Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jun. 30, 2018 | Jul. 31, 2018 | |
Document And Entity Information | ||
Entity Registrant Name | TELKONET INC | |
Entity Central Index Key | 1,094,084 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2018 | |
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 | 133,989,919 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2,018 | |
Entity Small Business | true |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($) | Jun. 30, 2018 | Dec. 31, 2017 |
Current assets: | ||
Cash and cash equivalents | $ 6,316,887 | $ 8,385,595 |
Restricted cash on deposit | 10,000 | 810,000 |
Accounts receivable, net | 1,983,427 | 1,610,286 |
Inventories | 982,568 | 1,259,536 |
Contract assets | 353,684 | 0 |
Prepaid expenses and other current assets | 596,104 | 143,566 |
Income taxes receivable | 17,300 | 17,300 |
Total current assets | 10,259,970 | 12,226,283 |
Property and equipment, net | 278,120 | 304,170 |
Other assets: | ||
Deposits | 17,130 | 17,130 |
Total other assets | 17,130 | 17,130 |
Total Assets | 10,555,220 | 12,547,583 |
Current liabilities: | ||
Accounts payable | 960,210 | 978,207 |
Accrued liabilities and expenses | 734,780 | 668,814 |
Line of credit | 0 | 682,211 |
Contract liabilities-current | 841,190 | 0 |
Deferred revenues - current | 0 | 292,106 |
Customer deposits | 0 | 124,380 |
Total current liabilities | 2,536,180 | 2,745,718 |
Long-term liabilities: | ||
Contract liabilities - long term | 205,820 | 0 |
Deferred revenues - long term | 0 | 219,960 |
Deferred lease liability - long term | 61,841 | 48,839 |
Total long-term liabilities | 267,661 | 268,799 |
Stockholders' Equity | ||
Common stock, par value $.001 per share; 190,000,000 shares authorized; 133,989,919 and 133,695,111 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively | 133,989 | 133,695 |
Additional paid-in-capital | 127,460,169 | 127,421,402 |
Accumulated deficit | (121,545,404) | (119,724,656) |
Total stockholders' equity | 7,751,378 | 9,533,066 |
Total Liabilities and Stockholders' Equity | 10,555,220 | 12,547,583 |
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 ($) | Jun. 30, 2018 | Dec. 31, 2017 |
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 | 133,989,919 | 133,695,111 |
Common stock, shares issued | 133,989,919 | 133,695,111 |
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 | $ 1,562,848 | $ 1,526,141 |
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 | $ 424,583 | $ 414,258 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Total Net Revenue | $ 2,974,162 | $ 2,124,123 | $ 4,579,358 | $ 4,037,350 |
Total Cost of Sales | 1,443,211 | 1,098,541 | 2,497,445 | 2,136,604 |
Gross Profit | 1,530,951 | 1,025,582 | 2,081,913 | 1,900,746 |
Operating Expenses: | ||||
Research and development | 431,856 | 444,557 | 870,636 | 823,013 |
Selling, general and administrative | 1,291,103 | 1,438,069 | 2,568,006 | 3,207,762 |
Depreciation and amortization | 16,628 | 9,880 | 33,543 | 19,789 |
Total Operating Expenses | 1,739,587 | 1,892,506 | 3,472,185 | 4,050,564 |
Operating loss | (208,636) | (866,924) | (1,390,272) | (2,149,818) |
Other Income (Expenses): | ||||
Interest income (expense), net | 4,054 | 4,428 | 1,524 | (5,925) |
Total Other Income (Expense) | 4,054 | 4,428 | 1,524 | (5,925) |
Loss from Continuing Operations Before Provision for Income Taxes | (204,582) | (862,496) | (1,388,748) | (2,155,743) |
Provision for Income Taxes | 2,000 | 6,910 | 2,000 | 7,901 |
Net Loss from Continuing Operations | (206,582) | (869,406) | (1,390,748) | (2,163,644) |
Discontinued Operations: | ||||
Gain from sale of discontinued operations (net of tax) | 0 | 0 | 0 | 6,384,871 |
Income from discontinued operations (net of tax) | 0 | 18,855 | 0 | 590,657 |
Net Income (loss) attributable to common stockholders | $ (206,582) | $ (850,551) | $ (1,390,748) | $ 4,811,884 |
Net income (loss) per common share: | ||||
Basic - continuing operations | $ 0 | $ (0.01) | $ (0.01) | $ (0.02) |
Basic - discontinued operations | 0 | 0 | 0 | 0.05 |
Basic - net income (loss) attributable to common stockholders | 0 | (0.01) | (0.01) | 0.04 |
Diluted - continuing operations | 0 | (0.01) | (0.01) | (0.02) |
Diluted - discontinued operations | 0 | 0 | 0 | 0.05 |
Diluted - net income (loss) attributable to common stockholders | $ 0 | $ (0.01) | $ (0.01) | $ 0.04 |
Weighted Average Common Shares Outstanding- basic | 133,989,919 | 133,015,191 | 133,843,329 | 132,894,833 |
Weighted Average Common Shares Outstanding - diluted | 133,739,919 | 133,015,191 | 133,961,689 | 133,490,201 |
Product [Member] | ||||
Total Net Revenue | $ 2,820,805 | $ 2,013,922 | $ 4,324,463 | $ 3,824,307 |
Total Cost of Sales | 1,376,729 | 1,065,914 | 2,370,966 | 2,073,959 |
Recurring [Member] | ||||
Total Net Revenue | 153,357 | 110,201 | 254,895 | 213,043 |
Total Cost of Sales | $ 66,482 | $ 32,627 | $ 126,479 | $ 62,645 |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) - 6 months ended Jun. 30, 2018 - USD ($) | Series A Preferred Stock | Series B Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total |
Beginning Balance, Shares at Dec. 31, 2017 | 185 | 52 | 133,695,111 | |||
Beginning Balance, Amount at Dec. 31, 2017 | $ 1,340,566 | $ 362,059 | $ 133,695 | $ 127,421,402 | $ (119,724,656) | $ 9,533,066 |
Cumulative effect of a change in accounting principle related to ASC 606, net of tax | (430,000) | (430,000) | ||||
Shares issued for director compensation, shares issued | 294,808 | |||||
Shares issued for director compensation, value | $ 294 | 35,706 | 36,000 | |||
Stock-based compensation expense related to employee stock options | 3,061 | 3,061 | ||||
Net income | (1,390,748) | (1,390,748) | ||||
Ending Balance, Shares at Jun. 30, 2018 | 185 | 52 | 133,989,919 | |||
Ending Balance, Amount at Jun. 30, 2018 | $ 1,340,566 | $ 362,059 | $ 133,989 | $ 127,460,169 | $ (121,545,404) | $ 7,751,378 |
CONDENSED CONSOLIDATED STATEME6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) | 6 Months Ended | |
Jun. 30, 2018 | Jun. 30, 2017 | |
Cash Flows from Operating Activities: | ||
Net income (loss) | $ (1,390,748) | $ 4,811,884 |
Less: Net income from discontinued operations | 0 | (590,657) |
Gain on sale of discontinued operations | 0 | (6,384,871) |
Net loss from continuing operations | (1,390,748) | (2,163,644) |
Adjustments to reconcile net (loss) from continuing operations to cash used in operating activities of continuing operations: | ||
Stock-based compensation expense | 3,061 | 318,202 |
Stock issued to directors as compensation | 36,000 | 72,000 |
Depreciation | 33,543 | 19,789 |
Provision for doubtful accounts, net of recoveries | (75) | 72,396 |
Changes in operating assets and liabilities: | ||
Accounts receivable | (373,066) | (140,141) |
Inventories | 276,968 | 74,559 |
Prepaid expenses and other current assets | (452,538) | (182,864) |
Deposits and other long term assets | 0 | (17,130) |
Accounts payable | (17,997) | (97,175) |
Accrued liabilities and expenses | 65,966 | (76,498) |
Contract liability | 268,010 | 0 |
Deferred revenue | (512,066) | 144,608 |
Related party payable | 0 | (97,127) |
Customer deposits | (124,380) | 159,975 |
Contract assets | (4,684) | 0 |
Income tax payable | 0 | 139,884 |
Deferred lease liability | 13,002 | 3,098 |
Net Cash Used In Operating Activities of Continuing Operations | (2,179,004) | (1,770,068) |
Net Cash Provided By Operating Activities of Discontinued Operations | 0 | 517,242 |
Net Cash Used In Operating Activities | (2,179,004) | (1,252,826) |
Cash Flows From Investing Activities: | ||
Purchase of property and equipment | (7,493) | (12,011) |
Net proceeds from sale of subsidiary | 0 | 11,805,220 |
Net Cash Used In Investing Activities of Continuing Operations | (7,493) | 11,793,209 |
Cash Flows From Financing Activities: | ||
Net payments on line of credit | (682,211) | (1,062,129) |
Net Cash Used in Financing Activities of Continuing Operations | (682,211) | (1,062,129) |
Net increase (decrease) in cash and cash equivalents | (2,868,708) | 9,478,254 |
Cash and cash equivalents at the beginning of the period | 9,195,595 | 791,858 |
Cash and cash equivalents at the end of the period | 6,326,887 | 10,270,112 |
Supplemental Disclosures of Cash Flow Information: | ||
Cash paid during the period for interest | 5,326 | 11,173 |
Cash paid during the period for income taxes, net of refunds | $ 0 | $ 8,151 |
A. BASIS OF PRESENTATION AND SI
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended |
Jun. 30, 2018 | |
Accounting Policies [Abstract] | |
