Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2020 | Oct. 31, 2020 | |
Cover [Abstract] | ||
Entity Registrant Name | TELKONET INC | |
Entity Central Index Key | 0001094084 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2020 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity's Reporting Status Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Common Stock, Shares Outstanding | 136,311,335 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2020 | |
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 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($) | Sep. 30, 2020 | Dec. 31, 2019 |
Current assets: | ||
Cash and cash equivalents | $ 2,858,879 | $ 3,300,600 |
Accounts receivable, net | 1,582,921 | 2,283,587 |
Inventories, net | 1,468,228 | 1,373,074 |
Contract assets | 45,879 | 188,120 |
Prepaid expenses | 247,736 | 251,619 |
Income taxes receivable | 85,377 | 85,070 |
Total current assets | 6,289,020 | 7,482,070 |
Property and equipment, net | 142,329 | 186,525 |
Other assets: | ||
Deposits | 7,000 | 17,130 |
Operating lease right of use assets | 777,052 | 892,170 |
Deferred tax asset | 28,021 | 28,021 |
Total other assets | 812,073 | 937,321 |
Total Assets | 7,243,422 | 8,605,916 |
Current liabilities: | ||
Accounts payable | 1,194,500 | 1,265,560 |
Accrued liabilities | 803,176 | 527,826 |
Line of credit | 65,317 | 624,347 |
Contract liabilities - current | 620,847 | 653,053 |
Operating lease liabilities - current | 237,048 | 223,835 |
Note Payable - current | 913,063 | 0 |
Total current liabilities | 3,833,951 | 3,294,621 |
Long-term liabilities: | ||
Contract liabilties - long-term | 86,907 | 111,131 |
Accrued royalties - long-term | 500,000 | 0 |
Operating lease liabilities - long-term | 636,622 | 758,315 |
Total long-term liabilities | 1,223,529 | 869,446 |
Total liabilities | 5,057,480 | 4,164,067 |
Stockholders' Equity | ||
Common stock, par value $.001 per share; 190,000,000 shares authorized; 136,311,335 and 135,990,491 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively. | 136,311 | 135,990 |
Additional paid-in-capital | 127,731,898 | 127,708,773 |
Accumulated deficit | (127,384,892) | (125,105,539) |
Total stockholders' equity | 2,185,942 | 4,441,849 |
Total Liabilities and Stockholders' Equity | 7,243,422 | 8,605,916 |
Series A Preferred Stock [Member] | ||
Stockholders' Equity | ||
Preferred stock value | 1,340,566 | 1,340,566 |
Series B Preferred Stock [Member] | ||
Stockholders' Equity | ||
Preferred stock value | $ 362,059 | $ 362,059 |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) - USD ($) | Sep. 30, 2020 | Dec. 31, 2019 |
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 | 136,311,335 | 135,990,491 |
Common stock, shares outstanding | 136,311,335 | 135,990,491 |
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 | $ 1,729,763 | $ 1,674,195 |
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 | $ 471,533 | $ 455,904 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Total Net Revenue | $ 2,239,971 | $ 2,198,643 | $ 5,325,076 | $ 8,531,880 |
Total Cost of Sales | 1,147,673 | 1,333,588 | 2,998,716 | 5,264,366 |
Gross Profit | 1,092,298 | 865,055 | 2,326,360 | 3,267,514 |
Operating Expenses: | ||||
Research and development | 231,088 | 448,690 | 892,179 | 1,360,986 |
Selling, general and administrative | 1,518,915 | 1,137,084 | 3,646,246 | 3,936,851 |
Depreciation and amortization | 14,658 | 16,775 | 44,196 | 50,750 |
Total Operating Expenses | 1,764,661 | 1,602,549 | 4,582,621 | 5,348,587 |
Operating Loss | (672,363) | (737,494) | (2,256,261) | (2,081,073) |
Other Expenses: | ||||
Gain on fixed assets | 0 | 150 | 0 | 150 |
Interest expense, net | (4,392) | (16,525) | (19,976) | (37,125) |
Total Other Expenses | (4,392) | (16,375) | (19,976) | (36,975) |
Loss before Provision for Income Taxes | (676,755) | (753,869) | (2,276,237) | (2,118,048) |
Income Tax Provision | 0 | 0 | 3,116 | 0 |
Net Loss Attributable to Common Stockholders | $ (676,755) | $ (753,869) | $ (2,279,353) | $ (2,118,048) |
Net Loss per Common Share: | ||||
Basic - Net Loss Attributable to Common Stockholders | $ (0.01) | $ (0.01) | $ (0.02) | $ (0.02) |
Diluted - Net Loss Attributable to Common Stockholders | $ (0.01) | $ (0.01) | $ (0.02) | $ (0.02) |
Weighted Average Common Shares Outstanding - basic | 136,311,335 | 135,331,951 | 136,061,140 | 134,937,277 |
Weighted Average Common Shares Outstanding - diluted | 136,311,335 | 135,331,951 | 136,061,140 | 134,937,277 |
Product [Member] | ||||
Total Net Revenue | $ 2,050,170 | $ 1,995,788 | $ 4,762,802 | $ 7,963,349 |
Total Cost of Sales | 1,131,205 | 1,259,151 | 2,933,679 | 5,026,815 |
Recurring [Member] | ||||
Total Net Revenue | 189,801 | 202,855 | 562,274 | 568,531 |
Total Cost of Sales | $ 16,468 | $ 74,437 | $ 65,037 | $ 237,551 |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) - USD ($) | Series A Preferred Stock | Series B Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total |
Beginning Balance, Shares at Dec. 31, 2018 | 185 | 52 | 134,793,211 | |||
Beginning 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 | 292,308 | |||||
Shares issued to directors, value | $ 294 | 35,708 | 36,002 | |||
Stock-based compensation expense related to employee stock options | 1,815 | 1,815 | ||||
Net loss attributable to common stockholders | (845,604) | (845,604) | ||||
Ending Balance, Shares at Mar. 31, 2019 | 185 | 52 | 135,085,519 | |||
Ending Balance, Amount at Mar. 31, 2019 | $ 1,340,566 | $ 362,059 | $ 135,086 | 127,608,232 | (124,017,010) | 5,428,933 |
Shares issued directors, shares | 246,432 | |||||
Shares issued to directors, value | $ 245 | 35,753 | 35,998 | |||
Stock-based compensation expense related to employee stock options | 1,816 | 1,816 | ||||
Net loss attributable to common stockholders | (518,575) | (518,575) | ||||
Ending Balance, Shares at Jun. 30, 2019 | 185 | 52 | 135,331,951 | |||
Ending Balance, Amount at Jun. 30, 2019 | $ 1,340,566 | $ 362,059 | $ 135,331 | 127,645,801 | (124,535,585) | 4,948,172 |
Shares issued directors, shares | 301,399 | |||||
Shares issued to directors, value | $ 301 | 32,699 | 33,000 | |||
Stock-based compensation expense related to employee stock options | 1,815 | 1,815 | ||||
Net loss attributable to common stockholders | (753,869) | (753,869) | ||||
Ending Balance, Shares at Sep. 30, 2019 | 185 | 52 | 135,633,350 | |||
Ending Balance, Amount at Sep. 30, 2019 | $ 1,340,566 | $ 362,059 | $ 135,632 | 127,680,315 | (125,289,454) | 4,229,118 |
Beginning Balance, Shares at Dec. 31, 2019 | 185 | 52 | 135,990,491 | |||
Beginning Balance, Amount at Dec. 31, 2019 | $ 1,340,566 | $ 362,059 | $ 135,990 | 127,708,773 | (125,105,539) | 4,441,849 |
Shares issued directors, shares | 320,844 | |||||
Shares issued to directors, value | $ 321 | 17,679 | 18,000 | |||
Stock-based compensation expense related to employee stock options | 1,815 | 1,815 | ||||
Net loss attributable to common stockholders | (652,501) | (652,501) | ||||
Ending Balance, Shares at Mar. 31, 2020 | 185 | 52 | 136,311,335 | |||
Ending Balance, Amount at Mar. 31, 2020 | $ 1,340,566 | $ 362,059 | $ 136,311 | 127,728,267 | (125,758,040) | 3,809,163 |
Shares issued directors, shares | ||||||
Shares issued to directors, value | ||||||
Stock-based compensation expense related to employee stock options | 1,816 | 1,816 | ||||
Net loss attributable to common stockholders | (950,097) | (950,097) | ||||
Ending Balance, Shares at Jun. 30, 2020 | 185 | 52 | 136,311,335 | |||
Ending Balance, Amount at Jun. 30, 2020 | $ 1,340,566 | $ 362,059 | $ 136,311 | 127,730,083 | (126,708,137) | 2,860,882 |
Shares issued directors, shares | ||||||
Shares issued to directors, value | ||||||
Stock-based compensation expense related to employee stock options | 1,815 | 1,815 | ||||
Net loss attributable to common stockholders | (676,755) | (676,755) | ||||
Ending Balance, Shares at Sep. 30, 2020 | 185 | 52 | 136,311,335 | |||
Ending Balance, Amount at Sep. 30, 2020 | $ 1,340,566 | $ 362,059 | $ 136,311 | $ 127,731,898 | $ (127,384,892) | $ 2,185,942 |
CONDENSED CONSOLIDATED STATEM_3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) | 9 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2019 | |
Cash Flows from Operating Activities: | ||
Net loss | $ (2,279,353) | $ (2,118,048) |
Adjustments to reconcile net loss to cash used in operating activities: | ||
Stock-based compensation expense related to employee stock options | 5,446 | 5,446 |
Stock issued to directors as compensation | 18,000 | 105,000 |
