Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2016 | Mar. 22, 2017 | Jun. 30, 2016 | |
Document And Entity Information | |||
Entity Registrant Name | TELKONET INC | ||
Entity Central Index Key | 1,094,084 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 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 Public Float | $ 23,332,666 | ||
Entity Common Stock, Shares Outstanding | 132,774,475 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2,016 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Current assets: | ||
Cash and cash equivalents | $ 685,115 | $ 679,803 |
Restricted cash on deposit | 0 | 31,277 |
Accounts receivable, net | 1,403,772 | 1,948,069 |
Inventories | 777,202 | 652,493 |
Prepaid expenses and other current assets | 205,328 | 146,219 |
Current assets held for sale | 7,256,714 | 757,564 |
Total current assets | 10,328,131 | 4,215,425 |
Property and equipment, net | 143,907 | 141,567 |
Other assets: | ||
Deposits | 0 | 23,871 |
Deferred financing costs, net | 0 | 14,633 |
Long-term assets held for sale | 0 | 6,582,254 |
Total other assets | 0 | 6,620,758 |
Total Assets | 10,472,038 | 10,977,750 |
Current liabilities: | ||
Accounts payable | 765,617 | 1,414,648 |
Accrued liabilities and expenses | 774,645 | 695,027 |
Notes payable - current | 0 | 93,340 |
Line of credit | 1,062,129 | 901,771 |
Related party payable | 97,127 | 0 |
Deferred revenues current | 184,793 | 243,804 |
Deferred lease liability - current | 3,942 | 2,420 |
Customer deposits | 165,830 | 46,455 |
Deferred income taxes - current | 933,433 | 0 |
Current liabilities held for sale | 1,020,540 | 851,273 |
Total current liabilities | 5,008,056 | 4,248,738 |
Long-term liabilities: | ||
Deferred revenue - long term | 120,421 | 0 |
Deferred lease liability - long term | 23,761 | 27,707 |
Deferred income taxes - long-term | 0 | 734,047 |
Long-term liabilities held for sale | 0 | 76,096 |
Total long-term liabilities | 144,182 | 837,850 |
Stockholders' Equity | ||
Common stock, par value $.001 per share; 190,000,000 shares authorized; 132,774,475 and 127,054,848 shares issued and outstanding at December 31, 2016 and 2015, respectively | 132,774 | 127,054 |
Additional paid-in-capital | 126,955,435 | 126,135,712 |
Accumulated deficit | (123,471,034) | (122,095,121) |
Total stockholders' equity | 5,319,800 | 5,891,162 |
Total Liabilities and Stockholders' Equity | 10,472,038 | 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 | $ 362,059 | $ 382,951 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Preferred stock, shares authorized | 15,000,000 | |
Preferred stock, par value | $ 0.001 | |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 190,000,000 | 190,000,000 |
Common stock, shares outstanding | 132,774,475 | 127,054,848 |
Common stock, shares issued | 132,774,475 | 127,054,848 |
Series A Preferred Stock [Member] | ||
Preferred stock, shares issued | 215 | 215 |
Preferred stock, shares outstanding | 185 | 185 |
Preferred stock, liquidiation preference | $ 1,452,114 | $ 1,377,886 |
Series B Preferred Stock [Member] | ||
Preferred stock, shares issued | 538 | 538 |
Preferred stock, shares outstanding | 55 | 55 |
Preferred stock, liquidiation preference | $ 393,435 | $ 394,055 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Revenues, net: | ||
Product | $ 7,796,319 | $ 7,242,503 |
Recurring | 459,695 | 285,114 |
Total Net Revenue | 8,256,014 | 7,527,617 |
Cost of Sales: | ||
Product | 4,024,675 | 3,600,407 |
Recurring | 124,842 | 151,958 |
Total Cost of Sales | 4,149,517 | 3,752,365 |
Gross Profit | 4,106,497 | 3,775,252 |
Operating Expenses: | ||
Research and development | 1,658,640 | 1,605,667 |
Selling, general and administrative | 6,336,879 | 5,123,027 |
Depreciation and amortization | 34,289 | 29,223 |
Total Operating Expense | 8,029,808 | 6,757,917 |
Operating Loss | (3,923,311) | (2,982,665) |
Other (Expenses) Income: | ||
Interest (expense) income, net | (60,246) | (69,441) |
Total Other (Expenses) | (60,246) | (69,441) |
Loss from Continuing Operations before Provision (Benefit) for Income Taxes | (3,983,557) | (3,052,106) |
Provision (Benefit) for Income Taxes | 20,114 | (3,214) |
Net loss from continuing operations | (4,003,671) | (3,048,892) |
Discontinued Operations: | ||
Income from Discontinued Operations (Net of Tax) | 2,627,758 | 2,859,788 |
Net Loss | (1,375,913) | (189,104) |
Accretion of preferred dividends and discount | 0 | (18,253) |
Net loss attributable to common stockholders | $ (1,375,913) | $ (207,357) |
Net income (loss) per common share: | ||
Basic - continuing operations | $ (0.03) | $ (0.02) |
Basic - discontinued operations | 0.02 | 0.02 |
Basic - net loss attributable to common stockholders | (0.01) | 0 |
Diluted - continuing operations | (0.03) | (0.02) |
Diluted - discontinued operations | 0.02 | 0.02 |
Diluted - net loss attributable to common stockholders | $ (0.01) | $ 0 |
Weighted Average Common Shares Outstanding - basic | 132,774,475 | 125,859,903 |
Weighted Average Common Shares Outstanding - diluted | 132,774,475 | 125,859,903 |
CONSOLIDATED STATEMENTS OF STOC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) | Series A Preferred Stock [Member] | Series B Preferred Stock [Member] | Common Stock [Member] | Additional Paid-In Capital [Member] | Accumulated Deficit [Member] | Total |
Beginning Balance, Shares at Dec. 31, 2014 | 0 | 55 | 125,035,612 | |||
Beginning Balance, Amount at Dec. 31, 2014 | $ 0 | $ 372,030 | $ 125,035 | $ 125,908,476 | $ (121,906,017) | $ 4,499,524 |
Stock-based compensation expense related to employee stock options | 14,383 | 14,383 | ||||
Shares issued to preferred stockholders for warrants exercised, shares | 2,019,236 | |||||
Shares issued to preferred stockholders for warrants exercised, value | $ 2,019 | 260,481 | 262,500 | |||
Accretion of redeemable preferred stock dividends | $ 18,454 | $ 10,921 | (47,628) | (18,253) | ||
Reclassification from temporary equity to permanent equity, shares | 185 | |||||
Reclassification from temporary equity to permanent equity, value | $ 1,322,112 | 1,322,112 | ||||
Net loss | (189,104) | (189,104) | ||||
Ending Balance, Shares at Dec. 31, 2015 | 185 | 55 | 127,054,848 | |||
Ending Balance, Amount at Dec. 31, 2015 | $ 1,340,566 | $ 382,951 | $ 127,054 | 126,135,712 | (122,095,121) | 5,891,162 |
Stock-based compensation expense related to employee stock options | 55,050 | 55,050 | ||||
Shares issued to preferred stockholders for warrants exercised, shares | 5,211,542 | |||||
Shares issued to preferred stockholders for warrants exercised, value | $ 5,212 | 672,289 | 677,501 | |||
Shares issued for services, shares | 392,700 | |||||
Shares issued for services, value | $ 393 | 71,607 | 72,000 | |||
Stock converted, shares converted | (3) | |||||
Stock converted, amount converted | $ (15,000) | |||||
Stock converted, shares issued | 115,385 | |||||
Stock converted, amount issued | $ 115 | 14,885 | ||||
Accrued dividends adjustment due to preferred stock conversion | $ (5,892) | 5,892 | ||||
Net loss | (1,375,913) | (1,375,913) | ||||
Ending Balance, Shares at Dec. 31, 2016 | 185 | 52 | 132,774,475 | |||
Ending Balance, Amount at Dec. 31, 2016 | $ 1,340,566 | $ 362,059 | $ 132,774 | $ 126,955,435 | $ (123,471,034) | $ 5,319,800 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Cash Flows from Operating Activities: | ||
Net loss from continuing operations | $ (4,003,671) | $ (3,048,892) |
Net income from discontinued operations | 2,627,758 | 2,859,788 |
Adjustments to reconcile net loss from continuing operations to cash used in operating activities of continuing operations: | ||
Stock-based compensation expense | 55,050 | 14,383 |
Stock issued to directors as compensation | 72,000 | 0 |
Amortization of deferred financing costs | 14,633 | 18,949 |
Depreciation | 34,289 | 29,223 |
Provision for doubtful accounts, net of recoveries | 32,047 | (102,721) |
Related party payable | 161,075 | 0 |
Deferred income taxes | 199,386 | 199,386 |
Changes in operating assets and liabilities: | ||
Accounts receivable | 512,250 | (756,961) |
Inventories | (124,709) | 292,102 |
Prepaid expenses and other current assets | (59,109) | (61,549) |
Deposits and other long term assets | 23,871 | 0 |
Accounts payable | (649,031) | 225,283 |
Accrued liabilities and expenses | 79,618 | 120,130 |
Deferred revenue | 61,410 | 186,958 |
Related party payable | (63,948) | 0 |
Customer deposits | 119,375 | (157,230) |
Deferred lease liability | (2,424) | (13,562) |
Net Cash Used In Operating Activities of Continuing Operations | (910,130) | (194,713) |
Net Cash Provided By Operating Activities of Discontinued Operations | 176,275 | 54,018 |
Net Cash Used In Operating Activities | (733,855) | (140,695) |
Cash Flows From Investing Activities: | ||
Purchase of property and equipment | (36,629) | (42,081) |
Change in restricted cash | 31,277 | 31,723 |
Net Cash Used In Investing Activities of Continuing Operations | (5,352) | (10,358) |
Cash Flows From Financing Activities: | ||
Payments on note payable | (93,340) | (300,612) |
Proceeds from exercise of warrants | 677,501 | 262,500 |
Net Proceeds from line of credit | 160,358 | 273,567 |
Net Cash Provided By Financing Activities of Continuing Operations | 744,519 | 235,455 |
Net increase in cash and cash equivalents | 5,312 | 84,402 |
Cash and cash equivalents at the beginning of the year | 679,803 | 595,401 |
Cash and cash equivalents at the end of the year | 685,115 | 679,803 |
Cash transactions: | ||
Cash paid during the year for interest | 57,266 | 54,428 |
Cash paid during the year for income taxes, net of refunds | 15,090 | (10,431) |
Non-cash transactions: | ||
Accretion of dividends on redeemable preferred stock | $ 0 | $ 47,628 |
A. SUMMARY OF ACCOUNTING POLICI
A. SUMMARY OF ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 2016 | |
Accounting Policies [Abstract] | |
SUMMARY OF ACCOUNTING POLICIES | A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows. Business and Basis of Presentation Telkonet, Inc. (the “Company”, “Telkonet”), formed in 1999 and incorporated under the laws of the state of Utah, is the creator of the EcoSmart Platform of intelligent automation solutions designed to optimize energy efficiency, comfort and analytics in support of the emerging Internet of Things (“IoT”). Telkonet’s growth is focused on EcoSmart, its IoT division offering intelligent automation solutions. In 2007, the Company acquired substantially all of the assets of Smart Systems International (“SSI”), which was a provider of energy management products and solutions to customers in the United States and Canada and the precursor to the Company’s EcoSmart platform. The EcoSmart platform provides comprehensive savings, management reporting, analytics and virtual engineering of a customer’s portfolio and/or property’s room-by-room energy consumption. Telkonet has deployed more than a half million intelligent devices worldwide in properties within the hospitality, military, educational, healthcare and other commercial markets. The EcoSmart platform is rapidly being recognized as a leading solution for reducing energy consumption, operational costs and carbon footprints, and eliminating the need for new energy generation in these marketplaces – all whilst improving occupant comfort and convenience. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Telkonet Communications, Inc., and EthoStream, LLC. The current year and prior year accounts of Ethostream LLC have been classified as held for sale on the consolidated balance sheet and as discontinued operations on the consolidated statement of operations and the consolidated statement of cash flows. 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. Unless otherwise noted, all financial information in the consolidated financial statement footnotes reflect the Company’s results from continuing operations. Liquidity and Financial Condition The Company reported a net loss of $4,003,671 from continuing operations for the year ended December 31, 2016, had cash used in operating activities from continuing operations of $910,130, had an accumulated deficit of $123,471,034 and total current liabilities in excess of current assets from continuing operations of $916,099 as of December 31, 2016 excluding the Ethostream, LLC assets and liabilities held for sale. 