Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2017 | Apr. 30, 2017 | |
Document And Entity Information | ||
Entity Registrant Name | TELKONET INC | |
Entity Central Index Key | 1,094,084 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 133,015,191 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2,017 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($) | Mar. 31, 2017 | Dec. 31, 2016 |
Current assets: | ||
Cash and cash equivalents | $ 10,704,999 | $ 791,858 |
Restricted cash on deposit | 900,000 | 0 |
Accounts receivable, net | 1,709,468 | 1,403,772 |
Inventories | 688,718 | 777,202 |
Prepaid expenses and other current assets | 377,182 | 205,328 |
Current assets of discontinued operations | 0 | 7,149,971 |
Total current assets | 14,380,367 | 10,328,131 |
Property and equipment, net | 133,998 | 143,907 |
Other assets: | ||
Deposits | 10,130 | 0 |
Total other assets | 10,130 | 0 |
Total Assets | 14,524,495 | 10,472,038 |
Current liabilities: | ||
Accounts payable | 1,396,481 | 765,617 |
Accrued liabilities and expenses | 997,598 | 925,581 |
Related party payable | 48,745 | 97,127 |
Line of credit | 0 | 1,062,129 |
Deferred revenues - current | 207,734 | 184,793 |
Deferred lease liability - current | 4,330 | 3,942 |
Customer deposits | 226,623 | 165,830 |
Income taxes payable | 139,884 | 0 |
Deferred income taxes - current | 0 | 933,433 |
Current liabilities of discontinued operations | 0 | 869,604 |
Total current liabilities | 3,021,395 | 5,008,056 |
Long-term liabilities: | ||
Deferred revenue - long term | 147,793 | 120,421 |
Deferred lease liability - long term | 22,386 | 23,761 |
Total long-term liabilities | 170,179 | 144,182 |
Stockholders' Equity | ||
Common stock, par value $.001 per share; 190,000,000 shares authorized; 133,015,191 and 132,774,475 shares issued and outstanding at March 31, 2017 and December 31, 2016 , respectively | 133,015 | 132,774 |
Additional paid-in-capital | 127,305,880 | 126,955,435 |
Accumulated deficit | (117,808,599) | (123,471,034) |
Total stockholders' equity | 11,332,921 | 5,319,800 |
Total Liabilities and Stockholders' Equity | 14,524,495 | 10,472,038 |
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 | $ 362,059 |
CONDENSED CONSOLIDATED BALANCE3
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | Mar. 31, 2017 | Dec. 31, 2016 |
Preferred stock, shares authorized | 15,000,000 | 15,000,000 |
Preferred stock, par value | $ .001 | $ .001 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 190,000,000 | 190,000,000 |
Common stock, shares outstanding | 133,015,191 | 132,774,475 |
Common stock, shares issued | 133,015,191 | 132,774,475 |
Series A Preferred Stock [Member] | ||
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares issued | 215 | 215 |
Preferred stock, shares outstanding | 185 | 185 |
Preferred stock, liquidiation preference | $ 1,470,369 | $ 1,452,114 |
Series B Preferred Stock [Member] | ||
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares issued | 538 | 538 |
Preferred stock, shares outstanding | 52 | 52 |
Preferred stock, liquidiation preference | $ 398,570 | $ 393,435 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Revenues, net: | ||
Product | $ 1,810,385 | $ 2,830,040 |
Recurring | 102,842 | 110,020 |
Total Net Revenue | 1,913,227 | 2,940,060 |
Cost of Sales: | ||
Product | 1,008,045 | 1,306,247 |
Recurring | 30,018 | 31,032 |
Total Cost of Sales | 1,038,063 | 1,337,279 |
Gross Profit | 875,164 | 1,602,781 |
Operating Expenses: | ||
Research and development | 378,456 | 426,814 |
Selling, general and administrative | 1,769,693 | 1,641,819 |
Depreciation and amortization | 9,909 | 7,977 |
Total Operating Expenses | 2,158,058 | 2,076,610 |
Operating loss | (1,282,894) | (473,829) |
Other (Expenses) Income: | ||
Interest (expense), net | (10,353) | (16,196) |
Total Other (Expenses) | (10,353) | (16,196) |
Loss from Continuing Operations Before Provision for Income Taxes | (1,293,247) | (490,025) |
Provision for Income Taxes | 991 | 625 |
Net Loss from Continuing Operations | (1,294,238) | (490,650) |
Discontinued Operations: | ||
Gain from sale of discontinued operations (net of tax) | 6,384,871 | 0 |
Income from discontinued operations (net of tax) | 571,802 | 610,772 |
Net Income attributable to common stockholders | $ 5,662,435 | $ 120,122 |
Net income (loss) per common share: | ||
Basic - continuing operations | $ (.01) | $ 0 |
Basic - discontinued operations | .05 | 0 |
Basic - net income attributable to common stockholders | .04 | 0 |
Diluted - continuing operations | (.01) | 0 |
Diluted - discontinued operations | .05 | 0 |
Net income attributable to common stockholders | $ .04 | $ 0 |
Weighted Average Common Shares Outstanding used in computing basic net loss per share | 132,774,475 | 127,054,848 |
Weighted Average Common Shares Outstanding used in computing diluted net loss per share | 133,520,471 | 129,335,871 |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) - 3 months ended Mar. 31, 2017 - USD ($) | Series A Preferred Stock | Series B Preferred Stock | Common Stock | Additional Paid-In Capital [Member] | Accumulated Deficit [Member] | Total |
Beginning Balance, Shares at Dec. 31, 2016 | 185 | 52 | 132,774,475 | |||
Beginning Balance, Amount at Dec. 31, 2016 | $ 1,340,566 | $ 362,059 | $ 132,774 | $ 126,955,435 | $ (123,471,034) | $ 5,319,800 |
Shares issued for director compensation, shares issued | 240,716 | |||||
Shares issued for director compensation, value | $ 241 | 35,759 | 36,000 | |||
Stock-based compensation expense related to employee stock options | 314,686 | 314,686 | ||||
Net income | 5,662,435 | 5,662,435 | ||||
Ending Balance, Shares at Mar. 31, 2017 | 185 | 52 | 133,015,191 | |||
Ending Balance, Amount at Mar. 31, 2017 | $ 1,340,566 | $ 362,059 | $ 133,015 | $ 127,305,880 | $ (117,808,599) | $ 11,332,921 |
CONDENSED CONSOLIDATED STATEME6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Cash Flows from Operating Activities: | ||
Net income | $ 5,662,435 | $ 120,122 |
Less: Net income from discontinued operations | (571,802) | (610,772) |
Gain on sale of discontinued operations | (6,384,871) | 0 |
Net loss from continuing operations | (1,294,238) | (490,650) |
Adjustments to reconcile net loss from operations to cash used in operating activities of continuing operations: | ||
Stock-based compensation expense | 314,686 | 3,751 |
Stock issued to directors as compensation | 36,000 | 0 |
Amortization of deferred financing costs | 0 | 4,737 |
Depreciation | 9,909 | 7,977 |
Provision for doubtful accounts, net of recoveries | 17,948 | 7,110 |
Changes in assets and liabilities: | ||
Accounts receivable | (323,644) | (316,963) |
Inventories | 88,484 | 175,669 |
Prepaid expenses and other current assets | (171,854) | (72,394) |
Deposits and other long term assets | (10,130) | 0 |
Accounts payable | 131,867 | (174,712) |
Accrued liabilities and expenses | (74,142) | 287,786 |
Deferred revenue | 50,313 | (30,871) |
Related party payable | (48,382) | 0 |
Customer deposits | 60,793 | (18,316) |
Income tax payable | 139,884 | 0 |
Deferred lease liability | (987) | (606) |
Net Cash Used In Operating Activities of Continuing Operations | (1,073,493) | (617,482) |
Net Cash Provided By Operating Activities of Discontinued Operations | 517,242 | 527,395 |