Depreciation and amortization | 44,196 | 50,750 |
Noncash operating lease expense | 173,556 | 178,426 |
Changes in operating assets and liabilities: | ||
Accounts receivable, net | 700,666 | (998,707) |
Inventories, net | (95,154) | 423,339 |
Prepaid expenses | 3,883 | 204,343 |
Deposits | 10,130 | 0 |
Accounts payable | (71,060) | 596,554 |
Accrued royalties - long-term | 500,000 | 0 |
Accrued liabilities and expenses | 275,350 | (33,874) |
Contract liability | (56,430) | (111,648) |
Contract assets | 142,241 | (108,554) |
Operating lease liabilities | (166,918) | (164,794) |
Income taxes receivable | (307) | (5,641) |
Net Cash Used In Operating Activities | (795,754) | (1,977,408) |
Cash Flows From Investing Activities: | ||
Purchase of property and equipment | 0 | (5,318) |
Net Cash Used In By Investing Activities | 0 | (5,318) |
Cash Flows From Financing Activities: | ||
Proceeds from note payable | 913,063 | 0 |
Proceeds from line of credit | 5,425,000 | 9,079,000 |
Payments on line of credit | (5,984,030) | (8,291,051) |
Net Cash Provided By Financing Activities | 354,033 | 787,949 |
Net decrease in cash and cash equivalents | (441,721) | (1,194,777) |
Cash and cash equivalents at the beginning of the period | 3,300,600 | 4,678,891 |
Cash and cash equivalents at the end of the period | 2,858,879 | 3,484,114 |
Cash transactions: | ||
Cash paid during the period for interest | $ 28,137 | $ 60,580 |
A. BASIS OF PRESENTATION AND SI
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended |
Sep. 30, 2020 | |
Accounting Policies [Abstract] | |
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES | NOTE A – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies applied in the preparation of the accompanying condensed consolidated financial statements follows. General The accompanying unaudited condensed consolidated financial statements of Telkonet, Inc. (the “Company”, “Telkonet”) have been prepared in accordance with Rule S-X of the Securities and Exchange Commission (the “SEC”) and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. However, the results from operations for the nine months ended September 30, 2020, are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated December 31, 2019 financial statements and footnotes thereto included in the Company's Form 10-K filed with the SEC. 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, military, educational, healthcare 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 condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Telkonet Communications, Inc. We currently operate in 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 September 30, 2020, we have incurred cumulative losses of $127,384,892 and have never generated enough cash through operations to support our business. For the nine-month period ended September 30, 2020, we had a cash flow deficit from operations of $795,754. The Company has made significant investments in the engineering, development and marketing of an intelligent automation platform, including but not limited to, hardware and software enhancements, support services and applications. The funding for these development efforts has contributed to, and continues to contribute to, the ongoing operating losses and use of cash. Operating losses have been financed by debt and equity transactions, Credit Facility capacity, the sale of a wholly-owned subsidiary, and management of working capital levels. The report from our previous independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2019 stated there is substantial doubt about our ability to continue as a going concern. 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. The Company’s operations and financial results have also been impacted by the COVID-19 pandemic. Both the health and economic aspects of the COVID-19 pandemic are highly fluid and the future course of each is uncertain. We cannot predict whether the outbreak of COVID-19 will be effectively contained on a sustained basis. Depending on the length and severity of the COVID-19 pandemic, the demand for our products, our 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 could be impacted. Management is actively monitoring the impact of the global situation on the Company’s financial condition, liquidity, operations, suppliers, industry, and workforce. While we expect this disruption to continue to have a material adverse impact on our results of operations, financial condition cash flows, and liquidity, the Company is unable to reasonably determine the full extent of the impact at this time. The Company’s sales and gross profits have decreased significantly resulting from a contraction in commercial demand for our products, a lower revenue conversion rate in our existing pipeline and significant one-off transactions from customers in 2019 that have not been, and are not expected to be, repeated in 2020. Due to travel restrictions, social distancing and shelter at home edicts, the hospitality industry, our largest market that generally accounts for a majority of our revenue, has suffered as much as any. According to data from STR and Tourism Economics, full recovery in U.S. hotel demand and room revenue remains unlikely until 2023 and 2024, respectively. 1 2 In addition, the Company is currently in discussions related to the settlement of a patent infringement lawsuit (the Sipco Lawsuit). See the “Litigation” section in Note I – Commitments and Contingencies for a discussion of the Sipco Lawsuit. Based on these discussions, the Company determined the likelihood of a settlement to be probable, and as a result, as of September 30, 2020, the Company recorded, as its best estimate, a current liability of $100,000 included in Accrued liabilities and a non-current liability of $500,000 included in Accrued royalties – long-term of the Condensed Consolidated Balance Sheet for settlement-related costs. The corresponding expense is recorded in the Selling, general and administrative line of the Condensed Consolidated Statements of Operations. The payment of such estimated settlement-related royalty fees is expected to have a material and adverse impact on the Company’s results of operations and liquidity. There is, however, no assurance that the Sipco Lawsuit will be settled, and if settled, the amount of any costs. The Company has taken, and is continuing to take, a number of actions to preserve cash. These actions include suspending the use of engineering consultants and cancelling all non-essential travel and the Company’s attendance at tradeshows (implemented prior to applicable government stay-at-home orders being put in place). In early April of 2020, management made the decision to furlough certain employees, instituted pay cuts for certain other employees and suspended the Company’s 401(k) match through the end of 2020. With the receipt of the PPP Loan (discussed below), the Company was able to bring back the furloughed employees, restore payroll to prior levels and delay suspension of the 401(k) match. However, the pandemic continued to impact the Company’s operations and financial results, and consequently, in late June of 2020 management once again made the decision to furlough certain employees, instituted pay cuts for certain other employees and suspended the Company’s 401(k) match through the end of 2020. The furloughs and pay cuts continued through September 2020, at which time management determined it was necessary to discontinue the furloughs and pay cuts in order to retain necessary personnel for the Company’s ongoing operations. __________ 1 Hotel Management 2 Hotel Management The more recent actions described above are in addition to the cost elimination and liquidity management actions that the Company began implementing in the second half of 2019, 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 reduce existing inventory volumes. There is no guarantee, however, that these actions, nor any other actions identified, will yield profitable operations in the foreseeable future. In addition to the actions noted above, on April 21, 2020, the Company entered into an unsecured promissory note, dated April 17, 2020 (“the PPP Loan”), with Heritage Bank of Commerce, a California state chartered bank (“Heritage Bank”) for a $913,063 loan under the Paycheck Protection Program (“PPP”). See Note G – Debt for a summary of the terms of the PPP and the PPP Loan, including eligibility for forgiveness. The Company