Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2019 | Mar. 23, 2020 | Jun. 28, 2019 | |
Cover [Abstract] | |||
Entity Registrant Name | TELKONET INC | ||
Entity Central Index Key | 0001094084 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2019 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Entity a Well-known Seasoned Issuer | No | ||
Entity a Voluntary Filer | No | ||
Entity's Reporting Status Current | Yes | ||
Entity Filer Category | Non-accelerated Filer | ||
Entity Public Float | $ 14,727,180 | ||
Entity Common Stock, Shares Outstanding | 135,990,491 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2019 | ||
Entity Emerging Growth | false | ||
Entity Small Business | true | ||
Entity Shell Company | false | ||
Entity FIle Number | 001-31972 | ||
Entity Interactive data current | Yes | ||
Entity Incorporation State | UT |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Current assets: | ||
Cash and cash equivalents | $ 3,300,600 | $ 4,678,891 |
Accounts receivable, net | 2,283,587 | 1,081,291 |
Inventories | 1,373,074 | 1,790,919 |
Contract assets | 188,120 | 314,749 |
Prepaid expenses | 251,619 | 577,386 |
Income taxes receivable | 85,070 | 19,695 |
Total current assets | 7,482,070 | 8,462,931 |
Property and equipment, net | 186,525 | 247,289 |
Other assets: | ||
Deposits | 17,130 | 17,130 |
Operating lease right of use assets | 892,170 | 0 |
Deferred tax asset | 28,021 | 0 |
Total other assets | 937,321 | 17,130 |
Total Assets | 8,605,916 | 8,727,350 |
Current liabilities: | ||
Accounts payable | 1,265,560 | 408,045 |
Accrued liabilities | 527,826 | 656,611 |
Line of credit | 624,347 | 121,474 |
Contract liabilities - current | 653,053 | 1,070,502 |
Operating lease liabilities - current | 223,835 | 0 |
Total current liabilities | 3,294,621 | 2,256,632 |
Long-term liabilities: | ||
Contract liabilties - long-term | 111,131 | 162,121 |
Operating lease liabilities - long-term | 758,315 | 0 |
Deferred lease liability - long-term | 0 | 71,877 |
Total long-term liabilities | 869,446 | 233,998 |
Total Liabilities | 4,164,067 | 2,490,630 |
Commitments and contingencies | 0 | 0 |
Stockholders' Equity | ||
Common stock, par value $.001 per share; 190,000,000 shares authorized; 135,990,491 and 134,793,211 shares issued and outstanding at December 31, 2019 and 2018, respectively | 135,990 | 134,792 |
Additional paid-in-capital | 127,708,773 | 127,570,709 |
Accumulated deficit | (125,105,539) | (123,171,406) |
Total stockholders' equity | 4,441,849 | 6,236,720 |
Total Liabilities and Stockholders' Equity | 8,605,916 | 8,727,350 |
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 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Preferred stock, shares authorized | 15,000,000 | 15,000,000 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 190,000,000 | 190,000,000 |
Common stock, shares issued | 135,990,491 | 134,793,211 |
Common stock, shares outstanding | 135,990,491 | 134,793,211 |
Series A Preferred Stock [Member] | ||
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 215 | 215 |
Preferred stock, shares outstanding | 185 | 185 |
Preferred stock, liquidiation preference | $ 1,674,195 | $ 1,600,168 |
Series B Preferred Stock [Member] | ||
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 567 | 567 |
Preferred stock, shares outstanding | 52 | 52 |
Preferred stock, liquidiation preference | $ 455,904 | $ 435,081 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Total Net Revenues | $ 11,982,196 | $ 8,431,979 |
Total Cost of Sales | 7,004,994 | 4,662,086 |
Gross Profit | 4,977,202 | 3,769,893 |
Operating Expenses: | ||
Research and development | 1,737,385 | 1,879,676 |
Selling, general and administrative | 5,155,092 | 4,843,859 |
Depreciation and amortization | 66,082 | 67,107 |
Total Operating Expenses | 6,958,559 | 6,790,642 |
Operating Loss | (1,981,357) | (3,020,749) |
Other Income (Expenses): | ||
Gain on sale of fixed assets | 150 | 0 |
Interest income (expense), net | (53,289) | 13,622 |
Total Other Income (Expense) | (53,139) | 13,622 |
Loss before Provision for Income Taxes | (2,034,496) | (3,007,127) |
Provision for Income Taxes | (100,363) | 9,623 |
Net Loss Attributable to Common Stockholders | $ (1,934,133) | $ (3,016,750) |
Net Loss per Common Share: | ||
Basic - net loss attributable to common stockholders | $ (0.01) | $ (0.02) |
Diluted - net loss attributable to common stockholders | $ (0.01) | $ (0.02) |
Weighted Average Common Shares Outstanding used in computing basic net loss per share | 135,213,641 | 134,055,098 |
Weighted Average Common Shares Outstanding used in computing diluted net loss per share | 135,213,641 | 134,055,098 |
Product [Member] | ||
Total Net Revenues | $ 11,212,854 | $ 7,616,415 |
Total Cost of Sales | 6,703,494 | 4,392,643 |
Recurring [Member] | ||
Total Net Revenues | 769,342 | 815,564 |
Total Cost of Sales | $ 301,500 | $ 269,443 |
CONSOLIDATED STATEMENTS OF STOC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - 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 directors, shares | 1,098,100 | |||||
Shares issued to directors, value | $ 1,097 | 142,903 | 144,000 | |||
Stock-based compensation expense related to employee stock options | 6,404 | 6,404 | ||||
Net income attributable to common stockholders | (3,016,750) | (3,016,750) | ||||
Ending Balance, Shares at Dec. 31, 2018 | 185 | 52 | 134,793,211 | |||
Ending Balance, Amount at Dec. 31, 2018 | $ 1,340,566 | $ 362,059 | $ 134,792 | 127,570,709 | (123,171,406) | 6,236,720 |
Shares issued directors, shares | 1,197,280 | |||||
Shares issued to directors, value | $ 1,198 | 130,802 | 132,000 | |||
Stock-based compensation expense related to employee stock options | 7,262 | 7,262 | ||||
Net income attributable to common stockholders | (1,934,133) | (1,934,133) | ||||
Ending Balance, Shares at Dec. 31, 2019 | 185 | 52 | 135,990,491 | 135,990 | ||
Ending Balance, Amount at Dec. 31, 2019 | $ 1,340,566 | $ 362,059 | $ 135,990 | $ 127,708,773 | $ (125,105,539) | $ 4,441,849 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Cash Flows from Operating Activities: | ||
Net loss | $ (1,934,133) | $ (3,016,750) |
Adjustments to reconcile net loss to cash used in operating activities: | ||
Stock-based compensation expense related to employee stock options | 7,262 | 6,404 |
Stock issued to directors as compensation | 132,000 | 144,000 |
Depreciation and amortization | 66,082 | 67,107 |
Provision for doubtful accounts, net of recoveries | 0 | 55,152 |
Reserve for inventory obsolescence | (126,509) | (130,749) |
Noncash operating lease expense | 237,901 | 0 |
Changes in operating assets and liabilities: | ||
Accounts receivable | (1,202,296) | 473,845 |
Inventories | 544,354 | (400,637) |
Prepaid expenses and other current assets | 325,767 | (433,820) |
Accounts payable | 857,515 | (570,162) |
Accrued liabilities and expenses | (128,785) | (12,203) |
Contract liability | (468,439) | 329,243 |
Contract assets | 126,629 | 34,251 |
Operating lease liability | (219,798) | 0 |
Deferred revenue | 0 | (512,066) |
Income taxes receivable | (93,396) | (2,395) |
Deferred lease liability | 0 | 23,038 |
Net Cash Used In Operating Activities | (1,875,846) | (3,945,742) |
Cash Flows From Investing Activities: | ||
Purchase of property and equipment | (5,318) | (10,225) |
Net Cash Used In Investing Activities | (5,318) | (10,225) |
Cash Flows From Financing Activities: | ||
Proceeds from line of credit | 11,739,000 | 3,720,000 |
Payments on line of credit | (11,236,127) | (4,280,737) |
Net Cash Provided (Used in) Financing Activities | 502,873 | (560,737) |
Net decrease in cash and cash equivalents | (1,378,291) | (4,516,704) |
Cash and cash equivalents at the beginning of the period | 4,678,891 | 9,195,595 |
Cash and cash equivalents at the end of the period | 3,300,600 | 4,678,891 |
Cash transactions: | ||
Cash paid during the year for interest | 83,109 | 32,662 |
Cash paid (received) during the year for income taxes, net of refunds | (6,967) | 12,410 |
Non-cash transactions: | ||
Issuance of stock to directors | $ 132,000 | $ 144,000 |
RECONCILIATION OF CASH
RECONCILIATION OF CASH - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 |
Statement of Financial Position [Abstract] | |||
Cash and cash equivalents | $ 3,300,600 | $ 4,678,891 | $ 9,195,595 |
Total cash and cash equivalents | $ 3,300,600 | $ 4,678,891 |
A. BASIS OF PRESENTATION AND SI
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 2019 | |
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 consolidated financial statements follows. Business and Basis of Presentation Telkonet, Inc. (the “Company”, “Telkonet”), formed in 1999 and incorporated under the laws of the state of Utah, is the creator of the EcoSmart Platform of intelligent automation solutions designed to optimize energy efficiency, comfort and analytics in support of the emerging Internet of Things (“IoT”). 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, educational, governmental and other commercial markets. The EcoSmart platform is recognized as a solution for reducing energy consumption, operational costs and carbon footprints, and eliminating the need for new energy generation in these marketplaces – all whilst improving occupant comfort and convenience. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Telkonet Communications, Inc., operating as a single reportable business segment. Going Concern and Management’s Plan The accompanying financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future and, thus, do not include any adjustments relating to the recoverability and classification of assets and liabilities that may be necessary if the Company is unable to continue as a going concern. Since inception through December 31, 2019, we have incurred cumulative losses of $125,105,539 and have never generated enough funds through operations to support our business. For the year ended December 31, 2019, the Company had negative operating cash flow of $1,875,846 from operations. The Company’s ability to continue as a going concern is dependent upon generating profitable operations in the future and obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. There can be no assurance that the Company will be able to secure such financing at commercially reasonable terms, if at all. If cash resources become insufficient to meet the Company’s ongoing obligations, the Company will be required to scale back or discontinue portions of its operations or discontinue operations entirely, whereby, the Company’s shareholders may lose some or all of their investment. The Company’s Board also continues to consider strategic alternatives to maximize shareholder value, including but not limited to, a sale of the Company, an investment in the Company, a merger or other business combination, a sale of all or substantially all assets or a strategic joint venture. However, these actions are not solely within the control of the Company. At March 30, 2020, no definitive alternatives had been identified. During the second half of 2019, the Company began initiating a number of cost elimination and liquidity management actions, including, reviewing opportunities to decrease spend with third party consultants and providers, strategically reviewing whether or not to fill employee positions in the event of vacancies, and implementing sales campaigns to sell slow-moving inventory and reducing existing inventory volumes. Management expects these actions will continue to reduce operating losses. The full impact of these actions is not expected to be reflected in the Company’s financial statements in the next twelve months. There is no guarantee these actions, nor any other actions identified, will yield profitable operations in the foreseeable future. On January 30, 2020 the World Health Organization (“WHO”) announced a global health emergency because of a new strain of a novel coronavirus in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of operations. In March 2020, the World Health Organization classified the COVID-19 outbreak a pandemic, based on the rapid increase in exposure globally. The spread of the COVID-19 outbreak has caused significant volatility and uncertainty in U.S. and international markets. The COVID-19 outbreak has and could continue to impact demand for our products, customers’ ability to meet payment obligations to the Company, our supply chain and production capabilities, and our workforces’ ability to deliver our products and services. At this time, the disruption is expected to be temporary; however, the length or severity of this pandemic is unknown. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. While we expect this disruption to have a material adverse impact our results of operations, financial condition and cash flows for the year 2020, the Company is unable to reasonably determine the impact at this time. Refer to Note P for further detail on this matter. At December 31, 2019, the Company had approximately $3,300,600 of cash and approximately $424,000 of availability on its credit facility. The Company currently expects to draw on these cash reserves and utilize the credit facility to finance its near term working capital needs. It expects to continue to incur operating losses and negative operating cash flows for one year beyond the date of these financial statements. The Credit Facility provides us with needed liquidity to assist in meeting our obligations or pursuing strategic objectives. Continued operating losses will deplete these cash reserves and could result in a violation of the financial covenants. Consequently, repayment of amounts borrowed 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 occurrence of any of these events could have a material adverse effect on our business and results of operations. Accordingly, and in light of the Company’s historic losses, there is substantial doubt about the Company’s ability to continue as a going concern. Concentrations of Credit Risk Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and trade receivables. The Company places its cash and temporary cash investments with credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit. The Company has never experienced any losses related to these balances. With respect to trade receivables, the Company performs ongoing credit evaluations of its customers’ financial conditions and limits the amount of credit extended when deemed necessary. The Company provides credit to its customers primarily in the United States in the normal course of business. The Company routinely assesses the financial strength of its customers and, as a consequence, believes its trade receivables credit risk exposure is limited. Cash and Cash Equivalents The Company considers all highly liquid debt instruments purchased with an original maturity date of three months or less to be cash equivalents. Accounts Receivable Accounts receivable are uncollateralized customer obligations due under normal trade terms. The Company records allowances for doubtful accounts based on customer-specific analysis and general matters such as current assessment of past due balances and economic conditions. The Company writes off accounts receivable when they become uncollectible. The allowance for doubtful accounts was $55,039 and $65,542 at December 31, 2019 and 2018, respectively. Management identifies a delinquent customer based upon the delinquent payment status of an outstanding invoice, generally greater than 30 days past due date. The delinquent account designation does not trigger an accounting transaction until such time the account is deemed uncollectible. The allowance for doubtful accounts is determined by examining the reserve history and any outstanding invoices that are over 30 days past due as of the end of the reporting period. Accounts are deemed uncollectible on a case-by-case basis, at management’s discretion based upon an examination of the communication with the delinquent customer and payment history. Typically, accounts are only escalated to “uncollectible” status after multiple attempts at collection have proven unsuccessful. The allowance for doubtful accounts for the years ended December 31 are as follows: 2019 2018 Beginning balance $ 65,542 $ 22,173 Provision charged to expense 29,849 55,152 Deductions (40,352 ) (11,783 ) Ending balance $ 55,039 $ 65,542 Inventories Inventories consist of thermostats, sensors and controllers for Telkonet’s EcoSmart product platform. These inventories are purchased for resale and do not include manufacturing labor and overhead. Inventories are stated at the lower of cost or net realizable value determined by the first in, first out (FIFO) method. The Company’s inventories are subject to technological obsolescence. Management evaluates the net realizable value of its inventories on a quarterly basis and when it is determined that the Company’s carrying cost of such excess and obsolete inventories cannot be recovered in full, a charge is taken against income for the difference between the carrying cost and the estimated realizable amount. The reserve for inventory obsolescence balance was approximately $241,000 and $114,000 for the years ended December 31, 2019, and 2018, respectively. Property and Equipment In accordance with Accounting Standards Codification ASC 360 “Property Plant and Equipment ” Fair Value of Financial Instruments The Company accounts for the fair value of financial instruments in accordance with ASC 820, which defines fair value for accounting purposes, established a framework for measuring fair value and expanded disclosure requirements regarding fair value measurements. Fair value is defined as an exit price, which is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. The degree of judgment utilized in measuring the fair value of assets and liabilities generally correlates to the level of pricing observability. Financial assets and liabilities with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in active markets generally have more pricing observability and require less judgment in measuring fair value. Conversely, financial assets and liabilities that are rarely traded or not quoted have less price observability and are generally measured at fair value using valuation models that require more judgment. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency of the asset, liability or market and the nature of the asset or liability. The Company categorizes financial assets and liabilities that are recurring, at fair value into a three-level hierarchy in accordance with these provisions. · Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; · Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or · Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and are unobservable. The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, and certain accrued liabilities. The carrying amounts of these assets and liabilities approximate fair value due to the short maturity of these instruments (Level 1 instruments), except for the line of credit. The carrying amount of the line of credit approximates fair value due to the interest rate and terms approximating those available to the Company for similar obligations (Level 2 instruments). Long-Lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10. Recoverability is measured by comparison of the carrying amount to the future net cash flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. Based on the assessment for impairment performed during 2019 and 2018, no impairment was recorded. Income (Loss) per Common Share The Company computes earnings per share under ASC 260-10, “Earnings Per Share”. Basic net income (loss) per common share is computed using the weighted average shares outstanding. Diluted 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 both years ended December 31, 2019 and 2018, there were 3,599,793 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 follows 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 de-recognition, classification, treatment of interest and penalties, and disclosure of such positions. 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, the Standard 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 technical phone support services to customers. This service is 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. 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 technical phone support services revenue and recognized on a straight-line basis over the term of the contract. 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. When support services are not included within the turnkey solution, the residual method is not utilized and no allocation of the transaction price to the performance obligation is necessary. 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. Revenue Recognition 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, and are presented as “Recurring Revenue” in the Statement of Operations. 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. Contract liabilities include deferrals for the monthly support service fees. Long-term contract liabilities represent support service fees that will be recognized as revenue after December 31, 2020. Contract Fulfillment Cost The Company recognizes related costs of the contract over time in relation to the revenue recognition. Costs included within the projects relate to the cost of material, direct labor and costs of outside services utilized to complete projects. These are presented as “Contract assets” in the consolidated balance sheets. Sales Taxes Unless provided with a resale or tax exemption certificate, the Company assesses and collects sales tax on sales transactions and records the amount as a liability. It is recognized as a liability until remitted to the applicable state. Total revenues do not include sales tax as the Company is considered a pass through conduit for collecting and remitting sales taxes. Guarantees and Product Warranties The Company records a liability for potential warranty claims in cost of sales at the time of sale. The amount of the liability is based on the trend in the historical ratio of claims to sales, the historical length of time between the sale and resulting warranty claim, new product introductions and other factors. The products sold are generally covered by a warranty for a period of one year. In the event the Company determines that its current or future product repair and replacement costs exceed its estimates, an adjustment to these reserves would be charged to earnings in the period such determination is made. For the years ended December 31, 2019 and 2018, the Company experienced returns of approximately 1% to 3% of material’s included in cost of sales. As of December 31, 2019 and 2018, the Company recorded warranty liabilities in the amount of $58,791 and $46,103, respectively, using this experience factor range. Product warranties for the years ended December 31 is as follows: 2019 2018 Beginning balance $ 46,103 $ 59,892 Warranty claims incurred (66,803 ) (28,000 ) Provision charged to expense 79,491 14,211 Ending balance $ 58,791 $ 46,103 Advertising The Company follows the policy of charging the costs of advertising to expenses as incurred. The Company incurred $54,945 and $108,632 in advertising costs during the years ended December 31, 2019 and 2018, respectively. Research and Development The Company accounts for research and development costs in accordance with the ASC 730-10, “Research and Development”. Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. Total expenditures on research and product development for 2019 and 2018 were $1,737,385 and $1,879,676, respectively. Stock-Based Compensation The Company accounts for stock-based awards in accordance with ASC 718-10, “Share-Based Compensation”, which requires a fair value measurement and recognition of compensation expense for all share-based payment awards made to the Company’s employees and directors, including employee stock options and restricted stock awards. The Company estimates the fair value of stock options granted using the Black-Scholes valuation model. This model requires the Company to make estimates and assumptions including, among other things, estimates regarding the length of time an employee will hold vested stock options before exercising them, the estimated volatility of the Company’s common stock price and the number of options that will be forfeited prior to vesting. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Changes in these estimates and assumptions can materially affect the determination of the fair value of stock-based compensation and consequently, the related amount recognized in the Company’s consolidated statements of operations. The expected term of the options represents the estimated period of time until exercise and is based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. For 2018 and prior years, expected stock price volatility is based on the historical volatility of the Company’s stock for the related expected term. Stock-based compensation expense in connection with options granted to employees for the years ended December 31, 2019 and 2018 was $7,262 and $6,404, respectively. |
B. NEW ACCOUNTING PRONOUNCEMENT
B. NEW ACCOUNTING PRONOUNCEMENTS | 12 Months Ended |
Dec. 31, 2019 | |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