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. On February 17, 2016, an amendment to the revolving credit facility with Heritage Bank of Commerce 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 “Loan Agreement”). The Loan Agreement is available for working capital and other lawful general corporate purposes. The outstanding principal balance of the revolving credit facility bears interest at the Prime Rate plus 3.00%. The outstanding balance was $1,062,129 as of December 31, 2016 and the remaining available borrowing capacity was approximately $107,000. As of December 31, 2016, the Company was in compliance with all financial covenants. On March 28, 2017, the Company and the Company’s wholly-owned subsidiary, EthoStream LLC, entered into an Asset Purchase Agreement with DCI-Design Communications LLC (“DCI”), whereby DCI would acquire all of the assets and certain liabilities of EthoStream for a cash purchase price of $750,000, subject to an adjustment based on the net working capital of EthoStream on the closing date of the sale transaction. 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 the net proceeds received from the Ethostream LLC sale. Concentrations of Credit Risk Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and trade receivables. The Company places its cash and temporary cash investments with credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit. The Company has never experienced any losses related to these balances. With respect to trade receivables, the Company performs ongoing credit evaluations of its customers’ financial conditions and limits the amount of credit extended when deemed necessary. The Company provides credit to its customers primarily in the United States in the normal course of business. The Company routinely assesses the financial strength of its customers and, as a consequence, believes its trade receivables credit risk exposure is limited. Cash and Cash Equivalents The Company considers all highly liquid debt instruments purchased with an original maturity date of three months or less to be cash equivalents. Restricted Cash on Deposit During 2014, the Company was awarded a contract with a bonding requirement. The Company satisfied this requirement during the year ended December 31, 2014 with cash collateral supported by an irrevocable standby letter of credit in the amount of $63,000. The Company continues to execute contracts with bonding requirements and maintains this cash collateral on deposit for current and future projects. The amount which was presented as restricted cash on deposit on the consolidated balance sheet as of December 31, 2015 was released in 2016. The outstanding balance as of December 31, 2016 and 2015 was zero and $31,277, respectively. Accounts Receivable Accounts receivable are uncollateralized customer obligations due under normal trade terms. The Company records allowances for doubtful accounts based on customer-specific analysis and general matters such as current assessment of past due balances and economic conditions. The Company writes off accounts receivable when they become uncollectible. The allowance for doubtful accounts was $34,573 and $13,299 at December 31, 2016 and 2015, respectively. Management identifies a delinquent customer based upon the delinquent payment status of an outstanding invoice, generally greater than 30 days past due date. The delinquent account designation does not trigger an accounting transaction until such time the account is deemed uncollectible. The allowance for doubtful accounts is determined by examining the reserve history and any outstanding invoices that are over 30 days past due as of the end of the reporting period. Accounts are deemed uncollectible on a case-by-case basis, at management’s discretion based upon an examination of the communication with the delinquent customer and payment history. Typically, accounts are only escalated to “uncollectible” status after multiple attempts at collection have proven unsuccessful. The allowance for doubtful accounts for the years ended December 31 is as follows: 2016 2015 Beginning balance $ 13,299 $ 25,973 Provision charged to expense 32,047 6,618 Deductions (10,773 ) (19,292 ) Ending balance $ 34,573 $ 13,299 Inventories Inventories consist of thermostats, sensors and controllers for Telkonet’s EcoSmart product platform. These inventories are purchased for resale and do not include manufacturing labor and overhead. Inventories are stated at the lower of cost or market determined by the first in, first out (FIFO) method. The Company’s inventories are subject to technological obsolescence. Management evaluates the net realizable value of its inventories on a quarterly basis and when it is determined that the Company’s carrying cost of such excess and obsolete inventories cannot be recovered in full, a charge is taken against income for the difference between the carrying cost and the estimated realizable amount. The charge (benefit) taken against income was approximately $(18,900) and $(2,000) for the years ended December 31, 2016 and 2015, respectively. Property and Equipment In accordance with Accounting Standards Codification ASC 360 “Property Plant and Equipment ” Fair Value of Financial Instruments The Company’s financial instruments include cash and cash equivalents, restricted cash on deposit, accounts receivable, accounts payable, line of credit, notes payable, and certain accrued liabilities. The carrying amounts of these assets and liabilities approximate fair value due to the short maturity of these instruments (Level 1 instruments), except for the line of credit and notes payable. The carrying amount of the line of credit and notes payable approximates fair value due to the interest rate and terms approximating those available to the Company for similar obligations (Level 2 instruments). The Company accounts for the fair value of financial instruments in accordance with ASC 820, which defines fair value for accounting purposes, established a framework for measuring fair value and expanded disclosure requirements regarding fair value measurements. Fair value is defined as an exit price, which is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. The degree of judgment utilized in measuring the fair value of assets and liabilities generally correlates to the level of pricing observability. Financial assets and liabilities with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in active markets generally have more pricing observability and require less judgment in measuring fair value. Conversely, financial assets and liabilities that are rarely traded or not quoted have less price observability and are generally measured at fair value using valuation models that require more judgment. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency of the asset, liability or market and the nature of the asset or liability. The Company categorizes financial assets and liabilities that are recurring, at fair value into a three-level hierarchy in accordance with these provisions. ● Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; ● Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or ● Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and are unobservable. Long-Lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10. Recoverability is measured by comparison of the carrying amount to the future net cash flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. Based on the annual assessment for impairment performed during 2016 and 2015, no impairment was recorded. 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 years ended December 31, 2016 and 2015, there were 3,132,725 and 7,463,635 shares of common stock underlying options and warrants excluded due to these instruments being anti-dilutive, respectively. Use of Estimates The preparation of financial statements in conformity with United States of America (U.S.) generally accepted accounting principles (GAAP) require 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, the Company determined it is not essential to the functionality, efficiency or effectiveness of the MEA due to its perfunctory nature in relation to the entire arrangement. 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. The Company receives monthly service fees from such properties for its services. 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. Long-term deferred revenue represents support service fees to be earned or provided beginning after December 31, 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 December 31, 2016 and 2015, there was $214,821 and $170,000 recorded within accounts receivable, respectively, related to revenue recognized that has not yet been billed. Sales Taxes Unless provided with a resale or tax exemption certificate, the Company assesses and collects sales tax on sales transactions and records the amount as a liability. It is recognized as a liability until remitted to the applicable state. Total revenues do not include sales tax as the Company is considered a pass through conduit for collecting and remitting sales taxes. 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 years ended December 31, 2016 and 2015, the Company experienced returns of approximately 1% to 3% of material’s included in the cost of sales. As of December 31, 2016 and 2015, the Company recorded warranty liabilities in the amount of $49,149 and $28,702, respectively, using this experience factor range. Product warranties for the years ended December 31 is as follows: 2016 2015 Beginning balance $ 28,702 $ 23,500 Warranty claims incurred (50,353 ) (16,434 ) Provision charged to expense 70,800 21,636 Ending balance $ 49,149 $ 28,702 Advertising The Company follows the policy of charging the costs of advertising to expenses as incurred. The Company incurred $31,573 and zero in advertising costs from continuing operations during the years ended December 31, 2016 and 2015, respectively. Research and Development The Company accounts for research and development costs in accordance with the ASC 730-10, “Research and Development”. Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. Total expenditures on research and product development for 2016 and 2015 were $1,658,640 and $1,605,667, respectively. Stock-Based Compensation The Company accounts for stock-based awards in accordance with ASC 718-10, “Share-Based Compensation”, which requires a fair value measurement and recognition of compensation expense for all share-based payment awards made to the Company’s employees and directors, including employee stock options and restricted stock awards. The Company’s estimates the fair value of stock options granted using the Black-Scholes valuation model. This model requires the Company to make estimates and assumptions including, among other things, estimates regarding the length of time an employee will hold vested stock options before exercising them, the estimated volatility of the Company’s common stock price and the number of options that will be forfeited prior to vesting. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Changes in these estimates and assumptions can materially affect the determination of the fair value of stock-based compensation and consequently, the related amount recognized in the Company’s consolidated statements of operations. The expected term of the options represents the estimated period of time until exercise and is based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. For 2015 and prior years, expected stock price volatility is based on the historical volatility of the Company’s stock for the related vesting periods. Stock-based compensation expense in connection with options granted to employees for the year ended December 31, 2016 and 2015 was $55,050 and $14,383, respectively. Deferred Lease Liability Rent expense is recorded on a straight-line basis over the term of the lease. Rent escalations and rent abatement periods during the term of the lease create a deferred lease liability which represents the excess of cumulative rent expense recorded to date over the actual rent paid to date. |
B. NEW ACCOUNTING PRONOUNCEMENT
B. NEW ACCOUNTING PRONOUNCEMENTS | 12 Months Ended |
Dec. 31, 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 expects to adopt ASU 2014-09 as of January 1, 2018, and continues to deliberate on the transition method. The Company continues to evaluate if there will be any effect on the timing and pattern of revenue recognition, and additional disclosures may be required. The Company will continue assessing the impact of ASU 2014-09 on its consolidated financial statements through the date of adoption. 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 and does not expect that the adoption will have a material impact on the 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 Upon adoption, the Company expects that the ROU asset and lease liability will be recognized in the balance sheets in amounts that will be material. In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). The new standard provides guidance on the classification of certain transactions in the statement of cash flows, such as contingent consideration payments made in connection with a business combination and debt prepayment or extinguishment costs. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within that fiscal year. When adopted, the new guidance will be applied retrospectively. The Company is currently evaluating the impact of its pending adoption of ASU 2016-15 on its consolidated financial statements. |
