,595,187 | 10,977,750 |
Current liabilities: | ||
Accounts payable | 1,529,799 | 1,754,566 |
Accrued liabilities and expenses | 1,581,835 | 882,041 |
Notes payable - current | 26,643 | 93,340 |
Line of credit | 536,771 | 901,771 |
Deferred revenue - current | 405,779 | 291,965 |
Deferred lease liability - current | 18,428 | 15,214 |
Customer deposits | 432,780 | 309,840 |
Total current liabilities | 4,532,035 | 4,248,737 |
Long-term liabilities: | ||
Deferred revenue - long term | 108,236 | 0 |
Deferred lease liability - long term | 93,585 | 103,804 |
Deferred income taxes | 836,671 | 734,047 |
Total long-term liabilities | 1,038,492 | 837,851 |
Commitments and contingencies | ||
Stockholders' Equity | ||
Common stock, par value $.001 per share; 190,000,000 shares authorized; 132,266,390 and 127,054,848 shares issued and outstanding at June 30, 2016 and at December 31, 2015 | 132,266 | 127,054 |
Additional paid-in-capital | 126,815,502 | 126,135,712 |
Accumulated deficit | (122,646,625) | (122,095,121) |
Total stockholders' equity | 6,024,660 | 5,891,162 |
Total Liabilities and Stockholders' Equity | 11,595,187 | 10,977,750 |
Series A Preferred Stock [Member] | ||
Stockholders' Equity | ||
Preferred stock value | 1,340,566 | 1,340,566 |
Series B Preferred Stock [Member] | ||
Stockholders' Equity | ||
Preferred stock value | $ 382,951 | $ 382,951 |
CONDENSED CONSOLIDATED BALANCE3
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | Jun. 30, 2016 | Dec. 31, 2015 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 190,000,000 | 190,000,000 |
Common stock, shares outstanding | 132,266,390 | 127,054,848 |
Common stock, shares issued | 132,266,390 | 127,054,848 |
Series A Preferred Stock [Member] | ||
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares issued | 215 | 215 |
Preferred stock, shares outstanding | 185 | 185 |
Preferred stock, liquidiation preference | $ 1,414,794 | $ 1,377,886 |
Series B Preferred Stock [Member] | ||
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares issued | 538 | 538 |
Preferred stock, shares outstanding | 55 | 55 |
Preferred stock, liquidiation preference | $ 405,035 | $ 394,055 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | |
Revenues, net: | ||||
Product | $ 3,202,443 | $ 3,734,395 | $ 6,749,126 | $ 5,309,762 |
Recurring | 1,066,926 | 1,021,079 | 2,144,349 | 2,020,258 |
Total Net Revenue | 4,269,369 | 4,755,474 | 8,893,475 | 7,330,020 |
Cost of Sales: | ||||
Product | 1,824,528 | 1,682,593 | 3,611,982 | 2,772,417 |
Recurring | 232,534 | 236,007 | 510,569 | 474,271 |
Total Cost of Sales | 2,057,062 | 1,918,600 | 4,122,551 | 3,246,688 |
Gross Profit | 2,212,307 | 2,836,874 | 4,770,924 | 4,083,332 |
Operating Expenses: | ||||
Research and development | 464,571 | 395,357 | 891,385 | 754,886 |
Selling, general and administrative | 2,285,993 | 1,783,501 | 4,160,707 | 3,272,965 |
Depreciation and amortization | 68,427 | 68,719 | 137,261 | 138,021 |
Total Operating Expenses | 2,818,991 | 2,247,577 | 5,189,353 | 4,165,872 |
Income (Loss) from Operations | (606,684) | 589,297 | (418,429) | (82,540) |
Other Income (Expenses): | ||||
Interest income (expense), net | (13,630) | (14,449) | (29,826) | (34,503) |
Total Other Income (Expense) | (13,630) | (14,449) | (29,826) | (34,503) |
Income (Loss) Before Provision for Income Taxes | (620,314) | 574,848 | (448,255) | (117,043) |
Provision for Income Taxes | 51,312 | 51,337 | 103,249 | 103,524 |
Net Income (Loss) | (671,626) | 523,511 | (551,504) | (220,567) |
Accretion of preferred dividends and discount | 0 | 0 | 0 | (18,253) |
Net Income (Loss) attributable to common stockholders | $ (671,626) | $ 523,511 | $ (551,504) | $ (238,820) |
Net loss per common share: | ||||
Net income (loss) attributable to common stockholders per common share - basic | $ 0 | $ 0 | $ 0 | $ 0 |
Net income (loss) attributable to common stockholders per common share - diluted | $ 0 | $ 0 | $ 0 | $ 0 |
Weighted Average Common Shares Outstanding - basic | 131,808,232 | 125,035,612 | 129,431,540 | 125,035,612 |
Weighted Average Common Shares Outstanding - diluted | 131,808,232 | 127,613,594 | 129,431,540 | 125,035,612 |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) - 6 months ended Jun. 30, 2016 - USD ($) | Series A Preferred Stock | Series B Preferred Stock | Common Stock | Additional Paid-In Capital [Member] | Accumulated Deficit [Member] | Total |
Beginning Balance, Shares at Dec. 31, 2015 | 185 | 55 | 127,054,848 | |||
Beginning Balance, Amount at Dec. 31, 2015 | $ 1,340,566 | $ 382,951 | $ 127,054 | $ 126,135,712 | $ (122,095,121) | $ 5,891,162 |
Shares issued to preferred stockholders for warrants exercised at $0.13 per share, shares | 5,211,542 | |||||
Shares issued to preferred stockholders for warrants exercised at $0.13 per share, value | $ 5,212 | 672,289 | 677,501 | |||
Stock-based compensation expense related to employee stock options | 7,501 | 7,501 | ||||
Net loss | (551,504) | (551,504) | ||||
Ending Balance, Shares at Jun. 30, 2016 | 185 | 55 | 132,266,390 | |||
Ending Balance, Amount at Jun. 30, 2016 | $ 1,340,566 | $ 382,951 | $ 132,266 | $ 126,815,502 | $ (122,646,625) | $ 6,024,660 |
CONDENSED CONSOLIDATED STATEME6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) | 6 Months Ended | |
Jun. 30, 2016 | Jun. 30, 2015 | |
Cash Flows from Operating Activities: | ||
Net loss | $ (551,504) | $ (220,567) |
Adjustments to reconcile net loss from operations to cash used in operating activities: | ||
Stock-based compensation expense | 7,501 | 7,593 |
Amortization of deferred financing costs | 9,474 | 9,474 |
Depreciation | 16,421 | 17,181 |
Amortization | 120,840 | 120,840 |
Provision for doubtful accounts, net of recoveries | 11,625 | 6,254 |
Deferred income taxes | 102,624 | 102,624 |
Changes in assets and liabilities: | ||
Accounts receivable | (520,776) | (663,321) |
Inventories | (304,676) | 90,125 |
Prepaid expenses and other current assets | (54,911) | (51,637) |
Deposits and other long term assets | 23,871 | 238 |
Accounts payable | (224,767) | 38,357 |
Accrued liabilities and expenses | 699,794 | 137,716 |
Deferred revenue | 222,050 | 45,890 |
Customer deposits | 122,940 | (141,719) |
Deferred lease liability | (7,005) | (7,121) |
Net Cash Used In Operating Activities | (326,499) | (508,073) |
Cash Flows From Investing Activities: | ||
Purchase of property and equipment | (2,743) | (6,345) |
Change in restricted cash | 31,277 | (550) |
Net Cash Provided by (Used In) Investing Activities | 28,534 | (6,895) |
Cash Flows From Financing Activities: | ||
Payments on notes payable | (66,697) | (158,109) |
Proceeds from exercise of warrants | 677,501 | 0 |
Net (payments) proceeds from line of credit | (365,000) | 406,652 |
Net Cash Provided By Financing Activities | 245,804 | 248,543 |
Net decrease in cash and cash equivalents | (52,161) | (266,425) |
Cash and cash equivalents at the beginning of the period | 951,249 | 1,128,072 |
Cash and cash equivalents at the end of the period | 899,088 | 861,647 |
Cash transactions: | ||
Cash paid during the period for interest | 20,599 | 37,719 |
Non-cash transactions: | ||
Accretion of dividends on redeemable preferred stock | $ 0 | $ 47,628 |
A. BASIS OF PRESENTATION AND SI
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended |
Jun. 30, 2016 | |
Accounting Policies [Abstract] | |
SUMMARY OF ACCOUNTING POLICIES | A summary of the significant accounting policies applied in the preparation of the accompanying condensed consolidated financial statements follows. General The accompanying unaudited condensed consolidated financial statements of Telkonet, Inc. (the “Company”, “Telkonet”) have been prepared in accordance with Rule S-X of the Securities and Exchange Commission (the “SEC”) and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. However, the results from operations for the six months ended June 30, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated December 31, 2015 financial statements and footnotes thereto included in the Company's Form 10-K filed with the SEC. Business and Basis of Presentation Telkonet, formed in 1999 and incorporated under the laws of the State of Utah, is made up of two synergistic business divisions, EcoSmart Energy Management Technology and EthoStream High Speed Internet Access (“HSIA”) Network. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Telkonet Communications, Inc., and EthoStream LLC (‘Ethostream”). All significant intercompany balances and transactions have been eliminated in consolidation. The Company operates in one reportable segment based on management’s view of its business for purposes of evaluating performance and making operating decisions. The Company utilizes shared services including but not limited to, human resources, payroll, finance, sales, support services, as well as certain shared assets and sales, general and administrative costs. The Company’s approach is to make operational decisions and assess performance based on delivering products and services that together provide solutions to its customer base, utilizing a functional management structure and shared services where possible. Based upon this business model, the chief operating decision maker only reviews consolidated financial information. Liquidity and Financial Condition The Company reported a net loss of $551,504 for the six months ended June 30, 2016, had cash used in operating activities of $326,499, had an accumulated deficit of $122,646,625 and a working capital surplus of $468,690 as of June 30, 2016. Since inception, the Company’s primary sources of ongoing liquidity for operations have come through private and public offerings of equity securities, and the issuance of various debt instruments and asset-based lending. As discussed in Note G, the Series A preferred stock became redeemable at the option of the preferred stock holders on November 19, 2014 and for a period of 180 days thereafter, provided that at least 50% of the