NEW ACCOUNTING PRONOUNCEMENTS | NOTE B – NEW ACCOUNTING PRONOUNCEMENTS 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. In November 2019, FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses, Derivatives and Hedging, and Leases (“ASU 2019-10”), which defers the adoption of ASU 2016-13 for smaller reporting companies until January 1, 2023. The Company will continue to evaluate the impact of ASU 2016-13 on its consolidated financial statements. Management has evaluated other recently issued accounting pronouncements and does not believe any will have a significant impact on our consolidated financial statements and related disclosures. Accounting Standards Recently Adopted Effective January 1, 2019, the Company has adopted ASU 2016-02, Leases (“ASU 2016-02”), subsequently amended in 2018 by ASU 2018-10, ASU 2018-11 and ASU 2018-20 and codified in ASC 842, Leases (“ASC 842”). ASC 842 is effective for annual periods beginning after December 15, 2018 and interim periods thereafter. Earlier application was permitted, however the Company did not elect to do so. ASC 842 supersedes current lease guidance in ASC 840 and requires a lessee to recognize a right-of-use asset and a corresponding lease liability for substantially all leases. The lease liability will be equal to the present value of the remaining lease payments while the right-of-use asset will be similarly calculated and then adjusted for initial direct costs. In addition, ASC 842 expands the disclosure requirements to increase the transparency and comparability of the amount, timing and uncertainty of cash flows arising from leases. The Company chose to elect available practical expedients permitted under the guidance, which among other items, allowed the Company to carry forward its historical lease classification to not reassess leases for the definition of lease under the new standard, and to not reassess initial direct costs for existing leases. Refer below for practical expedient package adopted: · Whether expired or existing contracts contain leases under the new definition of the lease; · Lease classification for expired or existing leases; and · Whether previously capitalized initial direct costs would qualify for capitalization under ASC 842. Upon the adoption of ASC 842, the Company elected to not recognize a right-of-use asset and related lease liability for leases with an initial term of 12 months or less as an accounting policy choice and elected to account for lease and non-lease components as a single lease component. The Company elected to utilize the new alternative transition approach introduced by ASU 2018-11, under which the standard is adopted and measured from the first date of the fiscal year under adoption, in this case January 1, 2019. Comparative periods are presented in accordance with Topic 840 and do not include any retrospective adjustments to comparative periods to reflect the adoption of Topic 842. As of December 31, 2019, $0.9 million was included in total other assets, $0.2 million in total current liabilities, and $0.8 million in total long-term liabilities. There was no impact on our Condensed Consolidated Statements of Operations. Refer to Note M for further discussion. |
C. REVENUE
C. REVENUE | 12 Months Ended |
Dec. 31, 2019 | |
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 year ended December 31, 2019. Hospitality Education Multiple Dwelling Units Government Total Product $ 8,570,225 $ 1,038,660 $ 564,811 $ 1,039,158 $ 11,212,854 Recurring 604,624 140,817 23,901 – 769,342 $ 9,174,849 $ 1,179,477 $ 588,712 $ 1,039,158 $ 11,982,196 The following table presents the Company’s product and recurring revenues disaggregated by industry for the year ended December 31, 2018. Hospitality Education Multiple Dwelling Units Government Total Product $ 6,410,615 $ 652,019 $ 472,462 $ 81,319 $ 7,616,415 Recurring 668,039 128,872 18,653 – 815,564 $ 7,078,654 $ 780,891 $ 491,115 $ 81,319 $ 8,431,979 Sales taxes and other usage-based taxes are excluded from revenues. Remaining performance obligations As of December 31, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $0.8 million. Except for support services, the Company expects to recognize 100% of the remaining performance obligations over the next six months. As of December 31, 2018, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $1.68 million. Contract assets and liabilities 2019 2018 Variance Contract assets $ 188,120 $ 314,749 $ 126,629 Contract liabilities 764,184 1,232,623 (468,439 ) Net contract liabilities $ 576,064 $ 917,874 $ (341,810 ) 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. There were approximately $0.04 million of costs incurred to fulfill a contract in the closing balance of contract assets. 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. The change in the contract liability balance during the 12 month period ended December 31, 2019 is the result of cash payments received and billing in advance of satisfying performance obligations. 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. |
D. ACCOUNTS RECEIVABLE
D. ACCOUNTS RECEIVABLE | 12 Months Ended |
Dec. 31, 2019 | |
Receivables [Abstract] | |
ACCOUNTS RECEIVABLE | NOTE D – ACCOUNTS RECEIVABLE Components of accounts receivable as of December 31, 2019 and 2018 are as follows: 2019 2018 Accounts receivable $ 2,338,626 $ 1,146,832 Allowance for doubtful accounts (55,039 ) (65,541 ) Accounts receivable, net $ 2,283,587 $ 1,081,291 |
E. PROPERTY AND EQUIPMENT
E. PROPERTY AND EQUIPMENT | 12 Months Ended |
Dec. 31, 2019 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY AND EQUIPMENT | NOTE E – PROPERTY AND EQUIPMENT The Company’s property and equipment as of December 31, 2019 and 2018 consists of the following: 2019 2018 Development test equipment $ 16,461 $ 19,110 Computer software 76,134 76,134 Office equipment 66,685 61,367 Office fixtures and furniture 330,568 330,568 Leasehold improvements 18,016 18,016 Total 507,864 505,195 Accumulated depreciation and amortization (321,339 ) (257,906 ) Total property and equipment $ 186,525 $ 247,289 Depreciation and amortization expense included as a charge to income was $66,082 and $67,107 for the years ended December 31, 2019 and 2018, respectively. |
F. ACCRUED LIABILITIES AND EXPE
F. ACCRUED LIABILITIES AND EXPENSES | 12 Months Ended |
Dec. 31, 2019 | |
Payables and Accruals [Abstract] | |
ACCRUED LIABILITIES AND EXPENSES | NOTE F – ACCRUED LIABILITIES AND EXPENSES Accrued liabilities and expenses as of December 31, 2019 and 2018 are as follows : 2019 2018 Accrued liabilities and expenses $ 214,925 $ 325,855 Accrued payroll and payroll taxes 227,153 241,253 Accrued sales taxes, penalties, and interest 26,957 43,400 Product warranties 58,791 46,103 Total accrued liabilities and expenses $ 527,826 $ 656,611 |
G. DEBT
G. DEBT | 12 Months Ended |
Dec. 31, 2019 | |
Debt Disclosure [Abstract] | |
DEBT | NOTE G – DEBT Revolving Credit Facility On September 30, 2014, the Company 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 revolving credit facility in a principal amount not to exceed $2,000,000 (the “Credit Facility”). Availability of borrowings under the Credit Facility 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 7.75% at December 31, 2019 and 8.50% at December 31, 2018. 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, for further information on the accounting for warrants, refer to Note J. The warrant has an exercise price of $0.20 and expires October 9, 2021. On November 6, 2019, the eleventh amendment to the Credit Facility was executed to extend the maturity date to September 30, 2021, unless earlier accelerated under the terms of the Heritage Bank Loan Agreement, and eliminate the maximum EBITDA loss covenant. The eleventh amendment was effective as of September 30, 2019. The Heritage Bank Loan Agreement contains 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. As discussed above, the EBITDA loss covenant was eliminated in the eleventh amendment to the Credit Facility. The sole financial covenants are a minimum asset coverage ratio and a minimum unrestricted cash balance of $2 million, both of which are measured at the end of each month. 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. The outstanding balance on the Credit Facility was $624,347 and $121,474 at December 31, 2019 and 2018 and the remaining available borrowing capacity was approximately $424,000 and $499,000, respectively. As of December 31, 2019, the Company was in compliance with all financial covenants. |
H. PREFERRED STOCK
H. PREFERRED STOCK | 12 Months Ended |
Dec. 31, 2019 | |
Equity [Abstract] | |
PREFERRED STOCK | NOTE H – PREFERRED STOCK Series A The Company has authorized 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 authorized 567 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 December 31, 2019, the liquidation preference of the preferred stock is based on the following order: first, Series B with a preference value of $455,904, which includes cumulative accrued unpaid dividends of $195,904, and second, Series A with a preference value of $1,674,195, which includes cumulative accrued unpaid dividends of $749,195. As of December 31, 2018, the liquidation preference of the preferred stock is based on the following order: first, Series B with a preference value of $435,081, which includes cumulative accrued unpaid dividends of $175,081, and second, Series A with a preference value of $1,600,168, which includes cumulative accrued unpaid dividends of $675,168. |
I. CAPITAL STOCK
I. CAPITAL STOCK | 12 Months Ended |
Dec. 31, 2019 | |
Equity [Abstract] | |
CAPITAL STOCK | NOTE I – CAPITAL STOCK The Company has authorized 15,000,000 shares of preferred stock, with a par value of $.001 per share. The Company has authorized 215 shares as Series A preferred stock and 567 shares as Series B preferred stock. At December 31, 2019 and 2018, there were 185 shares of Series A and 52 shares of Series B outstanding, respectively. The Company has authorized 190,000,000 shares of common stock with a par value of $.001 per share. As of December 31, 2019 and 2018, the Company had 135,990,491 and 134,793,211 common shares issued and outstanding, respectively. During the years ended December 31, 2019 and 2018, the Company issued 1,197,280 and 1,098,100 shares of common stock, respectively to directors for services performed during 2019 and 2018. These shares were valued at $132,000 and $144,000, respectively, which approximated the fair value of the shares when they were issued. During the years ended December 31, 2019 and 2018, no warrants were exercised. These warrants were originally granted to shareholders of the April 8, 2011 Series B preferred stock issuance. During the years ended December 31, 2019 and 2018, no shares of Series A or B preferred stock were converted to shares of common stock. |
J. STOCK OPTIONS AND WARRANTS
J. STOCK OPTIONS AND WARRANTS | 12 Months Ended |
Dec. 31, 2019 | |
Share-based Payment Arrangement [Abstract] | |
STOCK OPTIONS AND WARRANTS | NOTE J – 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. The Plan is administered by the Board of Directors or the compensation committee, which is comprised of not less than two non-employee directors who are independent. A total of 10,000,000 shares of stock were reserved and available for issuance under the Plan. The exercise price per share for the stock covered by a stock option granted shall be determined by the administrator at the time of grant but shall not be less than 100 percent of the fair market value on the date of grant. The term of each stock option shall be fixed by the administrator, but no stock option shall be exercisable more than ten years after the date the stock option is granted. As of December 31, 2019, there were approximately 409,269 shares remaining for issuance in the Plan. It is anticipated that providing such persons with a direct stake in the Company’s welfare will assure a better alignment of their interests with those of the Company and its stockholders. The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to employees of the Company under the Plan as of December 31, 2019. Options Outstanding Options Exercisable Exercise Prices Number Weighted Average Weighted Average Number Weighted Average $0.01 - $0.15 2,000,000 7.01 $ 0.14 2,000,000 $ 0.14 $ 0.16 - $1.00 1,349,793 3.84 0.18 1,208,631 0.18 3,349,793 5.73 $ 0.16 3,208,631 $ 0.16 Transactions involving stock options issued to employees are summarized as follows: Number of Weighted Average Exercise Outstanding at January 1, 2018 4,376,474 $ 0.16 Granted 67,394 0.17 Exercised – – Cancelled or expired (1,094,075 ) 0.14 Outstanding at December 31, 2018 3,349,793 $ 0.16 Granted – – Exercised – – Cancelled or expired – – Outstanding at December 31, 2019 3,349,793 $ 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 common stock using the share price data for the trailing period equal to the expected term 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 records share-based compensation for those awards that are expected to vest. In accordance with ASC 718-10, the Company calculates share-based compensation for changes to the estimate of expected equity award forfeitures based on actual forfeiture experience. The following table summarizes the assumptions used to estimate the fair value of options granted during the year ended December 2018, using the Black-Scholes option-pricing model: 2018 Expected life of option (years) 10 Risk-free interest rate 2.80% Assumed volatility 87% Expected dividend rate 0 Expected forfeiture rate 65% There were no options granted in the year ended December 31, 2019. The total estimated fair value of the options granted during the years ended December 31, 2019 and 2018 was $0 and $244. The total fair value of underlying shares related to options that vested during the years ended December 31, 2019 and 2018 was $8,174 and $6,811. Future compensation expense related to non-vested options at December 31, 2019 was $11,178 and will be recognized over the next 2.0 years. The aggregate intrinsic value of the vested options was zero as of December 31, 2019 and 2018. During the year ended December 31, 2019, no options were granted, exercised, cancelled or expired. For the year ended December 31, 2018, no options were granted or exercised and there were 1,094,075 options that were cancelled or expired. Total stock-based compensation expense in connection with options granted to employees recognized in the condensed consolidated statements of operations for the years ended December 31, 2019 and 2018 was $7,262, and $6,405, respectively. Warrants The following table summarizes the changes in warrants outstanding and the related exercise prices for the warrants issued to the debt holder in relation to the revolving credit facility, see Note G. Warrants Outstanding Warrants Exercisable Exercise Prices Number Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Number Weighted Average Exercise Price $ 0.20 250,000 1.77 $ 0.20 250,000 $ 0.20 Transactions involving warrants are summarized as follows: Number of Weighted Average Exercise Outstanding at January 1, 2018 250,000 $ 0.20 Issued – – Exercised – – Cancelled or expired – 0.20 Outstanding at December 31, 2018 250,000 $ 0.20 Issued – – Exercised – – Cancelled or expired – – Outstanding at December 31, 2019 250,000 $ 0.20 There were no warrants granted, exercised, cancelled or forfeited during the years ended December 31, 2019 and 2018. |