Net Cash Used In Operating Activities | (556,251) | (90,087) |
Cash Flows From Investing Activities: | ||
Purchase of property and equipment | 0 | (2,743) |
Net proceeds from sale of subsidiary | 12,431,521 | 0 |
Change in restricted cash | (900,000) | 0 |
Net Cash Provided by (Used In) Investing Activities of Continuing Operations | 11,531,521 | (2,743) |
Cash Flows From Financing Activities: | ||
Payments on notes payable | 0 | (53,594) |
Net (payments) proceeds on line of credit | (1,062,129) | 160,000 |
Net Cash (Used in) Provided By Financing Activities of Continuing Operations | (1,062,129) | 106,406 |
Net increase in cash and cash equivalents | 9,913,141 | 13,576 |
Cash and cash equivalents at the beginning of the period | 791,858 | 951,249 |
Cash and cash equivalents at the end of the period | 10,704,999 | 964,825 |
Cash transactions: | ||
Cash paid during the period for interest | 10,484 | 11,684 |
Cash paid during the period for income taxes, net of refunds | $ 0 | $ 6,975 |
A. BASIS OF PRESENTATION AND SI
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES | 3 Months Ended |
Mar. 31, 2017 | |
Accounting Policies [Abstract] | |
SUMMARY OF ACCOUNTING POLICIES | A summary of the significant accounting policies applied in the preparation of the accompanying condensed consolidated financial statements follows. General The accompanying unaudited condensed consolidated financial statements of Telkonet, Inc. (the “Company”, “Telkonet”) have been prepared in accordance with Rule S-X of the Securities and Exchange Commission (the “SEC”) and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. However, the results from operations for the three months ended March 31, 2017, are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated December 31, 2016 financial statements and footnotes thereto included in the Company's Form 10-K filed with the SEC. Business and Basis of Presentation Telkonet, formed in 1999 and incorporated under the laws of the state of Utah, is 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”). 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 while improving occupant comfort and convenience. 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 (“DCI”), a Delaware limited liability company, whereby DCI would acquire all of the assets and certain liabilities of EthoStream for a base purchase price of $12,750,000. The Purchase Agreement provided that proceeds of $900,000 were to be withheld from the $12,750,000 base 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. Another $93,000 is classified in other current assets as a net working capital receivable. The escrow amount, net of potential claims, will 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. The income from discontinued operations (net of tax) represents the activity of EthoStream from January 1, 2017 through the date of the sale on March 28, 2017. The gain from sale of discontinued operations (net of tax) represents the gain recognized from the EthoStream selling price that was in excess of the assets sold to DCI and liabilities assumed by DCI on March 28, 2017. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Telkonet Communications, Inc., and EthoStream. The current and prior period accounts of Ethostream have been classified as discontinued operations on the condensed consolidated balance sheet, the condensed consolidated statement of operations and the condensed consolidated statement of cash flows. All significant intercompany balances and transactions have been eliminated in consolidation. 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 $1,294,238 from continuing operations for the three months ended March 31, 2017, had cash used in operating activities from continuing operations of $1,073,493 and had an accumulated deficit of $117,808,599. 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, asset-based lending and the sale of assets. On March 29, 2017, an amendment to the revolving credit facility with Heritage Bank of Commerce, a California state chartered bank (“Heritage Bank”) was executed to amend certain terms of the Loan and Security Agreement (the “Heritage Bank Loan Agreement”) following the sale of certain assets of the Company’s wholly-owned subsidiary, EthoStream. Heritage Bank amended the EBITDA compliance measurement. The outstanding balance of the revolving credit facility was zero as of March 31, 2017 and the remaining available borrowing capacity was approximately $1,071,000. As of March 31, 2017, the Company was in compliance with all financial covenants. On March 28, 2017, the Company and EthoStream, entered into the Purchase Agreement with DCI whereby DCI acquired all of the assets and certain liabilities of EthoStream for a base 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 for the remainder of 2017 remains strong due to the net proceeds received from the sale of EthoStream. Restricted Cash on Deposit The restricted cash on deposit of $900,000 as of March 31, 2017, reflects amounts placed into an escrow account to support potential indemnification obligations of $800,000 and net working capital adjustments of $100,000 associated with the sale of the Company’s wholly-owned subsidiary, EthoStream. The escrow amount, net of potential claims, would be fully released after an escrow period not to exceed 12 months after closing. 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 three months ended March 31, 2017 and 2016, there were 6,132,725 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) requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates are used when accounting for items and matters such as revenue recognition and allowances for uncollectible accounts receivable, inventory obsolescence, depreciation and amortization, long-lived assets, 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 March 31, 2018. Revenue recognized that has not yet been billed to a customer results in an asset as of the end of the period. As of March 31, 2017 and December 31, 2016, there was $130,923 and $193,400 recorded within accounts receivable, respectively, related to revenue recognized that has not yet been billed. Guarantees and Product Warranties The Company records a liability for potential warranty claims in cost of sales at the time of sale. The amount of the liability is based on the trend in the historical ratio of claims to sales, the historical length of time between the sale and resulting warranty claim, new product introductions and other factors. The products sold are generally covered by a warranty for a period of one year. In the event the Company determines that its current or future product repair and replacement costs exceed its estimates, an adjustment to these reserves would be charged to earnings in the period such determination is made. For the three months ended March 31, 2017 and the year ended December 31, 2016, the Company experienced returns of approximately 1% to 2% of materials included in the cost of sales. As of March 31, 2017 and December 31, 2016, the Company recorded warranty liabilities in the amount of $93,226 and $95,540, respectively, using this experience factor range. Product warranties for the three months ended March 31, 2017 and the year ended December 31, 2016 are as follows: March 31, December 31, Beginning balance $ 95,540 $ 66,555 Warranty claims incurred (18,914 ) (115,120 ) Provision charged to expense 16,600 144,105 Ending balance $ 93,226 $ 95,540 Reclassifications Certain amounts on the condensed consolidated balance sheets as of December 31, 2016 and statements of cash flows have been reclassified to conform to the current year presentation. The Company reclassified $106,743 from current assets of discontinued operations to cash and cash equivalents for certain EthoStream assets not sold to DCI on March 28, 2017. The Company reclassified $150,936 from current liabilities of discontinued operations to accrued liabilities and expenses for certain EthoStream liabilities not assumed by DCI on March 28, 2017. The reclassifications were not material and had no effect on the Company’s total current assets, current liabilities or stockholders’ equity as of December 31, 2016. |