holders provide written notice to the Company requesting redemption. As of June 30, 2016 and December 31, 2015, no redemption of the preferred stock occurred and any future redemption of the Series A or B preferred stock would be entirely at the option of the Company. Furthermore, on February 17, 2016, an amendment to the revolving credit facility with Heritage Bank of Commerce, a California state chartered bank (“Heritage Bank”) was executed extending the maturity date of the revolving credit facility to September 30, 2018, unless earlier accelerated under the terms of the loan and security agreement (the “Heritage Bank Loan Agreement”). This revolving credit facility is available for working capital and other business purposes. The outstanding principal balance of the revolving credit facility bears interest at the Prime Rate plus 3.00%. As of June 30, 2016, the Company was in violation of a financial performance covenant of the Heritage Bank Loan Agreement. Heritage Bank has granted a waiver of that violation. By waiving the violation, Heritage Bank is not surrendering any of its other rights as set forth in the Heritage Bank Loan Agreement. As of June 30, 2016, the outstanding balance under the revolving credit facility was $536,771 and the remaining available borrowing capacity was approximately $979,000. The Company’s liquidity plan includes reviewing options for raising additional capital including, but not limited to, asset-based or equity financing, private placements, and/or disposition of assets. Management believes that with additional financing, the Company will be able to fund required working capital, research and development and marketing expenses necessary to promote revenue growth. However, any equity financing may be dilutive to stockholders and any additional debt financing would increase expenses and may involve restrictive covenants. While the Company has been successful in securing financing through September 30, 2018 with the Heritage Bank Loan Agreement to provide adequate funding for working capital purposes, there is no assurance that obtaining additional or replacement financing, if needed, will sufficiently fund future operations, repay existing debt or implement the Company’s growth strategy. The Company’s failure to execute on this strategy may have a material adverse effect on its business, results of operations and financial position. Restricted Cash on Deposit The Company executes contracts with bonding requirements and maintains this cash collateral on deposit for current and future projects. The amount is presented as restricted cash on deposit on the condensed consolidated balance sheet as of June 30, 2016 and December 31, 2015. As of June 30, 2016, all projects requiring performance bonds were completed and the Company was released from the performance bonds. The outstanding balance as of June 30, 2016 and December 31, 2015 was zero and $31,277, respectively. Income (Loss) per Common Share The Company computes earnings per share under ASC 260-10, “Earnings Per Share”. Basic net income (loss) per common share is computed using the treasury stock method, which assumes that the proceeds to be received on exercise of outstanding stock options and warrants are used to repurchase shares of the Company at the average market price of the common shares for the year. Dilutive common stock equivalents consist of shares issuable upon the exercise of the Company's outstanding stock options and warrants. For the six months ended June 30, 2016 and 2015, there were 1,940,225 and 9,745,758 shares of common stock, underlying options and warrants, respectively excluded due to these instruments being anti-dilutive. Use of Estimates The preparation of financial statements in conformity with United States of America (U.S.) generally accepted accounting principles (GAAP) requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates are used when accounting for items and matters such as revenue recognition and allowances for uncollectible accounts receivable, inventory obsolescence, depreciation and amortization, long-lived and intangible asset valuations, impairment assessments, taxes and related valuation allowance, income tax provisions, stock-based compensation, and contingencies. The Company believes that the estimates, judgments and assumptions are reasonable, based on information available at the time they are made. Actual results may differ from those estimates. Income Taxes The Company accounts for income taxes in accordance with ASC 740-10 “Income Taxes.” Under this method, deferred income taxes (when required) are provided based on the difference between the financial reporting and income tax bases of assets and liabilities and net operating losses at the statutory rates enacted for future periods. The Company has a policy of establishing a valuation allowance when it is more likely than not that the Company will not realize the benefits of its deferred income tax assets in the future. The Company adopted ASC 740-10-25, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740-10-25 also provides guidance on derecognition, classification, treatment of interest and penalties, and disclosure of such positions. Revenue Recognition For revenue from product sales, the Company recognizes revenue in accordance with ASC 605-10, “Revenue Recognition” and ASC 605-10-S99 guidelines that require that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Assuming all conditions for revenue recognition have been satisfied, product revenue is recognized when products are shipped and installation revenue is recognized when the services are completed. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The guidelines also address the accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. Multiple-Element Arrangements (“MEAs”): · VSOE – In most instances, products are sold separately in stand-alone arrangements. Services are also sold separately through renewals of contracts with varying periods. The Company determines VSOE based on pricing and discounting practices for the specific product or service when sold separately, considering geographical, customer, and other economic or marketing variables, as well as renewal rates or stand-alone prices for the service element(s). · TPE – If the Company cannot establish VSOE of selling price for a specific product or service included in a multiple-element arrangement, the Company uses third-party evidence of selling price. The Company determines TPE based on sales of a comparable amount of similar product or service offered by multiple third parties considering the degree of customization and similarity of product or service sold. · ESP – The estimated selling price represents the price at which the Company would sell a product or service if it were sold on a stand-alone basis. When neither VSOE nor TPE exists for all elements, the Company determines ESP for the arrangement element based on sales, cost and margin analysis, as well as other inputs based on the Company’s pricing practices. Adjustments for other market and Company-specific factors are made as deemed necessary in determining ESP. Under the estimated selling price method, revenue is recognized in MEAs based on estimated selling prices for all of the elements in the arrangement, assuming all other conditions for revenue recognition have been satisfied. To determine the estimated selling price, the Company establishes the selling price for its products and installation services using the Company’s established pricing guidelines, and the proceeds are allocated between the elements and the arrangement. When MEAs include an element of customer training, it is not essential to the functionality, efficiency or effectiveness of the MEA. Therefore the Company has concluded that this obligation is inconsequential and perfunctory. As such, for MEAs that include training, customer acceptance of said training is not deemed necessary in order to record the related revenue, but is recorded when the installation deliverable is fulfilled. Historically, training revenues have not been significant. The Company provides call center support services to properties installed by the Company and also to properties installed by other providers. In addition, the Company provides the property with the portal to access the Internet. The Company receives monthly service fees from such properties for its services and Internet access. The Company recognizes the service fee ratably over the term of the contract. The prices for these services are fixed and determinable prior to delivery of the service. The fair value of these services is known due to objective and reliable evidence from standalone executed contracts. The Company reports such revenues as recurring revenues. Deferred revenue includes deferrals for the monthly support service fees and Internet access. Long-term deferred revenue represents support service fees to be earned or provided beginning after June 30, 2017. Revenue recognized that has not yet been billed to a customer results in an asset as of the end of the period. As of June 30, 2016 and December 31, 2015, there was $341,727 and $170,000 recorded within accounts receivable, respectively, related to revenue recognized that has not yet been billed. Guarantees and Product Warranties The Company records a liability for potential warranty claims in cost of sales at the time of sale. The amount of the liability is based on the trend in the historical ratio of claims to sales, the historical length of time between the sale and resulting warranty claim, new product introductions and other factors. The products sold are generally covered by a warranty for a period of one year. In the event the Company determines that its current or future product repair and replacement costs exceed its estimates, an adjustment to these reserves would be charged to earnings in the period such determination is made. For the six months ended June 30, 2016 and the year ended December 31, 2015, the Company experienced returns of approximately 1% to 3% of materials included in the cost of sales. As of June 30, 2016 and December 31, 2015, the Company recorded warranty liabilities in the amount of $87,208 and $66,555, respectively, using this experience factor range. Product warranties for the six months ended June 30, 2016 and the year ended December 31, 2015 are as follows: June 30, December 31, Beginning balance $ 66,555 $ 44,288 Warranty claims incurred (30,047 ) (52,833 ) Provision charged to expense 50,700 75,100 Ending balance $ 87,208 $ 66,555 |