also has a $2 million revolving credit facility with Heritage Bank (the “Credit Facility”), which is secured by all of the Company’s assets. The Company is currently in compliance with the financial covenants in the loan agreement for the Credit Facility. However, based on the Company’s current level of operations and forecasted cash flow analysis for the twelve-month period subsequent to the date of this filing, without further cost cutting measures, working capital management, and/or enhanced revenues, the Company believes it is reasonably likely that it will breach the covenant to maintain a minimum unrestricted cash balance of $2 million at some time during 2021. Violation of any covenant under the Credit Facility provides Heritage Bank with the option to accelerate repayment of amounts borrowed, terminate its commitment to extend further credit, and foreclose on the Company’s assets. A default under the Credit Facility would also result in a cross-default under the Company’s PPP Loan with Heritage Bank, in which case Heritage Bank could require immediate repayment of all amounts due under the PPP Loan. As of September 30, 2020, the outstanding balance on the Credit Facility was $65,317 and the PPP Loan had a balance of $913,063. The Company plans to discuss the possibility of a waiver or a change to the financial covenant with Heritage Bank in the near term. Any covenant waiver or amendment could lead to increased costs, increased interest rates, additional restrictive covenants, and other lender protections. There is no assurance, however, that the Company will be able to obtain a covenant waiver or amendment, in which case Heritage Bank could immediately declare all amounts due under both the Credit Facility and the PPP Loan, terminate the Credit Facility, and foreclose on the Company’s assets. Currently, the Company has sufficient cash balances to pay the amounts due under the Credit Facility and the PPP Loan, and the Company plans to submit an application for forgiveness of the PPP Loan. However, depending on the timing of a default and the Company’s ongoing use of cash reserves and the Credit Facility to finance its near-term working capital needs, there is no assurance that at the time of a default that the Company would have sufficient cash balances to pay the amounts due at such time. There is also no assurance that the Company will obtain forgiveness of the PPP Loan in whole or in part. The Company may also seek additional financing from alternative sources, but there is no assurance that such financing will be available at commercially reasonable terms, if at all. The Company currently expects to draw on its 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 at least one year beyond the date of these financial statements. The Credit Facility provides the Company with needed liquidity to assist in meeting its obligations. However, as discussed above, without further cost cutting measures, working capital management, and/or enhanced revenues, the Company believes it is reasonably likely that it will breach a financial covenant under the Credit Facility at some time during 2021, in which case, without a waiver or amendment, the Credit Facility could be terminated, and without additional financing, the Company may be unable to meet its obligations or fund its operations within the next twelve months. 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. If cash resources become insufficient to meet the Company’s ongoing obligations, the Company may be required to scale back or discontinue portions of its operations or discontinue operations entirely, pursue a sale of the Company or its assets at a price that may result in a significant or complete loss on investment for its shareholders, file for bankruptcy or seek other protection from creditors, or liquidate all its assets. In addition, if the Company defaults under the Credit Facility and is unable to pay the outstanding balance, Heritage Bank could foreclose on the Company’s assets. The Company’s shareholders may lose some or all of their investment as a result of any of these outcomes. 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. 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 the nine months ended September 30, 2020 and 2019, there were 3,599,793 shares of common stock underlying options and warrants excluded due to these instruments being anti-dilutive. Shares used in the calculation of diluted EPS are summarized below: Three Months Ended Nine Months Ended September 30, 2020 2019 2020 2019 Weighted average common shares outstanding – basic 136,311,335 135,331,951 136,061,140 134,937,277 Dilutive effect of stock options – – – – Weighted average common shares outstanding – diluted 136,311,335 135,331,951 136,061,140 134,937,277 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 has enforceable rights and obligations. 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 either 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 September 30, 2021. Contract Completion 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 nine months ended September 30, 2020 and the year ended December 31, 2019, the Company experienced returns of approximately 1% to 3% of materials included in the cost of sales. As of September 30, 2020 and December 31, 2019, the Company recorded warranty liabilities in the amount of $48,222 and $58,791, respectively, using this experience factor range. Product warranties for the nine months ended September 30, 2020 and the year ended December 31, 2019 are as follows: September 30, December 31, Beginning balance $ 58,791 $ 46,103 Warranty claims incurred (14,580 ) (66,803 ) Provision charged to expense 4,011 79,491 Ending balance $ 48,222 $ 58,791 Advertising The Company follows the policy of charging the costs of advertising to expenses as incurred. During the three months ended September 30, 2020 and 2019, the Company incurred advertising costs of $1,153 and $11,257, respectively. During the nine months ended September 30, 2020 and 2019, the Company incurred advertising costs of $8,315 and $47,399, 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 the three months ended September 30, 2020 and 2019 were $231,088 and $448,690, respectively. Research and product development expenditures for the nine months ended September 30, 2020 and 2019 were $892,179 and $1,360,986, 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. The expected stock price volatility is based on the historical volatility of the Company’s stock for the related expected term. Total stock-based compensation expense in connection with options granted to employees recognized in the condensed consolidated statements of stockholders’ equity was $1,815 for both the three months ended September 30, 2020 and 2019. Total stock-based compensation expense in connection with options granted to employees was $5,446 for both the nine months ended September 30, 2020 and 2019. |
B. NEW ACCOUNTING PRONOUNCEMENT
B. NEW ACCOUNTING PRONOUNCEMENTS | 9 Months Ended |
Sep. 30, 2020 | |
Accounting Standards Update and Change in Accounting Principle [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 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. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This guidance modifies, removes, and adds certain disclosure requirements on fair value measurements. This ASU is effective for annual periods beginning after December 15, 2019, including interim periods therein. The adoption of this guidance did not have a material impact on the Company’s 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. |
C. REVENUE
C. REVENUE | 9 Months Ended |
Sep. 30, 2020 | |
Revenue from Contract with Customer [Abstract] | |