SUMMARY OF ACCOUNTING POLICIES | NOTE A – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies applied in the preparation of the accompanying condensed consolidated financial statements follows. General The accompanying unaudited condensed consolidated financial statements of Telkonet, Inc. (the “Company”, “Telkonet”) have been prepared in accordance with Rule S-X of the Securities and Exchange Commission (the “SEC”) and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. However, the results from operations for the six months ended June 30, 2018, are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated December 31, 2017 financial statements and footnotes thereto included in the Company's Form 10-K filed with the SEC. Refer to Note C – Revenue for the adoption of a new revenue recognition standard in the first quarter of 2018. 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 sold substantially all of the assets of its wholly-owned subsidiary, EthoStream LLC. Refer to Note M for further details. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Telkonet Communications, Inc. The prior year accounts of EthoStream LLC have been classified 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. Unless otherwise noted, all financial information in the consolidated financial statement footnotes reflect the Company’s results from continuing operations. Liquidity and Financial Condition We have financed our operations since inception primarily through private and public offerings of our equity securities, the issuance of various debt instruments and asset based lending. The Company reported a net loss from continuing operations of $1,390,748 for the six months ended June 30, 2018, had cash used in operating activities from continuing operations of $2,179,004, had an accumulated deficit of $121,545,405 and total current assets in excess of current liabilities of $7,723,791 as of June 30, 2018. Income (Loss) per Common Share The Company computes earnings per share under Accounting Standards Codification (“ASC”) 260-10, “Earnings Per Share”. Basic net income (loss) per common share is computed using the treasury stock method, which assumes that the proceeds to be received on exercise of outstanding stock options and warrants are used to repurchase shares of the Company at the average market price of the common shares for the year. Dilutive common stock equivalents consist of shares issuable upon the exercise of the Company's outstanding stock options and warrants. For the six months ended June 30, 2018 and 2017, there were 3,557,399 and 5,701,800 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. The U.S. Tax Cuts and Jobs Act (“Tax Act”) was enacted on December 22, 2017. The Tax Act makes broad complex changes to the U.S. tax code including, but not limited to, reducing the U.S. federal corporate tax rate from 35% to 21%, requiring companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and creating new taxes on certain foreign sourced earnings and additional limitations on the deductibility of interest. The SEC issued Staff Accounting Bulletin No. 118 (SAB 118) in December, 2017, to provide guidance on accounting for the effects of the Tax Act. SAB 118 provides for a measurement period of up to one year from the Tax Act enactment date for companies to complete their assessment of and accounting for those effects of the Tax Act. Under SAB 118, a company must first reflect the income tax effects of the Tax Act for which the accounting is complete in the period of the date of enactment. To the extent the accounting for other income tax effects is incomplete, but a reasonable estimate can be determined, companies must record a provisional estimate to be included in their financial statements. For any income tax effect for which a reasonable estimate cannot be determined, an entity must continue to apply ASC 740 based on the provisions of the tax laws in effect immediately prior to the Tax Act being enacted until such time as a reasonable estimate can be determined. The Company requires additional time to complete its analysis of the impacts of the Tax Act and therefore its accounting for the Tax Act is provisional but is a reasonable estimate based on available information. The Company will complete its analysis and finalize its accounting for this provisional estimate during the one year measurement period as prescribed by SAB 118. Revenue from Contracts with Customers Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606, the Standard”) supersedes nearly all legacy revenue recognition guidance. ASC 606 outlines a comprehensive five-step revenue recognition model based on the principle that an entity should recognize revenue based on when it satisfies its performance obligations by transferring control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for said goods or services. Identify the customer contracts The Company accounts for a customer contract under ASC 606 when the contract is legally enforceable. A contract is legally enforceable when all of the following criteria are met: (1) the contract has been approved by the Company and the customer and both parties are committed to perform their respective obligations, (2) the Company can identify each party’s rights regarding goods or services transferred, (3) the Company can identify payment terms for goods or services transferred, (4) the contract has commercial substance, and (5) collectability of all the consideration to which the Company is entitled in exchange for the goods or services transferred is probable. A contract does not exist if each party to the contract has the unilateral right to terminate a wholly unperformed contract without compensating the other party (or parties). Nearly all of the Company’s contracts do not contain such mutual termination rights for convenience. All contracts are in written form. Identify the performance obligations The Company will enter into product only contracts that contain a single performance obligation related to the transfer of EcoSmart products to a customer. The Company will also enter into certain customer contracts that encompass product and installation services, referred to as “turnkey” solutions. These contracts ultimately provide the customer with a solution that enhances the functionality of the customer’s existing equipment. For this reason, the Company has determined that the product and installation services are not separately identifiable performance obligations, but in essence represent one, combined performance obligation (“turnkey”). The Company also offers post-installation support services to customers. Support services are considered a separate performance obligation. Determine the transaction price The Company generally enters into contracts containing fixed prices. It is not customary for the Company to include contract terms that would result in variable consideration. In the rare situation that a contract does include this type of provision, it is not expected to result in a material adjustment to the transaction price. The Company regularly extends pricing discounts; however, they are negotiated up front and adjust the fixed transaction price set out in the contract. Customer contracts will typically contain upfront deposits that will be applied against future invoices, as well as customer retainage. The intent of any required deposit or retainage is to ensure that the obligations of either party are honored and follow customary industry practices. In addition, the Company will typically be paid in advance at the beginning of any support contracts, consistent with industry practices. None of these payment provisions are intended to represent significant implicit financing. The Company’s standard payment terms are thirty days from invoice date. Products are fully refundable when returned in their original packaging without damage or defacing less a restocking fee not to exceed fifty (50%) percent of the product’s price. Historical returns have shown to be immaterial. The Company offers a standard one-year assurance warranty. However customers can purchase an extended warranty. Under the new standard, extended warranties are accounted for as a service warranty, requiring the revenue to be recognized over the extended service periods. Contracts involving an extended warranty are immaterial and will continue to be combined with support revenue and recognized on a straight-line basis over the support revenue term. Allocate the transaction price to the performance obligations Revenues from customer contracts are allocated to the separate performance obligations based on their relative stand-alone selling price (“SSP”) at contract inception. The SSP is the price at which the Company would sell a promised good or service separately. The best evidence of an SSP is the observable price of a good or service when the entity sells that good or service separately in similar circumstances and to similar customers. However, turnkey solutions are sold for a broad range of amounts resulting from, but not limited to, tiered discounting for value added resellers (“VAR”) based upon committed volumes and other economic factors. Due to the high variability of our pricing, the Company cannot establish a reliable SSP using observable data. Accordingly, the Company uses the residual approach to allocate the transaction price to performance obligations related to its turnkey solutions. All support service agreements, whether single or multi-year terms, automatically renew for one-year terms at a suggested retail price (“SRP”). Support service renewals are consistently priced and therefore would support the use of SRP as