K. STOCK ISSUANCE TO NON-EMPLOY
K. STOCK ISSUANCE TO NON-EMPLOYEE DIRECTORS | 12 Months Ended |
Dec. 31, 2019 | |
Share-based Payment Arrangement, Noncash Expense [Abstract] | |
STOCK ISSUANCE TO NON-EMPLOYEE DIRECTORS | NOTE K – STOCK ISSUANCE TO NON-EMPLOYEE DIRECTORS During the years ended December 31, 2019 and 2018, the Company issued common stock in the amount of $132,000 and $144,000 and pay cash consideration of $20,000 and $0, 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. |
L. INCOME TAXES
L. INCOME TAXES | 12 Months Ended |
Dec. 31, 2019 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | NOTE L – INCOME TAXES On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, the following that impact the Company: (1) reducing the U.S. federal corporate income tax rate from 35 percent to 21 percent; (2) eliminating the corporate alternative minimum tax; (3) creating a new limitation on deductible interest expense; (4) limiting the deductibility of certain executive compensation; and (5) limiting certain other deductions. The Company follows ASC 740-10 “Income Taxes” which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A reconciliation of tax expense computed at the statutory federal tax rate on loss from operations before income taxes to the actual income tax (benefit) /expense is as follows: 2019 2018 Tax benefit computed at the statutory rate $ (427,244 ) $ (631,497 ) State taxes 6,525 6,874 Book expenses not deductible for tax purposes 2,980 2,882 Rate Change 45,656 – Other 2,517 (27,286 ) (369,566 ) (649,027 ) Change in valuation allowance for deferred tax assets 269,203 658,650 Income tax (benefit) expense $ (100,363 ) $ 9,623 Deferred income taxes include the net tax effects of net operating loss (NOL) carry forwards and the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets are as follows: 2019 2018 Deferred Tax Assets: Net operating loss carry forwards $ 20,772,428 $ 20,342,559 Intangibles 207,618 318,178 Credits 28,022 112,086 Other 506,349 613,202 Total deferred tax assets 21,514,417 21,386,025 Deferred Tax Liabilities: Intangibles – – Total deferred tax liabilities – – Valuation allowance (21,486,396 ) (21,386,025 ) Net deferred tax assets $ 28,021 $ – A valuation allowance is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability of the Company to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. As of December 31, 2019 and December 31, 2018, the Company’s valuation allowance, established for the tax benefit that may not be realized, totaled approximately $21,490,000 and $21,390,000, respectively. The overall increase in the valuation allowance is related to insignificant fluctuations in the temporary differences and federal and state net operating losses. At December 31, 2019 the Company had net operating loss carryforwards of approximately $92,900,000 and $22,000,000 for federal and state income tax purposes which will expire at various dates from 2020 – 2039. The Company’s NOL and tax credit carryovers may be significantly limited under Section 382 of the Internal Revenue Code (IRC). NOL and tax credit carryovers are limited under Section 382 when there is a significant “ownership change” as defined in the IRC. During 2005 and in prior years, the Company may have experienced such ownership changes that could have imposed such limitations. The limitation imposed by Section 382 would place an annual limitation on the amount of NOL and tax credit carryovers that can be utilized. When the Company completes the necessary studies, the amount of NOL carryovers available may be reduced significantly. However, since the valuation allowance fully reserves for all available carryovers, the effect of the reduction would be offset by a reduction in the valuation allowance. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is generally no longer subject to U.S. federal income tax examinations by tax authorities for years before 2015 and various states before 2015. Although these years are no longer subject to examination by the Internal Revenue Service (IRS) and various state taxing authorities, net operating loss carryforwards generated in those years may still be adjusted upon examination by the IRS or state taxing authorities if they have been or will be used in a future period. The Company follows the provisions of uncertain tax positions as addressed in FASB Accounting Standards Codification 740-10-65-1. The Company recognized no change in the liability for unrecognized tax benefits. The Company has no tax positions at December 31, 2019 or 2018 for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expense. No such interest or penalties were recognized during the periods presented. The Company had no accruals for interest and penalties at December 31, 2019 or 2018. The Company’s utilization of any net operating loss carryforwards may be unlikely due to its continuing losses. |
M. COMMITMENTS AND CONTINGENCIE
M. COMMITMENTS AND CONTINGENCIES | 12 Months Ended |
Dec. 31, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | NOTE M – COMMITMENTS AND CONTINGENCIES Office Leases Obligations In October 2013, the Company entered into a lease agreement for 6,362 square feet of commercial office space in Waukesha, Wisconsin for its corporate headquarters. The Waukesha lease would have expired in April 2021, but was subsequently amended and extended through April 2026. 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. The commencement date for this amendment was July 15, 2017. 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 employees. The Germantown lease as amended was set to expire at the end of January 2018. In November 2017, the Company entered into a second amendment to the lease agreement extending the lease through the end of January 2019. In November 2018, the Company entered into a third amendment to the lease agreement extending the lease through the end of January 2022. In May 2017, the Company entered into a lease agreement for 5,838 square feet of floor space in Waukesha, Wisconsin for its inventory warehousing operations. The Waukesha lease expires in May 2024. On January 1, 2019 the Company adopted ASC Topic 842 “Leases” (“ASC 842”), which supersedes ASC Topic 840 “Leases” (“ASC 840”), using the alternative transition method of adoption. The Company has recognized and measured all leases that exist as at January 1, 2019 (the effective date) using a modified retrospective transition approach. Comparative periods are presented in accordance with Topic 840 and do not include any retrospective adjustments to comparative periods to reflect the adoption of Topic 842. Any cumulative-effect adjustments to retained earnings is recognized as of January 1, 2019. Upon adoption, we recognized our leases with greater than one year in duration on the balance sheet as right-of-use assets and lease liabilities. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification is based on criteria that are largely similar to those applied in prior lease accounting, but without explicit lines. We have made certain assumptions in judgments when applying ASC 842. Those judgments of most significance are as follows: · We elected the package of practical expedients available for transition which allow us to not reassess the following: o Whether expired or existing contracts contain leases under the new definition of the lease; o Lease classification for expired or existing leases; and o Whether previously capitalized initial direct costs would qualify for capitalization under ASC 842. · We did not elect to use hindsight for transition when considering judgments and estimates such as assessments of lessee options to extend or terminate a lease or purchase the underlying asset. · For all asset classes, we elected to not recognize a right-of-use asset and lease liability for leases with a term of 12 months or less. · For all asset classes, we elected to not separate non-lease components from lease components to which they relate and have accounted for the combined lease and non-lease components as a single lease component. We determine if an arrangement is a lease at inception. Operating leases are included in our consolidated balance sheet as right-of-use assets, operating lease liabilities - current and operating lease liabilities – long term. Upon adoption, the Company determined there were no financing leases. Our current operating leases are for facilities and office equipment. Our leases may contain renewal options; however, we do not recognize right-of-use assets or lease liabilities for renewal periods unless it is determined that we are reasonably certain of renewing the lease at inception or when a triggering event occurs. Some of our lease agreements may contain rent escalation clauses, rent holidays, capital improvement funding, or other lease concessions. We recognize our minimum rental expense on a straight-line basis based on the fixed components of a lease arrangement. Payments are set on a pre-determined schedule within each lease agreement. We amortize this expense over the term of the lease beginning with the date of the standard adoption for current leases and beginning with the date of initial possession, which is the date we enter the leased space and begin to make improvements in the preparation for its intended use, for future leases. Variable lease components represent amounts that are not fixed in nature and are not tied to an index or rate, and are recognized as incurred. Variable lease components consist primarily of common area maintenance, taxes and insurance. The Company does not, upon adoption of ASC 842, control a specific space or underlying asset used in providing a service by a third-party service provider, under any third party service agreements. There are no such arrangements that meet the definition under ASC 842. In determining our right-of-use assets and lease liabilities, we apply a discount rate to the minimum lease payments within each lease agreement. ASC 842 requires us to use the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. When we cannot readily determine the discount rate implicit in the lease agreement, we utilize our current borrowing rate on our outstanding line of credit. The Company’s line of credit utilizes market rates to assess an interest rate. Refer to Note F for further discussion. We lease certain property under non-cancelable operating leases, primarily facilities. The impact of the adoption of ASC 842 at January 1, 2019 created a right-of-use asset of $1,042,004, lease liability of $1,095,761 and unwound the $71,877 balance of the deferred lease liability account. The components of lease expense for the year ended December 31, 2019 were as follows: Operating lease expense: Operating lease cost - fixed $ 237,900 Variable lease cost 118,198 Total operating lease cost $ 356,098 Other information related to leases as of December 31, 2019 was as follows: Operating lease liability - current $ 223,835 Operating lease liability - long-term $ 758,315 Operating cash outflows from operating leases $ 219,798 Weighted-average remaining lease term of operating leases 5.6 years Weighted-average discount rate of operating leases 8.5% Future annual minimum operating lease payments as of December 31, 2019 were as follows: 2020 $ 223,835 2021 242,299 2022 195,176 2023 193,169 2024 and thereafter 384,119 Total minimum lease payments 1,238,598 Less imputed interest (256,448 ) Total $ 982,150 Future annual minimum lease payments under non-cancelable leases as of December 31, 2018 prior to our adoption of ASU 2016-02, Leases (Topic 842) are as follows: 2019 $ 211,448 2020 223,417 2021 242,785 2022 195,176 2023 193,168 2024 and thereafter 380,714 Total $ 1,446,708 Rental expenses charged to operations for the years ended December 31, 2019 and 2018 was $356,098 and $342,975, respectively. Employment and Consulting Agreements The Company has employment agreements with certain of its key employees which include non-disclosure and confidentiality provisions for protection of the Company’s proprietary information. Jason L. Tienor, President and Chief Executive Officer, is employed pursuant to an employment agreement with us dated October 1, 2018. Mr. Tienor’s employment agreement has a term of two (2) years, which will automatically renew for a period of an additional twelve (12) months up to two times, and provides for a base salary of $222,800 per year and bonuses and benefits based upon the Company’s internal policies and participation in the Company’s incentive and benefit plans. The agreement also calls for a bonus to be paid upon the sale of the Company. The bonus will be equal to $20,000 if The Company’s shares are valued at minimum $0.20 per share, $35,000 if shares are valued at minimum $0.225 per share, or $50,000 if shares are valued at minimum $0.25 per share. If sale price exceeds $0.25 per share, Mr. Tienor is eligible to receive an additional $6,000 for every $0.01 above a