REVENUE | NOTE C – REVENUE The following table presents the Company’s product and recurring revenues disaggregated by industry for the three months ended September 30, 2020. Hospitality Education Multiple Dwelling Units Government Total Product $ 1,890,086 $ 61,779 $ 2,083 $ 96,222 $ 2,050,170 Recurring 116,292 72,059 1,450 – 189,801 $ 2,006,378 $ 133,838 $ 3,533 $ 96,222 $ 2,239,971 The following table presents the Company’s product and recurring revenues disaggregated by industry for the nine months ended September 30, 2020. Hospitality Education Multiple Dwelling Units Government Total Product $ 4,072,147 $ 383,944 $ 132,353 $ 174,358 $ 4,762,802 Recurring 432,214 112,422 17,638 – 562,274 $ 4,504,361 $ 496,366 $ 149,991 $ 174,358 $ 5,325,076 The following table presents the Company’s product and recurring revenues disaggregated by industry for the three months ended September 30, 2019. Hospitality Education Multiple Dwelling Units Government Total Product $ 1,764,778 $ 155,354 $ 59,661 $ 15,995 $ 1,995,788 Recurring 149,868 51,321 1,666 – 202,855 $ 1,914,646 $ 206,675 $ 61,327 $ 15,995 $ 2,198,643 The following table presents the Company’s product and recurring revenues disaggregated by industry for the nine months ended September 30, 2019. Hospitality Education Multiple Dwelling Units Government Total Product $ 5,786,068 $ 863,507 $ 371,711 $ 942,063 $ 7,963,349 Recurring 455,364 92,370 20,797 – 568,531 $ 6,241,432 $ 955,877 $ 392,508 $ 942,063 $ 8,531,880 Sales taxes and other usage-based taxes are excluded from revenues. Remaining performance obligations As of September 30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $0.87 million. Except for support services, the Company expects to recognize 100% of the remaining performance obligations over the next six months. Contract assets and liabilities September 30, December 31, Contract assets $ 45,879 $ 188,120 Contract liabilities 707,754 764,184 Net contract liabilities $ 661,875 $ 576,064 Contracts are billed in accordance with the terms and conditions, either at periodic intervals or upon substantial completion. This can result in billings occurring subsequent to revenue recognition, resulting in contract assets. Contract assets are presented as current assets in the Condensed Consolidated Balance Sheet. 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 nine-month period ended September 30, 2020 is the result of cash payments received and billing in advance of satisfying performance obligations. Contract costs Costs to complete 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 costs to complete 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 | 9 Months Ended |
Sep. 30, 2020 | |
Receivables [Abstract] | |
ACCOUNTS RECEIVABLE | NOTE D – ACCOUNTS RECEIVABLE Components of accounts receivable as of September 30, 2020 and December 31, 2019 are as follows: September 30, December 31, Accounts receivable $ 1,625,628 $ 2,338,626 Allowance for doubtful accounts (42,707 ) (55,039 ) Accounts receivable, net $ 1,582,921 $ 2,283,587 |
E. INVENTORIES
E. INVENTORIES | 9 Months Ended |
Sep. 30, 2020 | |
Inventory Disclosure [Abstract] | |
INVENTORIES | NOTE E – INVENTORIES Components of inventories as of September 30, 2020 and December 31, 2019 are as follows: September 30, December 31, Product purchased for resale $ 1,881,264 $ 1,613,733 Reserve for obsolescence (413,036 ) (240,659 ) Inventory, net $ 1,468,228 $ 1,373,074 |
F. ACCRUED LIABILITIES AND EXPE
F. ACCRUED LIABILITIES AND EXPENSES | 9 Months Ended |
Sep. 30, 2020 | |
Payables and Accruals [Abstract] | |
ACCRUED LIABILITIES AND EXPENSES | NOTE F – ACCRUED LIABILITIES AND EXPENSES Accrued liabilities at September 30, 2020 and December 31, 2019 are as follows : September 30, December 31, Accrued liabilities and expenses $ 434,473 $ 214,925 Accrued payroll and payroll taxes 302,973 227,153 Accrued sales taxes, penalties, and interest 17,508 26,957 Product warranties 48,222 58,791 Total accrued liabilities and expenses $ 803,176 $ 527,826 |
G. DEBT
G. DEBT | 9 Months Ended |
Sep. 30, 2020 | |
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 Credit Facility is secured by all of the Company’s assets. The Credit Facility is available for working capital and other general business purposes. The outstanding principal balance of the Credit Facility bears interest at the Prime Rate plus 3.00%, which was 6.25% at September 30, 2020 and 7.75% December 31, 2019. On October 9, 2014, as part of the Heritage Bank Loan Agreement, Heritage Bank was granted a warrant to purchase 250,000 shares of Telkonet common stock. The warrant has an exercise price of $0.20 and expires October 9, 2021. On November 6, 2019, the eleventh amendment to the Credit Facility was executed to extend the maturity date of the Credit Facility 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 remaining 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 either 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 $65,317 and $624,347 at September 30, 2020 and December 31, 2019, respectively, and the remaining available borrowing capacity was approximately $963,000 and $424,000, respectively. As of September 30, 2020, the Company was in compliance with all financial covenants. See the “Going Concern and Management’s Plan” section in Note A – Basis of Presentation and Significant Accounting Policies for a discussion of a potential default under the Credit Facility. Paycheck Protection Program On April 21, 2020, the Company entered into an unsecured promissory note, dated as of April 17, 2020 (“the PPP Loan”), with Heritage Bank under the PPP administered by the United States SBA and authorized by the Keeping American Workers Employed and Paid Act, which is part of the CARES Act, enacted on March 27, 2020. The principal amount of the PPP Loan is $913,063. The PPP Loan bears interest of 1.0% per annum and was disbursed on April 21, 2020. The PPP Loan has a maturity date of April 21, 2022. No payments of principal or interest are required during the first six months, but interest accrues during this period. The PPP Flexibility Act (discussed below) extended the six-month loan payment deferral period. After the deferral period, monthly payments of principal and interest are required and continue until maturity with respect to any portion of the PPP Loan not forgiven, as discussed below. The PPP Loan may be prepaid, in full or in part, at any time prior to maturity with no prepayment penalties. The note contains events of default and other provisions customary for a loan of this type. Under the terms of the PPP, the Company can apply for, and be granted, forgiveness for all or a portion of the PPP Loan. Such forgiveness will be determined, subject to limitations and ongoing rulemaking by the SBA, based on the use of loan proceeds for eligible purposes, including payroll costs, mortgage interest, rent, utility costs and the maintenance of employee and compensation levels. Prior to the enactment of the PPP Flexibility Act, at least 75% of such forgiven amounts must be used for eligible payroll costs. The amount of loan forgiveness will be reduced if the Company terminates employees or reduces salaries during the eight-week period following the date the proceeds are disbursed, and if it is not eligible to claim any of the safe harbors or exemptions. On June 5, 2020, the PPP Flexibility Act of 2020 was signed into law. It amended the CARES Act and eased rules on how and when recipients can use loans and still be eligible for forgiveness. The PPP Flexibility Act changed many aspects of the PPP, including: (1) extending the covered period for loan forgiveness purposes from eight weeks to the earlier of 24 weeks from the loan origination date or December 31, 2020; (2) lowering the amount required to be spent on payroll costs from 75% to 60% of the loan principal; (3) extending the loan maturity period from two years to five years for PPP loans made on or after June 5, 2020; and (4) revising the loan payment deferral period until the date when the amount of loan forgiveness is determined and remitted to the lender. For PPP recipients who do not apply for forgiveness, the loan payment deferral period expires ten months after the applicable forgiveness period ends. No assurance is provided that the Company will obtain forgiveness of the PPP Loan in whole or in part. The outstanding balance was $913,063 at September 30, 2020. See the “Going Concern and Management’s Plan” section in Note A – Basis of Presentation and Significant Accounting Policies for a discussion of a potential default under the PPP Loan. |
H. CAPITAL STOCK
H. CAPITAL STOCK | 9 Months Ended |
Sep. 30, 2020 | |
Equity [Abstract] | |
CAPITAL STOCK | NOTE H – 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 September 30, 2020 and December 31, 2019, there were 185 shares of preferred stock Series A and 52 shares of preferred stock Series B outstanding. The Company has authorized 190,000,000 shares of common stock with a par value of $.001 per share. As of September 30, 2020 and December 31, 2019, the Company had 136,311,335 and 135,990,491 shares of common stock issued and outstanding, respectively. During the nine months ended September 30, 2020 and 2019, the Company issued 320,844 and 840,139 shares of common stock, respectively, to directors for services performed during the nine months ended September 30, 2020 and 2019, respectively. These shares were valued at $18,000 and $105,000, respectively, which approximated the fair value of the shares when they were issued. During the nine months ended September 30, 2020 and 2019, no warrants were exercised and no shares of Series A or B preferred stock were converted to shares of common stock. |