the best estimate of an SSP for such performance obligations. Recognize Revenue The Company recognizes revenues from product only sales at a point in time, when control over the product has transferred to the customer. As the Company’s principal terms of sale are FOB shipping point, the Company primarily transfers control and records revenue for product only sales upon shipment. A typical turnkey project involves the installation and integration of 200-300 rooms in a customer-controlled facility and usually takes sixty days to complete. Since control over goods and services transfers to a customer once a room is installed, the Company recognizes revenue for turnkey solutions over time. The Company uses an outputs measure based on the number of rooms installed to recognize revenues from turnkey solutions. Revenues from support services are recognized over time, in even daily increments over the term of the contract. Deferred revenue includes deferrals for the monthly support service fees. Long-term deferred revenue represents support service fees that will be recognized as revenue after June 30, 2019. Transition The Company adopted ASC 606 using a modified retrospective approach to all contracts not completed as of January 1, 2018. Results for reporting periods beginning January 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting under Topic 605, Revenue Recognition. The Company recorded a net decrease to beginning retained earnings of $0.43 million as of January 1, 2018 due to the cumulative impact of adopting ASC 606. The impact to beginning retained earnings was primarily driven by the deferral of revenue for unfulfilled performance obligations related to the Company’s turnkey solutions. Guarantees and Product Warranties The Company records a liability for potential warranty claims in cost of sales at the time of sale. The amount of the liability is based on the trend in the historical ratio of claims to sales, the historical length of time between the sale and resulting warranty claim, new product introductions and other factors. The products sold are generally covered by a warranty for a period of one year. In the event the Company determines that its current or future product repair and replacement costs exceed its estimates, an adjustment to these reserves would be charged to earnings in the period such determination is made. For the six months ended June 30, 2018 and the year ended December 31, 2017, the Company experienced returns of approximately 1% to 2% of materials included in the cost of sales. As of June 30, 2018 and December 31, 2017, the Company recorded warranty liabilities in the amount of $60,622 and $59,892, respectively, using this experience factor range. Product warranties for the six months ended June 30, 2018 and the year ended December 31, 2017 are as follows: June 30, December 31, Beginning balance $ 59,892 $ 95,540 Warranty claims incurred (7,117 ) (84,087 ) Provision charged to expense 7,847 48,439 Ending balance $ 60,622 $ 59,892 |
B. NEW ACCOUNTING PRONOUNCEMENT
B. NEW ACCOUNTING PRONOUNCEMENTS | 6 Months Ended |
Jun. 30, 2018 | |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
NEW ACCOUNTING PRONOUNCEMENTS | NOTE B – NEW ACCOUNTING PRONOUNCEMENTS 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 June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 provides guidance for estimating credit losses on certain types of financial instruments, including trade receivables, by introducing an approach based on expected losses. The expected loss approach will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. ASU 2016-13 also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The guidance requires a modified retrospective transition method and early adoption is permitted. The Company does not expect the adoption of ASU 2016-13 to have a material impact on its consolidated financial statements. Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on our consolidated financial statements and related disclosures. Accounting Standards Recently Adopted Effective January 1, 2018, the Company has adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606, the Standard”), which supersedes nearly all legacy revenue recognition guidance. ASC 606 outlines a comprehensive five-step revenue recognition model based on the principle that an entity should recognize revenue based on when an it satisfies its performance obligations by transferring control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for said goods or services. Effective January 1, 2018, the Company has adopted ASU No. 2016-18, Statement of Cash Flows: Restricted Cash, (“Update 2016-18”). Update 2016-18 provides guidance on the classification of restricted cash in the statement of cash flows. The amendments are effective for interim and annual periods beginning after December 15, 2017. The amendments in Update 2016-18 was adopted on a retrospective basis. Due to the adoption of ASU 2016-18, the cash, cash equivalents and restricted cash presented in the Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2018 and 2017 increased by $10,000 and $900,000 of restricted cash held as of June 30, 2018 and 2017, respectively. |
C. REVENUE
C. REVENUE | 6 Months Ended |
Jun. 30, 2018 | |
Revenue from Contract with Customer [Abstract] | |
REVENUE | NOTE C– REVENUE The following table presents the Company’s product and recurring revenues disaggregated by industry for the three months ended June 30, 2018. Hospitality Education Multiple Dwelling Units Government Total Recurring $ 133,468 $ 11,055 $ 8,834 $ – $ 153,357 Product 2,061,985 645,658 47,636 65,526 2,820,805 $ 2,195,453 $ 656,713 $ 56,470 $ 65,526 $ 2,974,162 The following table presents the Company’s product and recurring revenues disaggregated by industry for the six months ended June 30, 2018. Hospitality Education Multiple Dwelling Units Government Total Recurring $ 224,730 $ 21,310 $ 8,855 $ – $ 254,895 Product 3,543,140 639,928 67,962 73,433 4,324,463 $ 3,767,870 $ 661,238 $ 76,817 $ 73,433 $ 4,579,358 Sales taxes and other usage-based taxes are excluded from revenues. Contract assets Contracts are billed in accordance with the terms and conditions, either at periodic intervals or upon substantial completion. This can result in billing occurring subsequent to revenue recognition, resulting in contract assets. Contract assets are presented as current assets in the Condensed Consolidated Balance Sheet. The balance of contract assets as of June 30, 2018 and at the date of adoption of ASC 606 was $0.35 million and $0.35 million, respectively. There were approximately $0.1 million of costs incurred to fulfill a contract in the closing balance of contract assets. Contract liabilities Contracts are billed in accordance with the terms and conditions, either at periodic intervals or upon substantial completion. Often, the Company will require customers to pay a deposit upon contract signing that will be applied against work performed or products shipped. In addition, the Company will often invoice the full term of support at the start of the support period. Billings that occur prior to revenue recognition result in contract liabilities. As of June 30, 2018 and at the date of adoption of ASC 606, contract liabilities were $1.05 million and $0.78 million, respectively. The change in the contract liability balance during the six-month period ended June 30, 2018 is the result of cash payments received and billing in advance of satisfying performance obligations, less $0.79 million of revenue recognized during the period that was included in the contract liability balance at the date of adoption. Contract costs Costs to fulfill a turnkey contract primarily relate to the materials cost and direct labor and are recognized proportionately as the performance obligation is satisfied. The Company will defer cost to fulfill a contract when materials have shipped (and control over the materials has transferred to the customer), but an insignificant amount of rooms have been installed. The Company will recognize any deferred costs in proportion to revenues recognized from the related turnkey contract. The Company does not expect deferred contract costs to be long-lived since a typical turnkey project takes sixty days to complete. Deferred contract costs are generally presented as other current assets in the condensed consolidated balance sheets. The Company incurs incremental costs to obtain a contract in the form of sales commissions. These costs, whether related to performance obligations that extend beyond twelve months or not, are immaterial and will continue to be recognized in the period incurred within selling, general and administrative expenses. The tables below present the impacts of our adoption of the new revenue standard on our income statement and balance sheet. For the Three Months Ended June 30, 2018 As Reported Balance Without Adoption of ASC 606 Effect of Change Higher/(Lower) Income Statement: Sales $ 2,974,162 $ 3,054,562 $ (80,400 ) Cost of Goods Sold 1,443,211 1,466,011 (22,800 ) Net loss $ 206,582 $ 148,982 $ 57,600 For