B. NEW ACCOUNTING PRONOUNCEMENT
B. NEW ACCOUNTING PRONOUNCEMENTS | 6 Months Ended |
Jun. 30, 2016 | |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
NEW ACCOUNTING PRONOUNCEMENTS | In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The guidance for this standard was initially effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, however in August 2015 the FASB delayed the effective date of the standard for one full year. Companies will adopt the standard using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact of its pending adoption of ASU 2014-09 on its consolidated financial statements and has not yet determined the method by which it will adopt the standard in 2018. In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”) which requires management to evaluate, in connection with preparing financial statements for each annual and interim reporting period, whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable) and provide related disclosures. ASU 2014-15 is effective for annual periods beginning after December 15, 2016 and thereafter. Early adoption is permitted. The Company is currently evaluating the impact of its pending adoption of ASU 2014-15 on its consolidated financial statements. In July 2015, the FASB issued ASU No. 2015-11, Inventory - Simplifying the Measurement of Inventory (Topic 330) (“ASU 2015-11”). ASU 2015-11 requires inventory to be subsequently measured using the lower of cost and net realizable value, thereby eliminating the market value approach. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. ASU 2015-11 is effective for reporting periods beginning after December 15, 2016 and is applied prospectively. Early adoption is permitted. The Company is currently evaluating the impact of its pending adoption of ASU 2015-11 on its consolidated financial statements. In November 2015, the FASB issued ASU No. 2015-17, Income Taxes - Balance Sheet Classification of Deferred Taxes (Topic 740) (“ASU 2015-17”), which requires deferred tax liabilities and assets of the same tax jurisdiction or a tax filing group, as well as any related valuation allowance, be offset and presented as a single noncurrent amount in the consolidated balance sheets. ASU No. 2015-17 is effective for interim and annual periods beginning after December 15, 2016, with early adoption permitted. ASU 2015-17 may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company does not believe this guidance will have a material impact on the Company's future statement of operations or financial position. In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of its pending adoption of ASU 2016-02 on its consolidated financial statements. |
C. INTANGIBLE ASSETS AND GOODWI
C. INTANGIBLE ASSETS AND GOODWILL | 6 Months Ended |
Jun. 30, 2016 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
INTANGIBLE ASSETS AND GOODWILL | Total identifiable intangible assets acquired and their carrying values at June 30, 2016 are: Cost Accumulated Amortization Accumulated Impairment Carrying Value Weighted Average Amortization Period (Years) Amortized Identifiable Intangible Assets: Subscriber lists – EthoStream $ 2,900,000 $ (2,245,583 ) $ – $ 654,417 12.0 Total Amortized Identifiable Intangible Assets 2,900,000 (2,245,583 ) – 654,417 Goodwill – EthoStream 8,796,430 – (3,000,000 ) 5,796,430 Total Goodwill 8,796,430 – (3,000,000 ) 5,796,430 Total $ 11,696,430 $ (2,245,583 ) $ (3,000,000 ) $ 6,450,847 Total identifiable intangible assets acquired and their carrying values at December 31, 2015 are: Cost Accumulated Amortization Accumulated Impairment Carrying Value Weighted Average Amortization Period (Years) Amortized Identifiable Intangible Assets: Subscriber lists – EthoStream $ 2,900,000 $ (2,124,743 ) $ – $ 775,257 12.0 Total Amortized Identifiable Intangible Assets 2,900,000 (2,124,743 ) – 775,257 Goodwill – EthoStream 8,796,430 – (3,000,000 ) 5,796,430 Total Goodwill 8,796,430 (3,000,000 ) 5,796,430 Total $ 11,696,430 $ (2,124,743 ) $ (3,000,000 ) $ 6,571,687 Total amortization expense charged to operations for each of the three and six months ended June 30, 2016 and 2015 was $60,420 and $120,840. The weighted average remaining amortization period for the subscriber list is 2.70 years. Estimated future amortization expense as of June 30, 2016 is as follows: Remainder of 2016 $ 120,840 2017 241,680 2018 241,680 2019 50,217 Total $ 654,417 The Company does not amortize goodwill. The Company recorded goodwill in the amount of $8,796,430 as a result of the acquisition of EthoStream during the year ended December 31, 2007. The Company evaluates goodwill for impairment based on the fair value of the reporting units to which this goodwill relates at least once a year. The Company utilizes a discounted cash flow valuation methodology (income approach) to determine the fair value of the reporting unit. Since acquisition, the Company has written off $3,000,000 of goodwill for EthoStream. |
D. ACCOUNTS RECEIVABLE
D. ACCOUNTS RECEIVABLE | 6 Months Ended |
Jun. 30, 2016 | |
Receivables [Abstract] | |
ACCOUNTS RECEIVABLE | Components of accounts receivable as of June 30, 2016 and December 31, 2015 are as follows: June 30, December 31, Accounts receivable $ 2,801,015 $ 2,286,690 Allowance for doubtful accounts (28,517 ) (23,343 ) Accounts receivable, net $ 2,772,498 $ 2,263,347 |
E. ACCRUED LIABILITIES AND EXPE
E. ACCRUED LIABILITIES AND EXPENSES | 6 Months Ended |
Jun. 30, 2016 | |
Payables and Accruals [Abstract] | |
ACCRUED LIABILITIES AND EXPENSES | Accrued liabilities and expenses at June 30, 2016 and December 31, 2015 are as follows : June 30, December 31, Accrued liabilities and expenses $ 866,520 $ 198,906 Accrued payroll and payroll taxes 478,349 386,521 Accrued sales taxes, penalties, and interest 149,714 229,768 Accrued interest 44 291 Product warranties 87,208 66,555 Total accrued liabilities and expenses $ 1,581,835 $ 882,041 |
F. DEBT
F. DEBT | 6 Months Ended |
Jun. 30, 2016 | |
Debt Disclosure [Abstract] | |
DEBT | Business Loan On September 11, 2009, the Company entered into a Loan Agreement in the aggregate principal amount of $300,000 with the Wisconsin Department of Commerce (the “Department”). The outstanding principal balance bears interest at the annual rate of 2%. Payment of interest and principal is to be made in the following manner: (a) payment of any and all interest that accrues from the date of disbursement commenced on January 1, 2010 and continued on the first day of each consecutive month thereafter through and including December 31, 2010; (b) commencing on January 1, 2011 and continuing on the first day of each consecutive month thereafter through and including November 1, 2016, the Company is required to pay equal monthly installments of $4,426; followed by a final installment on December 1, 2016 which shall include all remaining principal, accrued interest and other amounts owed by the Company to the Department under the Loan Agreement. The Company may prepay amounts outstanding under the Loan Agreement in whole or in part at any time without penalty. The Loan Agreement was secured by substantially all of the Company’s assets. On September 24, 2014, the Department signed a subordination agreement of all the Company’s security interests. The proceeds from this loan were used for the working capital requirements of the Company. The Loan Agreement contains covenants which required, among other things, that the Company keep and maintain 75 existing full-time positions and create and fill 35 additional full-time positions in Milwaukee, Wisconsin by December 31, 2012. On June 18, 2012, the Department agreed to permanently waive all penalties associated with the Company’s noncompliance with this covenant. The outstanding borrowings under the agreement as of June 30, 2016 and December 31, 2015 was $26,643 and $52,579, respectively. Promissory Note On March 4, 2011, the Company sold all its Series 5 PLC product line assets to Wisconsin-based Dynamic Ratings, Inc. (“Purchaser”) under an asset purchase agreement (“APA”). Per the APA, the Company signed an unsecured promissory note (the “Note”) due to Purchaser in the aggregate principal amount of $700,000. The outstanding principal balance bore interest at a rate of 6% and was originally due on March 31, 2014. As a result of an amendment effective April 30, 2013, the maturity date was extended to January 1, 2016, at which time the Note was paid in full. The principal balance of the Note as of June 30, 2016 and December 31, 2015 was zero and $40,761, respectively. Revolving Credit Facility On September 30, 2014, the Company and its wholly-owned subsidiary, EthoStream, as co-borrowers (collectively, the “Borrowers”), entered into a loan and security agreement (the “Heritage Bank Loan Agreement”), with Heritage Bank of Commerce, a California state chartered bank (“Heritage Bank”), governing a new revolving credit facility in a principal amount not to exceed $2,000,000 (the “Credit Facility”). Availability of borrowings under the Credit Facility from time to time is subject to a borrowing base calculation based on the Company’s eligible accounts receivable and eligible inventory each multiplied by an applicable advance rate, with an overall limitation tied to the Company’s eligible accounts receivable. The Heritage Bank Loan