share price of $0.25. Jeffrey J. Sobieski, Chief Technology Officer, is employed pursuant to an employment agreement with us dated October 1, 2018. Mr. Sobieski’s employment agreement has a term of two (2) years, which will automatically renew for a period of an additional twelve (12) months up to two times, and provides for a base salary of $211,625 per year and bonuses and benefits based upon the Company’s internal policies and participation in the Company’s incentive and benefit plans. The agreement also calls for a bonus to be paid upon the sale of the Company. The bonus will be equal to $20,000 if the Company’s shares are valued at minimum $0.20 per share, $35,000 if shares are valued at minimum $0.225 per share, or $50,000 if shares are valued at minimum $0.25 per share. If sale price exceeds $0.25 per share, Mr. Sobieski is eligible to receive an additional $6,000 for every $0.01 above a share price of $0.25. Richard E. Mushrush, Chief Financial Officer, is employed pursuant to an employment agreement with us dated October 1, 2018. Mr. Mushrush’s employment agreement has a term of two (2) years, which will automatically renew for a period of an additional twelve (12) months up to two times, and provides for a base salary of $122,000 per year and bonuses and benefits based upon the Company’s internal policies and participation in the Company’s incentive and benefit plans. The agreement also calls for a bonus to be paid upon the sale of the Company. The bonus will be equal to $20,000 if the Company’s shares are valued at minimum $0.20 per share, $35,000 if shares are valued at minimum $0.225 per share, or $50,000 if shares are valued at minimum $0.25 per share. If sale price exceeds $0.25 per share, Mr. Mushrush is eligible to receive an additional $6,000 for every $0.01 above a share price of $0.25. In addition to the foregoing, stock options are periodically granted to employees under the Company’s 2010 equity incentive plan at the discretion of the Compensation Committee of the Board of Directors. Executives of the Company are eligible to receive stock option grants, based upon individual performance and the performance of the Company as a whole. Litigation The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity. Indemnification Agreements On March 31, 2010, the Company entered into Indemnification Agreements with executives Jason L. Tienor, President and Chief Executive Officer and Jeffrey J. Sobieski, then Chief Operating Officer. On April 24, 2012, the Company entered into an Indemnification Agreement with director Tim S. Ledwick. On July 1, 2016, the Company entered into Indemnification Agreements with director’s Arthur E. Byrnes, Peter T. Kross and Leland D. Blatt. On January 1, 2017, the Company entered into an Indemnification Agreement with Chief Financial Officer Richard E. Mushrush. The Indemnification Agreements provide that the Company will indemnify the Company's officers and directors, to the fullest extent permitted by law, relating to, resulting from or arising out of any threatened, pending or completed action, suit or proceeding, or any inquiry or investigation by reason of the fact that such officer or director (i) is or was a director, officer, employee or agent of the Company or (ii) is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. In addition, the Indemnification Agreements provide that the Company will make an advance payment of expenses to any officer or director who has entered into an Indemnification Agreement, in order to cover a claim relating to any fact or occurrence arising from or relating to events or occurrences specified in this paragraph, subject to receipt of an undertaking by or on behalf of such officer or director to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Company as authorized under the Indemnification Agreement. Sales Taxes Unless provided with a resale or tax exemption certificate, the Company assesses and collects sales tax on sales transactions and records the amount as a liability. It is recognized as a liability until remitted to the applicable state. Total revenues do not include sales tax as the Company is considered a pass through conduit for collecting and remitting sales taxes. The following table sets forth the change in the sales tax accrual during the years ended December 31: 2019 2018 Balance, beginning of year $ 43,400 $ 83,282 Sales tax collected 167,233 101,144 Provisions (reversals) (10,664 ) 30,465 Payments (173,012 ) (171,491 ) Balance, end of year $ 26,957 $ 43,400 |
N. BUSINESS CONCENTRATION
N. BUSINESS CONCENTRATION | 12 Months Ended |
Dec. 31, 2019 | |
Risks and Uncertainties [Abstract] | |
BUSINESS CONCENTRATION | NOTE N – BUSINESS CONCENTRATION For the year ended December 31, 2019, there were two customers that each represented 13% of total net revenues. For the year ended December 31, 2018, no single customer represented 10% or more of the Company’s total net revenues. As of December 31, 2019, two customers represented 26% and 10% of the Company’s net accounts receivable. As of December 31, 2018, two customers represented 29% and 11% of the Company’s net accounts receivable. Purchases from one supplier approximated $3,356,000, or 84%, of total purchases for the year ended December 31, 2019 and approximately $3,622,000, or 81%, of total purchases for the year ended December 31, 2018. The amount due to this supplier, net of deposits paid, was approximately $579,000 as of December 31, 2019. Deposits paid to this vendor were in excess of total accounts payable due to this supplier in the amount of $320,352 as of December 31, 2018. |
O. EMPLOYEE BENEFIT PLAN
O. EMPLOYEE BENEFIT PLAN | 12 Months Ended |
Dec. 31, 2019 | |
Disclosure Text Block Supplement [Abstract] | |
EMPLOYEE BENEFIT PLAN | NOTE O – EMPLOYEE BENEFIT PLAN The Company has an employee savings plan covering substantially all employees who are at least 21 years of age and have completed at least 3 months of service. The plan provides for matching contributions equal to 100% of each dollar contributed by the employee up to 4% of the employee’s salary. The Company’s matching contributions vest immediately. The Company may also elect to make discretionary contributions. The Company made contributions to the plan of approximately $126,000 and $116,000 for the years ended December 31, 2019 and 2018, respectively. |
P. SUBSEQUENT EVENT
P. SUBSEQUENT EVENT | 12 Months Ended |
Dec. 31, 2019 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENT | NOTE P – SUBSEQUENT EVENT On January 30, 2020 the World Health Organization (“WHO”) announced a global health emergency because of a new strain of a novel coronavirus in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of operations. In March 2020, the World Health Organization classified the COVID-19 outbreak a pandemic, based on the rapid increase in exposure globally. The spread of the COVID-19 outbreak has caused significant volatility and uncertainty in U.S. and international markets. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such it is uncertain as to the full magnitude that the COVID-19 outbreak will have on the Company’s financial condition, liquidity, and future results of operations. The COVID-19 outbreak has resulted in and could continue to result in reduced demand for our products and/or cause customers to be unable to meet payment obligations to the Company. The industries that the Company operates in have already been impacted with shelter-in-place directives, school closures, visitor restrictions, travel restrictions, heightened border scrutiny and event cancellations which will materially affect sales levels for fiscal year 2020 and the Company’s overall liquidity. The Company has been informed by some clientele that planned capital expenditures have been suspended until further notice. The COVID-19 outbreak could adversely affect our supply chain and production capabilities of our primary product supplier located in China, due to quarantines, worker absenteeism, facility closures, and/or increased international trade restrictions or regulations. If any of our supply chain phases were interrupted or terminated, we could experience delays in our project fulfillment process. Delays could result in increased fulfillment costs, customer pricing concessions, or overall project cancellations. The Company is dependent on its workforce to deliver our products and services. Developments such as social distancing, shelter-in-place directives, furloughs, worker absenteeism, and travel restrictions will impact the Company’s ability to deploy its workforce effectively. While expected to be temporary, prolonged workforce disruptions will negatively impact sales levels for fiscal year 2020 and the Company’s overall liquidity. In response to the continuing uncertainty resulting from a novel coronavirus, we have implemented and are continuing to review strategic cost reduction strategies across all functional areas. At this time, the disruption is expected to be temporary; however, the length or severity of this pandemic is unknown. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. While we expect this disruption to have a material adverse impact on our results of operations, financial condition and cash flows for the year 2020, the Company is unable to reasonably determine the impact at this time. |
A. BASIS OF PRESENTATION AND _2
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2019 | |
Accounting Policies [Abstract] | |
Business and Basis of Presentation | Business and Basis of Presentation Telkonet, Inc. (the “Company”, “Telkonet”), formed in 1999 and incorporated under the laws of the state of Utah, is the creator of the EcoSmart Platform of intelligent automation solutions designed to optimize energy efficiency, comfort and analytics in support of the emerging Internet of Things (“IoT”). 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, educational, governmental and other commercial markets. The EcoSmart platform is recognized as a solution for reducing energy consumption, operational costs and carbon footprints, and eliminating the need for new energy generation in these marketplaces – all whilst improving occupant comfort and convenience. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Telkonet Communications, Inc., operating as a single reportable business segment. |
Going Concern and Management's Plan | Going Concern and Management’s Plan The accompanying financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future and, thus, do not include any adjustments relating to the recoverability and classification of assets and liabilities that may be necessary if the Company is unable to continue as a going concern. Since inception through December 31, 2019, we have incurred cumulative losses of $125,105,539 and have never generated enough funds through operations to support our business. For the year ended December 31, 2019, the Company had negative operating cash flow of $1,875,846 from operations. The Company’s ability to continue as a going concern is dependent upon generating profitable operations in the future and obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. There can be no assurance that the Company will be able to secure such financing at commercially reasonable terms, if at all. If cash resources become insufficient to meet the Company’s ongoing obligations, the Company will be required to scale back or discontinue portions of its operations or discontinue operations entirely, whereby, the Company’s shareholders may lose some or all of their investment. The Company’s Board also continues to consider strategic alternatives to maximize shareholder value, including but not limited to, a sale of the Company, an investment in the Company, a merger or other business combination, a sale of all or substantially all assets or a strategic joint venture. However, these actions are not solely within the control of the Company. At March 30, 2020, no definitive alternatives had been identified. During the second half of 2019, the Company began initiating a number of cost elimination and liquidity management actions, including, reviewing opportunities to decrease spend with third party consultants and providers, strategically reviewing whether or not to fill employee positions in the event of vacancies, and implementing sales campaigns to sell slow-moving inventory and reducing existing inventory volumes. Management expects these actions will continue to reduce operating losses. The full impact of these actions is not expected to be reflected in the Company’s financial statements in the next twelve months. There is no guarantee these actions, nor any other actions identified, will yield profitable operations in the foreseeable future. On January 30, 2020 the World Health Organization (“WHO”) announced a global health emergency because of a new strain of a novel coronavirus in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of operations. In March 2020, the World Health Organization classified the COVID-19 outbreak a pandemic, based on the rapid increase in exposure globally. The spread of the COVID-19 outbreak has caused significant volatility and uncertainty in U.S. and international markets. The COVID-19 outbreak has and could continue to impact demand for our products, customers’ ability to meet payment obligations to the Company, our supply chain and production capabilities, and our workforces’ ability to deliver our products and services. At this time, the disruption is expected to be temporary; however, the length or severity of this pandemic is unknown. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. While we expect this disruption to have a material adverse impact our results of operations, financial condition and cash flows for the year 2020, the Company is unable to reasonably determine the impact at this time. Refer to Note P for further detail on this matter. At December 31, 2019, the Company had approximately $3,300,600 of cash and approximately $424,000 of availability on its credit facility. The Company currently expects to draw on these cash reserves and utilize the credit facility to finance its near term working capital needs. It expects to continue to incur operating losses and negative operating cash flows for one year beyond the date of these financial statements. The Credit Facility provides us with needed liquidity to assist in meeting our obligations or pursuing strategic objectives. Continued operating losses will deplete these cash reserves and could result in a violation of the financial covenants. Consequently, repayment of amounts borrowed 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 occurrence of any of these events could have a material adverse effect on our business and results of operations. Accordingly, and in light of the Company’s historic losses, there is substantial doubt about the Company’s ability to continue as a going concern. |