B. NEW ACCOUNTING PRONOUNCEMENT
B. NEW ACCOUNTING PRONOUNCEMENTS | 3 Months Ended |
Mar. 31, 2017 | |
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 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. |
D. ACCOUNTS RECEIVABLE
D. ACCOUNTS RECEIVABLE | 3 Months Ended |
Mar. 31, 2017 | |
Receivables [Abstract] | |
ACCOUNTS RECEIVABLE | Components of accounts receivable as of March 31, 2017 and December 31, 2016 are as follows: March 31, December 31, Accounts receivable $ 1,723,641 $ 1,438,345 Allowance for doubtful accounts (14,173 ) (34,573 ) Accounts receivable, net $ 1,709,468 $ 1,403,772 |
D. ACCRUED LIABILITIES AND EXPE
D. ACCRUED LIABILITIES AND EXPENSES | 3 Months Ended |
Mar. 31, 2017 | |
Payables and Accruals [Abstract] | |
ACCRUED LIABILITIES AND EXPENSES | Accrued liabilities and expenses at March 31, 2017 and December 31, 2016 are as follows : March 31, December 31, Accrued liabilities and expenses $ 371,910 $ 223,011 Accrued payroll and payroll taxes 402,455 331,908 Accrued sales taxes, penalties, and interest 129,885 274,869 Accrued interest 122 253 Product warranties 93,226 95,540 Total accrued liabilities and expenses $ 997,598 $ 925,581 |
E. DEBT
E. DEBT | 3 Months Ended |
Mar. 31, 2017 | |
Debt Disclosure [Abstract] | |
DEBT | 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 March 31, 2017 and December 31, 2016 was $48,745 and $97,127, respectively. Revolving Credit Facility On September 30, 2014, the Company and its wholly-owned subsidiary, EthoStream, as co-borrowers (collectively, the “Borrowers”), entered into a loan and security agreement (the “Heritage Bank Loan Agreement”), with Heritage Bank of Commerce, a California state chartered bank (“Heritage Bank”), governing a new revolving credit facility in a principal amount not to exceed $2,000,000 (the “Credit Facility”). Availability of borrowings under the Credit Facility from time to time is subject to a borrowing base calculation based on the Company’s eligible accounts receivable and eligible inventory each multiplied by an applicable advance rate, with an overall limitation tied to the Company’s eligible accounts receivable. The Heritage Bank Loan Agreement is available for working capital and other general business purposes. The outstanding principal balance of the Credit Facility bears interest at the Prime Rate plus 3.00%, which was 7.00% at March 31, 2017 and 6.75% at December 31, 2016. 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 March 31, 2017, the Company was in compliance with all financial covenants. The outstanding balance on the Credit Facility was zero and $1,062,129 at March 31, 2017 and December 31, 2016, respectively. The remaining available borrowing capacity was approximately $1,071,000 and $107,000 at March 31, 2017 and December 31, 2016, respectively. On March 28, 2017, the Company and the Company’s wholly-owned subsidiary, EthoStream, 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. Heritage Bank had 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. On March 29, 2017 an amendment to the Credit Facility was executed amending the quarterly and year to date EBITDA compliance measurements for 2017. |
F. PREFERRED STOCK
F. PREFERRED STOCK | 3 Months Ended |
Mar. 31, 2017 | |
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 the Company’s common stock at a conversion price of $0.363 per share. 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. In prior years, 30 of the preferred shares issued on November 16, 2009 were converted to shares of the Company’s common stock. In a prior year, the redemption feature available to the Series A holders expired. 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. 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 on August 4, 2010. 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 on April 8, 2011. In prior years, 486 of the preferred shares issued on August 4, 2010 and April 8, 2011 were converted to shares of the Company’s common stock. In a prior year, the redemption feature available to the Series B holders expired. 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 March 31, 2017, the liquidation preference of the preferred stock is based on the following order: first, Series B with a preference value of $398,570, which includes cumulative accrued unpaid dividends of $138,570, and second, Series A with a preference value of $1,470,367, which includes cumulative accrued unpaid dividends of $545,367. 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. |
G. CAPITAL STOCK
G. CAPITAL STOCK | 3 Months Ended |
Mar. 31, 2017 | |
Equity [Abstract] | |
CAPITAL STOCK | The Company has authorized 15,000,000 shares of preferred stock (designated and undesignated), with a par value of $.001 per share. The Company has designated 215 shares as Series A preferred stock and 538 shares as Series B preferred stock. As of March 31, 2017 and December 31, 2016, there were 185 shares of Series A and 52 shares of Series B outstanding. The Company has authorized 190,000,000 shares of common stock with a par value of $.001 per share. As of March 31, 2017 and December 31, 2016 the Company had 133,015,191 and 132,774,475 common shares issued and outstanding. |
H. STOCK OPTIONS AND WARRANTS
H. STOCK OPTIONS AND WARRANTS | 3 Months Ended |
Mar. 31, 2017 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