C. GOODWILL
C. GOODWILL | 12 Months Ended |
Dec. 31, 2016 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
GOODWILL | Total goodwill acquired and its carrying values at December 31, 2016 and 2015 are: Cost Accumulated Impairment Carrying Value Asset: Goodwill – SSI $ 5,874,016 $ (5,874,016 ) $ – Total Goodwill $ 5,874,016 $ (5,874,016 ) $ – The Company did not amortize goodwill. The Company recorded goodwill in the amount of $5,874,016 as a result of the acquisition of Smart Systems International (“SSI’) during the year ended December 31, 2007. The Company evaluated goodwill for impairment based on the fair value of the reporting unit to which this goodwill related to at least once a year. The Company utilized a discounted cash flow valuation methodology (income approach) to determine the fair value of the reporting unit. At December 31, 2011, the Company determined that a portion of the value for Smart Systems International’s goodwill was impaired based upon management’s assessment of operating results and forecasted discounted cash flow and wrote off $3,100,000 in connection with the impairment. At December 31, 2013, the Company determined that the remainder of Smart Systems International’s goodwill was impaired based upon management’s assessment of operating results and forecasted discounted cash flow and recorded an additional impairment charge of $2,774,016. Since acquisition, the Company has written off $5,874,016 of goodwill for Smart Systems International. As of December 31, 2016, the goodwill associated with EthoStream of $5,796,430 was reclassified to current assets held for sale based on the Company’s decision to sell EthoStream in the fourth quarter of 2016. The goodwill as of December 31, 2015 for EthoStream of $5,796,430 was reclassified to long-term assets held for sale based on the Company’s decision to sell EthoStream in the fourth quarter of 2016. |
D. ACCOUNTS RECEIVABLE
D. ACCOUNTS RECEIVABLE | 12 Months Ended |
Dec. 31, 2016 | |
Receivables [Abstract] | |
ACCOUNTS RECEIVABLE | Components of accounts receivable as of December 31, 2016 and 2015 are as follows: 2016 2015 Accounts receivable $ 1,438,345 $ 1,961,368 Allowance for doubtful accounts (34,573 ) (13,299 ) Accounts receivable, net $ 1,403,772 $ 1,948,069 |
E. PROPERTY AND EQUIPMENT
E. PROPERTY AND EQUIPMENT | 12 Months Ended |
Dec. 31, 2016 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY AND EQUIPMENT | The Company’s property and equipment as of December 31, 2016 and 2015 consists of the following: 2016 2015 Development test equipment $ 19,110 $ 19,110 Computer software 76,134 55,677 Office equipment 36,904 20,731 Office fixtures and furniture 151,330 151,330 Total 283,478 246,848 Accumulated depreciation (139,571 ) (105,281 ) Total property and equipment $ 143,907 $ 141,567 Depreciation expense included as a charge to income was $34,289 and $29,223 for the years ended December 31, 2016 and 2015, respectively. |
F. ACCRUED LIABILITIES AND EXPE
F. ACCRUED LIABILITIES AND EXPENSES | 12 Months Ended |
Dec. 31, 2016 | |
Payables and Accruals [Abstract] | |
ACCRUED LIABILITIES AND EXPENSES | Accrued liabilities and expenses as of December 31, 2016 and 2015 are as follows : 2016 2015 Accrued liabilities and expenses $ 218,629 $ 186,762 Accrued payroll and payroll taxes 279,199 289,575 Accrued sales taxes, penalties, and interest 227,415 189,697 Accrued interest 253 291 Product warranties 49,149 28,702 Total accrued liabilities and expenses $ 774,645 $ 695,027 |
G. DEBT
G. DEBT | 12 Months Ended |
Dec. 31, 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 December 31, 2016 and 2015 were zero 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 bears interest at the annual rate of 6% and was originally due on March 31, 2014. The Note may be prepaid in whole or in part , without penalty at any time. Payments not made when due, by maturity acceleration or otherwise, shall bear interest at the rate of 12 % per annum from the date due until fully paid . Effective April 30, 2013, Purchaser approved an amendment to certain terms of the Note. Telkonet commenced a monthly payment of principal and interest of $20,000 to be applied against the outstanding balance starting May 1, 2013. The interest rate remains unchanged at 6% and the maturity date was extended to January 1, 2016. During the year ended December 31, 2015, the Company made additional payments of $20,000 in aggregate beyond the required monthly payments of principal and interest. The outstanding principal balance of the Note as of December 31, 2016 and 2015 was zero and $40,761, respectively. Kross Promissory Note On August 4, 2016, the Board of Directors authorized the Company to reimburse Peter T. Kross (“Mr. Kross”), $161,075 for expenses incurred related to his successful contested proxy. Effective June 27, 2016, Mr. Kross is a director of the Company and considered a related party. On August 30, 2016, Mr. Kross accepted an unsecured promissory note (“Kross Note”) for $161,075 from the Company. The outstanding principal balance bears interest at the annual rate of 3.00%. Payment of interest and principal began on September 1, 2016 and will continue monthly on the first day of each month thereafter through and including June 1, 2017; the Company is required to pay equal monthly installments of $16,330 which includes all remaining principal and accrued interest owed by the Company to Mr. Kross under the Kross Note. The Company may prepay in advance any unpaid principal or interest due under the Kross Note without premium or penalty. The principal balance of the Kross Note as of December 31, 2016 was $97,127. 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 6.75% at December 31, 2016 and 6.50% at 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 granted a waiver of that violation on August 11, 2016. By waiving the violation, Heritage Bank did not surrendering any of its other rights set forth in the Heritage Bank Loan Agreement. On October 27, 2016, an amendment to the Credit Facility was executed modifying the required minimum EBITDA level financial covenant as of September 30, 2016 and December 31, 2016. As of December 31, 2016, the Company was in compliance with the modified financial covenants. The outstanding balance on the Credit Facility was $1,062,129 and $901,771 at December 31, 2016 and 2015, respectively. The remaining available borrowing capacity was approximately $107,000 at December 31, 2016. On March 28, 2017, the Company and the Company’s wholly-owned subsidiary, EthoStream LLC, entered into an Asset Purchase Agreement with DCI-Design Communications LLC, whereby DCI would acquire all of the assets and certain liabilities of EthoStream. Heritage Bank has provided the Company with its consent to the sale transaction. Upon closing of the sale transaction on March 29, 2017, the entire balance outstanding on the Credit Facility was repaid. The Company will work with Heritage Bank to execute a new agreement with the remaining operations of the Company as the sole borrower. |
H. REDEEMABLE PREFERRED STOCK
H. REDEEMABLE PREFERRED STOCK | 12 Months Ended |
Dec. 31, 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 years ended December 31, 2016 and 2015, the Company recorded accrued dividends for Series A in the amount of zero and $36,707, respectively. The recorded 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 recorded accrued dividends have 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. A portion of the proceeds from the August 4, 2010 offering was allocated to the warrants based on their relative fair value, which totaled $394,350 using the Black-Scholes option pricing model. Further, the Company attributed a beneficial conversion feature of $394,350 to the Series B preferred shares based upon the difference between the effective conversion price of those shares and the closing price of the Company’s common stock on the date of issuance. The assumptions used in the Black-Scholes model were as follows: (1) dividend yield of 0%; (2) expected volatility of 123%, (3) weighted average risk-free interest rate of 1.76%, (4) expected term of approximately 4 years, and (5) estimated fair value of Telkonet common stock of $0.109 per share. The expected term of the warrants represents the estimated period of time until exercise and was based on historical experience of similar awards and giving consideration to the contractual terms. The amounts attributable to the warrants and beneficial conversion feature, aggregating $788,700, were recorded as a discount and deducted from the face value of the preferred stock. The discount is being amortized over the period from issuance to November 19, 2014 (the initial redemption date) as a charge to additional paid-in capital (since there is a deficit in retained earnings). During the year ended December 31, 2013, a portion of the discount of approximately $123,100 was accelerated and recognized immediately as a charge to additional paid-in capital and accretion of preferred stock discounts and an increase to the net loss attributable to common stockholders for the 167 redeemable preferred shares converted to 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 years ended December 31, 2016 and 2015, the Company accrued dividends for Series B in the amount of zero and $10,921, respectively, The recorded accrued dividends had been charged to additional paid-in capital (since there is a deficit in retained earnings) and the net unpaid recorded accrued dividends have 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. As of December 31, 2016, the liquidation preference of the preferred stock is based on the following order: first, Series B with a preference value of $393,435, which includes cumulative accrued unpaid dividends of $133,435, and second, Series A with a preference value of $1,452,114, which includes cumulative accrued unpaid dividends of $527,114. As of December 31, 2015, the liquidation preference of the preferred stock is based on the following order: first, Series B with a preference value of $394,055, which includes cumulative accrued unpaid dividends of $119,055, and second, Series A with a preference value of $1,377,886, which includes cumulative accrued unpaid dividends of $452,886. Both series of preferred stock are equal in their dividend preference over common stock. |
I. CAPITAL STOCK
I. CAPITAL STOCK | 12 Months Ended |
Dec. 31, 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. At December 31, 2016 and 2015, there were 185 shares of Series A and 52 and 55 shares of Series B outstanding, respectively. The Company has authorized 190,000,000 shares of common stock with a par value of $.001 per share. As of December 31, 2016 and 2015, the Company had 132,774,475 and 127,054,848 common shares issued and outstanding, respectively. During the year ended December 31, 2016, 5,211,542 warrants were exercised for an aggregate of 5,211,542 shares of the Company’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. The Company received proceeds of $677,501 from the exercise of warrants. During the year ended December 31, 2016, the Company issued 392,700 shares of common stock to directors for services performed during 2016. These shares were valued at $72,000, which approximated the fair value of the shares when they were issued. During the year ended December 31, 2016, 3 shares of Series B preferred stock were converted to, in aggregate, 115,385 shares of common stock. During the year ended December 31, 2015, 2,019,236 warrants were exercised for an aggregate of 2,019,236 shares of the Company’s common stock at $0.13 per share. These warrants were originally granted to shareholders of the August 4, 2010 Series B preferred stock issuance. The Company received proceeds of $262,500 from the exercise of warrants. |
J. STOCK OPTIONS AND WARRANTS
J. STOCK OPTIONS AND WARRANTS | 12 Months Ended |
Dec. 31, 2016 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