I. COMMITMENTS AND CONTINGENCIE
I. COMMITMENTS AND CONTINGENCIES | 9 Months Ended |
Sep. 30, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | NOTE I – 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. The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. The Company does not separate non-lease components from lease components to which they relate and accounts for the combined lease and non-lease components as a single lease component. Operating leases are included in our condensed consolidated balance sheet as right-of-use assets, operating lease liabilities – current and operating lease liabilities – long-term. We do not recognize a right-of-use asset and lease liability for leases with a term of 12 months or less. Our current operating leases are for facilities. 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. 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 G for further discussion. 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 the Company's proportionate share of common area maintenance, utilities, taxes and insurance and are presented as operating expenses in the Company’s statements of operations in the same line item as expense arising from fixed lease payments. 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 deferred lease liability. The components of lease expense for the nine months ended September 30, 2020 were as follows: Operating lease expense: Operating lease cost – fixed $ 173,556 Variable lease cost 101,725 Total operating lease cost $ 275,281 Other information related to leases as of September 30, 2020 was as follows: Operating lease liability – current $ 237,048 Operating lease liability – long-term $ 636,622 Operating cash outflows from operating leases $ 166,918 Weighted-average remaining lease term of operating leases 5.01 years Weighted-average discount rate of operating leases 8.5% Future annual minimum operating lease payments as of September 30, 2020 were as follows: 2020 (excluding the nine months ended September 30, 2020) $ 56,917 2021 242,299 2022 195,176 2023 193,169 2024 and thereafter 384,119 Total minimum lease payments 1,071,680 Less imputed interest (198,010 ) Total $ 873,670 Rental expenses charged to operations for the three months ended September 30, 2020 and 2019 were $86,329 and $87,633, respectively. Rental expenses charged to operations for the nine months ended September 30, 2020 and 2019 were $275,281 and $268,465, respectively. Litigation The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, other than the Sipco Lawsuit discussed below, 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. Sipco, LLC v Telkonet, Inc. On June 30, 2020, Sipco, LLC (“Sipco”) filed a lawsuit against the Company in the United States District Court for the Eastern District of Wisconsin (Case No. 20-CV-00981) (the “Sipco Lawsuit”) alleging infringement on multiple essential wireless mesh (“EWM”) patents held by the Sipco. The EWM patent portfolio covers technologies used in multi-hop wireless networks utilizing wireless protocols such as, but not limited to, Zigbee. The portfolio also covers applications including, but not limited to, home and building automation and industrial controls. The complaint contends the Company sold and is continuing to sell various automated networked products designed to manage energy, lighting and temperature and those products employ wireless mesh network communication utilizing Zigbee enabled technology. The complaint alleges patent infringement and seeks damages, costs, expenses, pre-judgment and post-judgment interest and post-judgment royalties. The complaint also alleges that the infringement was willful and that this is an “exceptional case” and requests treble damages and attorneys’ fees. In an effort to avoid the expense of costly litigation, the Company and Sipco are engaging in discussions regarding a potential settlement of the Sipco Lawsuit. Based on these discussions, the Company determined the likelihood of a settlement to be probable, and as a result, as of September 30, 2020, the Company recorded, as its best estimate, a current liability of $100,000 included in Accrued liabilities and a non-current liability of $500,000 included in Accrued royalties – long-term of the Condensed Consolidated Balance Sheet for settlement-related costs. The corresponding expense is recorded in the Selling, general and administrative line of the Condensed Consolidated Statements of Operations. The payment of such estimated settlement-related royalty fees is expected to have a material and adverse impact on the Company’s results of operations and liquidity. There is, however, no assurance that the Sipco Lawsuit will be settled, and if settled, the amount of any costs. Sales Tax 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 as of September 30, 2020 and December 31, 2019: September 30, 2020 December 31, 2019 Balance, beginning of year $ 26,957 $ 43,400 Sales tax collected 67,413 167,233 Provisions (reversals) 24,353 (10,664 ) Payments (101,215 ) (173,012 ) Balance, end of period $ 17,508 $ 26,957 |
J. BUSINESS CONCENTRATION
J. BUSINESS CONCENTRATION | 9 Months Ended |
Sep. 30, 2020 | |
Risks and Uncertainties [Abstract] | |
BUSINESS CONCENTRATION | NOTE J – BUSINESS CONCENTRATION For the nine months ended September 30, 2020, two customers represented approximately 33% of total net revenues. For the nine months ended September 30, 2019, three customers represented approximately 44% of total net revenues. As of September 30, 2020, two customers accounted for approximately 55% of the Company’s net accounts receivable. As of December 31, 2019, two customers represented 36% of the Company’s net accounts receivable. Purchases from one supplier approximated $1,973,000, or 90%, of total purchases for the nine months ended September 30, 2020 and approximately $2,522,000, or 84%, of total purchases for the nine months ended September 30, 2019. The amount due to this supplier, net of deposits paid, was approximately $716,000 and $579,000 as of September 30, 2020 and December 31, 2019, respectively. |
A. BASIS OF PRESENTATION AND _2
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended |
Sep. 30, 2020 | |
Accounting Policies [Abstract] | |
General | General The accompanying unaudited condensed consolidated financial statements of Telkonet, Inc. (the “Company”, “Telkonet”) have been prepared in accordance with Rule S-X of the Securities and Exchange Commission (the “SEC”) and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. However, the results from operations for the nine months ended September 30, 2020, are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated December 31, 2019 financial statements and footnotes thereto included in the Company's Form 10-K filed with the SEC. |