STOCK OPTIONS AND WARRANTS | Employee Stock Options The Company maintains an equity incentive plan, (the “Plan”). The Plan was established in 2010 as an incentive plan for officers, employees, non-employee directors, prospective employees and other key persons. It is anticipated that providing such persons with a direct stake in the Company’s welfare will assure a better alignment of their interests with those of the Company and its stockholders. The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to employees of the Company under the Plan as of March 31, 2017. Options Outstanding Options Exercisable Exercise Prices Number Weighted Average Weighted Average Number Weighted Average $ 0.01 - $0.15 3,175,000 9.25 $ 0.14 3,175,000 $ 0.14 $ 0.16 - $0.99 2,657,725 3.82 0.18 2,657,725 0.18 5,832,725 6.78 $ 0.16 5,832,725 $ 0.16 Transactions involving stock options issued to employees are summarized as follows: Number of Weighted Average Outstanding at January 1, 2016 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 Granted 3,000,000 0.14 Exercised – – Cancelled or expired – – Outstanding at March 31, 2017 5,832,725 $ 0.16 The expected life of awards granted represents the period of time that they are expected to be outstanding. The Company determines the expected life based on historical experience with similar awards, giving consideration to the contractual terms, vesting schedules, exercise patterns and pre-vesting and post-vesting forfeitures. The Company estimates the volatility of the Company’s common stock based on the calculated historical volatility of the Company’s own common stock using the trailing 24 months of share price data prior to the date of the award. The Company bases the risk-free interest rate used in the Black-Scholes option valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award. The Company has not paid any cash dividends on the Company’s common stock and does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of zero in the Black-Scholes option valuation model. The Company uses historical data to estimate pre-vesting option forfeitures and record share-based compensation for those awards that are expected to vest. In accordance with ASC 718-10, the Company adjusts share-based compensation for changes to the estimate of expected equity award forfeitures based on actual forfeiture experience. There were 3,000,000 and zero options granted and zero options exercised during the three months ended March 31, 2017 and 2016, respectively. Total stock-based compensation expense in connection with options granted to employees recognized in the condensed consolidated statements of operations for the three months ended March 31, 2017 and 2016 was $314,686 and $3,751, respectively. Warrants The following table summarizes the changes in warrants outstanding and the related prices for the shares of the Company’s common stock issued to non-employees of the Company. Warrants Outstanding Warrants Exercisable Exercise Prices Number Outstanding Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Number Exercisable Weighted Average Exercise Price $ 0.18 50,000 0.65 $ 0.18 50,000 $ 0.18 0.20 250,000 4.52 0.20 250,000 0.20 300,000 3.88 $ 0.20 300,000 $ 0.20 Transactions involving warrants are summarized as follows: Number of Weighted Average Outstanding at January 1, 2016 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 Issued – – Exercised – – Cancelled or expired – – Outstanding at March 31, 2017 300,000 $ 0.20 There were no warrants granted, exercised, cancelled or forfeited during the three months ended March 31, 2017 and 2016, respectively. |
I. RELATED PARTY TRANSACTIONS
I. RELATED PARTY TRANSACTIONS | 3 Months Ended |
Mar. 31, 2017 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | 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 March 31, 2017 and December 31, 2016 was $48,745 and $97,127, respectively. During the three months ended March 31, 2017 and during the year ended December 31, 2016, the Company agreed to issue common stock in the amount of $36,000 and $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 granted 100,000 stock options pursuant to 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. Upon execution of their employment agreements during the three months ended March 31, 2017, each Messrs. Tienor, Sobieski and Koch, was granted 1,000,000 stock options at their fair market value and were scheduled to vest over a three year period. However, pursuant to their employment agreements, the stock options vested immediately upon the sale of the Company’s subsidiary, EthoStream, in March 2017. During the three months ended March 31, 2017, Messrs. Tienor, Sobieski and Koch, were earned a bonus of $29,250 resulting from the sale of the Company’s subsidiary, EthoStream, in March 2017. From time to time the Company may receive advances from certain of its officers in the form of salary deferment or cash advances to meet short term working capital needs. These advances may not have formal repayment terms or arrangements. As of March 31, 2017 and December 31, 2016, there were no such arrangements. |
J. COMMITMENTS AND CONTINGENCIE
J. COMMITMENTS AND CONTINGENCIES | 3 Months Ended |
Mar. 31, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | Office Lease Obligations In October 2013, the Company entered into a lease agreement for 6,362 square feet of commercial office space in Waukesha, Wisconsin for its corporate headquarters. The Waukesha lease expires in April 2021, but was subsequently amended through April 2026 as described in Note M. 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 March 31, 2017 are as follows: 2017 (remainder of) $ 89,131 2018 82,155 2019 80,646 2020 82,259 2021 34,880 Total $ 369,071 Rental expenses charged to continuing operations for the three months ended March 31, 2017 and 2016 was $34,020 and $39,571, respectively. Litigation The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity. Sales Tax During 2012, the Company engaged a sales tax consultant to assist in determining the extent of its potential sales tax exposure. Based upon this analysis, management determined the Company had probable exposure for certain unpaid obligations, including interest and penalty, of approximately $1,100,000 including and prior to the year ended December 31, 2011. The Company has approximately $130,000 and $275,000 accrued as of March 31, 2017 and December 31, 2016, respectively. The Company continues to manage the liability by establishing voluntary disclosure agreements (VDAs) with the applicable states, which establishes a maximum look-back period and payment arrangements. However, if the aforementioned methods prove unsuccessful and the Company is examined or challenged by taxing authorities, there exists possible exposure of an additional $20,000, not including any applicable interest and penalties. During the year ended December 31, 2016, the State of Wisconsin performed a sales and use tax audit covering the period from January 1, 2012 through December 31, 2015. The audit resulted in approximately $120,000 in additional use tax and interest. The Company appropriately accrued and expensed this amount in the consolidated balance sheet and the consolidated statement of operations for the year ended December 31, 2016. The balance remaining as of March 31, 2017 is approximately $45,000. Prior to 2017, the Company successfully executed and paid in full VDAs in thirty six states totaling approximately $765,000 and is current with the subsequent filing requirements. The following table sets forth the change in the sales tax accrual as of March 31, 2017 and December 31, 2016: March 31, 2017 December 31, 2016 Balance, beginning of year $ 274,869 $ 229,768 Sales tax collected 89,896 452,016 Provisions – 151,000 Interest and penalties – (3,017 ) Payments (234,880 ) (554,898 ) Balance, end of period $ 129,885 $ 274,869 |
K. BUSINESS CONCENTRATION
K. BUSINESS CONCENTRATION | 3 Months Ended |
Mar. 31, 2017 | |
Risks and Uncertainties [Abstract] | |