STOCK OPTIONS AND WARRANTS | 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. The Plan is administered by the Board of Directors or the compensation committee, which is comprised of not less than two Non-Employee Directors who are independent. A total of 10,000,000 shares of stock were reserved and available for issuance under the Plan. The exercise price per share for the Stock covered by a stock option granted shall be determined by the administrator at the time of grant but shall not be less than 100 percent of the fair market value on the date of grant. The term of each stock option shall be fixed by the administrator, but no stock option shall be exercisable more than ten years after the date the stock option is granted. As of December 31, 2016, there were approximately 4,725,053 shares remaining for issuance in the Plan. 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 December 31, 2016. Options Outstanding Options Exercisable Exercise Prices Number Weighted Average Weighted Average Number Weighted Average $ 0.01 - $0.15 175,000 0.81 $ 0.14 175,000 $ 0.14 $ 0.16 - $1.00 2,657,725 4.05 0.18 2,305,821 0.18 2,832,725 3.85 $ 0.18 2,505,821 $ 0.18 Transactions involving stock options issued to employees are summarized as follows: Number of Weighted Average Exercise 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 1,300,000 0.17 Exercised – – Cancelled or expired (292,500 ) 0.69 Outstanding at December 31, 2016 2,832,725 $ 0.18 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 common stock using the trailing 36 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 calculates share-based compensation for changes to the estimate of expected equity award forfeitures based on actual forfeiture experience. The following table summarizes the assumptions used to estimate the fair value of options granted during the years ended December 2016 and 2015, using the Black-Scholes option-pricing model: 2016 2015 Expected life of option (years) 3 10 Risk-free interest rate 0.96% 1.28% Assumed volatility 83% 135% Expected dividend rate 0 0 Expected forfeiture rate 25% 32% The total estimated fair value of the options granted during the years ended December 31, 2016 and 2015 was $99,742 and $8,481. The total fair value of underlying shares related to options that vested during the years ended December 31, 2016 and 2015 was $160,923 and $14,383. Future compensation expense related to non-vested options at December 31, 2016 was $34,310 and will be recognized over the next 4.5 years. The aggregate intrinsic value of the vested options was zero as of December 31, 2016 and 2015. Total stock-based compensation expense recognized in the consolidated statements of operations for the years ended December 31, 2016 and 2015 was $55,050 and $14,383, respectively. Warrants The following table summarizes the changes in warrants outstanding and the related exercise prices for the warrants 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 0.90 $ 0.18 50,000 $ 0.18 0.20 250,000 4.77 0.20 250,000 0.20 300,000 4.13 $ 0.20 300,000 $ 0.20 Transactions involving warrants are summarized as follows: Number of Weighted Average Exercise 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 December 31, 2016 300,000 $ 0.20 There were no warrants granted, 5,211,542 warrants exercised and 126,868 cancelled or forfeited during the year ended December 31, 2016. There were no warrants granted, 2,019,236 warrants exercised and 257,887 cancelled or forfeited during the year ended December 31, 2015. |
K. RELATED PARTY TRANSACTIONS
K. RELATED PARTY TRANSACTIONS | 12 Months Ended |
Dec. 31, 2015 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | On May 18 and June 4, 2015, now former director, William Davis and current Chief Executive Officer Jason 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 December 31, 2016 and 2015, were zero and $11,994, respectively, and were recorded in accrued liabilities and expenses on the accompanying consolidated balance sheets. On August 4, 2016, the Board of Directors authorized the Company to reimburse Peter T. Kross (“Mr. Kross”), $161,075 for expenses incurred related to his successful contested proxy. Effective June 27, 2016, Mr. Kross is a director of the Company and considered a related party. On August 30, 2016, Mr. Kross accepted an unsecured promissory note (“Kross Note”) for $161,075 from the Company. The outstanding principal balance bears interest at the annual rate of 3.0%. Payment of interest and principal began on September 1, 2016 and will continue monthly on the first day of each month thereafter through and including June 1, 2017; the Company is required to pay equal monthly installments of $16,330 which includes all remaining principal and accrued interest owed by the Company to Mr. Kross under the Kross Note. The Company may prepay in advance any unpaid principal or interest due under the Kross Note without premium or penalty. The principal balance of the Kross Note as of December 31, 2016 was $97,127. During the year ended December 31, 2016, the Company made principal and interest payments of $65,319 to Mr. Kross. During the year ended December 31, 2016, the Company agreed to issue common stock in the amount of $72,000 to the Company’s non-employee directors as compensation for their attendance and participation in the Company’s Board of Director and committee meetings. On July 1, 2016, each newly elected Board of Director member, Mr. Kross, Mr. Blatt and Mr. Byrnes were each granted 100,000 stock options per the Company’s Board of Director compensation plan. These options have an expiration period of ten years, vest quarterly over five years and have an exercise price of $0.19. 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 December 31, 2016 and 2015, there were no such arrangements. |
L. INCOME TAXES
L. INCOME TAXES | 12 Months Ended |
Dec. 31, 2016 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | The Company follows ASC 740-10 “Income Taxes” which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A reconciliation of tax expense computed at the statutory federal tax rate on income (loss) from continuing operations before income taxes to the actual income tax (benefit) / expense is as follows: 2016 2015 Tax provision (benefits) computed at the statutory rate $ (1,304,289 ) $ (1,092,230 ) State taxes (26,981 ) 12,921 Book expenses not deductible for tax purposes 16,380 18,960 Expired capital losses – 110,291 Other 2,747 (14,272 ) (1,312,143 ) (964,330 ) Change in valuation allowance for deferred tax assets 1,332,257 961,116 Income tax expense $ 20,114 $ (3,214 ) During 2016, approximately $900,000 of state net operating loss carryforwards expired and the Company lowered its effective state tax rate. The aggregate effect of these items resulted in a reduction to the allowance of approximately $80,000. Deferred income taxes include the net tax effects of net operating loss (NOL) carry forwards and the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets are as follows: 2016 2015 Deferred Tax Assets: Net operating loss carry forwards $ 34,458,920 $ 32,979,306 Intangibles 781,920 908,461 Other 580,125 534,646 Total deferred tax assets 35,820,965 34,422,413 Deferred Tax Liabilities: Intangibles (933,433 ) (734,047 ) Total deferred tax liabilities (933,433 ) (734,047 ) Valuation allowance (35,820,965 ) (34,422,413 ) Net deferred tax liabilities $ (933,433 ) $ (734,047 ) A valuation allowance is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability of the Company to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. As of December 31, 2016 and December 31, 2015, the Company’s valuation allowance, established for the tax benefit that may not be realized, totaled approximately $35,820,000 and $34,420,000, respectively. The overall increase in the valuation allowance is related to the federal and state losses generated for the year ended December 31, 2016, less the federal and state loss carryforwards that expired as of December 31, 2016. At December 31, 2016 the Company had net operating loss carryforwards of approximately $97,200,000 and $51,100,000 for federal and state income tax purposes, respectively, which will expire at various dates from 2017 – 2036. The Company has indefinite-lived goodwill, which is not amortized for financial reporting purposes. However, this asset is amortized over 15 years for tax purposes. As such, income tax expense and a deferred income tax liability arise as a result of the tax-deductibility of this asset. The resulting deferred income tax liability, which is expected to continue to increase over time, will have an indefinite life, resulting in what is referred to as a “naked tax credit.” This deferred income tax liability could remain on the Company’s balance sheet permanently unless there is an impairment of the related asset (for financial reporting purposes), or the business to which those assets relate were to be disposed. Due to the fact that the aforementioned deferred income tax liability could have an indefinite life, it is not netted against the Company’s deferred tax assets when determining the required valuation allowance. Doing so would result in the understatement of the valuation allowance and related income tax expense. The Company’s NOL and tax credit carryovers may be significantly limited under Section 382 of the Internal Revenue Code (IRC). NOL and tax credit carryovers are limited under Section 382 when there is a significant “ownership change” as defined in the IRC. During 2005 and in prior years, the Company may have experienced such ownership changes that could have imposed such limitations. The limitation imposed by Section 382 would place an annual limitation on the amount of NOL and tax credit carryovers that can be utilized. When the Company completes the necessary studies, the amount of NOL carryovers available may be reduced significantly. However, since the valuation allowance fully reserves for all available carryovers, the effect of the reduction would be offset by a reduction in the valuation allowance. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is generally no longer subject to U.S. federal income tax examinations by tax authorities for years before 2012 and various states before 2012. Although these years are no longer subject to examination by the Internal Revenue Service (IRS) and various state taxing authorities, net operating loss carryforwards generated in those years may still be adjusted upon examination by the IRS or state taxing authorities if they have been or will be used in a future period. The Company follows the provisions of uncertain tax positions as addressed in FASB Accounting Standards Codification 740-10-65-1. The Company recognized no change in the liability for unrecognized tax benefits. The Company has no tax positions at December 31, 2016 or 2015 for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expense. No such interest or penalties were recognized during the periods presented. The Company had no accruals for interest and penalties at December 31, 2016 or 2015. The Company’s utilization of any net operating loss carryforwards may be unlikely due to its continuing losses. |
M. COMMITMENTS AND CONTINGENCIE
M. COMMITMENTS AND CONTINGENCIES | 12 Months Ended |