the Six Months Ended June 30, 2018 As Reported Balance Without Adoption of ASC 606 Effect of Change Higher/(Lower) Income Statement: Sales $ 4,579,358 $ 4,762,758 $ (183,400 ) Cost of Goods Sold 2,497,446 2,554,746 (57,300 ) Net loss $ 1,390,748 $ 1,264,648 $ 126,100 As of June 30, 2018 As Reported Balance Without Adoption of ASC 606 Effect of Change Higher/(Lower) Balance Sheet: Assets Contract Assets $ 353,684 – $ 353,684 Inventories 982,568 1,164,932 (182,364 ) Liabilities Contract Liabilities 1,047,010 – 1,047,010 Customer Deposits – 66,226 (66,226 ) Deferred Revenue - Current – 47,439 (47,439 ) Deferred Revenue – Long Term – 205,925 (205,925 ) Equity Accumulated Deficit – 556,100 $ (556,100 ) The table below presents the cumulative effect of the changes made to our consolidated balance sheet as of January 1, 2018 after the adoption of ASU 2014-09. December 31, 2017 Transition Adjustments January 1, 2018 Balance Sheet: Assets Contract Assets – 110,000 $ 110,000 Inventories 777,202 239,000 1,016,202 Liabilities Contract Liabilities – 779,000 779,000 Equity Accumulated Deficit $ (119,724,656 ) (430,000 ) $ (120,154,656 ) Remaining performance obligations As of June 30, 2018, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $0.35 million. Except for support services, the Company expects to recognize 100% of the remaining performance obligations over the next six months. |
D. ACCOUNTS RECEIVABLE
D. ACCOUNTS RECEIVABLE | 6 Months Ended |
Jun. 30, 2018 | |
Receivables [Abstract] | |
ACCOUNTS RECEIVABLE | NOTE D – ACCOUNTS RECEIVABLE Components of accounts receivable as of June 30, 2018 and December 31, 2017 are as follows: June 30, December 31, Accounts receivable $ 1,996,969 $ 1,632,459 Allowance for doubtful accounts (13,542 ) (22,173 ) Accounts receivable, net $ 1,983,427 $ 1,610,286 |
E. ACCRUED LIABILITIES AND EXPE
E. ACCRUED LIABILITIES AND EXPENSES | 6 Months Ended |
Jun. 30, 2018 | |
Payables and Accruals [Abstract] | |
ACCRUED LIABILITIES AND EXPENSES | NOTE E – ACCRUED LIABILITIES AND EXPENSES Accrued liabilities and expenses at June 30, 2018 and December 31, 2017 are as follows : June 30, December 31, Accrued liabilities and expenses $ 387,920 $ 294,709 Accrued payroll and payroll taxes 243,908 230,931 Accrued sales taxes, penalties, and interest 42,330 83,282 Product warranties 60,622 59,892 Total accrued liabilities and expenses $ 734,780 $ 668,814 |
F. DEBT
F. DEBT | 6 Months Ended |
Jun. 30, 2018 | |
Debt Disclosure [Abstract] | |
DEBT | NOTE F – DEBT Revolving Credit Facility The Heritage Bank Loan Agreement (the “Credit Facility”) contains representations and warranties, covenants, and other provisions customary to transactions of this nature. As of June 30, 2018, the Company was in compliance with all financial covenants. The outstanding principal balance of the Credit Facility bears interest at the Prime Rate plus 3.00%, which was 8% at June 30, 2018 and 7.50% at December 31, 2017. The outstanding balance on the Credit Facility was zero and $682,211 at June 30, 2018 and December 31, 2017, respectively. The remaining available borrowing capacity was approximately $1,622,000 and $202,000 at June 30, 2018 and December 31, 2017, respectively. On March 31, 2018, an amendment to the revolving credit facility with Heritage Bank was executed to amend certain terms of the Heritage Bank Loan Agreement. Among the terms of the amendment was that if the Company fails to comply with required EBITDA covenants as of any particular quarterly measurement date, the Company will be deemed to be in compliance as of the measurement date if the Company’s unrestricted cash maintained at Heritage Bank is in excess of $5,000,000. |
G. PREFERRED STOCK
G. PREFERRED STOCK | 6 Months Ended |
Jun. 30, 2018 | |
Equity [Abstract] | |
PREFERRED STOCK | NOTE G – 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 June 30, 2018, the liquidation preference of the preferred stock is based on the following order: first, Series B with a preference value of $424,583, which includes cumulative accrued unpaid dividends of $164,583, and second, Series A with a preference value of $1,562,848, which includes cumulative accrued unpaid dividends of $637,848. As of December 31, 2017, the liquidation preference of the preferred stock is based on the following order: first, Series B with a preference value of $414,258, which includes cumulative accrued unpaid dividends of $154,258, and second, Series A with a preference value of $1,526,141, which includes cumulative accrued unpaid dividends of $601,141. |
H. CAPITAL STOCK
H. CAPITAL STOCK | 6 Months Ended |
Jun. 30, 2018 | |
Equity [Abstract] | |
CAPITAL STOCK | NOTE H – CAPITAL STOCK The Company has authorized 190,000,000 shares of common stock with a par value of $.001 per share. As of June 30, 2018 and December 31, 2017 the Company had 133,989,919 and 133,695,111 common shares issued and outstanding. |
I. STOCK OPTIONS AND WARRANTS
I. STOCK OPTIONS AND WARRANTS | 6 Months Ended |
Jun. 30, 2018 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
STOCK OPTIONS AND WARRANTS | NOTE I – STOCK OPTIONS AND WARRANTS Employee Stock Options The Company maintains an equity incentive plan, (the “Plan”). The Plan was established in 2010 as an incentive plan for officers, employees, non-employee directors, prospective employees and other key persons. It is anticipated that providing such persons with a direct stake in the Company’s welfare will assure a better alignment of their interests with those of the Company and its stockholders. The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to employees of the Company under the Plan as of June 30, 2018. Options Outstanding Options Exercisable Exercise Prices Number Weighted Average Weighted Average Number Weighted Average $ 0.01 - $0.15 2,000,000 8.51 $ 0.14 2,000,000 $ 0.14 $ 0.16 - $0.99 1,307,399 4.98 0.20 1,127,399 0.20 3,307,399 7.12 $ 0.16 3,127,399 $ 0.16 Transactions involving stock options issued to employees are summarized as follows: Number of Weighted Average Outstanding at January 1, 2017 2,832,725 $ 0.18 Granted 3,000,000 0.14 Exercised – – Cancelled or expired (1,456,251 ) 0.17 Outstanding at December 31, 2017 4,376,474 $ 0.16 Granted – – Exercised – – Cancelled or expired (1,069,075 ) 0.14 Outstanding at June 30, 2018 3,307,399 $ 0.16 There were zero and 3,000,000 options granted, 1,069,075 and zero options cancelled or expired and zero options exercised during the six months ended June 30, 2018 and 2017, respectively. Total stock-based compensation expense in connection with options granted to employees recognized in the condensed consolidated statements of operations for the three and six months ended June 30, 2018 and 2017 was $1,531 and $3,516, respectively, and $3,061, and $318,202, 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 Weighted Average Weighted Average Number Weighted Average $ 0.20 250,000 3.27 $ 0.20 250,000 $ 0.20 Transactions involving warrants are summarized as follows: Number of Weighted Average Outstanding at January 1, 2017 300,000 $ 0.20 Issued – – Exercised – – Cancelled or expired (50,000 ) 0.18 Outstanding at December 31, 2017 250,000 0.20 Issued – – Exercised – – Cancelled or expired – – Outstanding at June 30, 2018 250,000 $ 0.20 There were no warrants granted, exercised, cancelled or forfeited during the six months ended June 30, 2018 and 2017. |
J. RELATED PARTY TRANSACTIONS
J. RELATED PARTY TRANSACTIONS | 6 Months Ended |
Jun. 30, 2018 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | NOTE J – RELATED PARTY TRANSACTIONS During the six months ended June 30, 2018 and during the year ended December 31, 2017, the Company agreed to issue common stock in the amount of $36,000 and $144,000, respectively, to the Company’s non-employee directors as compensation for their attendance and participation in the Company’s Board of Director and committee meetings. Upon execution of their employment agreements during the six months ended June 30, 2017, the CEO, CTO and former COO, were each 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. Effective with the sale of the assets of EthoStream, the former COO was hired by DCI. In compliance with the terms of the former COO’s stock option grant letter, the former COO’s stock options were canceled during the six months ended June 30, 2018. During the six months ended June 30, 2017, the CEO, CTO, and former COO, each earned a bonus of $29,250 that was contingent on the sale and sale price amount of EthoStream. |
K. COMMITMENTS AND CONTINGENCIE
K. COMMITMENTS AND CONTINGENCIES | 6 Months Ended |
Jun. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | NOTE K – COMMITMENTS AND CONTINGENCIES Office Lease Obligations Commitments for minimum rentals under non-cancelable leases as of June 30, 2018 are as follows: 2018 (remainder of) $ 104,543 2019 159,242 2020 164,903 2021 182,512 2022 190,141 2023 and thereafter 573,883 Total $ 1,375,224 Rental expenses charged to operations for the three and six months ended June 30, 2018 and 2017 was $170,949 and $114,167, and $87,067 and $80,147 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 The following table sets forth the change in the sales tax accrual as of June 30, 2018 and December 31, 2017: June 30, December 31, 2017 Balance, beginning of year $ 83,282 $ 274,869 Sales tax collected 41,817 297,673 Provisions 23,181 (33,000 ) Interest and penalties – (5,890 ) Payments (105,950 ) (450,370 ) Balance, end of period $ 42,330 $ 83,282 |