BUSINESS CONCENTRATION | For the three months ended March 31, 2017, one customer represented approximately 11% of total net revenues. For the three months ended March 31, 2016, one customer represented approximately 17% of total net revenues. As of March 31, 2017, two customers accounted for approximately 24% of the Company’s net accounts receivable. As of December 31, 2016, two customers accounted for approximately 24% of the Company’s net accounts receivable. Purchases from one supplier approximated $595,000, or 68%, of purchases for the three months ended March 31, 2017 and $413,000, or 52%, of purchases for the three months ended March 31, 2016. Total due to this supplier, net of deposits, was approximately $32,697 as of March 31, 2017, and $45,037 as of December 31, 2016. |
L. DISCONTINUED OPERATIONS
L. DISCONTINUED OPERATIONS | 3 Months Ended |
Mar. 31, 2017 | |
Discontinued Operations and Disposal Groups [Abstract] | |
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, the Company’s wholly–owned High-Speed Internet Access (“HSIA”) subsidiary. As a result of this decision to sell EthoStream, the operating results of EthoStream as of and for the year ended December 31, 2016 were reclassified as discontinued operations and as assets and liabilities held for sale in the consolidated financial statements as detailed in the table below. During the three months ended March 31, 2017, the Company, and EthoStream, entered into an Asset Purchase Agreement (the “Purchase Agreement”) with DCI-Design Communications LLC (“DCI”), a Delaware limited liability company, whereby DCI acquired all of the assets and certain liabilities of EthoStream for a base purchase price of $12,750,000. The Purchase Agreement includes that proceeds of $900,000 are to be withheld from the $12,750,000 base 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. Another $93,000 is classified in other current assets as a net working capital receivable. 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. March 31, December 31, 2017 2016 Accounts receivable, net $ – $ 456,478 Inventories – 350,506 Other current assets – 12,980 Other asset – goodwill – 5,796,430 Other asset – intangible asset, net – 533,577 Current assets of discontinued operations – 7,149,971 Accounts payable – 465,346 Accrued liabilities and expenses – 90,187 Deferred revenues – 37,509 Customer deposits – 200,466 Deferred lease liability – 76,096 Current liabilities of discontinued operations – 869,604 Net assets of discontinued operations $ – $ 6,280,367 The following table summarizes the statements of operations information for discontinued operations. For the Three Months Ended March 31, 2017 2016 Revenues, net: Product $ 653,839 $ 716,643 Recurring 925,837 967,403 Total Net Revenues 1,579,676 1,684,046 Cost of Sales: Product 424,829 481,207 Recurring 209,179 247,003 Total Cost of Sales 634,008 728,210 Gross Profit 945,668 955,836 Operating Expenses: Selling, general and administrative 262,034 232,895 Depreciation and amortization 60,420 60,857 Total Operating Expenses 322,454 293,752 Income from Discontinued Operations before Provision for Income Taxes 623,214 662,084 Provision for Income Taxes 51,412 51,312 Income from Discontinued Operations (net of tax) $ 571,802 $ 610,772 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 periods ended March 31, 2017 and 2016. |
M. SUBSEQUENT EVENTS
M. SUBSEQUENT EVENTS | 3 Months Ended |
Mar. 31, 2017 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | On April 5, 2017, the Company assigned its’ right, title and interest as tenant to DCI-Design Communications, LLC, for its’ rented office space in Milwaukee, Wisconsin effective March 29, 2017. The Company shall at all times and under all circumstances remain liable for rent due and the performance of all other obligations under the lease term. The lease expires in March 2020. On April 7, 2017 the Company executed an amendment to its’ existing lease in Waukesha, Wisconsin to expand another 3,982 square feet, bringing the total leased space to 10,344 square feet. In addition, the lease term was extended from May 1, 2021 to April 30, 2026. Commencement date for this amendment is anticipated to begin July 1, 2017 or the day following the date of substantial completion of the renovations, whichever is later. From the commencement date to April 30, 2021, base rent will increase to approximately $10,516 per month from $6,470 per month. From May 1, 2021 to the end of the lease term, base rent will increase to approximately $12,284 per month. The total incremental minimum rental commitment under this lease amendment is approximately $814,000. Effective May 1, 2017, the Company entered into a commercial lease agreement. The 85 month lease, anticipated to begin May 1, 2017 or the day occupancy is delivered, whichever is later, provides for the Company to lease approximately 5,838 square feet of industrial space in Waukesha, Wisconsin. The initial base rent is approximately $1,500 per month escalating to approximately $3,400 in the seventh year. The total minimum rental commitment under this lease is anticipated to be approximately $213,000. |
A. BASIS OF PRESENTATION AND 20
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies) | 3 Months Ended |
Mar. 31, 2017 | |
Accounting Policies [Abstract] | |
Business and Basis of Presentation | Business and Basis of Presentation Telkonet, formed in 1999 and incorporated under the laws of the state of Utah, is 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”). 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 while improving occupant comfort and convenience. 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 (“DCI”), a Delaware limited liability company, whereby DCI would acquire all of the assets and certain liabilities of EthoStream for a base purchase price of $12,750,000. The Purchase Agreement provided that proceeds of $900,000 were to be withheld from the $12,750,000 base 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. Another $93,000 is classified in other current assets as a net working capital receivable. The escrow amount, net of potential claims, will 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. The income from discontinued operations (net of tax) represents the activity of EthoStream from January 1, 2017 through the date of the sale on March 28, 2017. The gain from sale of discontinued operations (net of tax) represents the gain recognized from the EthoStream selling price that was in excess of the assets sold to DCI and liabilities assumed by DCI on March 28, 2017. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Telkonet Communications, Inc., and EthoStream. The current and prior period accounts of Ethostream have been classified as discontinued operations on the condensed consolidated balance sheet, the condensed consolidated statement of operations and the condensed consolidated statement of cash flows. All significant intercompany balances and transactions have been eliminated in consolidation. 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 $1,294,238 from continuing operations for the three months ended March 31, 2017, had cash used in operating activities from continuing operations of $1,073,493 and had an accumulated deficit of $117,808,599. 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, asset-based lending and the sale of assets. On March 29, 2017, an amendment to the revolving credit facility with Heritage Bank of Commerce, a California state chartered bank (“Heritage Bank”) was executed to amend certain terms of the Loan and Security Agreement (the “Heritage Bank Loan Agreement”) following the sale of certain assets of the Company’s wholly-owned subsidiary, EthoStream. Heritage Bank amended the EBITDA compliance measurement. The outstanding balance of the revolving credit facility was zero as of March 31, 2017 and the remaining available borrowing capacity was approximately $1,071,000. As of March 31, 2017, the Company was in compliance with all financial covenants. On March 28, 2017, the Company and EthoStream, entered into the Purchase Agreement with DCI whereby DCI acquired all of the assets and certain liabilities of EthoStream for a base 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 for the remainder of 2017 remains strong due to the net proceeds received from the sale of EthoStream. |