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, military, educational, healthcare 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 condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Telkonet Communications, Inc. We currently operate in 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 September 30, 2020, we have incurred cumulative losses of $127,384,892 and have never generated enough cash through operations to support our business. For the nine-month period ended September 30, 2020, we had a cash flow deficit from operations of $795,754. The Company has made significant investments in the engineering, development and marketing of an intelligent automation platform, including but not limited to, hardware and software enhancements, support services and applications. The funding for these development efforts has contributed to, and continues to contribute to, the ongoing operating losses and use of cash. Operating losses have been financed by debt and equity transactions, Credit Facility capacity, the sale of a wholly-owned subsidiary, and management of working capital levels. The report from our previous independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2019 stated there is substantial doubt about our ability to continue as a going concern. 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. The Company’s operations and financial results have also been impacted by the COVID-19 pandemic. Both the health and economic aspects of the COVID-19 pandemic are highly fluid and the future course of each is uncertain. We cannot predict whether the outbreak of COVID-19 will be effectively contained on a sustained basis. Depending on the length and severity of the COVID-19 pandemic, the demand for our products, our 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 could be impacted. Management is actively monitoring the impact of the global situation on the Company’s financial condition, liquidity, operations, suppliers, industry, and workforce. While we expect this disruption to continue to have a material adverse impact on our results of operations, financial condition cash flows, and liquidity, the Company is unable to reasonably determine the full extent of the impact at this time. The Company’s sales and gross profits have decreased significantly resulting from a contraction in commercial demand for our products, a lower revenue conversion rate in our existing pipeline and significant one-off transactions from customers in 2019 that have not been, and are not expected to be, repeated in 2020. Due to travel restrictions, social distancing and shelter at home edicts, the hospitality industry, our largest market that generally accounts for a majority of our revenue, has suffered as much as any. According to data from STR and Tourism Economics, full recovery in U.S. hotel demand and room revenue remains unlikely until 2023 and 2024, respectively. 1 2 In addition, the Company is currently in discussions related to the settlement of a patent infringement lawsuit (the Sipco Lawsuit). See the “Litigation” section in Note I – Commitments and Contingencies for a discussion of the Sipco Lawsuit. Based on these discussions, the Company determined the likelihood of a settlement to be probable, and as a result, as of September 30, 2020, the Company recorded, as its best estimate, a current liability of $100,000 included in Accrued liabilities and a non-current liability of $500,000 included in Accrued royalties – long-term of the Condensed Consolidated Balance Sheet for settlement-related costs. The corresponding expense is recorded in the Selling, general and administrative line of the Condensed Consolidated Statements of Operations. The payment of such estimated settlement-related royalty fees is expected to have a material and adverse impact on the Company’s results of operations and liquidity. There is, however, no assurance that the Sipco Lawsuit will be settled, and if settled, the amount of any costs. The Company has taken, and is continuing to take, a number of actions to preserve cash. These actions include suspending the use of engineering consultants and cancelling all non-essential travel and the Company’s attendance at tradeshows (implemented prior to applicable government stay-at-home orders being put in place). In early April of 2020, management made the decision to furlough certain employees, instituted pay cuts for certain other employees and suspended the Company’s 401(k) match through the end of 2020. With the receipt of the PPP Loan (discussed below), the Company was able to bring back the furloughed employees, restore payroll to prior levels and delay suspension of the 401(k) match. However, the pandemic continued to impact the Company’s operations and financial results, and consequently, in late June of 2020 management once again made the decision to furlough certain employees, instituted pay cuts for certain other employees and suspended the Company’s 401(k) match through the end of 2020. The furloughs and pay cuts continued through September 2020, at which time management determined it was necessary to discontinue the furloughs and pay cuts in order to retain necessary personnel for the Company’s ongoing operations. __________ 1 Hotel Management 2 Hotel Management The more recent actions described above are in addition to the cost elimination and liquidity management actions that the Company began implementing in the second half of 2019, 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 reduce existing inventory volumes. There is no guarantee, however, that these actions, nor any other actions identified, will yield profitable operations in the foreseeable future. In addition to the actions noted above, on April 21, 2020, the Company entered into an unsecured promissory note, dated April 17, 2020 (“the PPP Loan”), with Heritage Bank of Commerce, a California state chartered bank (“Heritage Bank”) for a $913,063 loan under the Paycheck Protection Program (“PPP”). See Note G – Debt for a summary of the terms of the PPP and the PPP Loan, including eligibility for forgiveness. The Company also has a $2 million revolving credit facility with Heritage Bank (the “Credit Facility”), which is secured by all of the Company’s assets. The Company is currently in compliance with the financial covenants in the loan agreement for the Credit Facility. However, based on the Company’s current level of operations and forecasted cash flow analysis for the twelve-month period subsequent to the date of this filing, without further cost cutting measures, working capital management, and/or enhanced revenues, the Company believes it is reasonably likely that it will breach the covenant to maintain a minimum unrestricted cash balance of $2 million at some time during 2021. Violation of any covenant under the Credit Facility provides Heritage Bank with the option to accelerate repayment of amounts borrowed, terminate its commitment to extend further credit, and foreclose on the Company’s assets. A default under the Credit Facility would also result in a cross-default under the Company’s PPP Loan with Heritage Bank, in which case Heritage Bank could require immediate repayment of all amounts due under the PPP Loan. As of September 30, 2020, the outstanding balance on the Credit Facility was $65,317 and the PPP Loan had a balance of $913,063. The Company plans to discuss the possibility of a waiver or a change to the financial covenant with Heritage Bank in the near term. Any covenant waiver or amendment could lead to increased costs, increased interest rates, additional restrictive covenants, and other lender protections. There is no assurance, however, that the Company will be able to obtain a covenant waiver or amendment, in which case Heritage Bank could immediately declare all amounts due under both the Credit Facility and the PPP Loan, terminate the Credit Facility, and foreclose on the Company’s assets. Currently, the Company has sufficient cash balances to pay the amounts due under the Credit Facility and the PPP Loan, and the Company plans to submit an application for forgiveness of the PPP Loan. However, depending on the timing of a default and the Company’s ongoing use of cash reserves and the Credit Facility to finance its near-term working capital needs, there is no assurance that at the time of a default that the Company would have sufficient cash balances to pay the amounts due at such time. There is also no assurance that the Company will obtain forgiveness of the PPP Loan in whole or in part. The Company may also seek additional financing from alternative sources, but there is no assurance that such financing will be available at commercially reasonable terms, if at all. The Company currently expects to draw on its 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 at least one year beyond the date of these financial statements. The Credit Facility provides the Company with needed liquidity to assist in meeting its obligations. However, as discussed above, without further cost cutting measures, working capital management, and/or enhanced revenues, the Company believes it is reasonably likely that it will breach a financial covenant under the Credit Facility at some time during 2021, in which case, without a waiver or amendment, the Credit Facility could be terminated, and without additional financing, the Company may be unable to meet its obligations or fund its operations within the next twelve months. 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. If cash resources become insufficient to meet the Company’s ongoing obligations, the Company may be required to scale back or discontinue portions of its operations or discontinue operations entirely, pursue a sale of the Company or its assets at a price that may result in a significant or complete loss on investment for its shareholders, file for bankruptcy or seek other protection from creditors, or liquidate all its assets. In addition, if the Company defaults under the Credit Facility and is unable to pay the outstanding balance, Heritage Bank could foreclose on the Company’s assets. The Company’s shareholders may lose some or all of their investment as a result of any of these outcomes. 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. |