L. BUSINESS CONCENTRATION
L. BUSINESS CONCENTRATION | 6 Months Ended |
Jun. 30, 2018 | |
Risks and Uncertainties [Abstract] | |
BUSINESS CONCENTRATION | NOTE L – BUSINESS CONCENTRATION For the six months ended June 30, 2018, one customer represented approximately 11% of total net revenues. For the six months ended June 30, 2017, no single customer represented 10% or more of total net revenues. As of June 30, 2018, four customers accounted for approximately 54% of the Company’s net accounts receivable. As of December 31, 2017, three customers accounted for approximately 54% of the Company’s net accounts receivable. Purchases from one supplier approximated $1,975,000, or 88%, of purchases for the six months ended June 30, 2018 and $1,439,000, or 84%, of purchases for the six months ended June 30, 2017. Total due to this supplier, net of deposits, was approximately $490,000, as of June 30, 2018, and $33,000 as of December 31, 2017. |
M. DISCONTINUED OPERATIONS
M. DISCONTINUED OPERATIONS | 6 Months Ended |
Jun. 30, 2018 | |
Discontinued Operations and Disposal Groups [Abstract] | |
DISCONTINUED OPERATIONS | NOTE M – DISCONTINUED OPERATIONS During the year ended December 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 substantially all of the assets and certain liabilities of EthoStream for a base purchase price of $12,750,000. The Purchase Agreement provided that $900,000 of the $12,750,000 base purchase price was 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. On April 06, 2018, the Company received the $800,000 disbursement from the funds held in escrow. The Company reclassified the balance from restricted cash to cash at March 31, 2018. On March 29, 2017, pursuant to the terms and the conditions of the Purchase Agreement, the Company closed on the sale. As of June 30, 2018 and December 31, 2017 there were no assets or liabilities of discontinued operations. The following table summarizes the statements of operations information for discontinued operations. Three Months Ended June 30, Six Months Ended June 30, 2018 2017 2018 2017 Revenues, net: Product $ – $ – $ – $ 653,839 Recurring – – – 925,837 Total Net Revenue – – – 1,579,676 Cost of Sales: Product – (10,225 ) – 414,604 Recurring – 689 – 209,868 Total Cost of Sales – (9,536 ) – 624,472 Gross Profit – 9,536 – 955,204 Operating Expenses: Selling, general and administrative – (9,924 ) – 252,110 Depreciation and amortization – – – 60,420 Total Operating Expenses – (9,924 ) – 312,530 Income from Discontinued Operations before Provision for Income Taxes – 19,460 – 642,674 Provision for Income Taxes – 605 – 52,017 Income from Discontinued Operations (net of tax) $ – $ 18,855 $ – $ 590,657 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 June 30, 2018 and 2017. |
A. BASIS OF PRESENTATION AND 20
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies) | 6 Months Ended |
Jun. 30, 2018 | |
Accounting Policies [Abstract] | |
General | General The accompanying unaudited condensed consolidated financial statements of Telkonet, Inc. (the “Company”, “Telkonet”) have been prepared in accordance with Rule S-X of the Securities and Exchange Commission (the “SEC”) and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. However, the results from operations for the six months ended June 30, 2018, are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated December 31, 2017 financial statements and footnotes thereto included in the Company's Form 10-K filed with the SEC. Refer to Note C – Revenue for the Adoption of a new revenue recognition standard in the first quarter of 2018. |
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 sold substantially all of the assets of its wholly-owned subsidiary, EthoStream LLC. Refer to Note M for further details. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Telkonet Communications, Inc. The prior year accounts of EthoStream LLC have been classified 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. 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 We have financed our operations since inception primarily through private and public offerings of our equity securities, the issuance of various debt instruments and asset based lending. The Company reported a net loss from continuing operations of $1,390,748 for the six months ended June 30, 2018, had cash used in operating activities from continuing operations of $2,179,004, had an accumulated deficit of $121,545,405 and total current assets in excess of current liabilities of $7,723,791 as of June 30, 2018. |
Income (Loss) per Common Share | Income (Loss) per Common Share The Company computes earnings per share under Accounting Standards Codification (“ASC”) 260-10, “Earnings Per Share”. Basic net income (loss) per common share is computed using the treasury stock method, which assumes that the proceeds to be received on exercise of outstanding stock options and warrants are used to repurchase shares of the Company at the average market price of the common shares for the year. Dilutive common stock equivalents consist of shares issuable upon the exercise of the Company's outstanding stock options and warrants. For the six months ended June 30, 2018 and 2017, there were 3,557,399 and 5,701,800 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. The U.S. Tax Cuts and Jobs Act (“Tax Act”) was enacted on December 22, 2017. The Tax Act makes broad complex changes to the U.S. tax code including, but not limited to, reducing the U.S. federal corporate tax rate from 35% to 21%, requiring companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and creating new taxes on certain foreign sourced earnings and additional limitations on the deductibility of interest. The SEC issued Staff Accounting Bulletin No. 118 (SAB 118) in December, 2017, to provide guidance on accounting for the effects of the Tax Act. SAB 118 provides for a measurement period of up to one year from the Tax Act enactment date for companies to complete their assessment of and accounting for those effects of the Tax Act. Under SAB 118, a company must first reflect the income tax effects of the Tax Act for which the accounting is complete in the period of the date of enactment. To the extent the accounting for other income tax effects is incomplete, but a reasonable estimate can be determined, companies must record a provisional estimate to be included in their financial statements. For any income tax effect for which a reasonable estimate cannot be determined, an entity must continue to apply ASC 740 based on the provisions of the tax laws in effect immediately prior to the Tax Act being enacted until such time as a reasonable estimate can be determined. The Company requires additional time to complete its analysis of the impacts of the Tax Act and therefore its accounting for the Tax Act is provisional but is a reasonable estimate based on available information. The Company will complete its analysis and finalize its accounting for this provisional estimate during the one year measurement period as prescribed by SAB 118. |
Revenue from Contracts with Customers | Revenue from Contracts with Customers Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606, the Standard”) supersedes nearly all legacy revenue recognition guidance. ASC 606 outlines a comprehensive five-step revenue recognition model based on the principle that an entity should recognize revenue based on when it satisfies its performance obligations by transferring control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for said goods or services. Identify the customer contracts The Company accounts for a customer contract under ASC 606 when the contract is legally enforceable. A contract is legally enforceable when all of the following criteria are met: (1) the contract has been approved by the Company and the customer and both parties are committed to perform their respective obligations, (2) the Company can identify each party’s rights regarding goods or services transferred, (3) the Company can identify payment terms for goods or services transferred, (4) the contract has commercial substance, and (5) collectability of all the consideration to which the Company is entitled in exchange for the goods or services transferred is probable. A contract does not exist if each party to the contract has the unilateral right to terminate a wholly unperformed contract without compensating the other party (or parties). Nearly all of the Company’s contracts do not contain such mutual termination rights for convenience. All contracts are in written form. Identify the performance obligations The Company will enter into product only contracts that contain a single performance obligation related to the transfer of EcoSmart products