Restricted Cash on Deposit | Restricted Cash on Deposit The restricted cash on deposit of $900,000 as of March 31, 2017, reflects amounts placed into an escrow account to support potential indemnification obligations of $800,000 and net working capital adjustments of $100,000 associated with the sale of the Company’s wholly-owned subsidiary, EthoStream. The escrow amount, net of potential claims, would be fully released after an escrow period not to exceed 12 months after closing. |
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 three months ended March 31, 2017 and 2016, there were 6,132,725 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) requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates are used when accounting for items and matters such as revenue recognition and allowances for uncollectible accounts receivable, inventory obsolescence, depreciation and amortization, long-lived assets, 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 March 31, 2018. Revenue recognized that has not yet been billed to a customer results in an asset as of the end of the period. As of March 31, 2017 and December 31, 2016, there was $130,923 and $193,400 recorded within accounts receivable, respectively, related to revenue recognized that has not yet been billed. |
Guarantees and Product Warranties | Guarantees and Product Warranties The Company records a liability for potential warranty claims in cost of sales at the time of sale. The amount of the liability is based on the trend in the historical ratio of claims to sales, the historical length of time between the sale and resulting warranty claim, new product introductions and other factors. The products sold are generally covered by a warranty for a period of one year. In the event the Company determines that its current or future product repair and replacement costs exceed its estimates, an adjustment to these reserves would be charged to earnings in the period such determination is made. For the three months ended March 31, 2017 and the year ended December 31, 2016, the Company experienced returns of approximately 1% to 2% of materials included in the cost of sales. As of March 31, 2017 and December 31, 2016, the Company recorded warranty liabilities in the amount of $93,226 and $95,540, respectively, using this experience factor range. Product warranties for the three months ended March 31, 2017 and the year ended December 31, 2016 are as follows: March 31, December 31, Beginning balance $ 95,540 $ 66,555 Warranty claims incurred (18,914 ) (115,120 ) Provision charged to expense 16,600 144,105 Ending balance $ 93,226 $ 95,540 |
Reclassifications | Reclassifications Certain amounts on the condensed consolidated balance sheets as of December 31, 2016 and statements of cash flows have been reclassified to conform to the current year presentation. The Company reclassified $106,743 from current assets of discontinued operations to cash and cash equivalents for certain EthoStream assets not sold to DCI on March 28, 2017. The Company reclassified $150,936 from current liabilities of discontinued operations to accrued liabilities and expenses for certain EthoStream liabilities not assumed by DCI on March 28, 2017. The reclassifications were not material and had no effect on the Company’s total current assets, current liabilities or stockholders’ equity as of December 31, 2016. |
A. BASIS OF PRESENTATION AND 21
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Accounting Policies [Abstract] | |
Product warranties | March 31, December 31, Beginning balance $ 95,540 $ 66,555 Warranty claims incurred (18,914 ) (115,120 ) Provision charged to expense 16,600 144,105 Ending balance $ 93,226 $ 95,540 |
C. ACCOUNTS RECEIVABLE (Tables)
C. ACCOUNTS RECEIVABLE (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Receivables [Abstract] | |
Accounts Receivable | March 31, December 31, Accounts receivable $ 1,723,641 $ 1,438,345 Allowance for doubtful accounts (14,173 ) (34,573 ) Accounts receivable, net $ 1,709,468 $ 1,403,772 |
D. ACCRUED LIABILITIES AND EX23
D. ACCRUED LIABILITIES AND EXPENSES (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Payables and Accruals [Abstract] | |
Accrued Liabilities and Expenses | March 31, December 31, Accrued liabilities and expenses $ 371,910 $ 223,011 Accrued payroll and payroll taxes 402,455 331,908 Accrued sales taxes, penalties, and interest 129,885 274,869 Accrued interest 122 253 Product warranties 93,226 95,540 Total accrued liabilities and expenses $ 997,598 $ 925,581 |
H. STOCK OPTIONS AND WARRANTS (
H. STOCK OPTIONS AND WARRANTS (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
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 3,175,000 9.25 $ 0.14 3,175,000 $ 0.14 $ 0.16 - $0.99 2,657,725 3.82 0.18 2,657,725 0.18 5,832,725 6.78 $ 0.16 5,832,725 $ 0.16 |
Option activity | Number of Weighted Average Outstanding at January 1, 2016 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 Granted 3,000,000 0.14 Exercised – – Cancelled or expired – – Outstanding at March 31, 2017 5,832,725 $ 0.16 |
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 0.65 $ 0.18 50,000 $ 0.18 0.20 250,000 4.52 0.20 250,000 0.20 300,000 3.88 $ 0.20 300,000 $ 0.20 |
Warrant activity | Number of Weighted Average Outstanding at January 1, 2016 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 Issued – – Exercised – – Cancelled or expired – – Outstanding at March 31, 2017 300,000 $ 0.20 |
J. COMMITMENTS AND CONTINGENC25
J. COMMITMENTS AND CONTINGENCIES (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
Office Lease Obligations | 2017 (remainder of) $ 89,131 2018 82,155 2019 80,646 2020 82,259 2021 34,880 Total $ 369,071 |
Sales tax accrual | March 31, 2017 December 31, 2016 Balance, beginning of year $ 274,869 $ 229,768 Sales tax collected 89,896 452,016 Provisions – 151,000 Interest and penalties – (3,017 ) Payments (234,880 ) (554,898 ) Balance, end of period $ 129,885 $ 274,869 |
L. DISCONTINUED OPERATIONS (Tab