Agreement is available for working capital and other general business purposes. The outstanding principal balance of the Credit Facility bears interest at the Prime Rate plus 3.00%, which was 6.50% at June 30, 2016 and December 31, 2015. On October 9, 2014, as part of the Heritage Bank Loan Agreement, Heritage Bank was granted a warrant to purchase 250,000 shares of Telkonet common stock. The warrant has an exercise price of $0.20 and expires October 9, 2021. On February 17, 2016, an amendment to the Credit Facility was executed extending the maturity date to September 30, 2018, unless earlier accelerated under the terms of the Heritage Bank Loan Agreement. The Heritage Bank Loan Agreement also contains financial covenants that place restrictions on, among other things, the incurrence of debt, granting of liens and sale of assets. The Heritage Bank Loan Agreement also contains financial covenants that require the Borrowers to maintain a minimum EBITDA level, measured quarterly, and a minimum asset coverage ratio, measured monthly. A violation of any of these covenants could result in an event of default under the Heritage Bank Loan Agreement. Upon the occurrence of such an event of default or certain other customary events of defaults, payment of any outstanding amounts under the Credit Facility may be accelerated and Heritage Bank’s commitment to extend credit under the Heritage Bank Loan Agreement may be terminated. The Heritage Bank Loan Agreement contains other representations and warranties, covenants, and other provisions customary to transactions of this nature. As of June 30, 2016, the Company was in violation of a financial performance covenant. Heritage Bank has granted a waiver of that violation. By waiving the violation, Heritage Bank is not surrendering any of its other rights set forth in the Heritage Bank Loan Agreement. The outstanding balance on the Credit Facility was $536,771 and $901,771 at June 30, 2016 and December 31, 2015, respectively, leaving an available borrowing base of approximately $979,000 and $532,700 at June 30, 2016 and December 31, 2015, respectively. |
G. PREFERRED STOCK
G. PREFERRED STOCK | 6 Months Ended |
Jun. 30, 2016 | |
Equity [Abstract] | |
PREFERRED STOCK | Series A The Company has designated 215 shares of preferred stock as Series A Preferred Stock (“Series A”). Each share of Series A is convertible, at the option of the holder thereof, at any time, into shares of common stock at an initial conversion price of $0.363 per share. In the event of a change of control (as defined in the purchase agreement with respect to the Series A), or at the holder’s option, on November 19, 2014 and for a period of 180 days thereafter, provided that at least 50% of the shares of Series A issued on the Series A Original Issue Date remain outstanding as of November 19, 2014, and the holders of at least a majority of the then outstanding shares of Series A provide written notice requesting redemption of all shares of Series A, the Company was required to redeem the Series A for the purchase price of $5,000 per share, plus any accrued but unpaid dividends. By way of the redemption option available to holders of the Company’s Series A shares having expired on May 18, 2015 with no Series A holders requesting redemption of their shares, the redemption feature at the option of the holders was eliminated, thereby, resulting in the reclassification of $1,322,112 from temporary equity, which was classified as “redeemable preferred stock” in the Company’s consolidated balance sheets, to permanent equity during the year ended December 31, 2015. On November 16, 2009, the Company sold 215 shares of Series A with attached warrants to purchase an aggregate of 1,628,800 shares of the Company’s common stock at $0.33 per share. The Series A shares were sold at a price per share of $5,000 and each Series A share is convertible into approximately 13,774 shares of common stock at a conversion price of $0.363 per share. The Company received $1,075,000 from the sale of the Series A shares. For the three and six months ended June 30, 2016 and 2015, the Company has accrued dividends for Series A in the amount of zero and $18,454 and cumulative accrued dividends of $489,794 and $415,566, respectively. The accrued dividends have been charged to additional paid-in capital (since there is a deficit in retained earnings) and an increase to the net income (loss) attributable to common stockholders and the net unpaid accrued dividends been added to the carrying value of the preferred stock. Series B The Company has designated 538 shares of preferred stock as Series B Preferred Stock (“Series B”). Each share of Series B is convertible, at the option of the holder thereof, at any time, into shares of the Company’s common stock at a conversion price of $0.13 per share. As a result of the Series B conversions during the year ended December 31, 2013, the outstanding Series B shares are not redeemable at the option of the holders. The Series B accrues dividends at an annual rate of 8% of the original purchase price, payable only when, as, and if declared by the Company’s Board of Directors. On August 4, 2010, the Company sold 267 shares of Series B with attached warrants to purchase an aggregate of 5,134,626 shares of the Company’s common stock at $0.13 per share. The Series B shares were sold at a price per share of $5,000 and each Series B share was convertible into approximately 38,461 shares of common stock at a conversion price of $0.13 per share. The Company received $1,335,000 from the sale of the Series B shares. Up and until the quarter ended September 30, 2013, the Series B were redeemable at the option of the holder, the carrying value of the preferred stock, net of discount and including accumulated dividends, had been classified as redeemable preferred stock on the consolidated balance sheets. During the year ended December 31, 2011, shareholders converted 45 redeemable preferred shares issued on August 4, 2010, to, in aggregate 1,730,762 shares of common stock. During the year ended December 31, 2013, shareholders converted 167 redeemable preferred shares issued on August 4, 2010, to, in aggregate, 6,423,072 shares of common stock. On April 8, 2011, the Company sold 271 additional shares of Series B with attached warrants to purchase an aggregate of 5,211,542 shares of the Company’s common stock at $0.13 per share. The Series B shares were sold at a price per share of $5,000 and each Series B share was convertible into approximately 38,461 shares of common stock at a conversion price of $0.13 per share. The Company received $1,355,000 from the sale of the Series B shares. During the year ended December 31, 2013, all 271 of the redeemable preferred shares issued on April 8, 2011, were converted to, in aggregate, 10,423,067 shares of common stock. As a result of the Series B conversions during the year ended December 31, 2013, fewer than 50% of the Series B shares issued on the Series B original issuance date, August 4, 2010, remain outstanding, and the balance of the outstanding Series B shares will not become redeemable at the option of the holders. The redemption feature at the option of the holders is eliminated, thereby, resulting in the reclassification of $324,063 from temporary equity, which was classified as “redeemable preferred stock” in the Company’s consolidated balance sheets, to permanent equity during the year ended December 31, 2013. For the three and six months ended June 30, 2016 and 2015, the Company has accrued dividends for Series B in the amount of zero and $5,490 and zero and $10,921, respectively, and cumulative accrued dividends of $130,035 and $107,951 as of June 30, 2016 and 2015, respectively. The accrued dividends have been charged to additional paid-in capital (since there is a deficit in retained earnings) and the net unpaid accrued dividends been added to the carrying value of the preferred stock. Preferred stock carries certain preference rights as detailed in the Company’s Amended Articles of Incorporation related to both the payment of dividends and as to payments upon liquidation in preference to any other class or series of capital stock of the Company. Liquidation preference of the preferred stock is based on the following order: first, Series B with a preference value of $405,035 and second, Series A with a preference value of $1,414,794. Both series of preferred stock are equal in their dividend preference over common stock. |
H. CAPITAL STOCK
H. CAPITAL STOCK | 6 Months Ended |
Jun. 30, 2016 | |
Equity [Abstract] | |
CAPITAL STOCK | The Company has authorized 15,000,000 shares of preferred stock (designated and undesignated), with a par value of $.001 per share. The Company has designated 215 shares as Series A preferred stock and 538 shares as Series B preferred stock. As of June 30, 2016 and December 31, 2015, there were 185 shares of Series A and 55 shares of Series B outstanding. The Company has authorized 190,000,000 shares of common stock with a par value of $.001 per share. As of June 30, 2016 and December 31, 2015 the Company had 132,266,390 and 127,054,848 common shares issued and outstanding, respectively. During the six months ended June 30, 2016, 5,211,542 warrants were exercised for an aggregate of 5,211,542 shares of the CompanyÂ’s common stock at $0.13 per share. These warrants were originally granted to shareholders of the April 8, 2011 Series B preferred stock issuance. |
I. STOCK OPTIONS AND WARRANTS
I. STOCK OPTIONS AND WARRANTS | 6 Months Ended |
Jun. 30, 2016 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