to a customer. The Company will also enter into certain customer contracts that encompass product and installation services, referred to as “turnkey” solutions. These contracts ultimately provide the customer with a solution that enhances the functionality of the customer’s existing equipment. For this reason, the Company has determined that the product and installation services are not separately identifiable performance obligations, but in essence represent one, combined performance obligation (“turnkey”). The Company also offers post-installation support services to customers. Support services are considered a separate performance obligation. Determine the transaction price The Company generally enters into contracts containing fixed prices. It is not customary for the Company to include contract terms that would result in variable consideration. In the rare situation that a contract does include this type of provision, it is not expected to result in a material adjustment to the transaction price. The Company regularly extends pricing discounts; however, they are negotiated up front and adjust the fixed transaction price set out in the contract. Customer contracts will typically contain upfront deposits that will be applied against future invoices, as well as customer retainage. The intent of any required deposit or retainage is to ensure that the obligations of either party are honored and follow customary industry practices. In addition, the Company will typically be paid in advance at the beginning of any support contracts, consistent with industry practices. None of these payment provisions are intended to represent significant implicit financing. The Company’s standard payment terms are thirty days from invoice date. Products are fully refundable when returned in their original packaging without damage or defacing less a restocking fee not to exceed fifty (50%) percent of the product’s price. Historical returns have shown to be immaterial. The Company offers a standard one-year assurance warranty. However customers can purchase an extended warranty. Under the new standard, extended warranties are accounted for as a service warranty, requiring the revenue to be recognized over the extended service periods. Contracts involving an extended warranty are immaterial and will continue to be combined with support revenue and recognized on a straight-line basis over the support revenue term. Allocate the transaction price to the performance obligations Revenues from customer contracts are allocated to the separate performance obligations based on their relative stand-alone selling price (“SSP”) at contract inception. The SSP is the price at which the Company would sell a promised good or service separately. The best evidence of an SSP is the observable price of a good or service when the entity sells that good or service separately in similar circumstances and to similar customers. However, turnkey solutions are sold for a broad range of amounts resulting from, but not limited to, tiered discounting for value added resellers (“VAR”) based upon committed volumes and other economic factors. Due to the high variability of our pricing, the Company cannot establish a reliable SSP using observable data. Accordingly, the Company uses the residual approach to allocate the transaction price to performance obligations related to its turnkey solutions. All support service agreements, whether single or multi-year terms, automatically renew for one-year terms at a suggested retail price (“SRP”). Support service renewals are consistently priced and therefore would support the use of SRP as the best estimate of an SSP for such performance obligations. Recognize Revenue The Company recognizes revenues from product only sales at a point in time, when control over the product has transferred to the customer. As the Company’s principal terms of sale are FOB shipping point, the Company primarily transfers control and records revenue for product only sales upon shipment. A typical turnkey project involves the installation and integration of 200-300 rooms in a customer-controlled facility and usually takes sixty days to complete. Since control over goods and services transfers to a customer once a room is installed, the Company recognizes revenue for turnkey solutions over time. The Company uses an outputs measure based on the number of rooms installed to recognize revenues from turnkey solutions. Revenues from support services are recognized over time, in even daily increments over the term of the contract. Deferred revenue includes deferrals for the monthly support service fees. Long-term deferred revenue represents support service fees that will be recognized as revenue after June 30, 2019. Transition The Company adopted ASC 606 using a modified retrospective approach to all contracts not completed as of January 1, 2018. Results for reporting periods beginning January 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting under Topic 605, Revenue Recognition. The Company recorded a net decrease to beginning retained earnings of $0.43 million as of January 1, 2018 due to the cumulative impact of adopting ASC 606. The impact to beginning retained earnings was primarily driven by the deferral of revenue for unfulfilled performance obligations related to the Company’s turnkey solutions. |
Guarantees and Product Warranties | Guarantees and Product Warranties The Company records a liability for potential warranty claims in cost of sales at the time of sale. The amount of the liability is based on the trend in the historical ratio of claims to sales, the historical length of time between the sale and resulting warranty claim, new product introductions and other factors. The products sold are generally covered by a warranty for a period of one year. In the event the Company determines that its current or future product repair and replacement costs exceed its estimates, an adjustment to these reserves would be charged to earnings in the period such determination is made. For the six months ended June 30, 2018 and the year ended December 31, 2017, the Company experienced returns of approximately 1% to 2% of materials included in the cost of sales. As of June 30, 2018 and December 31, 2017, the Company recorded warranty liabilities in the amount of $60,622 and $59,892, respectively, using this experience factor range. Product warranties for the six months ended June 30, 2018 and the year ended December 31, 2017 are as follows: June 30, December 31, Beginning balance $ 59,892 $ 95,540 Warranty claims incurred (7,117 ) (84,087 ) Provision charged to expense 7,847 48,439 Ending balance $ 60,622 $ 59,892 |
A. BASIS OF PRESENTATION AND 21
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Accounting Policies [Abstract] | |
Product warranties | June 30, December 31, Beginning balance $ 59,892 $ 95,540 Warranty claims incurred (7,117 ) (84,087 ) Provision charged to expense 7,847 48,439 Ending balance $ 60,622 $ 59,892 |
C. REVENUE (Tables)
C. REVENUE (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Revenue from Contract with Customer [Abstract] | |
Summary of product and recurring revenues disaggregated by industry | The following table presents the Company’s product and recurring revenues disaggregated by industry for the three months ended June 30, 2018. Hospitality Education Multiple Dwelling Units Government Total Recurring $ 133,468 $ 11,055 $ 8,834 $ – $ 153,357 Product 2,061,985 645,658 47,636 65,526 2,820,805 $ 2,195,453 $ 656,713 $ 56,470 $ 65,526 $ 2,974,162 The following table presents the Company’s product and recurring revenues disaggregated by industry for the six months ended June 30, 2018. Hospitality Education Multiple Dwelling Units Government Total Recurring $ 224,730 $ 21,310 $ 8,855 $ – $ 254,895 Product 3,543,140 639,928 67,962 73,433 4,324,463 $ 3,767,870 $ 661,238 $ 76,817 $ 73,433 $ 4,579,358 |
Summary of impacts of adoption of new revenue standard | The tables below present the impacts of our adoption of the new revenue standard on our income statement and balance sheet. For the Three Months Ended June 30, 2018 As Reported Balance Without Adoption of ASC 606 Effect of Change Higher/(Lower) Income Statement: Sales $ 2,974,162 $ 3,054,562 $ (80,400 ) Cost of Goods Sold 1,443,211 1,466,011 (22,800 ) Net loss $ 206,582 $ 148,982 $ 57,600 For the Six Months Ended June 30, 2018 As Reported Balance Without Adoption of ASC 606 Effect of Change Higher/(Lower) Income Statement: Sales $ 4,579,358 $ 4,762,758 $ (183,400 ) Cost of Goods Sold 2,497,446 2,554,746 (57,300 ) Net loss $ 1,390,748 $ 1,264,648 $ 126,100 As of June 30, 2018 As Reported Balance Without Adoption of ASC 606 Effect of Change Higher/(Lower) Balance Sheet: Assets Contract Assets $ 353,684 – $ 353,684 Inventories 982,568 1,164,932 (182,364 ) Liabilities Contract Liabilities 1,047,010 – 1,047,010 Customer Deposits – 66,226 (66,226 ) Deferred Revenue - Current – 47,439 (47,439 ) Deferred Revenue – Long Term – 205,925 (205,925 ) Equity Accumulated Deficit – 556,100 $ (556,100 ) |