Dec. 31, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | Office Leases 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 leased 16,416 square feet of commercial office space in Germantown, Maryland. The lease commitments expired in December 2015. On July 15, 2011, Telkonet executed a sublease agreement for 11,626 square feet of the office space in Germantown, Maryland. The subtenant received one month rent abatement and had the option to extend the sublease from January 31, 2013 to December 31, 2015. On June 27, 2012 the subtenant exercised the option to extend the expiration of the term of the sublease from January 31, 2013 to December 31, 2015. In January 2016, the Company entered into a lease agreement for 2,237 square feet of commercial office space in Germantown, Maryland for its Maryland employee’s. The Germantown lease was set to expire at the end of January 2017. In December 2016, the Company entered into a first amendment to the lease agreement extending the lease through the end of January 2018. Commitments for minimum rentals under non-cancelable leases as of December 31, 2016 are as follows: Years ending December 31, 2017 $ 80,604 2018 79,065 2019 80,646 2020 82,259 2021 34,880 Total $ 357,454 Rental expenses charged to operations for the years ended December 31, 2016 and 2015 was $169,807 and $206,307, respectively. Sub-rental income received for the year ended December 31, 2016 and 2015 was zero and $136,666, respectively. Employment and Consulting Agreements The Company has employment agreements with certain of its key employees which include non-disclosure and confidentiality provisions for protection of the Company’s proprietary information. Jason L. Tienor, President and Chief Executive Officer, is employed pursuant to an amended and restated employment agreement with us dated January 3, 2016, which was executed in January, 2017. The agreement amends and restates an employment agreement dated May 1, 2015. Mr. Tienor’s amended and restated employment agreement has a term of one (1) year, which may be extended by mutual agreement of the parties thereto, and provides, among other things, for an annual base salary of $212,200 per year and bonuses and benefits based on the Company’s internal policies and participation in our incentive and benefit plans. The agreement also calls for a bonus to be paid upon the sale of the Company’s subsidiary resulting in a purchase price (before any closing costs or working capital adjustments) equal to or greater than twelve million five hundred thousand dollars ($12,500,000). The bonus will be equal to twenty five thousand dollars ($25,000) plus one third of five percent of each dollar in excess of a purchase price of twelve million five hundred dollars ($12,500,000). Upon execution of the employment agreement in 2017, 1,000,000 stock options were granted at their fair market value and vest over a three year period. However, the stock options vest immediately upon the sale of the Company’s subsidiary, Ethostream LLC, in March 2017. Jeffrey J. Sobieski, Chief Technology Officer, is employed pursuant to an amended and restated employment agreement with us dated January 3, 2016, which was executed in January, 2017. The agreement amends and restates an employment agreement dated May 1, 2015. Mr. Sobieski’s amended and restated employment agreement has a term of one (1) year, which may be extended by mutual agreement of the parties thereto, and provides for a base salary of $201,575 per year and bonuses and benefits based upon the Company’s internal policies and participation in the Company’s incentive and benefit plans. The agreement also calls for a bonus to be paid upon the sale of the Company’s subsidiary resulting in a purchase price (before any closing costs or working capital adjustments) equal to or greater than twelve million five hundred thousand dollars ($12,500,000). The bonus will be equal to twenty five thousand dollars ($25,000) plus one third of five percent of each dollar in excess of a purchase price of twelve million five hundred dollars ($12,500,000). Upon execution of the employment agreement in 2017, 1,000,000 stock options were granted at their fair market value and vest over a three year period. However, the stock options vest immediately upon the sale of the Company’s subsidiary, Ethostream LLC, in March 2017. Matthew P. Koch, Chief Operations Officer, is employed pursuant to an amended and restated employment agreement with us dated January 3, 2016, which was executed in January, 2017. Mr. Koch’s amended and restated employment agreement has a term of one (1) year, which may be extended by mutual agreement of the parties thereto, and provides for a base salary of $143,900 per year and bonuses and benefits based upon the Company’s internal policies and participation in the Company’s incentive and benefit plans. The agreement also calls for a bonus to be paid upon the sale of the Company’s subsidiary resulting in a purchase price (before any closing costs or working capital adjustments) equal to or greater than twelve million five hundred thousand dollars ($12,500,000). The bonus will be equal to twenty five thousand dollars ($25,000) plus one third of five percent of each dollar in excess of a purchase price of twelve million five hundred dollars ($12,500,000). Upon execution of the employment agreement in 2017, 1,000,000 stock options were granted at their fair market value and vest over a three year period. However, the stock options vest immediately upon the sale of the Company’s subsidiary, Ethostream LLC, in March 2017. In addition to the foregoing, stock options are periodically granted to employees under the Company’s 2010 equity incentive plan at the discretion of the Compensation Committee of the Board of Directors. Executives of the Company are eligible to receive stock option grants, based upon individual performance and the performance of the Company as a whole. 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. Indemnification Agreements On March 31, 2010, the Company entered into Indemnification Agreements with director William H. Davis, and executives Jason L. Tienor, President and Chief Executive Officer and Jeffrey J. Sobieski, then Chief Operating Officer. On April 24, 2012, the Company entered into an Indemnification Agreement with director Timothy S. Ledwick. On July 1, 2016, the Company entered into Indemnification Agreements with director’s Arthur E. Byrnes, Peter T. Kross and Leland D. Blatt. On January 1, 2017, the Company entered into an Indemnification Agreements with Chief Financial Officer Richard E. Mushrush. The Indemnification Agreements provide that the Company will indemnify the Company's officers and directors, to the fullest extent permitted by law, relating to, resulting from or arising out of any threatened, pending or completed action, suit or proceeding, or any inquiry or investigation by reason of the fact that such officer or director (i) is or was a director, officer, employee or agent of the Company or (ii) is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. In addition, the Indemnification Agreements provide that the Company will make an advance payment of expenses to any officer or director who has entered into an Indemnification Agreement, in order to cover a claim relating to any fact or occurrence arising from or relating to events or occurrences specified in this paragraph, subject to receipt of an undertaking by or on behalf of such officer or director to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Company as authorized under the Indemnification Agreement. Sales Taxes 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 had approximately $227,000 and $190,000 accrued for this exposure as of December 31, 2016 and 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 $30,000, 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 year ended December 31, 2016, the Company executed and paid five VDA’s totaling approximately $70,000. During the year ended December 31, 2016, the state of Wisconsin perform a sales and use tax audit covering the period from January 1, 2012 through December 31, 2015. The Company estimates the audit could result in approximately $120,000 in additional use tax and interest and have appropriately accrued and expensed this amount in the consolidated balance sheet and the consolidated statement of operations as of December 31, 2016. The following table sets forth the change in the sales tax accrual during the years ended December 31: 2016 2015 Balance, Beginning of year $ 189,697 $ 35,951 Sales tax collected 310,823 175,044 Provisions 151,000 164,593 Payments (424,105 ) (185,891 ) Balance, End of year $ 227,415 $ 189,697 |
N. BUSINESS CONCENTRATION
N. BUSINESS CONCENTRATION | 12 Months Ended |
Dec. 31, 2016 | |
Risks and Uncertainties [Abstract] | |
BUSINESS CONCENTRATION | For the years ended December 31, 2016 and 2015, no single customer represented 10% or more of the Company’s total net revenues from continuing operations. As of December 31, 2016, two customers accounted for 24% of the Company’s net accounts receivable from continuing operations. As of December 31, 2015, two customers accounted for accounted for 20% of the Company’s net accounts receivable from continuing operations. Purchases from one supplier approximated $2,235,000, or 62%, of total purchases for the year ended December 31, 2016 and approximately $2,117,000, or 70%, of total purchases for the year ended December 31, 2015 from continuing operations. Total due to this supplier, net of deposits, was $45,037 and $437,520 as of December 31, 2016 and 2015, respectively. |
O. EMPLOYEE BENEFIT PLAN
O. EMPLOYEE BENEFIT PLAN | 12 Months Ended |
Dec. 31, 2016 | |
Disclosure Text Block Supplement [Abstract] | |
EMPLOYEE BENEFIT PLAN | The Company has an employee savings plan covering substantially all employees who are at least 21 years of age and have completed at least 6 months of service. Effective January 1, 2012, the plan provides for matching contributions equal to 100% of each dollar contributed by the employee up to 4% of the employee’s salary. The Company’s matching contributions vest immediately. The Company may also elect to make discretionary contributions. The Company made contributions to the plan of approximately $172,000 and $153,000 for the years ended December 31, 2016 and 2015, respectively. |
P. DISCONTINUED OPERATIONS
P. DISCONTINUED OPERATIONS | 12 Months Ended |
Dec. 31, 2016 | |
Discontinued Operations and Disposal Groups [Abstract] | |
P. DISCONTINUED OPERATIONS | In October of 2016, the Company, under the direction and authority of the Board of Directors, committed to a plan to offer for sale Ethostream LLC, High-Speed Internet Access (“HSIA”) subsidiary. While EthoStream is one of the largest public HSIA providers in the world, providing services to more than 12.0 million users monthly across a network of approximately 1,800 locations, the Company will focus on its higher growth potential EcoSmart Platform line. As a result of this decision to sell Ethostream LLC, the operating results of Ethostream for the years ended December 31, 2016 and 2015 have been reclassified as discontinued operations and as assets and liabilities held for sale in the consolidated financial statements as detailed in the table below. December 31, 2016 2015 Cash and cash equivalents $ 106,743 $ 271,446 Accounts receivable, net 456,478 315,278 Inventories 350,506 159,559 Other current assets 12,980 11,281 Other asset - goodwill 5,796,430 – Other asset – intangible asset, net 533,577 – Current assets held for sale 7,256,714 757,564 Property and equipment, net – 437 Goodwill – 5,796,430 Intangible asset, net – 775,257 Deposits – 10,130 Long-term assets held for sale – 6,582,254 Accounts payable 465,346 339,918 Accrued liabilities and expenses 241,123 187,015 Deferred revenues 37,509 48,161 Customer deposits 200,466 263,384 Deferred lease liability 76,096 12,795 Current liabilities held for sale 1,020,540 851,273 Deferred lease liability – 76,096 Long-term liabilities held for sale – 76,096 Net assets of discontinued operations $ 6,236,174 $ 6,412,449 The following table summarizes the statements of operations information for discontinued operations. Years Ended December 31, 2016 2015 Revenues, net: Product $ 3,529,012 $ 3,666,201 Recurring 3,894,998 3,890,108 Total Net Revenues 7,424,010 7,556,309 Cost of Sales: Product 2,235,641 2,134,547 Recurring 925,212 858,704 Total Cost of Sales 3,160,853 2,993,251 Gross Profit 4,263,157 4,563,058 Operating Expenses: Research and development 2,511 – Selling, general and administrative 1,191,385 1,258,700 Depreciation and amortization 242,117 244,284 Total Operating Expenses 1,436,013 1,502,984 Income from Discontinued Operations before Provision for Income Taxes 2,827,144 3,060,074 Provision for Income Taxes 199,386 200,286 Income from Discontinued Operations (net of tax) $ 2,627,758 $ 2,859,788 The consolidated statements of cash flows do not present the cash flows from discontinued operations for investing activities or financing activities because there were no investing or financing activities associated with the discontinued operations in the years ended December 31, 2016 and 2015. |
Q. SUBSEQUENT EVENT
Q. SUBSEQUENT EVENT | 12 Months Ended |
Dec. 31, 2016 | |
Subsequent Events [Abstract] | |
Q. SUBSEQUENT EVENT | On March 28, 2017, the Company, and the Company’s wholly-owned subsidiary, EthoStream LLC, a Wisconsin limited liability company (“EthoStream”), entered into an Asset Purchase Agreement (the “Purchase Agreement”) with DCI-Design Communications LLC, a Delaware limited liability company (“DCI”), whereby DCI would acquire all of the assets and certain liabilities of EthoStream for a cash purchase price of $12,750,000. The Purchase Agreement includes that proceeds of $900,000 are to be withheld from the $12,750,000 cash purchase price and placed into an escrow account to support potential indemnification obligations of up to $800,000 and net working capital adjustments of up to $100,000. The escrow amount, net of potential claims, would be fully released after an escrow period not to exceed 12 months after closing. The assets included, among other items, certain inventory, contracts and intellectual property. DCI acquired only the liabilities provided for in the Purchase Agreement. On March 29, 2017, pursuant to the terms and the conditions of the Purchase Agreement, the Company closed on the sale. Further details of the transaction can be referenced in our Form 8-K filed with the Security and Exchange Commission on March 31, 2017. |
A. SUMMARY OF ACCOUNTING POLI24