STOCK OPTIONS AND WARRANTS | Employee Stock Options The Company maintains an equity incentive plan, (the “Plan”). The Plan was established in 2010 as an incentive plan for officers, employees, non-employee directors, prospective employees and other key persons. It is anticipated that providing such persons with a direct stake in the Company’s welfare will assure a better alignment of their interests with those of the Company and its stockholders. The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to employees of the Company under the Plan as of June 30, 2016. Options Outstanding Options Exercisable Exercise Prices Number Outstanding Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Number Exercisable Weighted Average Exercise Price $ 0.01 - $0.15 175,000 1.32 $ 0.14 175,000 $ 0.14 $ 0.16 - $0.99 1,420,225 6.47 0.18 1,346,800 0.18 $ 1.00 - $3.03 45,000 1.11 1.69 45,000 1.69 1,640,225 5.77 $ 0.22 1,566,800 $ 0.22 Transactions involving stock options issued to employees are summarized as follows: Number of Weighted Average Outstanding at January 1, 2015 1,930,225 $ 0.40 Granted 50,000 0.18 Exercised – – Cancelled or expired (155,000 ) 1.81 Outstanding at December 31, 2015 1,825,225 $ 0.28 Granted – – Exercised – – Cancelled or expired (185,000 ) 0.73 Outstanding at June 30, 2016 1,640,225 $ 0.22 The expected life of awards granted represents the period of time that they are expected to be outstanding. The Company determines the expected life based on historical experience with similar awards, giving consideration to the contractual terms, vesting schedules, exercise patterns and pre-vesting and post-vesting forfeitures. The Company estimates the volatility of the Company’s common stock based on the calculated historical volatility of the Company’s own common stock using the trailing 24 months of share price data prior to the date of the award. The Company bases the risk-free interest rate used in the Black-Scholes option valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award. The Company has not paid any cash dividends on the Company’s common stock and does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of zero in the Black-Scholes option valuation model. The Company uses historical data to estimate pre-vesting option forfeitures and record share-based compensation for those awards that are expected to vest. In accordance with ASC 718-10, the Company adjusts share-based compensation for changes to the estimate of expected equity award forfeitures based on actual forfeiture experience. There were no options granted and no options exercised during the six months ended June 30, 2016 and 2015, respectively. Total stock-based compensation expense in connection with options granted to employees recognized in the condensed consolidated statements of operations for the three and six months ended June 30, 2016 and 2015 was $3,750 and $3,390 and $7,501 and $7,593, respectively. Warrants The following table summarizes the changes in warrants outstanding and the related prices for the shares of the Company’s common stock issued to non-employees of the Company. Warrants Outstanding Warrants Exercisable Exercise Prices Number Outstanding Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Number Exercisable Weighted Average Exercise Price $ 0.18 50,000 1.41 $ 0.18 50,000 $ 0.18 0.20 250,000 5.27 0.20 250,000 0.20 300,000 4.63 $ 0.20 300,000 $ 0.20 Transactions involving warrants are summarized as follows: Number of Weighted Average Outstanding at January 1, 2015 7,915,533 $ 0.27 Issued – – Exercised (2,019,236 ) 0.13 Cancelled or expired (257,887 ) 3.00 Outstanding at December 31, 2015 5,638,410 0.20 Issued – – Exercised (5,211,542 ) 0.13 Cancelled or expired (126,868 ) 3.00 Outstanding at June 30, 2016 300,000 $ 0.20 There were no warrants granted, 5,211,542 warrants exercised and 126,868 cancelled or forfeited during the six months ended June 30, 2016. There were no warrants granted during the six months ended June 30, 2015. |
J. RELATED PARTY TRANSACTIONS
J. RELATED PARTY TRANSACTIONS | 6 Months Ended |
Jun. 30, 2016 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | On May 18 and June 4, 2015, Messrs. Davis and Tienor each signed a General Indemnity Agreement pledging personal property on behalf of the Company for a customer contract that required bonding. The Company agreed to compensate each in the amount of $3,000, grossed up to accommodate their 2015 federal income tax liability associated with the payments. On July 15 and July 17, 2015, Messrs. Davis and Tienor each signed a General Indemnity Agreement pledging personal property on behalf of the Company for another customer contract that required bonding. The Company agreed to compensate each in the amount of $2,000, grossed up to accommodate their 2015 federal income tax liability associated with the payments. The amounts owed to Messrs. Davis and Tienor as of June 30, 2016 and December 31, 2015, were zero and $11,994, respectively, and were recorded in accrued liabilities and expenses on the accompanying condensed consolidated balance sheets. From time to time the Company may receive advances from certain of its officers in the form of salary deferment, cash advances to meet short term working capital needs. These advances may not have formal repayment terms or arrangements. As of June 30, 2016 and December 31, 2015, there were no such arrangements. |
K. COMMITMENTS AND CONTINGENCIE
K. COMMITMENTS AND CONTINGENCIES | 6 Months Ended |
Jun. 30, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | Office Lease Obligations In October 2013, the Company entered into a lease agreement for 6,362 square feet of commercial office space in Waukesha, Wisconsin for its corporate headquarters. The Waukesha lease expires in April 2021. The Company presently leases approximately 14,000 square feet of office space in Milwaukee, Wisconsin for its operations facility. The Milwaukee lease expires in March 2020. In January 2016, the Company entered into a lease agreement for 2,237 square feet of commercial office space in Germantown, Maryland for its engineering employeeÂ’s in Maryland. The lease commitment expires in January 2017. Commitments for minimum rentals under non-cancelable leases at June 30, 2016 are as follows: 2016 (remainder of) $ 125,184 2017 254,740 2018 258,381 2019 265,305 2020 128,863 2021 28,014 Total $ 1,060,487 Rental expenses charged to operations for the three and six months ended June 30, 2016 and 2015 were $117,522 and $163,990, and $225,984 and $326,202, respectively. Rental income received for the three and six months ended June 30, 2016 and 2015 was zero and $34,301 and zero and $68,602, respectively. Litigation The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity. Sales Tax During 2012, the Company engaged a sales tax consultant to assist in determining the extent of its potential sales tax exposure. Based upon this analysis, management determined the Company had probable exposure for certain unpaid obligations, including interest and penalty, of approximately $1,100,000 including and prior to the year ended December 31, 2011. The Company has approximately $150,000 and $230,000 accrued as of June 30, 2016 and December 31, 2015, respectively. The Company continues to manage the liability by establishing voluntary disclosure agreements (VDAs) with the applicable states, which establishes a maximum look-back period and payment arrangements. However, if the aforementioned methods prove unsuccessful and the Company is examined or challenged by taxing authorities, there exists possible exposure of an additional $20,000, not including any applicable interest and penalties. Prior to 2016, the Company successfully executed and paid in full VDAs in thirty one states totaling approximately $695,000 and is current with the subsequent filing requirements. During the six months ended June 30, 2016, the Company executed five VDAÂ’s totaling approximately $70,000. The following table sets forth the change in the sales tax accrual as of June 30, 2016 and December 31, 2015: June 30, 2016 December 31, 2015 Balance, beginning of year $ 229,768 $ 353,260 Sales tax collected 233,336 401,031 Interest and penalties (3,017 ) (117,700 ) Payments (310,373 ) (406,823 ) Balance, end of period $ 149,714 $ 229,768 |
L. BUSINESS CONCENTRATION
L. BUSINESS CONCENTRATION | 6 Months Ended |
Jun. 30, 2016 | |
Risks and Uncertainties [Abstract] | |
BUSINESS CONCENTRATION | For the six months ended June 30, 2016 and 2015, no single customer represented 10% or more of total net revenues. As of June 30, 2016 and December 31, 2015, no single customer accounted for 10% of the CompanyÂ’s net accounts receivable. Purchases from two major suppliers approximated $2,330,000, or 84%, of purchases, and $1,713,000, or 85%, of purchases, for the six months ended June 30, 2016 and 2015, respectively. Total due to these suppliers, net of deposits, was $924,866 as of June 30, 2016, and $584,288 as of December 31, 2015. |
A. BASIS OF PRESENTATION AND 19
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies) | 6 Months Ended |
Jun. 30, 2016 | |
Accounting Policies [Abstract] | |
Business and Basis of Presentation | Business and Basis of Presentation Telkonet, formed in 1999 and incorporated under the laws of the State of Utah, is made up of two synergistic business divisions, EcoSmart Energy Management Technology and EthoStream High Speed Internet Access (“HSIA”) Network. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Telkonet Communications, Inc., and EthoStream LLC (‘Ethostream”). All significant intercompany balances and transactions have been eliminated in consolidation. The Company operates in one reportable segment based on management’s view of its business for purposes of evaluating performance and making operating decisions. The Company utilizes shared services including but not limited to, human resources, payroll, finance, sales, support services, as well as certain shared assets and sales, general and administrative costs. The Company’s approach is to make operational decisions and assess performance based on delivering products and services that together provide solutions to its customer base, utilizing a functional management structure and shared services where possible. Based upon this business model, the chief operating decision maker only reviews consolidated financial information. |