Summary of cumulative effect of changes made to consolidated balance sheet | The table below presents the cumulative effect of the changes made to our consolidated balance sheet as of January 1, 2018 after the adoption of ASU 2014-09. December 31, 2017 Transition Adjustments January 1, 2018 Balance Sheet: Assets Contract Assets – 110,000 $ 110,000 Inventories 777,202 239,000 1,016,202 Liabilities Contract Liabilities – 779,000 779,000 Equity Accumulated Deficit $ (119,724,656 ) (430,000 ) $ (120,154,656 ) |
D. ACCOUNTS RECEIVABLE (Tables)
D. ACCOUNTS RECEIVABLE (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Receivables [Abstract] | |
Accounts Receivable | June 30, December 31, Accounts receivable $ 1,996,969 $ 1,632,459 Allowance for doubtful accounts (13,542 ) (22,173 ) Accounts receivable, net $ 1,983,427 $ 1,610,286 |
E. ACCRUED LIABILITIES AND EX24
E. ACCRUED LIABILITIES AND EXPENSES (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Payables and Accruals [Abstract] | |
Accrued Liabilities and Expenses | June 30, December 31, Accrued liabilities and expenses $ 387,920 $ 294,709 Accrued payroll and payroll taxes 243,908 230,931 Accrued sales taxes, penalties, and interest 42,330 83,282 Product warranties 60,622 59,892 Total accrued liabilities and expenses $ 734,780 $ 668,814 |
I. STOCK OPTIONS AND WARRANTS (
I. STOCK OPTIONS AND WARRANTS (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
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 2,000,000 8.51 $ 0.14 2,000,000 $ 0.14 $ 0.16 - $0.99 1,307,399 4.98 0.20 1,127,399 0.20 3,307,399 7.12 $ 0.16 3,127,399 $ 0.16 |
Option activity | Number of Weighted Average Outstanding at January 1, 2017 2,832,725 $ 0.18 Granted 3,000,000 0.14 Exercised – – Cancelled or expired (1,456,251 ) 0.17 Outstanding at December 31, 2017 4,376,474 $ 0.16 Granted – – Exercised – – Cancelled or expired (1,069,075 ) 0.14 Outstanding at June 30, 2018 3,307,399 $ 0.16 |
Warrants outstanding and exercisable | Warrants Outstanding Warrants Exercisable Exercise Prices Number Weighted Average Weighted Average Number Weighted Average $ 0.20 250,000 3.27 $ 0.20 250,000 $ 0.20 |
Warrant activity | Number of Weighted Average Outstanding at January 1, 2017 300,000 $ 0.20 Issued – – Exercised – – Cancelled or expired (50,000 ) 0.18 Outstanding at December 31, 2017 250,000 0.20 Issued – – Exercised – – Cancelled or expired – – Outstanding at June 30, 2018 250,000 $ 0.20 |
K. COMMITMENTS AND CONTINGENC26
K. COMMITMENTS AND CONTINGENCIES (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Office Lease Obligations | 2018 (remainder of) $ 104,543 2019 159,242 2020 164,903 2021 182,512 2022 190,141 2023 and thereafter 573,883 Total $ 1,375,224 |
Sales tax accrual | June 30, December 31, 2017 Balance, beginning of year $ 83,282 $ 274,869 Sales tax collected 41,817 297,673 Provisions 23,181 (33,000 ) Interest and penalties – (5,890 ) Payments (105,950 ) (450,370 ) Balance, end of period $ 42,330 $ 83,282 |
M. DISCONTINUED OPERATIONS (Tab
M. DISCONTINUED OPERATIONS (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Schedule of discontinued operations activity | Three Months Ended June 30, Six Months Ended June 30, 2018 2017 2018 2017 Revenues, net: Product $ – $ – $ – $ 653,839 Recurring – – – 925,837 Total Net Revenue – – – 1,579,676 Cost of Sales: Product – (10,225 ) – 414,604 Recurring – 689 – 209,868 Total Cost of Sales – (9,536 ) – 624,472 Gross Profit – 9,536 – 955,204 Operating Expenses: Selling, general and administrative – (9,924 ) – 252,110 Depreciation and amortization – – – 60,420 Total Operating Expenses – (9,924 ) – 312,530 Income from Discontinued Operations before Provision for Income Taxes – 19,460 – 642,674 Provision for Income Taxes – 605 – 52,017 Income from Discontinued Operations (net of tax) $ – $ 18,855 $ – $ 590,657 |
A. BASIS OF PRESENTATION AND 28
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details-Product warranties) - USD ($) | 6 Months Ended | 12 Months Ended |
Jun. 30, 2018 | Dec. 31, 2017 | |
Product warranties | ||
Beginning balance | $ 59,892 | $ 95,540 |
Warranty claims incurred | (7,117) | (84,087) |
Provision charged to expense | 7,847 | 48,439 |
Ending balance | $ 60,622 | $ 59,892 |
A. BASIS OF PRESENTATION AND 29
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | ||||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | Dec. 31, 2017 | Dec. 31, 2016 | |
Accounting Policies [Abstract] | ||||||
Net loss | $ (206,582) | $ (869,406) | $ (1,390,748) | $ (2,163,644) | ||
Cash used in operating activities | (2,179,004) | $ (1,770,068) | ||||
Accumulated deficit | (121,545,404) | (121,545,404) | $ (119,724,656) | |||
Working capital | 7,723,791 | $ 7,723,791 | ||||
Shares excluded from EPS calculation | 3,557,399 | 5,701,800 | ||||
Guarantees and product warranty return percentage | 1% to 2% | |||||
Warranty liabilities | $ 60,622 | $ 60,622 | $ 59,892 | $ 95,540 |
C. REVENUE (Details - Product a
C. REVENUE (Details - Product and recurring revenues) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Revenues | $ 2,974,162 | $ 2,124,123 | $ 4,579,358 | $ 4,037,350 |
Recurring [Member] | ||||
Revenues | 153,357 | 110,201 | 254,895 | 213,043 |
Product [Member] | ||||
Revenues | 2,820,805 | $ 2,013,922 | 4,324,463 | $ 3,824,307 |
Hospitality [Member] | ||||
Revenues | 2,195,453 | 3,767,870 | ||
Hospitality [Member] | Recurring [Member] | ||||
Revenues | 133,468 | 224,730 | ||
Hospitality [Member] | Product [Member] | ||||
Revenues | 2,061,985 | 3,543,140 | ||
Education [Member] | ||||
Revenues | 656,713 | 661,238 | ||
Education [Member] | Recurring [Member] | ||||
Revenues | 11,055 | 21,310 | ||
Education [Member] | Product [Member] | ||||
Revenues | 645,658 | 639,928 | ||
Multiple Dwelling Units [Member] | ||||
Revenues | 56,470 | 76,817 | ||
Multiple Dwelling Units [Member] | Recurring [Member] | ||||
Revenues | 8,834 | 8,855 | ||
Multiple Dwelling Units [Member] | Product [Member] | ||||
Revenues | 47,636 | 67,962 | ||
Government [Member] | ||||
Revenues | 65,526 | 73,433 | ||
Government [Member] | Recurring [Member] | ||||
Revenues | 0 | 0 | ||
Government [Member] | Product [Member] | ||||
Revenues | $ 65,526 | $ 73,433 |
C. REVENUE (Details - Impacts o
C. REVENUE (Details - Impacts on income statement) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Sales | $ 2,974,162 | $ 2,124,123 | $ 4,579,358 | $ 4,037,350 |
Cost of Goods Sold | 1,443,211 | 1,098,541 | 2,497,445 | 2,136,604 |
Net loss | 206,582 | $ 869,406 | 1,390,748 | $ 2,163,644 |
Without Adoption of ASC 606 [Member] | ||||
Sales | 3,054,562 | 4,762,758 | ||
Cost of Goods Sold | 1,466,011 | 2,554,746 | ||
Net loss | 148,982 | 1,264,648 | ||
Effect of Change [Member] | ||||
Sales | (80,400) | (183,400) | ||
Cost of Goods Sold | (22,800) | (57,300) | ||
Net loss | $ 57,600 | $ 126,100 |
C. REVENUE (Details - Impacts32
C. REVENUE (Details - Impacts on Balance Sheet) - USD ($) | Jun. 30, 2018 | Dec. 31, 2017 |
ASSETS | ||
Contract Assets | $ 353,684 | $ 0 |
Accounts receivable, net | 0 | |
Inventories | 982,568 | 1,259,536 |
Liabilities | ||
Contract Liabilities | 1,047,010 | 0 |
Customer Deposits | 0 | 124,380 |
Deferred revenues - current | 0 | 292,106 |
Deferred Revenue - Long Term | 0 | $ 219,960 |
Equity | ||
Accumulated Deficit | 0 | |
Without Adoption of ASC 606 [Member] | ||
ASSETS | ||
Contract Assets | 0 | |
Accounts receivable, net | 107,900 | |
Inventories | 1,118,769 | |
Liabilities | ||
Contract Liabilities | 0 | |
Customer Deposits | (51,062) | |
Deferred revenues - current | 47,439 | |
Deferred Revenue - Long Term | 253,364 | |
Equity | ||
Accumulated Deficit | 556,100 | |
Effect of Change [Member] | ||
ASSETS | ||
Contract Assets | 353,684 | |
Accounts receivable, net | (107,900) | |
Inventories | (136,201) | |
Liabilities | ||
Contract Liabilities | 1,047,010 | |
Customer Deposits | 51,062 | |
Deferred revenues - current | (47,439) | |
Deferred Revenue - Long Term | (253,364) | |
Equity | ||
Accumulated Deficit | $ (556,100) |
C. REVENUE (Details - cumulativ
C. REVENUE (Details - cumulative effect of the changes to Balance Sheet) - USD ($) | Jun. 30, 2018 | Jan. 02, 2018 | Dec. 31, 2017 |
ASSETS | |||
Contract Assets | $ 353,684 | $ 0 | |
Inventories | 777,202 | ||
Liabilities | |||
Contract Liabilities | 1,047,010 | 0 | |
Equity | |||
Accumulated deficit | $ (121,545,404) | (119,724,656) | |
Transition Adjustments [Member] | |||
ASSETS | |||
Contract Assets | 110,000 | ||
Inventories | 239,000 | ||
Liabilities | |||
Contract Liabilities | 779,000 | ||
Equity | |||
Accumulated deficit | $ (430,000) | ||
Restated [Member] | |||
ASSETS | |||
Contract Assets | $ 110,000 | ||
Inventories | 1,016,202 | ||
Liabilities | |||
Contract Liabilities | 779,000 | ||
Equity | |||
Accumulated deficit | $ (120,154,656) |
D. ACCOUNTS RECEIVABLE (Details
D. ACCOUNTS RECEIVABLE (Details) - USD ($) | Jun. 30, 2018 | Dec. 31, 2017 |
Components of accounts receivable | ||
Accounts receivable | $ 1,996,969 | $ 1,632,459 |
Allowance for doubtful accounts | (13,542) | (22,173) |
Accounts receivable, net | $ 1,983,427 | $ 1,610,286 |
E. ACCRUED LIABILITIES AND EX35