A. SUMMARY OF ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2016 | |
Accounting Policies [Abstract] | |
Business and Basis of Presentation | Business and Basis of Presentation Telkonet, Inc. (the “Company”, “Telkonet”), formed in 1999 and incorporated under the laws of the state of Utah, is the creator of the EcoSmart Platform of intelligent automation solutions designed to optimize energy efficiency, comfort and analytics in support of the emerging Internet of Things (“IoT”). Telkonet’s growth is focused on EcoSmart, its IoT division offering intelligent automation solutions. In 2007, the Company acquired substantially all of the assets of Smart Systems International (“SSI”), which was a provider of energy management products and solutions to customers in the United States and Canada and the precursor to the Company’s EcoSmart platform. The EcoSmart platform provides comprehensive savings, management reporting, analytics and virtual engineering of a customer’s portfolio and/or property’s room-by-room energy consumption. Telkonet has deployed more than a half million intelligent devices worldwide in properties within the hospitality, military, educational, healthcare and other commercial markets. The EcoSmart platform is rapidly being recognized as a leading solution for reducing energy consumption, operational costs and carbon footprints, and eliminating the need for new energy generation in these marketplaces – all whilst improving occupant comfort and convenience. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Telkonet Communications, Inc., and EthoStream, LLC. The current year and prior year accounts of Ethostream LLC have been classified as held for sale on the consolidated balance sheet and as discontinued operations on the consolidated statement of operations and the consolidated statement of cash flows. 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. Unless otherwise noted, all financial information in the consolidated financial statement footnotes reflect the Company’s results from continuing operations. |
Liquidity and Financial Condition | Liquidity and Financial Condition The Company reported a net loss of $4,003,671 from continuing operations for the year ended December 31, 2016, had cash used in operating activities from continuing operations of $910,130, had an accumulated deficit of $123,471,034 and total current liabilities in excess of current assets from continuing operations of $916,099 as of December 31, 2016 excluding the Ethostream, LLC assets and liabilities held for sale. 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. On February 17, 2016, an amendment to the revolving credit facility with Heritage Bank of Commerce 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 “Loan Agreement”). The Loan Agreement is available for working capital and other lawful general corporate purposes. The outstanding principal balance of the revolving credit facility bears interest at the Prime Rate plus 3.00%. The outstanding balance was $1,062,129 as of December 31, 2016 and the remaining available borrowing capacity was approximately $107,000. As of December 31, 2016, the Company was in compliance with all financial covenants. On March 28, 2017, the Company and the Company’s wholly-owned subsidiary, EthoStream LLC, entered into an Asset Purchase Agreement with DCI-Design Communications LLC (“DCI”), whereby DCI would acquire all of the assets and certain liabilities of EthoStream for a cash purchase price of $12,750,000, subject to an adjustment based on the net working capital of EthoStream on the closing date of the sale transaction. 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 the net proceeds received from the Ethostream LLC sale. |
Concentrations of Credit Risk | Concentrations of Credit Risk Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and trade receivables. The Company places its cash and temporary cash investments with credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit. The Company has never experienced any losses related to these balances. With respect to trade receivables, the Company performs ongoing credit evaluations of its customers’ financial conditions and limits the amount of credit extended when deemed necessary. The Company provides credit to its customers primarily in the United States in the normal course of business. The Company routinely assesses the financial strength of its customers and, as a consequence, believes its trade receivables credit risk exposure is limited. |
Cash and Cash Equivalents | Cash and Cash Equivalents The Company considers all highly liquid debt instruments purchased with an original maturity date of three months or less to be cash equivalents. |
Restricted Cash on Deposit | Restricted Cash on Deposit During 2014, the Company was awarded a contract with a bonding requirement. The Company satisfied this requirement during the year ended December 31, 2014 with cash collateral supported by an irrevocable standby letter of credit in the amount of $63,000. The Company continues to execute contracts with bonding requirements and maintains this cash collateral on deposit for current and future projects. The amount which was presented as restricted cash on deposit on the consolidated balance sheet as of December 31, 2015 was released in 2016. The outstanding balance as of December 31, 2016 and 2015 was zero and $31,277, respectively. |
Accounts Receivable | Accounts Receivable Accounts receivable are uncollateralized customer obligations due under normal trade terms. The Company records allowances for doubtful accounts based on customer-specific analysis and general matters such as current assessment of past due balances and economic conditions. The Company writes off accounts receivable when they become uncollectible. The allowance for doubtful accounts was $34,573 and $13,299 at December 31, 2016 and 2015, respectively. Management identifies a delinquent customer based upon the delinquent payment status of an outstanding invoice, generally greater than 30 days past due date. The delinquent account designation does not trigger an accounting transaction until such time the account is deemed uncollectible. The allowance for doubtful accounts is determined by examining the reserve history and any outstanding invoices that are over 30 days past due as of the end of the reporting period. Accounts are deemed uncollectible on a case-by-case basis, at management’s discretion based upon an examination of the communication with the delinquent customer and payment history. Typically, accounts are only escalated to “uncollectible” status after multiple attempts at collection have proven unsuccessful. The allowance for doubtful accounts for the years ended December 31 is as follows: 2016 2015 Beginning balance $ 13,299 $ 25,973 Provision charged to expense 32,047 6,618 Deductions (10,773 ) (19,292 ) Ending balance $ 34,573 $ 13,299 |
Inventories | Inventories Inventories consist of thermostats, sensors and controllers for Telkonet’s EcoSmart product platform. These inventories are purchased for resale and do not include manufacturing labor and overhead. Inventories are stated at the lower of cost or market determined by the first in, first out (FIFO) method. The Company’s inventories are subject to technological obsolescence. Management evaluates the net realizable value of its inventories on a quarterly basis and when it is determined that the Company’s carrying cost of such excess and obsolete inventories cannot be recovered in full, a charge is taken against income for the difference between the carrying cost and the estimated realizable amount. The charge (benefit) taken against income was approximately $(18,900) and $(2,000) for the years ended December 31, 2016 and 2015, respectively. |
Property and Equipment | Property and Equipment In accordance with Accounting Standards Codification ASC 360 “Property Plant and Equipment ” |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The Company’s financial instruments include cash and cash equivalents, restricted cash on deposit, accounts receivable, accounts payable, line of credit, notes payable, and certain accrued liabilities. The carrying amounts of these assets and liabilities approximate fair value due to the short maturity of these instruments (Level 1 instruments), except for the line of credit and notes payable. The carrying amount of the line of credit and notes payable approximates fair value due to the interest rate and terms approximating those available to the Company for similar obligations (Level 2 instruments). The Company accounts for the fair value of financial instruments in accordance with ASC 820, which defines fair value for accounting purposes, established a framework for measuring fair value and expanded disclosure requirements regarding fair value measurements. Fair value is defined as an exit price, which is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. The degree of judgment utilized in measuring the fair value of assets and liabilities generally correlates to the level of pricing observability. Financial assets and liabilities with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in active markets generally have more pricing observability and require less judgment in measuring fair value. Conversely, financial assets and liabilities that are rarely traded or not quoted have less price observability and are generally measured at fair value using valuation models that require more judgment. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency of the asset, liability or market and the nature of the asset or liability. The Company categorizes financial assets and liabilities that are recurring, at fair value into a three-level hierarchy in accordance with these provisions. ● Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; ● Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or ● Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and are unobservable. |
Long-Lived Assets | Long-Lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10. Recoverability is measured by comparison of the carrying amount to the future net cash flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. Based on the annual assessment for impairment performed during 2016 and 2015, no impairment was recorded. |
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 years ended December 31, 2016 and 2015, there were 3,132,725 and 7,463,635 shares of common stock underlying options and warrants excluded due to these instruments being anti-dilutive, respectively. |
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) require 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, the Company determined it is not essential to the functionality, efficiency or effectiveness of the MEA due to its perfunctory nature in relation to the entire arrangement. 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. The Company receives monthly service fees from such properties for its services. 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. Long-term deferred revenue represents support service fees to be earned or provided beginning after December 31, 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 December 31, 2016 and 2015, there was $214,821 and $170,000 recorded within accounts receivable, respectively, related to revenue recognized that has not yet been billed. |
Sales Taxes | Sales Taxes Unless provided with a resale or tax exemption certificate, the Company assesses and collects sales tax on sales transactions and records the amount as a liability. It is recognized as a liability until remitted to the applicable state. Total revenues do not include sales tax as the Company is considered a pass through conduit for collecting and remitting sales taxes. |
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 years ended December 31, 2016 and 2015, the Company experienced returns of approximately 1% to 3% of material’s included in the cost of sales. As of December 31, 2016 and 2015, the Company recorded warranty liabilities in the amount of $49,149 and $28,702, respectively, using this experience factor range. Product warranties for the years ended December 31 is as follows: 2016 2015 Beginning balance $ 28,702 $ 23,500 Warranty claims incurred (50,353 ) (16,434 ) Provision charged to expense 70,800 21,636 Ending balance $ 49,149 $ 28,702 |
Advertising | Advertising The Company follows the policy of charging the costs of advertising to expenses as incurred. The Company incurred $31,573 and zero in advertising costs from continuing operations during the years ended December 31, 2016 and 2015, respectively. |