Liquidity and Financial Condition | Liquidity and Financial Condition The Company reported a net loss of $551,504 for the six months ended June 30, 2016, had cash used in operating activities of $326,499, had an accumulated deficit of $122,646,625 and a working capital surplus of $468,690 as of June 30, 2016. Since inception, the Company’s primary sources of ongoing liquidity for operations have come through private and public offerings of equity securities, and the issuance of various debt instruments and asset-based lending. As discussed in Note G, the Series A preferred stock became redeemable at the option of the preferred stock holders on November 19, 2014 and for a period of 180 days thereafter, provided that at least 50% of the holders provide written notice to the Company requesting redemption. As of June 30, 2016 and December 31, 2015, no redemption of the preferred stock occurred and any future redemption of the Series A or B preferred stock would be entirely at the option of the Company. Furthermore, on February 17, 2016, an amendment to the revolving credit facility with Heritage Bank of Commerce, a California state chartered bank (“Heritage Bank”) was executed extending the maturity date of the revolving credit facility to September 30, 2018, unless earlier accelerated under the terms of the loan and security agreement (the “Heritage Bank Loan Agreement”). This revolving credit facility is available for working capital and other business purposes. The outstanding principal balance of the revolving credit facility bears interest at the Prime Rate plus 3.00%. As of June 30, 2016, the Company was in violation of a financial performance covenant of the Heritage Bank Loan Agreement. Heritage Bank has granted a waiver of that violation. By waiving the violation, Heritage Bank is not surrendering any of its other rights as set forth in the Heritage Bank Loan Agreement. As of June 30, 2016, the outstanding balance under the revolving credit facility was $536,771 and the remaining available borrowing capacity was approximately $979,000. The Company’s liquidity plan includes reviewing options for raising additional capital including, but not limited to, asset-based or equity financing, private placements, and/or disposition of assets. Management believes that with additional financing, the Company will be able to fund required working capital, research and development and marketing expenses necessary to promote revenue growth. However, any equity financing may be dilutive to stockholders and any additional debt financing would increase expenses and may involve restrictive covenants. While the Company has been successful in securing financing through September 30, 2018 with the Heritage Bank Loan Agreement to provide adequate funding for working capital purposes, there is no assurance that obtaining additional or replacement financing, if needed, will sufficiently fund future operations, repay existing debt or implement the Company’s growth strategy. The Company’s failure to execute on this strategy may have a material adverse effect on its business, results of operations and financial position. |
Restricted Cash on Deposit | Restricted Cash on Deposit The Company executes contracts with bonding requirements and maintains this cash collateral on deposit for current and future projects. The amount is presented as restricted cash on deposit on the condensed consolidated balance sheet as of June 30, 2016 and December 31, 2015. As of June 30, 2016, all projects requiring performance bonds were completed and the Company was released from the performance bonds. The outstanding balance as of June 30, 2016 and December 31, 2015 was zero and $31,277, respectively. |
Income (Loss) per Common Share | Income (Loss) per Common Share The Company computes earnings per share under ASC 260-10, “Earnings Per Share”. Basic net income (loss) per common share is computed using the treasury stock method, which assumes that the proceeds to be received on exercise of outstanding stock options and warrants are used to repurchase shares of the Company at the average market price of the common shares for the year. Dilutive common stock equivalents consist of shares issuable upon the exercise of the Company's outstanding stock options and warrants. For the six months ended June 30, 2016 and 2015, there were 1,940,225 and 9,745,758 shares of common stock, underlying options and warrants, respectively excluded due to these instruments being anti-dilutive. |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with United States of America (U.S.) generally accepted accounting principles (GAAP) requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates are used when accounting for items and matters such as revenue recognition and allowances for uncollectible accounts receivable, inventory obsolescence, depreciation and amortization, long-lived and intangible asset valuations, impairment assessments, taxes and related valuation allowance, income tax provisions, stock-based compensation, and contingencies. The Company believes that the estimates, judgments and assumptions are reasonable, based on information available at the time they are made. Actual results may differ from those estimates. |
Income Taxes | Income Taxes The Company accounts for income taxes in accordance with ASC 740-10 “Income Taxes.” Under this method, deferred income taxes (when required) are provided based on the difference between the financial reporting and income tax bases of assets and liabilities and net operating losses at the statutory rates enacted for future periods. The Company has a policy of establishing a valuation allowance when it is more likely than not that the Company will not realize the benefits of its deferred income tax assets in the future. The Company adopted ASC 740-10-25, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740-10-25 also provides guidance on derecognition, classification, treatment of interest and penalties, and disclosure of such positions. |
Revenue Recognition | Revenue Recognition For revenue from product sales, the Company recognizes revenue in accordance with ASC 605-10, “Revenue Recognition” and ASC 605-10-S99 guidelines that require that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Assuming all conditions for revenue recognition have been satisfied, product revenue is recognized when products are shipped and installation revenue is recognized when the services are completed. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The guidelines also address the accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. Multiple-Element Arrangements (“MEAs”): · VSOE – In most instances, products are sold separately in stand-alone arrangements. Services are also sold separately through renewals of contracts with varying periods. The Company determines VSOE based on pricing and discounting practices for the specific product or service when sold separately, considering geographical, customer, and other economic or marketing variables, as well as renewal rates or stand-alone prices for the service element(s). · TPE – If the Company cannot establish VSOE of selling price for a specific product or service included in a multiple-element arrangement, the Company uses third-party evidence of selling price. The Company determines TPE based on sales of a comparable amount of similar product or service offered by multiple third parties considering the degree of customization and similarity of product or service sold. · ESP – The estimated selling price represents the price at which the Company would sell a product or service if it were sold on a stand-alone basis. When neither VSOE nor TPE exists for all elements, the Company determines ESP for the arrangement element based on sales, cost and margin analysis, as well as other inputs based on the Company’s pricing practices. Adjustments for other market and Company-specific factors are made as deemed necessary in determining ESP. Under the estimated selling price method, revenue is recognized in MEAs based on estimated selling prices for all of the elements in the arrangement, assuming all other conditions for revenue recognition have been satisfied. To determine the estimated selling price, the Company establishes the selling price for its products and installation services using the Company’s established pricing guidelines, and the proceeds are allocated between the elements and the arrangement. When MEAs include an element of customer training, it is not essential to the functionality, efficiency or effectiveness of the MEA. Therefore the Company has concluded that this obligation is inconsequential and perfunctory. As such, for MEAs that include training, customer acceptance of said training is not deemed necessary in order to record the related revenue, but is recorded when the installation deliverable is fulfilled. Historically, training revenues have not been significant. The Company provides call center support services to properties installed by the Company and also to properties installed by other providers. In addition, the Company provides the property with the portal to access the Internet. The Company receives monthly service fees from such properties for its services and Internet access. The Company recognizes the service fee ratably over the term of the contract. The prices for these services are fixed and determinable prior to delivery of the service. The fair value of these services is known due to objective and reliable evidence from standalone executed contracts. The Company reports such revenues as recurring revenues. Deferred revenue includes deferrals for the monthly support service fees and Internet access. Long-term deferred revenue represents support service fees to be earned or provided beginning after June 30, 2017. Revenue recognized that has not yet been billed to a customer results in an asset as of the end of the period. As of June 30, 2016 and December 31, 2015, there was $341,727 and $170,000 recorded within accounts receivable, respectively, related to revenue recognized that has not yet been billed. |