L. DISCONTINUED OPERATIONS (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Schedule of discontinued operations activity | March 31, December 31, 2017 2016 Accounts receivable, net $ – $ 456,478 Inventories – 350,506 Other current assets – 12,980 Other asset – goodwill – 5,796,430 Other asset – intangible asset, net – 533,577 Current assets of discontinued operations – 7,149,971 Accounts payable – 465,346 Accrued liabilities and expenses – 90,187 Deferred revenues – 37,509 Customer deposits – 200,466 Deferred lease liability – 76,096 Current liabilities of discontinued operations – 869,604 Net assets of discontinued operations $ – $ 6,280,367 The following table summarizes the statements of operations information for discontinued operations. For the Three Months Ended March 31, 2017 2016 Revenues, net: Product $ 653,839 $ 716,643 Recurring 925,837 967,403 Total Net Revenues 1,579,676 1,684,046 Cost of Sales: Product 424,829 481,207 Recurring 209,179 247,003 Total Cost of Sales 634,008 728,210 Gross Profit 945,668 955,836 Operating Expenses: Selling, general and administrative 262,034 232,895 Depreciation and amortization 60,420 60,857 Total Operating Expenses 322,454 293,752 Income from Discontinued Operations before Provision for Income Taxes 623,214 662,084 Provision for Income Taxes 51,412 51,312 Income from Discontinued Operations (net of tax) $ 571,802 $ 610,772 |
A. BASIS OF PRESENTATION AND 27
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details-Product warranties) - USD ($) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2017 | Dec. 31, 2016 | |
Product warranties | ||
Beginning balance | $ 95,540 | $ 66,555 |
Warranty claims incurred | (18,914) | (115,120) |
Provision charged to expense | 16,600 | 144,105 |
Ending balance | $ 93,226 | $ 95,540 |
A. BASIS OF PRESENTATION AND 28
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 3 Months Ended | |||
Mar. 31, 2017 | Mar. 31, 2016 | Dec. 31, 2016 | Dec. 31, 2015 | |
Sale of subsidiary | $ 12,431,521 | $ 0 | ||
Proceeds in escrow account | 900,000 | |||
Net loss | (1,294,238) | (490,650) | ||
Cash used in operating activities | (1,073,493) | $ (617,482) | ||
Accumulated deficit | (117,808,599) | $ (123,471,034) | ||
Line of credit balance | 0 | 1,062,129 | ||
Line of credit remaining borrowing capacity | 1,071,000 | |||
Restricted cash on deposit | $ 900,000 | 0 | ||
Shares excluded from EPS calculation | 6,132,725 | 7,463,635 | ||
Accounts receivable | $ 1,709,468 | 1,403,772 | ||
Guarantees and product warranty return percentage | 1% to 2% | |||
Warranty liabilities | $ 93,226 | 95,540 | $ 66,555 | |
Segment Discontinued Operations [Member] | ||||
Cash and cash equivalents reclassified | 106,743 | |||
Accrued liabilities reclassified | 150,936 | |||
EthoStream [Member] | ||||
Sale of subsidiary | 12,750,000 | |||
Revenues not billed [Member] | ||||
Accounts receivable | $ 130,923 | $ 193,400 |
C. ACCOUNTS RECEIVABLE (Details
C. ACCOUNTS RECEIVABLE (Details) - USD ($) | Mar. 31, 2017 | Dec. 31, 2016 |
Components of accounts receivable | ||
Accounts receivable | $ 1,723,641 | $ 1,438,345 |
Allowance for doubtful accounts | (14,173) | (34,573) |
Accounts receivable, net | $ 1,709,468 | $ 1,403,772 |
D. ACCRUED LIABILITIES AND EX30
D. ACCRUED LIABILITIES AND EXPENSES (Details) - USD ($) | Mar. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 |
Accrued liabilities and expenses | |||
Accrued liabilities and expenses | $ 371,910 | $ 223,011 | |
Accrued payroll and payroll taxes | 402,455 | 331,908 | |
Accrued sales taxes, penalties, and interest | 129,885 | 274,869 | |
Accrued interest | 122 | 253 | |
Product warranties | 93,226 | 95,540 | $ 66,555 |
Total accrued liabilities and expenses | $ 997,598 | $ 925,581 |
E. DEBT (Details Narrative)
E. DEBT (Details Narrative) - USD ($) | 3 Months Ended | ||
Mar. 31, 2017 | Dec. 31, 2016 | Sep. 30, 2016 | |
Debt Instrument [Line Items] | |||
Line of credit balance | $ 0 | $ 1,062,129 | |
Line of credit remaining borrowing capacity | $ 1,071,000 | ||
Heritage Bank | Loan and Security Agreement [Member] | |||
Debt Instrument [Line Items] | |||
Line of credit issuance date | Sep. 30, 2014 | ||
Line of credit maximum borrowing capacity | $ 2,000,000 | ||
Line of credit interest rate description | Prime rate plus 3.00% | ||
Line of credit maturity date | Sep. 30, 2018 | ||
Line of credit balance | $ 0 | 1,062,129 | |
Line of credit remaining borrowing capacity | $ 1,071,000 | 107,000 | |
Effective interest rate | 7.00% | ||
Kross Promissory Note [Member] | Kross [Member] | |||
Debt Instrument [Line Items] | |||
Debt issuance date | Aug. 4, 2016 | ||
Debt face value | $ 161,075 | ||
Debt interest rate | 3.00% | ||
Debt maturity date | Jun. 1, 2017 | ||
Debt periodic frequency | monthly | ||
Debt periodic payment | $ 16,330 | ||
Note payable - related party | $ 48,745 | $ 97,127 | $ 97,127 |
F. PREFERRED STOCK (Details Nar
F. PREFERRED STOCK (Details Narrative) - USD ($) | Mar. 31, 2017 | Dec. 31, 2016 |
Series B Preferred Stock [Member] | ||
Cumulative accrued dividends | $ 138,570 | $ 133,435 |
Liquidation preference | 398,570 | 393,435 |
Series A Preferred Stock [Member] | ||
Cumulative accrued dividends | 545,367 | 527,114 |
Liquidation preference | $ 1,470,369 | $ 1,452,114 |
G. CAPITAL STOCK (Details Narra
G. CAPITAL STOCK (Details Narrative) - $ / shares | Mar. 31, 2017 | Dec. 31, 2016 |
Preferred stock, shares authorized | 15,000,000 | 15,000,000 |
Preferred stock, par value | $ .001 | $ .001 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 190,000,000 | 190,000,000 |
Common stock, shares outstanding | 133,015,191 | 132,774,475 |
Common stock, shares issued | 133,015,191 | 132,774,475 |
Series A Preferred Stock [Member] | ||
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares issued | 215 | 215 |
Preferred stock, shares outstanding | 185 | 185 |
Series B Preferred Stock [Member] | ||
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares issued | 538 | 538 |
Preferred stock, shares outstanding | 52 | 52 |
H. STOCK OPTIONS AND WARRANTS34
H. STOCK OPTIONS AND WARRANTS (Details-Options Outstanding and Exercisable) - Employee Stock Options [Member] - $ / shares | 3 Months Ended | ||
Mar. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items] | |||
Options Outstanding Number Outstanding | 5,832,725 | 2,832,725 | 1,825,225 |
Options Outstanding Weighted Average Remaining Contractual Life (Years) | 6 years 9 months 11 days | ||
Options Outstanding Weighted Average Exercise Price | $ .16 | $ .18 | $ .28 |
Options Exercisable Number Exercisable | 5,832,725 | ||
Options Exercisable Weighted Average Exercise Price | $ .16 | ||
$0.01 - $0.15 [Member] | |||
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items] | |||
Options Outstanding Number Outstanding | 3,175,000 | ||
Options Outstanding Weighted Average Remaining Contractual Life (Years) | 9 years 3 months | ||
Options Outstanding Weighted Average Exercise Price | $ 0.14 | ||
Options Exercisable Number Exercisable | 3,175,000 | ||
Options Exercisable Weighted Average Exercise Price | $ 0.14 | ||
$0.16 - $0.99 [Member] | |||
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items] | |||
Options Outstanding Number Outstanding | 2,657,725 | ||
Options Outstanding Weighted Average Remaining Contractual Life (Years) | 3 years 9 months 26 days | ||
Options Outstanding Weighted Average Exercise Price | $ 0.18 | ||
Options Exercisable Number Exercisable | 2,657,725 | ||
Options Exercisable Weighted Average Exercise Price | $ 0.18 |
H. STOCK OPTIONS AND WARRANTS35