Research and Development | Research and Development The Company accounts for research and development costs in accordance with the ASC 730-10, “Research and Development”. Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. Total expenditures on research and product development for 2016 and 2015 were $1,658,640 and $1,605,667, respectively. |
Stock-Based Compensation | Stock-Based Compensation The Company accounts for stock-based awards in accordance with ASC 718-10, “Share-Based Compensation”, which requires a fair value measurement and recognition of compensation expense for all share-based payment awards made to the Company’s employees and directors, including employee stock options and restricted stock awards. The Company’s estimates the fair value of stock options granted using the Black-Scholes valuation model. This model requires the Company to make estimates and assumptions including, among other things, estimates regarding the length of time an employee will hold vested stock options before exercising them, the estimated volatility of the Company’s common stock price and the number of options that will be forfeited prior to vesting. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Changes in these estimates and assumptions can materially affect the determination of the fair value of stock-based compensation and consequently, the related amount recognized in the Company’s consolidated statements of operations. The expected term of the options represents the estimated period of time until exercise and is based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. For 2015 and prior years, expected stock price volatility is based on the historical volatility of the Company’s stock for the related vesting periods. Stock-based compensation expense in connection with options granted to employees for the year ended December 31, 2016 and 2015 was $55,050 and $14,383, respectively. |
Deferred Lease Liability | Deferred Lease Liability Rent expense is recorded on a straight-line basis over the term of the lease. Rent escalations and rent abatement periods during the term of the lease create a deferred lease liability which represents the excess of cumulative rent expense recorded to date over the actual rent paid to date. |
A. SUMMARY OF ACCOUNTING POLI25
A. SUMMARY OF ACCOUNTING POLICIES (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Accounting Policies [Abstract] | |
Schedule of allowance for doubtful accounts | 2016 2015 Beginning balance $ 13,299 $ 25,973 Provision charged to expense 32,047 6,618 Deductions (10,773 ) (19,292 ) Ending balance $ 34,573 $ 13,299 |
Product warranties | 2016 2015 Beginning balance $ 28,702 $ 23,500 Warranty claims incurred (50,353 ) (16,434 ) Provision charged to expense 70,800 21,636 Ending balance $ 49,149 $ 28,702 |
C. GOODWILL (Tables)
C. GOODWILL (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Schedule of goodwill | Cost Accumulated Impairment Carrying Value Asset: Goodwill – SSI $ 5,874,016 $ (5,874,016 ) $ – Total Goodwill $ 5,874,016 $ (5,874,016 ) $ – |
D. ACCOUNTS RECEIVABLE (Tables)
D. ACCOUNTS RECEIVABLE (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Receivables [Abstract] | |
Accounts Receivable | 2016 2015 Accounts receivable $ 1,438,345 $ 1,961,368 Allowance for doubtful accounts (34,573 ) (13,299 ) Accounts receivable, net $ 1,403,772 $ 1,948,069 |
E. PROPERTY AND EQUIPMENT (Tabl
E. PROPERTY AND EQUIPMENT (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Property, Plant and Equipment [Abstract] | |
Schedule of property and equipment | 2016 2015 Development test equipment $ 19,110 $ 19,110 Computer software 76,134 55,677 Office equipment 36,904 20,731 Office fixtures and furniture 151,330 151,330 Total 283,478 246,848 Accumulated depreciation (139,571 ) (105,281 ) Total property and equipment $ 143,907 $ 141,567 |
F. ACCRUED LIABILITIES AND EX29
F. ACCRUED LIABILITIES AND EXPENSES (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Payables and Accruals [Abstract] | |
Accrued Liabilities and Expenses | 2016 2015 Accrued liabilities and expenses $ 218,629 $ 186,762 Accrued payroll and payroll taxes 279,199 289,575 Accrued sales taxes, penalties, and interest 227,415 189,697 Accrued interest 253 291 Product warranties 49,149 28,702 Total accrued liabilities and expenses $ 774,645 $ 695,027 |
J. STOCK OPTIONS AND WARRANTS (
J. STOCK OPTIONS AND WARRANTS (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Options outstanding and exercisable | Options Outstanding Options Exercisable Exercise Prices Number Weighted Average Weighted Average Number Weighted Average $ 0.01 - $0.15 175,000 0.81 $ 0.14 175,000 $ 0.14 $ 0.16 - $1.00 2,657,725 4.05 0.18 2,305,821 0.18 2,832,725 3.85 $ 0.18 2,505,821 $ 0.18 |
Option activity | Number of Weighted Average Exercise 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 1,300,000 0.17 Exercised – – Cancelled or expired (292,500 ) 0.69 Outstanding at December 31, 2016 2,832,725 $ 0.18 |
Valuation assumptions | 2016 2015 Expected life of option (years) 3 10 Risk-free interest rate 0.96% 1.28% Assumed volatility 83% 135% Expected dividend rate 0 0 Expected forfeiture rate 25% 32% |
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 0.90 $ 0.18 50,000 $ 0.18 0.20 250,000 4.77 0.20 250,000 0.20 300,000 4.13 $ 0.20 300,000 $ 0.20 |
Warrant activity | Number of Weighted Average Exercise 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 December 31, 2016 300,000 $ 0.20 |
L. INCOME TAXES (Tables)
L. INCOME TAXES (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Income Tax Disclosure [Abstract] | |
Reconcilation of tax expense | 2016 2015 Tax provision (benefits) computed at the statutory rate $ (1,304,289 ) $ (1,092,230 ) State taxes (26,981 ) 12,921 Book expenses not deductible for tax purposes 16,380 18,960 Expired capital losses – 110,291 Other 2,747 (14,272 ) (1,312,143 ) (964,330 ) Change in valuation allowance for deferred tax assets 1,332,257 961,116 Income tax expense $ 20,114 $ (3,214 ) |
Schedule of deferred tax assets and liabilties | 2016 2015 Deferred Tax Assets: Net operating loss carry forwards $ 34,458,920 $ 32,979,306 Intangibles 781,920 908,461 Other 580,125 534,646 Total deferred tax assets 35,820,965 34,422,413 Deferred Tax Liabilities: Intangibles (933,433 ) (734,047 ) Total deferred tax liabilities (933,433 ) (734,047 ) Valuation allowance (35,820,965 ) (34,422,413 ) Net deferred tax liabilities $ (933,433 ) $ (734,047 ) |
M. COMMITMENTS AND CONTINGENC32
M. COMMITMENTS AND CONTINGENCIES (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
Office Lease Obligations | Years ending December 31, 2017 $ 80,604 2018 79,065 2019 80,646 2020 82,259 2021 34,880 Total $ 357,454 |
Sales tax accrual | 2016 2015 Balance, Beginning of year $ 189,697 $ 35,951 Sales tax collected 310,823 175,044 Provisions 151,000 164,593 Payments (424,105 ) (185,891 ) Balance, End of year $ 227,415 $ 189,697 |
P. DISCONTINUED OPERATIONS (Tab
P. DISCONTINUED OPERATIONS (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Schedule of discontinued operations activity | December 31, 2016 2015 Cash and cash equivalents $ 106,743 $ 271,446 Accounts receivable, net 456,478 315,278 Inventories 350,506 159,559 Other current assets 12,980 11,281 Other asset - goodwill 5,796,430 – Other asset – intangible asset, net 533,577 – Current assets held for sale 7,256,714 757,564 Property and equipment, net – 437 Goodwill – 5,796,430 Intangible asset, net – 775,257 Deposits – 10,130 Long-term assets held for sale – 6,582,254 Accounts payable 465,346 339,918 Accrued liabilities and expenses 241,123 187,015 Deferred revenues 37,509 48,161 Customer deposits 200,466 263,384 Deferred lease liability 76,096 12,795 Current liabilities held for sale 1,020,540 851,273 Deferred lease liability – 76,096 Long-term liabilities held for sale – 76,096 Net assets of discontinued operations $ 6,236,174 $ 6,412,449 The following table summarizes the statements of operations information for discontinued operations. Years Ended December 31, 2016 2015 Revenues, net: Product $ 3,529,012 $ 3,666,201 Recurring 3,894,998 3,890,108 Total Net Revenues 7,424,010 7,556,309 Cost of Sales: Product 2,235,641 2,134,547 Recurring 925,212 858,704 Total Cost of Sales 3,160,853 2,993,251 Gross Profit 4,263,157 4,563,058 Operating Expenses: Research and development 2,511 – Selling, general and administrative 1,191,385 1,258,700 Depreciation and amortization 242,117 244,284 Total Operating Expenses 1,436,013 1,502,984 Income from Discontinued Operations before Provision for Income Taxes 2,827,144 3,060,074 Provision for Income Taxes 199,386 200,286 Income from Discontinued Operations (net of tax) $ 2,627,758 $ 2,859,788 |
A. SUMMARY OF ACCOUNTING POLI34
A. SUMMARY OF ACCOUNTING POLICIES (Details - Doubtful accounts) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Accounting Policies [Abstract] | ||
Beginning balance | $ 13,299 | $ 25,973 |
Provision charged to expense | 32,047 | 6,618 |
Deductions | (10,773) | (19,292) |
Ending balance | $ 34,573 | $ 13,299 |
A. SUMMARY OF ACCOUNTING POLI35
A. SUMMARY OF ACCOUNTING POLICIES (Details-Product warranties) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Product warranties | ||
Beginning balance | $ 28,702 | $ 23,500 |
Warranty claims incurred | (50,353) | (16,434) |
Provision charged to expense | 70,800 | 21,636 |
Ending balance | $ 49,149 | $ 28,702 |
A. SUMMARY OF ACCOUNTING POLI36
A. SUMMARY OF ACCOUNTING POLICIES (Details Narrative) - USD ($) | 12 Months Ended | ||
Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Net loss | $ (4,003,671) | $ (3,048,892) | |
Cash used in operating activities | (910,130) | (194,713) | |
Accumulated deficit | (123,471,034) | (122,095,121) | |
Working capital | (916,099) | ||
Line of credit balance | 1,062,129 | 901,771 | |
Restricted cash | 0 | 31,277 | |
Allowance for doubtful accounts | 34,573 | 13,299 | $ 25,973 |
Inventory impairment charge | 46,600 | ||
Inventory value adjustment | $ 18,900 | 2,000 | |
Property and equipment useful lives | 2 to 10 years | ||
Intangible useful life (in years) | 12 years | ||
Impairment on long-lived assets | $ 0 | $ 0 | |
Shares excluded from EPS calculation | 3,132,725 | 7,463,635 | |
Guarantees and product warranty return percentage | 1.00% | 3.00% | |
Advertising expense | $ 31,573 | $ 0 | |
Research and development expenses | 1,658,640 | 1,605,667 | |
Stock based compensation expenses | 55,050 | 14,383 | |
Warranty liabilities | 49,149 | 28,702 | $ 23,500 |
Acccounts receivable | 765,617 | 1,414,648 | |
Revenue recognized that has not been billed [Member] | |||
Acccounts receivable | $ 214,821 | $ 170,000 |
C. INTANGIBLE ASSETS AND GOODWI
C. INTANGIBLE ASSETS AND GOODWILL (Details-Intangible Assets) | Dec. 31, 2016USD ($) |
Goodwill SSI [Member] | |
Indefinite-lived Intangible Assets [Line Items] | |
Goodwill | $ 5,874,016 |
Accumulated Impairment | (5,874,016) |
Total Goodwill [Member] | |
Indefinite-lived Intangible Assets [Line Items] | |
Goodwill | 5,874,016 |
Accumulated Impairment | $ (5,874,016) |
D. ACCOUNTS RECEIVABLE (Details
D. ACCOUNTS RECEIVABLE (Details) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Components of accounts receivable | ||
Accounts receivable | $ 1,438,345 | $ 1,961,368 |
Allowance for doubtful accounts | (34,573) | (13,299) |
Accounts receivable, net | $ 1,403,772 | $ 1,948,069 |
E. PROPERTY AND EQUIPMENT (Deta
E. PROPERTY AND EQUIPMENT (Details) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Total property and equipment | $ 283,478 | $ 246,848 |
Accumulated depreciation | (139,571) | (105,281) |
Property and equipment, net | 143,907 | 141,567 |
Development test equipment [Member] | ||
Total property and equipment | 19,110 | 19,110 |
Computer software [Member] | ||
Total property and equipment | 76,134 | 55,677 |
Office equipment [Member] | ||
Total property and equipment | 36,904 | 20,731 |
Office Furniture and fixtures [Member] | ||
Total property and equipment | $ 151,330 | $ 151,330 |
E. PROPERTY AND EQUIPMENT (De40
E. PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Property, Plant and Equipment [Abstract] | ||
Depreciation expense | $ 34,289 | $ 29,223 |
F. ACCRUED LIABILITIES AND EX41
F. ACCRUED LIABILITIES AND EXPENSES (Details) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 |
Accrued liabilities and expenses | |||
Accrued liabilities and expenses | $ 218,629 | $ 186,762 | |
Accrued payroll and payroll taxes | 279,199 | 289,575 | |
Accrued sales taxes, penalties, and interest | 227,415 | 189,697 | |
Accrued interest | 253 | 291 | |
Product warranties | 49,149 | 28,702 | $ 23,500 |
Total accrued liabilities and expenses | $ 774,645 | $ 695,027 |
G. DEBT (Details Narrative)
G. DEBT (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Debt Instrument [Line Items] | ||
Payments on notes payable | $ 93,340 | $ 300,612 |
Line of credit balance | 1,062,129 | 901,771 |