Concentrations of Credit Risk | Concentrations of Credit Risk Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and trade receivables. The Company places its cash and temporary cash investments with credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit. The Company has never experienced any losses related to these balances. With respect to trade receivables, the Company performs ongoing credit evaluations of its customers’ financial conditions and limits the amount of credit extended when deemed necessary. The Company provides credit to its customers primarily in the United States in the normal course of business. The Company routinely assesses the financial strength of its customers and, as a consequence, believes its trade receivables credit risk exposure is limited. |
Cash and Cash Equivalents | Cash and Cash Equivalents The Company considers all highly liquid debt instruments purchased with an original maturity date of three months or less to be cash equivalents. |
Accounts Receivable | Accounts Receivable Accounts receivable are uncollateralized customer obligations due under normal trade terms. The Company records allowances for doubtful accounts based on customer-specific analysis and general matters such as current assessment of past due balances and economic conditions. The Company writes off accounts receivable when they become uncollectible. The allowance for doubtful accounts was $55,039 and $65,542 at December 31, 2019 and 2018, respectively. Management identifies a delinquent customer based upon the delinquent payment status of an outstanding invoice, generally greater than 30 days past due date. The delinquent account designation does not trigger an accounting transaction until such time the account is deemed uncollectible. The allowance for doubtful accounts is determined by examining the reserve history and any outstanding invoices that are over 30 days past due as of the end of the reporting period. Accounts are deemed uncollectible on a case-by-case basis, at management’s discretion based upon an examination of the communication with the delinquent customer and payment history. Typically, accounts are only escalated to “uncollectible” status after multiple attempts at collection have proven unsuccessful. The allowance for doubtful accounts for the years ended December 31 are as follows: 2019 2018 Beginning balance $ 65,542 $ 22,173 Provision charged to expense 29,849 55,152 Deductions (40,352 ) (11,783 ) Ending balance $ 55,039 $ 65,542 |
Inventories | Inventories Inventories consist of thermostats, sensors and controllers for Telkonet’s EcoSmart product platform. These inventories are purchased for resale and do not include manufacturing labor and overhead. Inventories are stated at the lower of cost or net realizable value determined by the first in, first out (FIFO) method. The Company’s inventories are subject to technological obsolescence. Management evaluates the net realizable value of its inventories on a quarterly basis and when it is determined that the Company’s carrying cost of such excess and obsolete inventories cannot be recovered in full, a charge is taken against income for the difference between the carrying cost and the estimated realizable amount. The reserve for inventory obsolescence balance was approximately $241,000 and $114,000 for the years ended December 31, 2019, and 2018, respectively. |
Property and Equipment | Property and Equipment In accordance with Accounting Standards Codification ASC 360 “Property Plant and Equipment ” |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The Company accounts for the fair value of financial instruments in accordance with ASC 820, which defines fair value for accounting purposes, established a framework for measuring fair value and expanded disclosure requirements regarding fair value measurements. Fair value is defined as an exit price, which is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. The degree of judgment utilized in measuring the fair value of assets and liabilities generally correlates to the level of pricing observability. Financial assets and liabilities with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in active markets generally have more pricing observability and require less judgment in measuring fair value. Conversely, financial assets and liabilities that are rarely traded or not quoted have less price observability and are generally measured at fair value using valuation models that require more judgment. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency of the asset, liability or market and the nature of the asset or liability. The Company categorizes financial assets and liabilities that are recurring, at fair value into a three-level hierarchy in accordance with these provisions. · Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; · Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or · Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and are unobservable. The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, and certain accrued liabilities. The carrying amounts of these assets and liabilities approximate fair value due to the short maturity of these instruments (Level 1 instruments), except for the line of credit. The carrying amount of the line of credit approximates fair value due to the interest rate and terms approximating those available to the Company for similar obligations (Level 2 instruments). |
Long-Lived Assets | Long-Lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10. Recoverability is measured by comparison of the carrying amount to the future net cash flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. Based on the assessment for impairment performed during 2019 and 2018, no impairment was recorded. |
Income (Loss) per Common Share | Income (Loss) per Common Share The Company computes earnings per share under ASC 260-10, “Earnings Per Share”. Basic net income (loss) per common share is computed using the weighted average shares outstanding. Diluted 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 both years ended December 31, 2019 and 2018, there were 3,599,793 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 follows 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 de-recognition, classification, treatment of interest and penalties, and disclosure of such positions. |
Revenue From Contract 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, the Standard 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 technical phone support services to customers. This service is 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. 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 technical phone support services revenue and recognized on a straight-line basis over the term of the contract. 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. When support services are not included within the turnkey solution, the residual method is not utilized and no allocation of the transaction price to the performance obligation is necessary. 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. Revenue Recognition 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, and are presented as “Recurring Revenue” in the Statement of Operations. 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. Contract liabilities include deferrals for the monthly support service fees. Long-term contract liabilities represent support service fees that will be recognized as revenue after December 31, 2020. Contract Fulfillment Cost The Company recognizes related costs of the contract over time in relation to the revenue recognition. Costs included within the projects relate to the cost of material, direct labor and costs of outside services utilized to complete projects. These are presented as “Contract assets” in the consolidated balance sheets. |
Sales Taxes | Sales Taxes Unless provided with a resale or tax exemption certificate, the Company assesses and collects sales tax on sales transactions and records the amount as a liability. It is recognized as a liability until remitted to the applicable state. Total revenues do not include sales tax as the Company is considered a pass through conduit for collecting and remitting sales taxes. |
Guarantees and Product Warranties | Guarantees and Product Warranties The Company records a liability for potential warranty claims in cost of sales at the time of sale. The amount of the liability is based on the trend in the historical ratio of claims to sales, the historical length of time between the sale and resulting warranty claim, new product introductions and other factors. The products sold are generally covered by a warranty for a period of one year. In the event the Company determines that its current or future product repair and replacement costs exceed its estimates, an adjustment to these reserves would be charged to earnings in the period such determination is made. For the years ended December 31, 2019 and 2018, the Company experienced returns of approximately 1% to 3% of material’s included in cost of sales. As of December 31, 2019 and 2018, the Company recorded warranty liabilities in the amount of $58,791 and $46,103, respectively, using this experience factor range. Product warranties for the years ended December 31 is as follows: 2019 2018 Beginning balance $ 46,103 $ 59,892 Warranty claims incurred (66,803 ) (28,000 ) Provision charged to expense 79,491 14,211 Ending balance $ 58,791 $ 46,103 |
Advertising | Advertising The Company follows the policy of charging the costs of advertising to expenses as incurred. The Company incurred $54,945 and $108,632 in advertising costs during the years ended December 31, 2019 and 2018, respectively. |
Research and Development | Research and Development The Company accounts for research and development costs in accordance with the ASC 730-10, “Research and Development”. Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. Total expenditures on research and product development for 2019 and 2018 were $1,737,385 and $1,879,676, respectively. |
Stock-Based Compensation | Stock-Based Compensation The Company accounts for stock-based awards in accordance with ASC 718-10, “Share-Based Compensation”, which requires a fair value measurement and recognition of compensation expense for all share-based payment awards made to the Company’s employees and directors, including employee stock options and restricted stock awards. The Company estimates the fair value of stock options granted using the Black-Scholes valuation model. This model requires the Company to make estimates and assumptions including, among other things, estimates regarding the length of time an employee will hold vested stock options before exercising them, the estimated volatility of the Company’s common stock price and the number of options that will be forfeited prior to vesting. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Changes in these estimates and assumptions can materially affect the determination of the fair value of stock-based compensation and consequently, the related amount recognized in the Company’s consolidated statements of operations. The expected term of the options represents the estimated period of time until exercise and is based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. For 2018 and prior years, expected stock price volatility is based on the historical volatility of the Company’s stock for the related expected term. Stock-based compensation expense in connection with options granted to employees for the years ended December 31, 2019 and 2018 was $7,262 and $6,404, respectively. |
A. BASIS OF PRESENTATION AND _3
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Accounting Policies [Abstract] | |
Schedule of allowance for doubtful accounts | The allowance for doubtful accounts for the years ended December 31 are as follows: 2019 2018 Beginning balance $ 65,542 $ 22,173 Provision charged to expense 29,849 55,152 Deductions (40,352 ) (11,783 ) Ending balance $ 55,039 $ 65,542 |