H. STOCK OPTIONS AND WARRANTS (Details-Option Activity) - Employee Stock Options [Member] - $ / shares | 3 Months Ended | 12 Months Ended |
Mar. 31, 2017 | Dec. 31, 2016 | |
Number of shares | ||
Number of shares - beginning balance | 2,832,725 | 1,825,225 |
Number of shares - granted | 3,000,000 | 1,300,000 |
Number of shares - exercised | 0 | 0 |
Number of shares - cancelled or expired | 0 | (292,500) |
Number of shares - ending balance | 5,832,725 | 2,832,725 |
Weighted Average Price Per Share | ||
Weighted average price per share - beginning balance | $ .18 | $ .28 |
Weighted average price per share - granted | .14 | .17 |
Weighted average price per share - exercised | ||
Weighted average price per share - cancelled or expired | 0.69 | |
Weighted average price per share - ending balance | $ .16 | $ .18 |
H. STOCK OPTIONS AND WARRANTS36
H. STOCK OPTIONS AND WARRANTS (Details-Warrants Outstanding and Exercisable) - Warrant [Member] - $ / shares | 3 Months Ended | ||
Mar. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Warrants Outstanding, Number Outstanding | 300,000 | 300,000 | 5,638,410 |
Warrants Outstanding, Weighted Average Remaining Contractual Life (Years) | 3 years 10 months 17 days | ||
Weighted Average Exercise Price | $ 0.20 | $ 0.20 | $ 0.20 |
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) | 7 months 24 days | ||
Weighted Average Exercise Price | $ .18 | ||
Warrants Exercisable, Number Exercisable | 50,000 | ||
Warrants Exercisable, Weighted Average Exercise Price | $ .18 | ||
$0.20 [Member] | |||
Warrants Outstanding, Number Outstanding | 250,000 | ||
Warrants Outstanding, Weighted Average Remaining Contractual Life (Years) | 4 years 6 months 7 days | ||
Weighted Average Exercise Price | $ .20 | ||
Warrants Exercisable, Number Exercisable | 250,000 | ||
Warrants Exercisable, Weighted Average Exercise Price | $ .20 |
H. STOCK OPTIONS AND WARRANTS37
H. STOCK OPTIONS AND WARRANTS (Details-Warrant Activity) - Warrant [Member] - $ / shares | 3 Months Ended | 12 Months Ended |
Mar. 31, 2017 | Dec. 31, 2016 | |
Number of shares - beginning balance | 300,000 | 5,638,410 |
Number of shares - issued | 0 | 0 |
Number of shares - exercised | 0 | (5,211,542) |
Number of shares - cancelled or expired | 0 | (126,868) |
Number of shares - ending balance | 300,000 | 300,000 |
Weighted average price per share - beginning balance | $ 0.20 | $ 0.20 |
Weighted average price per share - issued | ||
Weighted average price per share - exercised | 0.13 | |
Weighted average price per share - cancelled or expired | 3 | |
Weighted average price per share - ending balance | $ 0.20 | $ 0.20 |
H. STOCK OPTIONS AND WARRANTS38
H. STOCK OPTIONS AND WARRANTS (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Stock-based compensation expense with options granted | $ 314,686 | $ 3,751 |
Employee Stock Options [Member] | ||
Stock-based compensation expense with options granted | $ 314,686 | $ 3,751 |
I. RELATED PARTY TRANSACTIONS (
I. RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) | 3 Months Ended | 12 Months Ended | |
Mar. 31, 2017 | Dec. 31, 2016 | Sep. 30, 2016 | |
Non-Employee Directors [Member] | |||
Stock issued for compensation, value | $ 36,000 | $ 72,000 | |
Board of Directors [Member] | |||
Stock options granted | 300,000 | ||
Tienor [Member] | |||
Stock options granted | 1,000,000 | ||
Bonus paid on sale of EthoStream | $ 29,250 | ||
Sobieski [Member] | |||
Stock options granted | 1,000,000 | ||
Bonus paid on sale of EthoStream | $ 29,250 | ||
Koch [Member] | |||
Stock options granted | 1,000,000 | ||
Bonus paid on sale of EthoStream | $ 29,250 | ||
Kross Promissory Note [Member] | Kross [Member] | |||
Note payable - related party | $ 48,745 | $ 97,127 | $ 97,127 |
J. COMMITMENTS AND CONTINGENC40
J. COMMITMENTS AND CONTINGENCIES (Details-Lease Commitments) | Mar. 31, 2017USD ($) |
Commitments and Contingencies Disclosure [Abstract] | |
2017 (remainder of) | $ 89,131 |
2,018 | 82,155 |
2,019 | 80,646 |
2,020 | 82,259 |
2,021 | 34,880 |
Total | $ 369,071 |
J. COMMITMENTS AND CONTINGENC41
J. COMMITMENTS AND CONTINGENCIES (Details-Sales Tax Accrual) - USD ($) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2017 | Dec. 31, 2016 | |
Change in the sales tax accrual | ||
Balance, Beginning of year | $ 274,869 | $ 229,768 |
Sales tax collected | 89,896 | 452,016 |
Provisions | 0 | 151,000 |
Interest and penalties | 0 | (3,017) |
Payments | (234,880) | (554,898) |
Balance, End of period | $ 129,885 | $ 274,869 |
J. COMMITMENTS AND CONTINGENC42
J. COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) | 3 Months Ended | |||
Mar. 31, 2017 | Mar. 31, 2016 | Dec. 31, 2016 | Dec. 31, 2015 | |
Commitments and Contingencies Disclosure [Abstract] | ||||
Rent expenses | $ 34,020 | $ 39,571 | ||
Sales tax accrual | 129,885 | $ 274,869 | $ 229,768 | |
Additional possible sales tax exposure | 20,000 | |||
Sales tax audit liability | $ 45,000 |
K. BUSINESS CONCENTRATION (Deta
K. BUSINESS CONCENTRATION (Details Narrative) - USD ($) | 3 Months Ended | 12 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | Dec. 31, 2016 | |
One Supplier [Member] | |||
Due to suppliers | $ 32,697 | $ 45,037 | |
Sales Revenue, Net [Member] | One Customer [Member] | |||
Concentration percentage | 11.00% | 17.00% | |
Accounts Receivable [Member] | Two Customers [Member] | |||
Concentration percentage | 24.00% | 24.00% | |
Supplier Concentration Risk [Member] | One Supplier [Member] | |||
Concentration percentage | 68.00% | 52.00% | |
Purchases from major suppliers | $ 595,000 | $ 413,000 |
L. DISCONTINUED OPERATIONS (Det
L. DISCONTINUED OPERATIONS (Details - Balance Sheet) - USD ($) | Mar. 31, 2017 | Dec. 31, 2016 |
Current assets held for sale | $ 0 | $ 7,149,971 |
Current liabilities held for sale | 0 | 869,604 |
Segment Discontinued Operations [Member] | ||
Accounts receivable, net | 0 | 456,478 |
Inventories | 0 | 350,506 |
Other current assets | 0 | 12,980 |
Other asset - goodwill | 0 | 5,796,430 |
Other asset – intangible asset, net | 0 | 533,577 |
Current assets held for sale | 0 | 7,149,971 |
Accounts payable | 0 | 465,346 |
Accrued liabilities and expenses | 0 | 90,187 |
Deferred revenues | 0 | 37,509 |
Customer deposits | 0 | 200,466 |
Deferred lease liability | 0 | 76,096 |
Current liabilities held for sale | 0 | 869,604 |
Net assets of discontinued operations | $ 0 | $ 6,280,367 |
L. DISCONTINUED OPERATIONS (D45
L. DISCONTINUED OPERATIONS (Details - Income Statement) - USD ($) | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Income from Discontinued Operations (net of tax) | $ 571,802 | $ 610,772 |
Segment Discontinued Operations [Member] | ||
Revenues - Product | 653,839 | 716,643 |
Revenues - Recurring | 925,837 | 967,403 |
Total Net Revenues | 1,579,676 | 1,684,046 |
Cost of Sales - Product | 424,829 | 481,207 |
Cost of Sales - Recurring | 209,179 | 247,003 |
Total Cost of Sales | 634,008 | 728,210 |
Gross Profit | 945,668 | 955,836 |
Selling, general and administrative | 262,034 | 232,895 |
Depreciation and amortization | 60,420 | 60,857 |
Total Operating Expenses | 322,454 | 293,752 |
Income from Discontinued Operations before Provision for Income Taxes | 623,214 | 662,084 |
Provision for Income Taxes | 51,412 | 51,312 |
Income from Discontinued Operations (net of tax) | $ 571,802 | $ 610,772 |