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 the nine months ended September 30, 2020 and 2019, there were 3,599,793 shares of common stock underlying options and warrants excluded due to these instruments being anti-dilutive. Shares used in the calculation of diluted EPS are summarized below: Three Months Ended Nine Months Ended September 30, 2020 2019 2020 2019 Weighted average common shares outstanding – basic 136,311,335 135,331,951 136,061,140 134,937,277 Dilutive effect of stock options – – – – Weighted average common shares outstanding – diluted 136,311,335 135,331,951 136,061,140 134,937,277 |
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 has enforceable rights and obligations. 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 either 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 September 30, 2021. Contract Completion 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 nine months ended September 30, 2020 and the year ended December 31, 2019, the Company experienced returns of approximately 1% to 3% of materials included in the cost of sales. As of September 30, 2020 and December 31, 2019, the Company recorded warranty liabilities in the amount of $48,222 and $58,791, respectively, using this experience factor range. Product warranties for the nine months ended September 30, 2020 and the year ended December 31, 2019 are as follows: September 30, December 31, Beginning balance $ 58,791 $ 46,103 Warranty claims incurred (14,580 ) (66,803 ) Provision charged to expense 4,011 79,491 Ending balance $ 48,222 $ 58,791 |
Advertising | Advertising The Company follows the policy of charging the costs of advertising to expenses as incurred. During the three months ended September 30, 2020 and 2019, the Company incurred advertising costs of $1,153 and $11,257, respectively. During the nine months ended September 30, 2020 and 2019, the Company incurred advertising costs of $8,315 and $47,399, 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 the three months ended September 30, 2020 and 2019 were $231,088 and $448,690, respectively. Research and product development expenditures for the nine months ended September 30, 2020 and 2019 were $892,179 and $1,360,986, 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. The expected stock price volatility is based on the historical volatility of the Company’s stock for the related expected term. Total stock-based compensation expense in connection with options granted to employees recognized in the condensed consolidated statements of stockholders’ equity was $1,815 for both the three months ended September 30, 2020 and 2019. Total stock-based compensation expense in connection with options granted to employees was $5,446 for both the nine months ended September 30, 2020 and 2019. |
A. BASIS OF PRESENTATION AND _3
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Accounting Policies [Abstract] | |
Calculation of diluted EPS | Shares used in the calculation of diluted EPS are summarized below: Three Months Ended Nine Months Ended September 30, 2020 2019 2020 2019 Weighted average common shares outstanding – basic 136,311,335 135,331,951 136,061,140 134,937,277 Dilutive effect of stock options – – – – Weighted average common shares outstanding – diluted 136,311,335 135,331,951 136,061,140 134,937,277 |
Schedule of product warranties | Product warranties for the nine months ended September 30, 2020 and the year ended December 31, 2019 are as follows: September 30, December 31, Beginning balance $ 58,791 $ 46,103 Warranty claims incurred (14,580 ) (66,803 ) Provision charged to expense 4,011 79,491 Ending balance $ 48,222 $ 58,791 |
C. REVENUE (Tables)
C. REVENUE (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
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 three months ended September 30, 2020. Hospitality Education Multiple Dwelling Units Government Total Product $ 1,890,086 $ 61,779 $ 2,083 $ 96,222 $ 2,050,170 Recurring 116,292 72,059 1,450 – 189,801 $ 2,006,378 $ 133,838 $ 3,533 $ 96,222 $ 2,239,971 The following table presents the Company’s product and recurring revenues disaggregated by industry for the nine months ended September 30, 2020. Hospitality Education Multiple Dwelling Units Government Total Product $ 4,072,147 $ 383,944 $ 132,353 $ 174,358 $ 4,762,802 Recurring 432,214 112,422 17,638 – 562,274 $ 4,504,361 $ 496,366 $ 149,991 $ 174,358 $ 5,325,076 The following table presents the Company’s product and recurring revenues disaggregated by industry for the three months ended September 30, 2019. Hospitality Education Multiple Dwelling Units Government Total Product $ 1,764,778 $ 155,354 $ 59,661 $ 15,995 $ 1,995,788 Recurring 149,868 51,321 1,666 – 202,855 $ 1,914,646 $ 206,675 $ 61,327 $ 15,995 $ 2,198,643 The following table presents the Company’s product and recurring revenues disaggregated by industry for the nine months ended September 30, 2019. Hospitality Education Multiple Dwelling Units Government Total Product $ 5,786,068 $ 863,507 $ 371,711 $ 942,063 $ 7,963,349 Recurring 455,364 92,370 20,797 – 568,531 $ 6,241,432 $ 955,877 $ 392,508 $ 942,063 $ 8,531,880 |
Contract Assets and Liabilities | Contract assets and liabilities September 30, December 31, Contract assets $ 45,879 $ 188,120 Contract liabilities 707,754 764,184 Net contract liabilities $ 661,875 $ 576,064 |
D. ACCOUNTS RECEIVABLE (Tables)
D. ACCOUNTS RECEIVABLE (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Receivables [Abstract] | |
Schedule of accounts receivable | Components of accounts receivable as of September 30, 2020 and December 31, 2019 are as follows: September 30, December 31, Accounts receivable $ 1,625,628 $ 2,338,626 Allowance for doubtful accounts (42,707 ) (55,039 ) Accounts receivable, net $ 1,582,921 $ 2,283,587 |
E. INVENTORIES (Tables)
E. INVENTORIES (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Inventory Disclosure [Abstract] | |
Components of inventories | Components of inventories as of September 30, 2020 and December 31, 2019 are as follows: September 30, December 31, Product purchased for resale $ 1,881,264 $ 1,613,733 Reserve for obsolescence (413,036 ) (240,659 ) Inventory, net $ 1,468,228 $ 1,373,074 |
F. ACCRUED LIABILITIES AND EX_2
F. ACCRUED LIABILITIES AND EXPENSES (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Payables and Accruals [Abstract] | |
Schedule of accrued liabilities and expenses | Accrued liabilities at September 30, 2020 and December 31, 2019 are as follows : September 30, December 31, Accrued liabilities and expenses $ 434,473 $ 214,925 Accrued payroll and payroll taxes 302,973 227,153 Accrued sales taxes, penalties, and interest 17,508 26,957 Product warranties 48,222 58,791 Total accrued liabilities and expenses $ 803,176 $ 527,826 |
I. COMMITMENTS AND CONTINGENC_2
I. COMMITMENTS AND CONTINGENCIES (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
Components of lease expense | The components of lease expense for the nine months ended September 30, 2020 were as follows: Operating lease expense: Operating lease cost – fixed $ 173,556 Variable lease cost 101,725 Total operating lease cost $ 275,281 |
Other information related to leases | Other information related to leases as of September 30, 2020 was as follows: Operating lease liability – current $ 237,048 Operating lease liability – long-term $ 636,622 Operating cash outflows from operating leases $ 166,918 Weighted-average remaining lease term of operating leases 5.01 years Weighted-average discount rate of operating leases 8.5% |
Future annual minimum operating lease payments | Future annual minimum operating lease payments as of September 30, 2020 were as follows: 2020 (excluding the nine months ended September 30, 2020) $ 56,917 2021 242,299 2022 195,176 2023 193,169 2024 and thereafter 384,119 Total minimum lease payments 1,071,680 Less imputed interest (198,010 ) Total $ 873,670 |