Schedule of product warranties | Product warranties for the years ended December 31 is as follows: 2019 2018 Beginning balance $ 46,103 $ 59,892 Warranty claims incurred (66,803 ) (28,000 ) Provision charged to expense 79,491 14,211 Ending balance $ 58,791 $ 46,103 |
C. REVENUE (Tables)
C. REVENUE (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Revenue from Contract with Customer [Abstract] | |
Disaggregation of revenues | The following table presents the Company’s product and recurring revenues disaggregated by industry for the year ended December 31, 2019. Hospitality Education Multiple Dwelling Units Government Total Product $ 8,570,225 $ 1,038,660 $ 564,811 $ 1,039,158 $ 11,212,854 Recurring 604,624 140,817 23,901 – 769,342 $ 9,174,849 $ 1,179,477 $ 588,712 $ 1,039,158 $ 11,982,196 The following table presents the Company’s product and recurring revenues disaggregated by industry for the year ended December 31, 2018. Hospitality Education Multiple Dwelling Units Government Total Product $ 6,410,615 $ 652,019 $ 472,462 $ 81,319 $ 7,616,415 Recurring 668,039 128,872 18,653 – 815,564 $ 7,078,654 $ 780,891 $ 491,115 $ 81,319 $ 8,431,979 |
Contract Assets and Liabilities | Contract assets and liabilities 2019 2018 Variance Contract assets $ 188,120 $ 314,749 $ 126,629 Contract liabilities 764,184 1,232,623 (468,439 ) Net contract liabilities $ 576,064 $ 917,874 $ (341,810 ) |
D. ACCOUNTS RECEIVABLE (Tables)
D. ACCOUNTS RECEIVABLE (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Receivables [Abstract] | |
Schedule of accounts receivable | Components of accounts receivable as of December 31, 2019 and 2018 are as follows: 2019 2018 Accounts receivable $ 2,338,626 $ 1,146,832 Allowance for doubtful accounts (55,039 ) (65,541 ) Accounts receivable, net $ 2,283,587 $ 1,081,291 |
E. PROPERTY AND EQUIPMENT (Tabl
E. PROPERTY AND EQUIPMENT (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Property, Plant and Equipment [Abstract] | |
Schedule of property and equipment | The Company’s property and equipment as of December 31, 2019 and 2018 consists of the following: 2019 2018 Development test equipment $ 16,461 $ 19,110 Computer software 76,134 76,134 Office equipment 66,685 61,367 Office fixtures and furniture 330,568 330,568 Leasehold improvements 18,016 18,016 Total 507,864 505,195 Accumulated depreciation and amortization (321,339 ) (257,906 ) Total property and equipment $ 186,525 $ 247,289 |
F. ACCRUED LIABILITIES AND EX_2
F. ACCRUED LIABILITIES AND EXPENSES (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Payables and Accruals [Abstract] | |
Schedule of accrued liabilities and expenses | Accrued liabilities and expenses as of December 31, 2019 and 2018 are as follows : 2019 2018 Accrued liabilities and expenses $ 214,925 $ 325,855 Accrued payroll and payroll taxes 227,153 241,253 Accrued sales taxes, penalties, and interest 26,957 43,400 Product warranties 58,791 46,103 Total accrued liabilities and expenses $ 527,826 $ 656,611 |
J. STOCK OPTIONS AND WARRANTS (
J. STOCK OPTIONS AND WARRANTS (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Share-based Payment Arrangement [Abstract] | |
Schedule of options outstanding and exercisable | The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to employees of the Company under the Plan as of December 31, 2019. Options Outstanding Options Exercisable Exercise Prices Number Weighted Average Weighted Average Number Weighted Average $0.01 - $0.15 2,000,000 7.01 $ 0.14 2,000,000 $ 0.14 $ 0.16 - $1.00 1,349,793 3.84 0.18 1,208,631 0.18 3,349,793 5.73 $ 0.16 3,208,631 $ 0.16 |
Schedule of option activity | Number of Weighted Average Exercise Outstanding at January 1, 2018 4,376,474 $ 0.16 Granted 67,394 0.17 Exercised – – Cancelled or expired (1,094,075 ) 0.14 Outstanding at December 31, 2018 3,349,793 $ 0.16 Granted – – Exercised – – Cancelled or expired – – Outstanding at December 31, 2019 3,349,793 $ 0.16 |
Schedule of valuation assumptions | The following table summarizes the assumptions used to estimate the fair value of options granted during the year ended December 2018, using the Black-Scholes option-pricing model: 2018 Expected life of option (years) 10 Risk-free interest rate 2.80% Assumed volatility 87% Expected dividend rate 0 Expected forfeiture rate 65% |
Schedule of warrants outstanding and exercisable | Warrants Outstanding Warrants Exercisable Exercise Prices Number Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Number Weighted Average Exercise Price $ 0.20 250,000 1.77 $ 0.20 250,000 $ 0.20 |
Schedule of warrant activity | Transactions involving warrants are summarized as follows: Number of Weighted Average Exercise Outstanding at January 1, 2018 250,000 $ 0.20 Issued – – Exercised – – Cancelled or expired – 0.20 Outstanding at December 31, 2018 250,000 $ 0.20 Issued – – Exercised – – Cancelled or expired – – Outstanding at December 31, 2019 250,000 $ 0.20 |
L. INCOME TAXES (Tables)
L. INCOME TAXES (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Income Tax Disclosure [Abstract] | |
Schedule of reconcilation of tax expense | A reconciliation of tax expense computed at the statutory federal tax rate on loss from operations before income taxes to the actual income tax (benefit) /expense is as follows: 2019 2018 Tax benefit computed at the statutory rate $ (427,244 ) $ (631,497 ) State taxes 6,525 6,874 Book expenses not deductible for tax purposes 2,980 2,882 Rate Change 45,656 – Other 2,517 (27,286 ) (369,566 ) (649,027 ) Change in valuation allowance for deferred tax assets 269,203 658,650 Income tax (benefit) expense $ (100,363 ) $ 9,623 |
Schedule of deferred tax assets and liabilties | Significant components of the Company's deferred tax assets are as follows: 2019 2018 Deferred Tax Assets: Net operating loss carry forwards $ 20,772,428 $ 20,342,559 Intangibles 207,618 318,178 Credits 28,022 112,086 Other 506,349 613,202 Total deferred tax assets 21,514,417 21,386,025 Deferred Tax Liabilities: Intangibles – – Total deferred tax liabilities – – Valuation allowance (21,486,396 ) (21,386,025 ) Net deferred tax assets $ 28,021 $ – |
M. COMMITMENTS AND CONTINGENC_2
M. COMMITMENTS AND CONTINGENCIES (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
Components of lease expense | The components of lease expense for the year ended December 31, 2019 were as follows: Operating lease expense: Operating lease cost - fixed $ 237,900 Variable lease cost 118,198 Total operating lease cost $ 356,098 |
Other information related to leases | Other information related to leases as of September 30, 2019 was as follows: Operating lease liability - current $ 223,835 Operating lease liability - long-term $ 758,315 Operating cash outflows from operating leases $ 219,798 Weighted-average remaining lease term of operating leases 5.6 years Weighted-average discount rate of operating leases 8.5% |
Future annual minimum operating lease payments | Future annual minimum operating lease payments as of December 31, 2019 were as follows: 2020 $ 223,835 2021 242,299 2022 195,176 2023 193,169 2024 and thereafter 384,119 Total minimum lease payments $ 1,238,598 Less imputed interest (256,448 ) Total $ 982,150 |
Future annual minimum operating lease payments non-cancelable | Future annual minimum lease payments under non-cancelable leases as of December 31, 2018 prior to our adoption of ASU 2016-02, Leases (Topic 842) are as follows: 2019 $ 211,448 2020 223,417 2021 242,785 2022 195,176 2023 193,168 2024 and thereafter 380,714 Total $ 1,446,708 |
Sales tax accrual | The following table sets forth the change in the sales tax accrual during the years ended December 31: 2019 2018 Balance, beginning of year $ 43,400 $ 83,282 Sales tax collected 167,233 101,144 Provisions (reversals) (10,664 ) 30,465 Payments (173,012 ) (171,491 ) Balance, end of year $ 26,957 $ 43,400 |
A. BASIS OF PRESENTATION AND _4
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details - Doubtful accounts) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Accounting Policies [Abstract] | ||
Beginning balance | $ 65,542 | $ 22,173 |
Provision charged to expense | 29,849 | 55,152 |
Deductions | (40,352) | (11,783) |
Ending balance | $ 55,039 | $ 65,542 |
A. BASIS OF PRESENTATION AND _5
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details-Product warranties) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Product warranties | ||
Beginning balance | $ 46,103 | $ 59,892 |
Warranty claims incurred | (66,803) | (28,000) |
Provision charged to expense | 79,491 | 14,211 |
Ending balance | $ 58,791 | $ 46,103 |
A. BASIS OF PRESENTATION AND _6
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Cash | $ 3,300,600 | $ 4,678,891 | $ 9,195,595 |
Accumulated deficit | (125,105,539) | (123,171,406) | (119,724,656) |
Net Cash Used In Operating Activities | (1,875,846) | (3,945,742) | |
Allowance for doubtful accounts | 55,039 | 65,542 | 22,173 |
Inventory impairment charge | $ 241,000 | 114,000 | |
Property and equipment useful lives | 2 to 10 years | ||
Impairment on long-lived assets | $ 0 | $ 0 | |
Shares excluded from EPS calculation (antidilutive shares) | 3,599,793 | 3,599,793 | |
Tax Cut and Jobs Act impact | $ 45,656 | $ 0 | |
Change in valuation allowance for deferred tax assets | 269,203 | 658,650 | |
Provision for Income Taxes | $ (100,363) | $ 9,623 | |
Guarantees and product warranty return percentage | 1% to 3% | 1% to 3% | |
Advertising expense | $ 54,945 | $ 108,632 | |
Research and development expenses | 1,737,385 | 1,879,676 | |
Stock based compensation expenses | 7,262 | 6,404 | |
Warranty liabilities | 58,791 | $ 46,103 | $ 59,892 |
Credit Facility [Member] | |||
Line of credit remaining borrowing capacity | $ 424,000 |
B. NEW ACCOUNTING PRONOUNCEME_2
B. NEW ACCOUNTING PRONOUNCEMENTS (Details Narrative) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Total current liabilities | $ 3,294,621 | $ 2,256,632 |
Total long-term liabilities | 869,446 | $ 233,998 |
Accounting Standards Update 2018-11 [Member] | ||
Total other assets | 937,321 | |
Total current liabilities | 3,294,621 | |
Total long-term liabilities | $ 869,446 |
C. REVENUE (Details - Disaggreg
C. REVENUE (Details - Disaggregation of income) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Revenues | $ 11,982,196 | $ 8,431,979 |
Hospitality [Member] | ||
Revenues | 9,174,849 | 7,078,654 |
Education [Member] | ||
Revenues | 1,179,477 | 780,891 |
Multiple Dwelling Units [Member] | ||
Revenues | 588,712 | 491,115 |
Government [Member] | ||
Revenues | 1,039,158 | 81,319 |
Recurring [Member] | ||
Revenues | 769,342 | 815,564 |
Recurring [Member] | Hospitality [Member] | ||
Revenues | 8,570,225 | 6,410,615 |
Recurring [Member] | Education [Member] | ||
Revenues | 1,038,660 | 652,019 |
Recurring [Member] | Multiple Dwelling Units [Member] | ||
Revenues | 564,811 | 472,462 |
Recurring [Member] | Government [Member] | ||
Revenues | 1,039,158 | 81,319 |
Product [Member] | ||
Revenues | 11,212,854 | 7,616,415 |
Product [Member] | Hospitality [Member] | ||
Revenues | 604,624 | 668,039 |
Product [Member] | Education [Member] | ||
Revenues | 140,817 | 128,872 |
Product [Member] | Multiple Dwelling Units [Member] | ||
Revenues | 23,901 | 18,653 |
Product [Member] | Government [Member] | ||
Revenues | $ 0 | $ 0 |
C. REVENUE (Details - Contract
C. REVENUE (Details - Contract assets and liabilities) - USD ($) | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Revenue from Contract with Customer [Abstract] | |||
Contract assets | $ 188,120 | $ 314,749 | |
Contract liabilities | 764,184 | 1,232,623 | $ 0 |
Net contract liabilities | 576,064 | 917,874 | |
Increase in contract assets | 126,629 | 34,251 | |
Decrease in contract liabilities | (468,439) | $ 329,243 | |
Total variance in contract assets and liabilties | $ (341,810) |
C. REVENUE (Details - cumulativ
C. REVENUE (Details - cumulative effect of the changes to Balance Sheet) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 | Jan. 02, 2018 | Dec. 31, 2017 |
ASSETS | ||||
Contract Assets | $ 188,120 | $ 314,749 | $ 0 | |
Liabilities | ||||
Contract Liabilities | 764,184 | 1,232,623 | 0 | |
Customer deposit | 124,380 | |||
Deferred revenue - current | 292,106 | |||
Deferred revenue - long-term | 219,960 | |||
Equity | ||||
Accumulated deficit | $ (125,105,539) | $ (123,171,406) | (119,724,656) | |
Transition Adjustments [Member] | Accounting Standards Update 2014-09 [Member] | ||||
ASSETS | ||||
Contract Assets | 349,000 | |||
Liabilities | ||||
Contract Liabilities | 1,415,446 | |||
Customer deposit | (124,380) | |||
Deferred revenue - current | (292,106) | |||
Deferred revenue - long-term | (219,960) | |||
Equity | ||||
Accumulated deficit | $ (430,000) | |||
Restated [Member] | Accounting Standards Update 2014-09 [Member] | ||||
ASSETS | ||||
Contract Assets | $ 349,000 | |||
Liabilities | ||||
Contract Liabilities | 1,415,446 | |||
Customer deposit | 0 | |||
Deferred revenue - current | 0 | |||
Deferred revenue - long-term | 0 | |||
Equity | ||||
Accumulated deficit | $ (120,154,656) |
C. REVENUE (Details Narrative)
C. REVENUE (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Revenue from Contract with Customer [Abstract] | ||
Remaining performance obligations | $ 800,000 | $ 1,680,000 |
Revenue, Remaining Performance Obligation, Percentage | 100.00% | 100.00% |
Costs incurred to fulfill contracts | $ 400,000 |