Loan Agreement [Member] | Heritage Bank [Member] | ||
Debt Instrument [Line Items] | ||
Line of credit balance | 1,062,129 | $ 901,771 |
Line of credit remaining borrowing capacity | $ 107,000 | |
Warrant issued with credit line, common shares available to purchase | 250,000 | |
Warrant exercise price | $ 0.20 | |
Warrant expiration date | Sep. 30, 2018 | |
Wisconsin Department of Commerce [Member] | ||
Debt Instrument [Line Items] | ||
Long-term debt outstanding | $ 0 | $ 52,579 |
Promissory Note [Member] | ||
Debt Instrument [Line Items] | ||
Long-term debt outstanding | 0 | 40,761 |
Payments on notes payable | $ 20,000 | |
Kross Promissory Note [Member] | ||
Debt Instrument [Line Items] | ||
Long-term debt outstanding | $ 97,127 | |
Debt stated interest rate | 3.00% | |
Debt face amount | $ 161,075 | |
Debt payment terms | monthly | |
Debt periodic payment | $ 16,330 | |
Debt maturity date | Jun. 1, 2017 |
H. PREFERRED STOCK (Details Nar
H. PREFERRED STOCK (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2016 | |
Reclassification from temporary equity to permanent equity, value | $ 1,322,112 | |
Series A Preferred Stock [Member] | ||
Reclassification from temporary equity to permanent equity, value | 1,322,112 | |
Accrued dividends | 36,707 | $ 0 |
Cumulative accrued dividends | 452,886 | 527,114 |
Liquidation preference | 1,377,886 | 1,452,114 |
Series B Preferred Stock [Member] | ||
Accrued dividends | 10,921 | 0 |
Cumulative accrued dividends | 119,055 | 133,435 |
Liquidation preference | $ 394,055 | $ 393,435 |
I. CAPITAL STOCK (Details Narra
I. CAPITAL STOCK (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Proceeds from exercise of warrants | $ 677,501 | $ 262,500 |
Stock issued for services, value | $ 72,000 | |
Directors [Member] | ||
Stock issued for services, shares | 392,700 | |
Stock issued for services, value | $ 72,000 | |
Warrant [Member] | ||
Warrants exercised, warrant shares | 5,211,542 | 2,019,236 |
Warrants exercised, common shares issued | 5,211,452 | 2,019,236 |
Proceeds from exercise of warrants | $ 677,501 | $ 262,500 |
Common Stock [Member] | ||
Stock converted, shares issued | 115,385 | |
Series B Preferred Stock [Member] | ||
Stock converted, shares converted | 3 |
J. STOCK OPTIONS AND WARRANTS45
J. STOCK OPTIONS AND WARRANTS (Details-Options Outstanding and Exercisable) - Employee Stock Options [Member] - $ / shares | 12 Months Ended | ||
Dec. 31, 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 | 2,832,725 | 1,930,225 | |
Options Outstanding Weighted Average Remaining Contractual Life (Years) | 3 years 10 months 6 days | ||
Options Outstanding Weighted Average Exercise Price | $ .18 | $ .28 | $ .40 |
Options Exercisable Number Exercisable | 2,505,821 | ||
Options Exercisable Weighted Average Exercise Price | $ .18 | ||
$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) | 9 months 22 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 - $1.00 [Member] | |||
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items] | |||
Options Outstanding Number Outstanding | 2,657,725 | ||
Options Outstanding Weighted Average Remaining Contractual Life (Years) | 4 years 18 days | ||
Options Outstanding Weighted Average Exercise Price | $ 0.18 | ||
Options Exercisable Number Exercisable | 2,305,821 | ||
Options Exercisable Weighted Average Exercise Price | $ 0.18 |
J. STOCK OPTIONS AND WARRANTS46
J. STOCK OPTIONS AND WARRANTS (Details-Option Activity) - Employee Stock Options [Member] - $ / shares | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Number of shares | ||
Number of shares - beginning balance | 1,930,225 | |
Number of shares - granted | 1,300,000 | 50,000 |
Number of shares - exercised | ||
Number of shares - cancelled or expired | (292,500) | (155,000) |
Number of shares - ending balance | 2,832,725 | |
Weighted Average Price Per Share | ||
Weighted average price per share - beginning balance | $ .28 | $ .40 |
Weighted average price per share - granted | .17 | .18 |
Weighted average price per share - exercised | ||
Weighted average price per share - cancelled or expired | .69 | 1.81 |
Weighted average price per share - ending balance | $ .18 | $ .28 |
J. STOCK OPTIONS AND WARRANTS47
J. STOCK OPTIONS AND WARRANTS (Details-Assumptions) - Employee Stock Options [Member] | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Expected life of option (years) | 3 years | 10 years |
Risk-free interest rate | 0.96% | 1.28% |
Assumed volatility | 0.83% | 135.00% |
Expected dividend rate | 0.00% | 0.00% |
Expected forfeiture rate | 25.00% | 32.00% |
J. STOCK OPTIONS AND WARRANTS48
J. STOCK OPTIONS AND WARRANTS (Details-Warrants Outstanding and Exercisable) - Warrant [Member] - $ / shares | 12 Months Ended | ||
Dec. 31, 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 1 month 17 days | ||
Weighted Average Exercise Price | $ 0.20 | $ .20 | $ .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) | 10 months 24 days | ||
Weighted Average Exercise Price | $ .20 | ||
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) | 4 years 9 months 7 days | ||
Weighted Average Exercise Price | $ .20 | ||
Warrants Exercisable, Number Exercisable | 250,000 | ||
Warrants Exercisable, Weighted Average Exercise Price | $ .20 |
J. STOCK OPTIONS AND WARRANTS49
J. STOCK OPTIONS AND WARRANTS (Details-Warrant Activity) - Warrant [Member] - $ / shares | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Number of shares - beginning balance | 5,638,410 | 7,915,533 |
Number of shares - issued | 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 | $ .20 | $ .27 |
Weighted average price per share - issued | ||
Weighted average price per share - exercised | 0.13 | .13 |
Weighted average price per share - cancelled or expired | 3 | 3 |
Weighted average price per share - ending balance | $ 0.20 | $ .20 |
J. STOCK OPTIONS AND WARRANTS50
J. STOCK OPTIONS AND WARRANTS (Details Narrative) - USD ($) | 12 Months Ended | ||
Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Stock-based compensation expense with options granted | $ 55,050 | $ 14,383 | |
Employee Stock Options [Member] | |||
Fair value of options granted | 99,742 | 8,481 | |
Fair value of options vested | 160,923 | 14,383 | |
Future compensation expense related to non-vested options | $ 34,310 | ||
Compensation expense amortization period | 4 years 6 months | ||
Aggregate intrinsic value of vested options | $ 0 | ||
Stock-based compensation expense with options granted | $ 55,050 | $ 14,383 | |
Options issued | 1,300,000 | 50,000 | |
Options outstanding | 2,832,725 | 1,930,225 | |
Shares authorized under the plan | 10,000,000 | ||
Shares available for issuance | 4,725,053 |
K. RELATED PARTY TRANSACTIONS (
K. RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Due to related parties | $ 97,127 | $ 0 |
Payments on notes payable | 93,340 | 300,612 |
Kross Promissory Note [Member] | ||
Long-term debt outstanding | $ 97,127 | |
Debt stated interest rate | 3.00% | |
Debt face amount | $ 161,075 | |
Debt payment terms | monthly | |
Debt periodic payment | $ 16,330 | |
Debt maturity date | Jun. 1, 2017 | |
Davis [Member] | ||
Due to related parties | $ 0 | 11,994 |
Tienor [Member] | ||
Due to related parties | 0 | $ 11,994 |
Non-employee Directors [Member] | ||
Stock issued for compensation, value | $ 72,000 | |
Kross [Member] | ||
Options granted | 100,000 | |
Blatt [Member] | ||
Options granted | 100,000 | |
Byrnes [Member] | ||
Options granted | 100,000 |
L. INCOME TAXES (Details-Reconc
L. INCOME TAXES (Details-Reconciliation) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Income Tax Disclosure [Abstract] | ||
Tax provision (benefit) computed at the statutory rate | $ (1,304,289) | $ (1,092,230) |
State taxes | (26,981) | 12,921 |
Book expenses not deductible for tax purposes | 16,380 | 18,960 |
Expired capital losses | 0 | 110,291 |
Other | 2,747 | (14,272) |
Total adjustments to tax provision | (1,312,143) | (964,330) |
Change in valuation allowance for deferred tax assets | 1,332,257 | 961,116 |
Income tax expense | $ 20,114 | $ (3,214) |
L. INCOME TAXES (Details-Deferr
L. INCOME TAXES (Details-Deferred Taxes) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Deferred Tax Assets: | ||
Net operating loss carry forwards | $ 34,458,920 | $ 32,979,306 |
Intangibles | 781,920 | 908,461 |
Other | 580,125 | 534,646 |
Total deferred tax assets | 35,820,965 | 34,422,413 |
Deferred Tax Liabilities: | ||
Intangibles | (933,433) | (734,047) |
Total deferred tax liabilities | (933,433) | (734,047) |
Valuation allowance | (35,820,965) | (34,422,413) |
Net deferred tax liabilities | $ (933,433) | $ (734,047) |
L. INCOME TAXES (Details Narrat
L. INCOME TAXES (Details Narrative) | 12 Months Ended |
Dec. 31, 2016USD ($) | |
Decrease in tax valuation allowance | $ (80,000) |
Operating loss expiration dates | 2017-2036 |
Federal [Member] | |
Operating loss carryforward | $ 97,200,000 |
State Jurisdiction [Member] | |
Operating loss carryforward | 51,100,000 |
Operating loss carrforward expired during the year | $ 900,000 |
M. COMMITMENTS AND CONTINGENC55
M. COMMITMENTS AND CONTINGENCIES (Details-Lease Commitments) | Dec. 31, 2016USD ($) |
Commitments and Contingencies Disclosure [Abstract] | |
2,017 | $ 80,604 |
2,018 | 79,065 |
2,019 | 80,646 |
2,020 | 82,259 |
2,021 | 34,880 |
Total | $ 357,454 |
M. COMMITMENTS AND CONTINGENC56
M. COMMITMENTS AND CONTINGENCIES (Details-Sales Tax Accrual) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Change in the sales tax accrual | ||
Balance, Beginning of year | $ 189,697 | $ 35,951 |
Sales tax collected | 310,823 | 175,044 |
Provisions | 151,000 | 164,593 |
Payments | (424,105) | (185,891) |
Balance, End of year | $ 227,415 | $ 189,697 |
M. COMMITMENTS AND CONTINGENC57
M. COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Commitments and Contingencies Disclosure [Abstract] | ||
Rental expenses | $ 169,807 | $ 206,307 |
Rental income received | 0 | 0 |
Sales tax accrual | $ 227,000 | $ 190,000 |
N. BUSINESS CONCENTRATION (Deta
N. BUSINESS CONCENTRATION (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Supplier Concentration Risk [Member] | ||
Concentration percentage | 62.00% | 70.00% |
Purchases from major suppliers | $ 2,235,000 | $ 2,117,000 |
Due to suppliers | $ 45,037 | $ 437,520 |
Accounts Receivable [Member] | Two Customers [Member] | ||
Concentration percentage | 24.00% | 20.00% |
O. EMPLOYEE BENEFIT PLAN (Deta
O. EMPLOYEE BENEFIT PLAN (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Disclosure Text Block Supplement [Abstract] | ||
Company contributions | $ 172,000 | $ 153,000 |
P. DISCONTINUED OPERATIONS (Det
P. DISCONTINUED OPERATIONS (Details - Balance Sheet) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Current liabilities held for sale | $ 1,020,540 | $ 851,273 |
Long-term liabilities held for sale | 0 | 76,096 |
Segment Discontinued Operations [Member] | ||
Cash and cash equivalents | 106,743 | 271,446 |
Accounts receivable, net | 456,478 | 315,278 |
Inventories | 350,506 | 159,559 |
Other current assets | 12,980 | 11,281 |
Other asset - goodwill | 5,796,430 | 0 |
Other asset – intangible asset, net | 533,577 | 0 |
Current assets held for sale | 7,256,714 | 757,564 |
Property and equipment, net | 0 | 437 |
Goodwill | 0 | 5,796,430 |
Intangible asset, net | 0 | 775,257 |
Deposits | 0 | 10,130 |
Long-term assets held for sale | 0 | 6,582,254 |
Accounts payable | 465,346 | 339,918 |
Accrued liabilities and expenses | 241,123 | 187,015 |
Deferred revenues | 37,509 | 48,161 |
Customer deposits | 200,466 | 263,384 |
Deferred lease liability | 76,096 | 12,795 |
Current liabilities held for sale | 1,020,540 | 851,273 |
Deferred lease liability | 0 | 76,096 |
Long-term liabilities held for sale | 0 | 76,096 |
Net assets of discontinued operations | $ 6,236,174 | $ 6,412,449 |
P. DISCONTINUED OPERATIONS (D61
P. DISCONTINUED OPERATIONS (Details - Income Statement) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Income from Discontinued Operations (net of tax) | $ 2,627,758 | $ 2,859,788 |
Segment Discontinued Operations [Member] | ||
Product | 3,529,012 | 3,666,201 |
Recurring | 3,894,998 | 3,890,108 |
Total Net Revenues | 7,424,010 | 7,556,309 |
Product | 2,235,641 | 2,134,547 |
Recurring | 925,212 | 858,704 |
Total Cost of Sales | 3,160,853 | 2,993,251 |
Gross Profit | 4,263,157 | 4,563,058 |
Research and development | 2,511 | 0 |
Selling, general and administrative | 1,191,385 | 1,258,700 |
Depreciation and amortization | 242,117 | 244,284 |
Total Operating Expenses | 1,436,013 | 1,502,984 |
Income from Discontinued Operations before Provision for Income Taxes | 2,827,144 | 3,060,074 |
Provision for Income Taxes | 199,386 | 200,286 |
Income from Discontinued Operations (net of tax) | $ 2,627,758 | $ 2,859,788 |