E. ACCRUED LIABILITIES AND EXPENSES (Details) - USD ($) | Jun. 30, 2018 | Dec. 31, 2017 | Dec. 31, 2016 |
Accrued liabilities and expenses | |||
Accrued liabilities and expenses | $ 387,920 | $ 294,709 | |
Accrued payroll and payroll taxes | 243,908 | 230,931 | |
Accrued sales taxes, penalties, and interest | 42,330 | 83,282 | |
Product warranties | 60,622 | 59,892 | $ 95,540 |
Total accrued liabilities and expenses | $ 734,780 | $ 668,814 |
F. DEBT (Details Narrative)
F. DEBT (Details Narrative) - USD ($) | 6 Months Ended | 12 Months Ended |
Jun. 30, 2018 | Dec. 31, 2017 | |
Debt Instrument [Line Items] | ||
Line of credit balance | $ 0 | $ 682,211 |
Effective interest rate | 7.50% | |
Loan and Security Agreement [Member] | Heritage Bank [Member] | ||
Debt Instrument [Line Items] | ||
Line of credit interest rate description | Prime rate plus 3.00% | |
Line of credit maturity date | Sep. 30, 2019 | |
Line of credit balance | $ 0 | $ 682,211 |
Line of credit remaining borrowing capacity | $ 1,622,000 | $ 202,000 |
Effective interest rate | 8.00% |
G. PREFERRED STOCK (Details Nar
G. PREFERRED STOCK (Details Narrative) - USD ($) | Jun. 30, 2018 | Dec. 31, 2017 |
Series B Preferred Stock [Member] | ||
Liquidation preference | $ 424,583 | $ 414,258 |
Unpaid dividends | 164,583 | 154,258 |
Series A Preferred Stock [Member] | ||
Liquidation preference | 1,562,848 | 1,526,141 |
Unpaid dividends | $ 637,848 | $ 601,141 |
H. CAPITAL STOCK (Details Narra
H. CAPITAL STOCK (Details Narrative) - $ / shares | Jun. 30, 2018 | Dec. 31, 2017 |
Statement of Financial Position [Abstract] | ||
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 190,000,000 | 190,000,000 |
Common stock, shares outstanding | 133,989,919 | 133,695,111 |
Common stock, shares issued | 133,989,919 | 133,695,111 |
I. STOCK OPTIONS AND WARRANTS39
I. STOCK OPTIONS AND WARRANTS (Details-Options Outstanding and Exercisable) - Employee Stock Options [Member] - $ / shares | 6 Months Ended | ||
Jun. 30, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items] | |||
Options Outstanding Number Outstanding | 3,307,399 | 4,376,474 | 2,832,725 |
Options Outstanding Weighted Average Remaining Contractual Life (Years) | 7 years 1 month 13 days | ||
Options Outstanding Weighted Average Exercise Price | $ 0.16 | $ 0.16 | $ 0.18 |
Options Exercisable Number Exercisable | 3,127,399 | ||
Options Exercisable Weighted Average Exercise Price | $ 0.16 | ||
$0.01 - $0.15 [Member] | |||
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items] | |||
Options Outstanding Number Outstanding | 2,000,000 | ||
Options Outstanding Weighted Average Remaining Contractual Life (Years) | 8 years 6 months 4 days | ||
Options Outstanding Weighted Average Exercise Price | $ 0.14 | ||
Options Exercisable Number Exercisable | 2,000,000 | ||
Options Exercisable Weighted Average Exercise Price | $ 0.14 | ||
$0.16 - $0.99 [Member] | |||
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items] | |||
Options Outstanding Number Outstanding | 1,307,399 | ||
Options Outstanding Weighted Average Remaining Contractual Life (Years) | 4 years 11 months 23 days | ||
Options Outstanding Weighted Average Exercise Price | $ 0.2 | ||
Options Exercisable Number Exercisable | 1,127,399 | ||
Options Exercisable Weighted Average Exercise Price | $ 0.20 |
I. STOCK OPTIONS AND WARRANTS40
I. STOCK OPTIONS AND WARRANTS (Details-Option Activity) - Employee Stock Options [Member] - $ / shares | 6 Months Ended | 12 Months Ended |
Jun. 30, 2018 | Dec. 31, 2017 | |
Number of shares | ||
Number of shares - beginning balance | 4,376,474 | 2,832,725 |
Number of shares - granted | 0 | 3,000,000 |
Number of shares - exercised | 0 | 0 |
Number of shares - cancelled or expired | (1,069,075) | (1,456,251) |
Number of shares - ending balance | 3,307,399 | 4,376,474 |
Weighted Average Price Per Share | ||
Weighted average price per share - beginning balance | $ 0.16 | $ 0.18 |
Weighted average price per share - granted | 0.14 | |
Weighted average price per share - exercised | ||
Weighted average price per share - cancelled or expired | 0.14 | 0.17 |
Weighted average price per share - ending balance | $ 0.16 | $ 0.16 |
I. STOCK OPTIONS AND WARRANTS41
I. STOCK OPTIONS AND WARRANTS (Details-Warrants Outstanding and Exercisable) - Warrant [Member] - $ / shares | 6 Months Ended | ||
Jun. 30, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Warrants Outstanding, Number Outstanding | 250,000 | 250,000 | 300,000 |
Weighted Average Exercise Price | $ 0.20 | $ 0.20 | $ 0.20 |
$0.20 [Member] | |||
Warrants Outstanding, Number Outstanding | 250,000 | ||
Warrants Outstanding, Weighted Average Remaining Contractual Life (Years) | 3 years 3 months 7 days | ||
Weighted Average Exercise Price | $ 0.20 | ||
Warrants Exercisable, Number Exercisable | 250,000 | ||
Warrants Exercisable, Weighted Average Exercise Price | $ 0.20 |
I. STOCK OPTIONS AND WARRANTS42
I. STOCK OPTIONS AND WARRANTS (Details-Warrant Activity) - Warrant [Member] - $ / shares | 6 Months Ended | 12 Months Ended |
Jun. 30, 2018 | Dec. 31, 2017 | |
Number of shares - beginning balance | 250,000 | 300,000 |
Number of shares - issued | 0 | 0 |
Number of shares - exercised | 0 | 0 |
Number of shares - cancelled or expired | 0 | (50,000) |
Number of shares - ending balance | 250,000 | 250,000 |
Weighted average price per share - beginning balance | $ 0.20 | $ 0.20 |
Weighted average price per share - issued | ||
Weighted average price per share - exercised | ||
Weighted average price per share - cancelled or expired | 0.18 | |
Weighted average price per share - ending balance | $ 0.20 | $ 0.20 |
I. STOCK OPTIONS AND WARRANTS43
I. STOCK OPTIONS AND WARRANTS (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||
Stock-based compensation expense | $ 1,531 | $ 3,516 | $ 3,061 | $ 318,202 |
J. RELATED PARTY TRANSACTIONS (
J. RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) | 6 Months Ended | 12 Months Ended |
Jun. 30, 2018 | Dec. 31, 2017 | |
Non-Employee Directors [Member] | ||
Stock issued for compensation, value | $ 36,000 | $ 144,000 |
Chief Executive Officer [Member] | ||
Stock options granted | 1,000,000 | |
Bonus paid on sale of EthoStream | $ 29,250 | |
Chief Technology Officer [Member] | ||
Stock options granted | 1,000,000 | |
Bonus paid on sale of EthoStream | $ 29,250 | |
Chief Operating Officer [Member] | ||
Stock options granted | 1,000,000 | |
Bonus paid on sale of EthoStream | $ 29,250 |
K. COMMITMENTS AND CONTINGENC45
K. COMMITMENTS AND CONTINGENCIES (Details-Lease Commitments) | Jun. 30, 2018USD ($) |
Commitments and Contingencies Disclosure [Abstract] | |
2018 (remainder of) | $ 104,543 |
2,019 | 159,242 |
2,020 | 164,903 |
2,021 | 182,512 |
2,022 | 190,141 |
2023 and thereafter | 573,883 |
Total | $ 1,375,224 |
K. COMMITMENTS AND CONTINGENC46
K. COMMITMENTS AND CONTINGENCIES (Details-Sales Tax Accrual) - USD ($) | 6 Months Ended | 12 Months Ended |
Jun. 30, 2018 | Dec. 31, 2017 | |
Change in the sales tax accrual | ||
Balance, Beginning of year | $ 83,282 | $ 274,869 |
Sales tax collected | 41,817 | 297,673 |
Provisions | 23,181 | (33,000) |
Interest and penalties | 0 | (5,890) |
Payments | (105,950) | (450,370) |
Balance, End of period | $ 42,330 | $ 83,282 |
K. COMMITMENTS AND CONTINGENC47
K. COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | ||||
Rent expenses | $ 170,949 | $ 114,167 | $ 87,067 | $ 80,147 |
L. BUSINESS CONCENTRATION (Deta
L. BUSINESS CONCENTRATION (Details Narrative) - USD ($) | 6 Months Ended | 12 Months Ended | |
Jun. 30, 2018 | Jun. 30, 2017 | Dec. 31, 2017 | |
One Supplier [Member] | |||
Due to suppliers | $ 490,000 | $ 33,000 | |
Sales Revenue, Net [Member] | One Customer [Member] | |||
Concentration percentage | 11.00% | ||
Accounts Receivable [Member] | Four Customers [Member] | |||
Concentration percentage | 54.00% | ||
Accounts Receivable [Member] | Three Customers [Member] | |||
Concentration percentage | 54.00% | ||
Supplier Concentration Risk [Member] | One Supplier [Member] | |||
Concentration percentage | 88.00% | 84.00% | |
Purchases from major suppliers | $ 1,975,000 | $ 1,439,000 |
M. DISCONTINUED OPERATIONS (Det
M. DISCONTINUED OPERATIONS (Details - Income Statement) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Income from Discontinued Operations (net of tax) | $ 0 | $ 18,855 | $ 0 | $ 590,657 |
Segment Discontinued Operations [Member] | ||||
Revenues - Product | 0 | 0 | 0 | 653,839 |
Revenues - Recurring | 0 | 0 | 0 | 925,837 |
Total Net Revenue | 0 | 0 | 0 | 1,579,676 |
Cost of Sales - Product | 0 | (10,225) | 0 | 414,604 |
Cost of Sales - Recurring | 0 | 689 | 0 | 209,868 |
Total Cost of Sales | 0 | (9,536) | 0 | 624,472 |
Gross Profit | 0 | 9,536 | 0 | 955,204 |
Selling, general and administrative | 0 | (9,924) | 0 | 252,110 |
Depreciation and amortization | 0 | 0 | 0 | 60,420 |
Total Operating Expenses | 0 | (9,924) | 0 | 312,530 |
Income from Discontinued Operations before Provision for Income Taxes | 0 | 19,460 | 0 | 642,674 |
Provision for Income Taxes | 0 | 605 | 0 | 52,017 |
Income from Discontinued Operations (net of tax) | $ 0 | $ 18,855 | $ 0 | $ 590,657 |