D. ACCOUNTS RECEIVABLE (Details
D. ACCOUNTS RECEIVABLE (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Components of accounts receivable | ||
Accounts receivable | $ 2,338,626 | $ 1,146,832 |
Allowance for doubtful accounts | (55,039) | (65,541) |
Accounts receivable, net | $ 2,283,587 | $ 1,081,291 |
E. PROPERTY AND EQUIPMENT (Deta
E. PROPERTY AND EQUIPMENT (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Total property and equipment | $ 507,864 | $ 505,195 |
Accumulated depreciation and amortization | (321,339) | (257,906) |
Property and equipment, net | 186,525 | 247,289 |
Development test equipment [Member] | ||
Total property and equipment | 16,461 | 19,110 |
Computer software [Member] | ||
Total property and equipment | 76,134 | 76,134 |
Office equipment [Member] | ||
Total property and equipment | 66,685 | 61,367 |
Office Furniture and fixtures [Member] | ||
Total property and equipment | 330,568 | 330,568 |
Leasehold Improvements [Member] | ||
Total property and equipment | $ 18,016 | $ 18,016 |
E. PROPERTY AND EQUIPMENT (De_2
E. PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Property, Plant and Equipment [Abstract] | ||
Depreciation and amortization expense | $ 66,082 | $ 67,107 |
F. ACCRUED LIABILITIES AND EX_3
F. ACCRUED LIABILITIES AND EXPENSES (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 |
Accrued liabilities and expenses | |||
Accrued liabilities and expenses | $ 214,925 | $ 325,855 | |
Accrued payroll and payroll taxes | 227,153 | 241,253 | |
Accrued sales taxes, penalties, and interest | 26,957 | 43,400 | |
Product warranties | 58,791 | 46,103 | $ 59,892 |
Total accrued liabilities and expenses | $ 527,826 | $ 656,611 |
G. DEBT (Details Narrative)
G. DEBT (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Debt Instrument [Line Items] | ||
Line of credit balance | $ 624,347 | $ 121,474 |
Heritage Bank [Member] | Revolving Credit Facility [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, 2021 | |
Line of credit balance | $ 624,347 | 121,474 |
Line of credit remaining borrowing capacity | $ 424,000 | $ 499,000 |
Effective interest rate | 7.75% | 8.50% |
H. REDEEMABLE PREFERRED STOCK (
H. REDEEMABLE PREFERRED STOCK (Details Narrative) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Series B Preferred Stock [Member] | ||
Liquidation preference | $ 455,904 | $ 435,081 |
Unpaid dividends | 195,904 | 175,081 |
Series A Preferred Stock [Member] | ||
Liquidation preference | 1,674,195 | 1,600,168 |
Unpaid dividends | $ 749,195 | $ 675,168 |
I. CAPITAL STOCK (Details Narra
I. CAPITAL STOCK (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Preferred stock, shares authorized | 15,000,000 | 15,000,000 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 190,000,000 | 190,000,000 |
Common stock, shares outstanding | 135,990,491 | 134,793,211 |
Common stock, shares issued | 135,990,491 | 134,793,211 |
Warrants exercised, shares | 0 | 0 |
Preferred stock converted | 0 | 0 |
Directors [Member] | ||
Shares issued to directors, shares | 1,197,280 | 1,098,100 |
Shares issued to directors, value | $ 132,000 | $ 144,000 |
Series A Preferred Stock [Member] | ||
Preferred stock, shares authorized | 215 | 215 |
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares outstanding | 185 | 185 |
Series B Preferred Stock [Member] | ||
Preferred stock, shares authorized | 567 | 567 |
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares outstanding | 52 | 52 |
J. STOCK OPTIONS AND WARRANTS_2
J. STOCK OPTIONS AND WARRANTS (Details-Options Outstanding and Exercisable) - Employee Stock Options [Member] - $ / shares | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items] | |||
Options outstanding | 3,349,793 | 3,349,793 | 4,376,474 |
Options outstanding, weighted average remaining contractual life (Years) | 5 years 8 months 23 days | ||
Options outstanding, weighted average exercise price | $ 0.16 | $ 0.16 | $ 0.16 |
Options exercisable | 3,208,631 | ||
Options exercisable, weighted average exercise price | $ 0.16 | ||
$0.01 - $0.15 [Member] | |||
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items] | |||
Options outstanding | 2,000,000 | ||
Options outstanding, weighted average remaining contractual life (Years) | 7 years 4 days | ||
Options outstanding, weighted average exercise price | $ 0.14 | ||
Options exercisable | 2,000,000 | ||
Options exercisable, weighted average exercise price | $ 0.14 | ||
$0.16 - $1.00 [Member] | |||
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items] | |||
Options outstanding | 1,349,793 | ||
Options outstanding, weighted average remaining contractual life (Years) | 3 years 10 months 3 days | ||
Options outstanding, weighted average exercise price | $ 0.18 | ||
Options exercisable | 1,208,631 | ||
Options exercisable, weighted average exercise price | $ 0.18 |
J. STOCK OPTIONS AND WARRANTS_3
J. STOCK OPTIONS AND WARRANTS (Details-Option Activity) - Employee Stock Options [Member] - $ / shares | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Number of shares | ||
Options outstanding, beginning balance | 3,349,793 | 4,376,474 |
Options granted | 0 | 67,394 |
Options exercised | 0 | 0 |
Options cancelled or expired | 0 | (1,094,075) |
Options outstanding, ending balance | 3,349,793 | 3,349,793 |
Weighted Average Price Per Share | ||
Weighted average price per share - beginning balance | $ 0.16 | $ 0.16 |
Weighted average price per share - granted | 0.17 | |
Weighted average price per share - exercised | ||
Weighted average price per share - cancelled or expired | 0.14 | |
Weighted average price per share - ending balance | $ 0.16 | $ 0.16 |
J. STOCK OPTIONS AND WARRANTS_4
J. STOCK OPTIONS AND WARRANTS (Details-Assumptions) - Employee Stock Options [Member] | 12 Months Ended |
Dec. 31, 2018 | |
Expected life of option (years) | 10 years |
Risk-free interest rate | 2.80% |
Assumed volatility | 87.00% |
Expected dividend rate | 0.00% |
Expected forfeiture rate | 65.00% |
J. STOCK OPTIONS AND WARRANTS_5
J. STOCK OPTIONS AND WARRANTS (Details-Warrants Outstanding and Exercisable) - Warrant [Member] - $ / shares | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Warrants outstanding | 250,000 | 250,000 | 250,000 |
Warrants, weighted average exercise price | $ 0.20 | $ 0.20 | $ 0.20 |
$0.20 [Member] | |||
Warrants outstanding | 250,000 | ||
Warrants outstanding, weighted average remaining contractual life (Years) | 1 year 9 months 7 days | ||
Warrants, weighted average exercise price | $ 0.20 | ||
Warrants exercisable | 250,000 | ||
Warrants exercisable, weighted average exercise price | $ 0.20 |
J. STOCK OPTIONS AND WARRANTS_6
J. STOCK OPTIONS AND WARRANTS (Details-Warrant Activity) - Warrant [Member] - $ / shares | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Warrants outstanding, beginning balance | 250,000 | 250,000 |
Warrants issued | 0 | 0 |
Warrants exercised | 0 | 0 |
Warrants cancelled or expired | 0 | 0 |
Warrants outstanding, 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 | ||
Weighted average price per share - ending balance | $ 0.20 | $ 0.20 |
J. STOCK OPTIONS AND WARRANTS_7
J. STOCK OPTIONS AND WARRANTS (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Fair value of options granted | $ 0 | $ 244 |
Fair value of options vested | 8,174 | 6,811 |
Future compensation expense related to non-vested options | $ 11,178 | |
Compensation expense amortization period | 2 years | |
Aggregate intrinsic value of vested options | $ 0 | 0 |
Stock-based compensation expense | 7,262 | 6,404 |
Employee Stock Options [Member] | ||
Stock-based compensation expense | $ 6,404 | $ 7,262 |
Number of options - granted | 0 | 67,394 |
Number of options - exercised | 0 | 0 |
Number of options - cancelled or expired | 0 | 1,094,075 |
Number of warrants - issued | 0 | 0 |
Number of warrants - exercised | 0 | 0 |
Number of warrants - cancelled or expired | 0 | 0 |
2010 Plan [Member] | ||
Shares authorized under the plan | 10,000,000 | |
Shares available for issuance | 409,269 |
K. STOCK ISSUANCE TO NON-EMPL_2
K. STOCK ISSUANCE TO NON-EMPLOYEE DIRECTORS (Details Narrative) - Non-employee Directors [Member] - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Stock issued for compensation, value | $ 132,000 | $ 144,000 |
Director compensation | $ 20,000 | $ 0 |
L. INCOME TAXES (Details-Reconc
L. INCOME TAXES (Details-Reconciliation) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Income Tax Disclosure [Abstract] | ||
Tax benefit computed at the statutory rate | $ (427,244) | $ (631,497) |
State taxes | 6,525 | 6,874 |
Book expenses not deductible for tax purposes | 2,980 | 2,882 |
Rate Change | 45,656 | 0 |
Other | 2,517 | (27,286) |
Total adjustments to tax provision | (369,566) | (649,027) |
Change in valuation allowance for deferred tax assets | 269,203 | 658,650 |
Income tax (benefit) expense | $ (100,363) | $ 9,623 |
L. INCOME TAXES (Details-Deferr
L. INCOME TAXES (Details-Deferred Taxes) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Deferred Tax Assets: | ||
Net operating loss carry forwards | $ 20,772,428 | $ 20,342,559 |
Intangibles | 207,618 | 318,178 |
Credits | 28,022 | 112,086 |
Other | 506,349 | 613,202 |
Total deferred tax assets | 21,514,417 | 21,386,025 |
Deferred Tax Liabilities: | ||
Intangibles | 0 | 0 |
Total deferred tax liabilities | 0 | 0 |
Valuation allowance | (21,486,396) | (21,386,025) |
Net deferred tax assets | $ 28,021 | $ 0 |
L. INCOME TAXES (Details Narrat
L. INCOME TAXES (Details Narrative) | 12 Months Ended |
Dec. 31, 2019USD ($) | |
Operating loss expiration dates | 2020 thru 2039 |
Federal [Member] | |
Operating loss carryforward | $ 92,900,000 |
State Jurisdiction [Member] | |
Operating loss carryforward | $ 22,000,000 |
M. COMMITMENTS AND CONTINGENC_3
M. COMMITMENTS AND CONTINGENCIES (Details - Lease expense) | 12 Months Ended |
Dec. 31, 2019USD ($) | |
Operating lease expense | |
Operating lease cost - fixed | $ 237,900 |
Variable lease cost | 118,198 |
Total operating lease cost | $ 356,098 |
M. COMMITMENTS AND CONTINGENC_4
M. COMMITMENTS AND CONTINGENCIES (Details - Other information related to leases) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | ||
Operating lease liability - current | $ 223,835 | $ 0 |
Operating lease liability - long term | 758,315 | $ 0 |
Operating cash flows from operating leases | $ 219,798 | |
Weighted average remaining lease term of operating leases | 5 years 7 months 6 days | |
Weighted average discount rate of operating leases | 8.50% |
M. COMMITMENTS AND CONTINGENC_5
M. COMMITMENTS AND CONTINGENCIES (Details - Future lease payments) | Dec. 31, 2019USD ($) |
Future minimum operating lease payments | |
2020 | $ 223,835 |
2021 | 242,299 |
2022 | 195,176 |
2023 | 193,169 |
2024 and thereafter | 384,119 |
Total minimum lease payments | 1,238,598 |
Less imputed interest | (256,448) |
Total minimum operating lease payments | $ 982,150 |
M. COMMITMENTS AND CONTINGENC_6
M. COMMITMENTS AND CONTINGENCIES (Details-Lease Commitments) | Dec. 31, 2018USD ($) |
Future Minimum Lease Payments Under Non-cancelable Leases | |
2019 | $ 211,448 |
2020 | 223,417 |
2021 | 242,785 |
2022 | 195,176 |
2023 | 193,168 |
2024 and thereafter | 380,714 |
Total | $ 1,446,708 |
M. COMMITMENTS AND CONTINGENC_7
M. COMMITMENTS AND CONTINGENCIES (Details-Sales Tax Accrual) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Change in the sales tax accrual | ||
Balance, Beginning of year | $ 43,400 | $ 83,282 |
Sales tax collected | 167,233 | 101,144 |
Provisions (reversals) | (10,664) | 30,465 |
Payments | (173,012) | (171,491) |
Balance, End of period | $ 26,957 | $ 43,400 |
M. COMMITMENTS AND CONTINGENC_8
M. COMMITMENTS AND CONTINGENCIES (Details Narrative) | 12 Months Ended | ||
Dec. 31, 2019USD ($)ft² | Dec. 31, 2018USD ($) | Jan. 02, 2019USD ($) | |
Rental expenses | $ 356,098 | $ 342,975 | |
Right of use asset | 892,170 | 0 | |
Operating lease liability | 982,150 | ||
Deferred lease liability - long term | $ 0 | $ 71,877 | |
Adoption of ASC 842 | |||
Right of use asset | $ 1,042,004 | ||
Operating lease liability | 1,095,761 | ||
Deferred lease liability - long term | $ (71,877) | ||
Waukesha, WI Office Space [Member] | |||
Lease expiration date | Apr. 30, 2026 | ||
Leased square feet | ft² | 10,344 | ||
Germantown, MD [Member] | |||
Lease expiration date | Jan. 31, 2019 | ||
Leased square feet | ft² | 2,237 | ||
Waukesha, WI Floor Space [Member] | |||
Lease expiration date | May 31, 2024 | ||
Leased square feet | ft² | 5,838 |
N. BUSINESS CONCENTRATION (Deta
N. BUSINESS CONCENTRATION (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
One Supplier [Member] | ||
Due to suppliers | $ 579,000 | |
Deposits paid exceeding amount due | $ 320,352 | |
Sales Revenue, Net [Member] | One Customer [Member] | ||
Concentration percentage | 13.00% | |
Sales Revenue, Net [Member] | Another Customer [Member] | ||
Concentration percentage | 13.00% | |
Supplier Concentration Risk [Member] | One Supplier [Member] | ||
Concentration percentage | 84.00% | 81.00% |
Purchases from major suppliers | $ 3,356,000 | $ 3,622,000 |
Accounts Receivable [Member] | One Customer [Member] | ||
Concentration percentage | 26.00% | 29.00% |
Accounts Receivable [Member] | Another Customer [Member] | ||
Concentration percentage | 10.00% | 11.00% |
O. EMPLOYEE BENEFIT PLAN (Deta
O. EMPLOYEE BENEFIT PLAN (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Disclosure Text Block Supplement [Abstract] | ||
Company contributions | $ 126,000 | $ 116,000 |