Guarantees and Product Warranties | Guarantees and Product Warranties The Company records a liability for potential warranty claims in cost of sales at the time of sale. The amount of the liability is based on the trend in the historical ratio of claims to sales, the historical length of time between the sale and resulting warranty claim, new product introductions and other factors. The products sold are generally covered by a warranty for a period of one year. In the event the Company determines that its current or future product repair and replacement costs exceed its estimates, an adjustment to these reserves would be charged to earnings in the period such determination is made. For the six months ended June 30, 2016 and the year ended December 31, 2015, the Company experienced returns of approximately 1% to 3% of materials included in the cost of sales. As of June 30, 2016 and December 31, 2015, the Company recorded warranty liabilities in the amount of $87,208 and $66,555, respectively, using this experience factor range. Product warranties for the six months ended June 30, 2016 and the year ended December 31, 2015 are as follows: June 30, December 31, Beginning balance $ 66,555 $ 44,288 Warranty claims incurred (30,047 ) (52,833 ) Provision charged to expense 50,700 75,100 Ending balance $ 87,208 $ 66,555 |
A. BASIS OF PRESENTATION AND 20
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Tables) | 6 Months Ended |
Jun. 30, 2016 | |
Accounting Policies [Abstract] | |
Product warranties | June 30, December 31, Beginning balance $ 66,555 $ 44,288 Warranty claims incurred (30,047 ) (52,833 ) Provision charged to expense 50,700 75,100 Ending balance $ 87,208 $ 66,555 |
C. INTANGIBLE ASSETS AND GOOD21
C. INTANGIBLE ASSETS AND GOODWILL (Tables) | 6 Months Ended |
Jun. 30, 2016 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Carrying value of intangible assets | Total identifiable intangible assets acquired and their carrying values at June 30, 2016 are: Cost Accumulated Amortization Accumulated Impairment Carrying Value Weighted Average Amortization Period (Years) Amortized Identifiable Intangible Assets: Subscriber lists – EthoStream $ 2,900,000 $ (2,245,583 ) $ – $ 654,417 12.0 Total Amortized Identifiable Intangible Assets 2,900,000 (2,245,583 ) – 654,417 Goodwill – EthoStream 8,796,430 – (3,000,000 ) 5,796,430 Total Goodwill 8,796,430 – (3,000,000 ) 5,796,430 Total $ 11,696,430 $ (2,245,583 ) $ (3,000,000 ) $ 6,450,847 Total identifiable intangible assets acquired and their carrying values at December 31, 2015 are: Cost Accumulated Amortization Accumulated Impairment Carrying Value Weighted Average Amortization Period (Years) Amortized Identifiable Intangible Assets: Subscriber lists – EthoStream $ 2,900,000 $ (2,124,743 ) $ – $ 775,257 12.0 Total Amortized Identifiable Intangible Assets 2,900,000 (2,124,743 ) – 775,257 Goodwill – EthoStream 8,796,430 – (3,000,000 ) 5,796,430 Total Goodwill 8,796,430 (3,000,000 ) 5,796,430 Total $ 11,696,430 $ (2,124,743 ) $ (3,000,000 ) $ 6,571,687 |
Estimated future amortization expense | Remainder of 2016 $ 120,840 2017 241,680 2018 241,680 2019 50,217 Total $ 654,417 |
D. ACCOUNTS RECEIVABLE (Tables)
D. ACCOUNTS RECEIVABLE (Tables) | 6 Months Ended |
Jun. 30, 2016 | |
Receivables [Abstract] | |
Accounts Receivable | June 30, December 31, Accounts receivable $ 2,801,015 $ 2,286,690 Allowance for doubtful accounts (28,517 ) (23,343 ) Accounts receivable, net $ 2,772,498 $ 2,263,347 |
E. ACCRUED LIABILITIES AND EX23
E. ACCRUED LIABILITIES AND EXPENSES (Tables) | 6 Months Ended |
Jun. 30, 2016 | |
Payables and Accruals [Abstract] | |
Accrued Liabilities and Expenses | June 30, December 31, Accrued liabilities and expenses $ 866,520 $ 198,906 Accrued payroll and payroll taxes 478,349 386,521 Accrued sales taxes, penalties, and interest 149,714 229,768 Accrued interest 44 291 Product warranties 87,208 66,555 Total accrued liabilities and expenses $ 1,581,835 $ 882,041 |
I. STOCK OPTIONS AND WARRANTS (
I. STOCK OPTIONS AND WARRANTS (Tables) | 6 Months Ended |
Jun. 30, 2016 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Options outstanding and exercisable | Options Outstanding Options Exercisable Exercise Prices Number Outstanding Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Number Exercisable Weighted Average Exercise Price $ 0.01 - $0.15 175,000 1.32 $ 0.14 175,000 $ 0.14 $ 0.16 - $0.99 1,420,225 6.47 0.18 1,346,800 0.18 $ 1.00 - $3.03 45,000 1.11 1.69 45,000 1.69 1,640,225 5.77 $ 0.22 1,566,800 $ 0.22 |
Option activity | Number of Weighted Average Outstanding at January 1, 2015 1,930,225 $ 0.40 Granted 50,000 0.18 Exercised – – Cancelled or expired (155,000 ) 1.81 Outstanding at December 31, 2015 1,825,225 $ 0.28 Granted – – Exercised – – Cancelled or expired (185,000 ) 0.73 Outstanding at June 30, 2016 1,640,225 $ 0.22 |
Warrants outstanding and exercisable | Warrants Outstanding Warrants Exercisable Exercise Prices Number Outstanding Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Number Exercisable Weighted Average Exercise Price $ 0.18 50,000 1.41 $ 0.18 50,000 $ 0.18 0.20 250,000 5.27 0.20 250,000 0.20 300,000 4.63 $ 0.20 300,000 $ 0.20 |
Warrant activity | Number of Weighted Average Outstanding at January 1, 2015 7,915,533 $ 0.27 Issued – – Exercised (2,019,236 ) 0.13 Cancelled or expired (257,887 ) 3.00 Outstanding at December 31, 2015 5,638,410 0.20 Issued – – Exercised (5,211,542 ) 0.13 Cancelled or expired (126,868 ) 3.00 Outstanding at June 30, 2016 300,000 $ 0.20 |
K. COMMITMENTS AND CONTINGENC25
K. COMMITMENTS AND CONTINGENCIES (Tables) | 6 Months Ended |
Jun. 30, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
Office Lease Obligations | 2016 (remainder of) $ 125,184 2017 254,740 2018 258,381 2019 265,305 2020 128,863 2021 28,014 Total $ 1,060,487 |
Sales tax accrual | June 30, 2016 December 31, 2015 Balance, beginning of year $ 229,768 $ 353,260 Sales tax collected 233,336 401,031 Interest and penalties (3,017 ) (117,700 ) Payments (310,373 ) (406,823 ) Balance, end of period $ 149,714 $ 229,768 |
A. BASIS OF PRESENTATION AND 26
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details-Product warranties) - USD ($) | 6 Months Ended | 12 Months Ended |
Jun. 30, 2016 | Dec. 31, 2015 | |
Product warranties | ||
Beginning balance | $ 66,555 | $ 44,288 |
Warranty claims incurred | (30,047) | (52,833) |
Provision charged to expense | 50,700 | 75,100 |
Ending balance | $ 87,208 | $ 66,555 |
A. BASIS OF PRESENTATION AND 27
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||
Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | Dec. 31, 2015 | Dec. 31, 2014 | |
Net income | $ (671,626) | $ 523,511 | $ (551,504) | $ (220,567) | ||
Cash used in operating activities | (326,499) | $ (508,073) | ||||
Accumulated deficit | (122,646,625) | (122,646,625) | $ (122,095,121) | |||
Working capital | 468,690 | $ 468,690 | ||||
Line of credit interest rate description | Prime rate plus 3.00% | |||||
Line of credit maturity date | Sep. 30, 2018 | |||||
Line of credit balance | 536,771 | $ 536,771 | 901,771 | |||
Line of credit remaining borrowing capacity | 979,000 | 979,000 | 532,700 | |||
Restricted cash on deposit | 0 | $ 0 | 31,277 | |||
Shares excluded from EPS calculation | 1,940,225 | 9,745,758 | ||||
Accounts receivable | 2,772,498 | $ 2,772,498 | $ 2,263,347 | |||
Guarantees and product warranty return percentage | 1% to 3% | 1% to 3% | ||||
Warranty liabilities | 87,208 | $ 87,208 | $ 66,555 | $ 44,288 | ||
Revenues not billed [Member] | ||||||
Accounts receivable | $ 385,000 | $ 385,000 | $ 170,000 |
C. INTANGIBLE ASSETS AND GOOD28
C. INTANGIBLE ASSETS AND GOODWILL (Details-Intangible Assets) - USD ($) | 6 Months Ended | 12 Months Ended |
Jun. 30, 2016 | Dec. 31, 2015 | |
Indefinite-lived Intangible Assets [Line Items] | ||
Intangible assets cost | $ 11,696,430 | $ 11,696,430 |
Accumulated Amortization | (2,245,583) | (2,124,743) |
Carrying Value intangible assets excluding goodwill | 654,417 | 775,257 |
Goodwill, original value | 8,796,430 | 8,796,430 |
Accumulated Impairment | (3,000,000) | (3,000,000) |
Goodwill | 5,796,430 | 5,796,430 |
Total intangible assets including goodwill | 6,450,847 | 6,571,687 |
Goodwill EthoStream [Member] | ||
Indefinite-lived Intangible Assets [Line Items] | ||
Goodwill, original value | 8,796,430 | 8,796,430 |
Accumulated Impairment | (3,000,000) | (3,000,000) |
Goodwill | 5,796,430 | 5,796,430 |
Total Goodwill [Member] | ||
Indefinite-lived Intangible Assets [Line Items] | ||
Goodwill, original value | 8,796,430 | 8,796,430 |
Accumulated Impairment | (3,000,000) | (3,000,000) |
Goodwill | 5,796,430 | 5,796,430 |
Subscriber lists EthoStream [Member] | ||
Indefinite-lived Intangible Assets [Line Items] | ||
Intangible assets cost | 2,900,000 | 2,900,000 |
Accumulated Amortization | (2,245,583) | (2,124,743) |
Carrying Value intangible assets excluding goodwill | $ 654,417 | $ 775,257 |
Weighted Average Amortization Period | 12 years | 12 years |
Total Amortized Identifiable Intangible Assets [Member] | ||
Indefinite-lived Intangible Assets [Line Items] | ||
Intangible assets cost | $ 2,900,000 | $ 2,900,000 |
Accumulated Amortization | (2,245,583) | (2,124,743) |
Carrying Value intangible assets excluding goodwill | $ 654,417 | $ 775,257 |
C. INTANGIBLE ASSETS AND GOOD29
C. INTANGIBLE ASSETS AND GOODWILL (Details-Future Amortization Expense) - USD ($) | Jun. 30, 2016 | Dec. 31, 2015 |
Estimated amortization expense | ||
Remainder of 2016 | $ 120,840 | |
2,017 | 241,680 | |
2,018 | 241,680 | |
2,019 | 50,217 | |
Total future amortization | $ 654,417 | $ 775,257 |
C. INTANGIBLE ASSETS AND GOOD30
C. INTANGIBLE ASSETS AND GOODWILL (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | |
Total amortization expense charged to operations | $ 60,420 | $ 60,420 | $ 120,840 | $ 120,840 |
Subscriber lists EthoStream [Member] | ||||
Total remaining amortization period for subscriber list | 2 years 8 months 12 days |
D. ACCOUNTS RECEIVABLE (Details
D. ACCOUNTS RECEIVABLE (Details) - USD ($) | Jun. 30, 2016 | Dec. 31, 2015 |
Components of accounts receivable | ||
Accounts receivable | $ 2,801,015 | $ 2,286,690 |
Allowance for doubtful accounts | (28,517) | (23,343) |
Accounts receivable, net | $ 2,772,498 | $ 2,263,347 |
E. ACCRUED LIABILITIES AND EX32
E. ACCRUED LIABILITIES AND EXPENSES (Details) - USD ($) | Jun. 30, 2016 | Dec. 31, 2015 | Dec. 31, 2014 |
Accrued liabilities and expenses | |||
Accrued liabilities and expenses | $ 866,520 | $ 198,906 | |
Accrued payroll and payroll taxes | 478,349 | 386,521 | |
Accrued sales taxes, penalties, and interest | 149,714 | 229,768 | |
Accrued interest | 44 | 291 | |
Product warranties | 87,208 | 66,555 | $ 44,288 |
Total accrued liabilities and expenses | $ 1,581,835 | $ 882,041 |
F. DEBT (Details Narrative)
F. DEBT (Details Narrative) - USD ($) | 6 Months Ended | ||
Jun. 30, 2016 | Jun. 30, 2015 | Dec. 31, 2015 | |
Debt Instrument [Line Items] | |||
Payments on notes payable | $ 66,697 | $ 158,109 | |
Line of credit interest rate description | Prime rate plus 3.00% | ||
Line of credit maturity date | Sep. 30, 2018 | ||
Line of credit balance | $ 536,771 | $ 901,771 | |
Line of credit remaining borrowing capacity | $ 979,000 | 532,700 | |
Effective interest rate | 6.50% | ||
Wisconsin Department of Commerce [Member] | |||
Debt Instrument [Line Items] | |||
Long-term debt outstanding | $ 26,643 | 52,579 | |
Promissory Note [Member] | |||
Debt Instrument [Line Items] | |||
Long-term debt outstanding | $ 0 | $ 40,761 |
G. PREFERRED STOCK (Details Nar
G. PREFERRED STOCK (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||
Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | Dec. 31, 2015 | |
Series A Preferred Stock [Member] | |||||
Redeemable preferred stock reclassified from temporary equity to permanent equity | $ 1,322,112 | ||||
Dividends accrued | $ 0 | $ 18,454 | $ 0 | $ 18,454 | |
Cumulative accrued dividends | 489,794 | 415,566 | 489,794 | 415,566 | |
Series B Preferred Stock [Member] | |||||
Dividends accrued | 0 | 0 | 5,490 | 10,921 | |
Cumulative accrued dividends | $ 130,035 | $ 107,951 | $ 130,035 | $ 107,951 |
H. CAPITAL STOCK (Details Narra
H. CAPITAL STOCK (Details Narrative) - Warrant [Member] - $ / shares | 6 Months Ended | 12 Months Ended |
Jun. 30, 2016 | Dec. 31, 2015 | |
Warrants exercised | 5,211,542 | 2,019,236 |
Shares issued for warrants exercised | 5,211,542 | |
Warrant exercise price | $ 0.13 | $ 0.13 |
I. STOCK OPTIONS AND WARRANTS36
I. STOCK OPTIONS AND WARRANTS (Details-Options Outstanding and Exercisable) - Employee Stock Options [Member] - $ / shares | 6 Months Ended | ||
Jun. 30, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items] | |||
Options Outstanding Number Outstanding | 1,640,225 | 1,825,225 | 1,930,225 |
Options Outstanding Weighted Average Remaining Contractual Life (Years) | 5 years 9 months 7 days | ||
Options Outstanding Weighted Average Exercise Price | $ 0.22 | $ 0.28 | $ 0.40 |
Options Exercisable Number Exercisable | 1,566,800 | ||
Options Exercisable Weighted Average Exercise Price | $ .22 | ||
$0.01 - $0.15 [Member] | |||
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items] | |||
Options Outstanding Number Outstanding | 175,000 | ||
Options Outstanding Weighted Average Remaining Contractual Life (Years) | 1 year 3 months 26 days | ||
Options Outstanding Weighted Average Exercise Price | $ 0.14 | ||
Options Exercisable Number Exercisable | 175,000 | ||
Options Exercisable Weighted Average Exercise Price | $ 0.14 | ||
$0.16 - $0.99 [Member] | |||
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items] | |||
Options Outstanding Number Outstanding | 1,420,225 | ||
Options Outstanding Weighted Average Remaining Contractual Life (Years) | 6 years 5 months 19 days | ||
Options Outstanding Weighted Average Exercise Price | $ 0.18 | ||
Options Exercisable Number Exercisable | 1,346,800 | ||
Options Exercisable Weighted Average Exercise Price | $ 0.18 | ||
$1.00 - $3.03 [Member] | |||
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items] | |||
Options Outstanding Number Outstanding | 45,000 | ||
Options Outstanding Weighted Average Remaining Contractual Life (Years) | 1 year 1 month 10 days | ||
Options Outstanding Weighted Average Exercise Price | $ 1.69 | ||
Options Exercisable Number Exercisable | 45,000 | ||
Options Exercisable Weighted Average Exercise Price | $ 1.69 |
I. STOCK OPTIONS AND WARRANTS37
I. STOCK OPTIONS AND WARRANTS (Details-Option Activity) - Employee Stock Options [Member] - $ / shares | 6 Months Ended | 12 Months Ended |
Jun. 30, 2016 | Dec. 31, 2015 | |
Number of shares | ||
Number of shares - beginning balance | 1,825,225 | 1,930,225 |
Number of shares - granted | 0 | 50,000 |
Number of shares - exercised | 0 | 0 |
Number of shares - cancelled or expired | (185,000) | (155,000) |
Number of shares - ending balance | 1,640,225 | 1,825,225 |
Weighted Average Price Per Share | ||
Weighted average price per share - beginning balance | $ 0.28 | $ 0.40 |
Weighted average price per share - granted | 0.18 | |
Weighted average price per share - exercised | ||
Weighted average price per share - cancelled or expired | 0.73 | 1.81 |
Weighted average price per share - ending balance | $ 0.22 | $ 0.28 |
I. STOCK OPTIONS AND WARRANTS38
I. STOCK OPTIONS AND WARRANTS (Details-Warrants Outstanding and Exercisable) - Warrant [Member] - $ / shares | 6 Months Ended | ||
Jun. 30, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Warrants Outstanding, Number Outstanding | 300,000 | 5,638,410 | 7,915,533 |
Warrants Outstanding, Weighted Average Remaining Contractual Life (Years) | 4 years 7 months 17 days | ||
Weighted Average Exercise Price | $ 0.20 | $ 0.20 | $ 0.27 |
Warrants Exercisable, Number Exercisable | 300,000 | ||
Warrants Exercisable, Weighted Average Exercise Price | $ 0.20 | ||
$0.18 [Member] | |||
Warrants Outstanding, Number Outstanding | 50,000 | ||
Warrants Outstanding, Weighted Average Remaining Contractual Life (Years) | 1 year 4 months 28 days | ||
Weighted Average Exercise Price | $ .18 | ||
Warrants Exercisable, Number Exercisable | 50,000 | ||
Warrants Exercisable, Weighted Average Exercise Price | $ .18 | ||
$0.20 [Member] | |||
Warrants Outstanding, Number Outstanding | 250,000 | ||
Warrants Outstanding, Weighted Average Remaining Contractual Life (Years) | 5 years 3 months 7 days | ||
Weighted Average Exercise Price | $ .20 | ||
Warrants Exercisable, Number Exercisable | 250,000 | ||
Warrants Exercisable, Weighted Average Exercise Price | $ .20 |
I. STOCK OPTIONS AND WARRANTS39
I. STOCK OPTIONS AND WARRANTS (Details-Warrant Activity) - Warrant [Member] - $ / shares | 6 Months Ended | 12 Months Ended | |
Jun. 30, 2016 | Jun. 30, 2015 | Dec. 31, 2015 | |
Number of shares - beginning balance | 5,638,410 | 7,915,533 | 7,915,533 |
Number of shares - issued | 0 | 0 | 0 |
Number of shares - exercised | (5,211,542) | (2,019,236) | |
Number of shares - cancelled or expired | (126,868) | (257,887) | |
Number of shares - ending balance | 300,000 | 5,638,410 | |
Weighted average price per share - beginning balance | $ 0.20 | $ 0.27 | $ 0.27 |
Weighted average price per share - issued | |||
Weighted average price per share - exercised | 0.13 | 0.13 | |
Weighted average price per share - cancelled or expired | 3 | 3 | |
Weighted average price per share - ending balance | $ 0.20 | $ 0.20 |
I. STOCK OPTIONS AND WARRANTS40
I. STOCK OPTIONS AND WARRANTS (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||
Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | Dec. 31, 2015 | |
Stock-based compensation expense with options granted | $ 7,501 | $ 7,593 | |||
Employee Stock Options [Member] | |||||
Stock-based compensation expense with options granted | $ 3,750 | $ 3,390 | $ 7,501 | $ 7,593 | |
Warrant [Member] | |||||
Warrants granted | 0 | 0 | 0 |
J. RELATED PARTY TRANSACTIONS (
J. RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) | Jun. 30, 2016 | Dec. 31, 2015 |
Davis [Member] | ||
Due to related parties | $ 0 | $ 11,994 |
Tienor [Member] | ||
Due to related parties | $ 0 | $ 11,994 |
K. COMMITMENTS AND CONTINGENC42
K. COMMITMENTS AND CONTINGENCIES (Details-Lease Commitments) | Jun. 30, 2016USD ($) |
Commitments and Contingencies Disclosure [Abstract] | |
2016 (remainder of) | $ 125,184 |
2,017 | 254,740 |
2,018 | 258,381 |
2,019 | 265,305 |
2,020 | 128,863 |
2,021 | 28,014 |
Total | $ 1,060,487 |
K. COMMITMENTS AND CONTINGENC43
K. COMMITMENTS AND CONTINGENCIES (Details-Sales Tax Accrual) - USD ($) | 6 Months Ended | 12 Months Ended |
Jun. 30, 2016 | Dec. 31, 2015 | |
Change in the sales tax accrual | ||
Balance, Beginning of year | $ 229,768 | $ 353,260 |
Sales tax collected | 233,336 | 401,031 |
Interest and penalties | (3,017) | (117,700) |
Payments | (310,373) | (406,823) |
Balance, End of period | $ 149,714 | $ 229,768 |
K. COMMITMENTS AND CONTINGENC44
K. COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | Dec. 31, 2015 | |
Commitments and Contingencies Disclosure [Abstract] | |||||
Rental expenses | $ 117,522 | $ 163,990 | $ 225,984 | $ 326,202 | |
Rental income received | 0 | $ 0 | 34,301 | $ 68,602 | |
Sales tax accrual | $ 150,000 | 150,000 | $ 230,000 | ||
Voluntary disclosure agreements executed | $ 70,000 |
L. BUSINESS CONCENTRATION (Deta
L. BUSINESS CONCENTRATION (Details Narrative) - Supplier Concentration Risk [Member] - USD ($) | 6 Months Ended | ||
Jun. 30, 2016 | Jun. 30, 2015 | Dec. 31, 2015 | |
Concentration percentage | 84.00% | 85.00% | |
Purchases from major suppliers | $ 2,330,000 | $ 1,713,000 | |
Due to suppliers | $ 924,866 | $ 584,288 |