Sales tax accrual | The following table sets forth the change in the sales tax accrual as of September 30, 2020 and December 31, 2019: September 30, December 31, 2019 Balance, beginning of year $ 26,957 $ 43,400 Sales tax collected 67,413 167,233 Provisions (reversals) 24,353 (10,664 ) Payments (101,215 ) (173,012 ) Balance, end of period $ 17,508 $ 26,957 |
A. BASIS OF PRESENTATION AND _4
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details- Calculation of diluted EPS ) - shares | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
A. Basis Of Presentation And Significant Accounting Policies | ||||
Weighted average common shares outstanding - basic | 136,311,335 | 135,331,951 | 136,061,140 | 134,937,277 |
Dilutive effect of stock options | 0 | 0 | 0 | 0 |
Weighted average common shares outstanding - diluted | 136,311,335 | 135,331,951 | 136,061,140 | 134,937,277 |
A. BASIS OF PRESENTATION AND _5
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details-Product warranties) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2020 | Dec. 31, 2019 | |
Product warranties | ||
Beginning balance | $ 58,791 | $ 46,103 |
Warranty claims incurred | (14,580) | (66,803) |
Provision charged to expense | 4,011 | 79,491 |
Ending balance | $ 48,222 | $ 58,791 |
A. BASIS OF PRESENTATION AND _6
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | ||||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Dec. 31, 2019 | Dec. 31, 2018 | |
Cash | $ 2,858,879 | $ 2,858,879 | $ 3,300,600 | $ 4,678,891 | ||
Accumulated deficit | (127,384,892) | (127,384,892) | (125,105,539) | |||
Net Cash Used In Operating Activities | (795,754) | $ (1,977,408) | ||||
Credit line amount outstanding | 65,317 | $ 65,317 | 624,347 | |||
Shares excluded from EPS calculation (antidilutive shares) | 3,599,793 | 3,599,793 | ||||
Debt face amount | 913,063 | $ 913,063 | ||||
Guarantees and product warranty return percentage | 1% to 3% | 1% to 3% | ||||
Advertising cost | 1,153 | $ 11,257 | $ 8,315 | $ 47,399 | ||
Research and development expenses | 231,088 | 448,690 | 892,179 | 1,360,986 | ||
Stock based compensation expenses | 1,815 | $ 1,815 | 5,446 | $ 5,446 | ||
Warranty liabilities | 48,222 | 48,222 | $ 58,791 | $ 46,103 | ||
Heritage Bank [Member] | Credit Facility [Member] | ||||||
Credit line maximum borrowing capacity | 2,000,000 | 2,000,000 | ||||
Credit line remaining borrowing capacity | 913,063 | 913,063 | ||||
Credit line amount outstanding | 65,317 | 65,317 | ||||
Sipco [Member] | ||||||
Accrued litigation current | 100,000 | 100,000 | ||||
Accrued litigation noncurrent | 500,000 | 500,000 | ||||
PPP Loan [Member] | ||||||
Debt face amount | $ 913,063 | $ 913,063 | ||||
Maturity date | Apr. 21, 2022 | |||||
Proceeds from bank loan | $ 913,063 | |||||
Debt stated interest rate | 1.00% | 1.00% |
C. REVENUE (Details - Disaggreg
C. REVENUE (Details - Disaggregation of income) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Revenues | $ 2,239,971 | $ 2,198,643 | $ 5,325,076 | $ 8,531,880 |
Hospitality [Member] | ||||
Revenues | 2,006,378 | 1,914,646 | 4,504,361 | 6,241,432 |
Education [Member] | ||||
Revenues | 133,838 | 206,675 | 496,366 | 955,877 |
Multiple Dwelling Units [Member] | ||||
Revenues | 3,533 | 61,327 | 149,991 | 392,508 |
Government [Member] | ||||
Revenues | 96,222 | 15,995 | 174,358 | 942,063 |
Product [Member] | ||||
Revenues | 2,050,170 | 1,995,788 | 4,762,802 | 7,963,349 |
Product [Member] | Hospitality [Member] | ||||
Revenues | 1,890,086 | 1,764,778 | 4,072,147 | 5,786,068 |
Product [Member] | Education [Member] | ||||
Revenues | 61,779 | 155,354 | 383,944 | 863,507 |
Product [Member] | Multiple Dwelling Units [Member] | ||||
Revenues | 2,083 | 59,661 | 132,353 | 371,711 |
Product [Member] | Government [Member] | ||||
Revenues | 96,222 | 15,995 | 174,358 | 942,063 |
Recurring [Member] | ||||
Revenues | 189,801 | 202,855 | 562,274 | 568,531 |
Recurring [Member] | Hospitality [Member] | ||||
Revenues | 116,292 | 149,868 | 432,214 | 455,364 |
Recurring [Member] | Education [Member] | ||||
Revenues | 72,059 | 51,321 | 112,422 | 92,370 |
Recurring [Member] | Multiple Dwelling Units [Member] | ||||
Revenues | 1,450 | 1,666 | 17,638 | 20,797 |
Recurring [Member] | Government [Member] | ||||
Revenues | $ 0 | $ 0 | $ 0 | $ 0 |
C. REVENUE (Details - Contract
C. REVENUE (Details - Contract assets and liabilities) - USD ($) | Sep. 30, 2020 | Dec. 31, 2019 |
Revenue from Contract with Customer [Abstract] | ||
Contract assets | $ 45,879 | $ 188,120 |
Contract liabilities | 707,754 | 764,184 |
Net contract liabilities | $ 661,875 | $ 576,064 |
C. REVENUE (Details Narrative)
C. REVENUE (Details Narrative) | Sep. 30, 2020USD ($) |
Revenue from Contract with Customer [Abstract] | |
Remaining performance obligations | $ 870,000 |
Percent of remaining performance obligations | 100.00% |
D. ACCOUNTS RECEIVABLE (Details
D. ACCOUNTS RECEIVABLE (Details) - USD ($) | Sep. 30, 2020 | Dec. 31, 2019 |
Components of accounts receivable | ||
Accounts receivable | $ 1,625,628 | $ 2,338,626 |
Allowance for doubtful accounts | (42,707) | (55,039) |
Accounts receivable, net | $ 1,582,921 | $ 2,283,587 |
E. INVENTORIES (Details)
E. INVENTORIES (Details) - USD ($) | Sep. 30, 2020 | Dec. 31, 2019 |
Inventory Disclosure [Abstract] | ||
Product purchased for resale | $ 1,881,264 | $ 1,613,733 |
Reserve for obsolescence | (413,036) | (240,659) |
Inventory, net | $ 1,468,228 | $ 1,373,074 |
F. ACCRUED LIABILITIES AND EX_3
F. ACCRUED LIABILITIES AND EXPENSES (Details) - USD ($) | Sep. 30, 2020 | Dec. 31, 2019 | Dec. 31, 2018 |
Accrued liabilities and expenses | |||
Accrued liabilities and expenses | $ 434,473 | $ 214,925 | |
Accrued payroll and payroll taxes | 302,973 | 227,153 | |
Accrued sales taxes, penalties, and interest | 17,508 | 26,957 | |
Product warranties | 48,222 | 58,791 | $ 46,103 |
Total accrued liabilities and expenses | $ 803,176 | $ 527,826 |
G. DEBT (Details Narrative)
G. DEBT (Details Narrative) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2020 | Dec. 31, 2019 | |
Debt Instrument [Line Items] | ||
Line of credit balance | $ 65,317 | $ 624,347 |
Note Payable - current | $ 913,063 | 0 |
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 | $ 65,317 | 624,347 |
Line of credit remaining borrowing capacity | $ 963,000 | $ 424,000 |
Effective interest rate | 6.25% | 7.75% |
Heritage Bank [Member] | Paycheck Protection Program [Member] | ||
Debt Instrument [Line Items] | ||
Proceeds from bank loan | $ 913,063 | |
Debt stated interest rate | 1.00% | |
Maturity date | Apr. 21, 2020 |
H. CAPITAL STOCK (Details Narra
H. CAPITAL STOCK (Details Narrative) - USD ($) | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Dec. 31, 2019 | |
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 | 136,311,335 | 135,990,491 | |
Common stock, shares issued | 136,311,335 | 135,990,491 | |
Warrants exercised, shares | 0 | 0 | |
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 | |
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 | |
Directors [Member] | |||
Shares issued to directors, shares | 320,844 | 840,139 | |
Shares issued to directors, value | $ 18,000 | $ 105,000 |
I. COMMITMENTS AND CONTINGENC_3
I. COMMITMENTS AND CONTINGENCIES (Details - Lease expense) | 9 Months Ended |
Sep. 30, 2020USD ($) | |
Operating lease expense | |
Operating lease cost - fixed | $ 173,556 |
Variable lease cost | 101,725 |
Total operating lease cost | $ 275,281 |
I. COMMITMENTS AND CONTINGENC_4
I. COMMITMENTS AND CONTINGENCIES (Details - Other information related to leases) - USD ($) | 9 Months Ended | |
Sep. 30, 2020 | Dec. 31, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | ||
Operating lease liability - current | $ 237,048 | $ 223,835 |
Operating lease liability - long term | 636,622 | $ 758,315 |
Operating cash flows from operating leases | $ 166,918 | |
Weighted average remaining lease term of operating leases | 5 years 4 days | |
Weighted average discount rate of operating leases | 8.50% |
I. COMMITMENTS AND CONTINGENC_5
I. COMMITMENTS AND CONTINGENCIES (Details - Future lease payments) | Sep. 30, 2020USD ($) |
Future minimum operating lease payments | |
2020 (excluding the nine months ended September 30, 2020) | $ 56,917 |
2021 | 242,299 |
2022 | 195,176 |
2023 | 193,169 |
2024 and thereafter | 384,119 |
Total minimum lease payments | 1,071,680 |
Less imputed interest | (198,010) |
Total minimum operating lease payments | $ 873,670 |
I. COMMITMENTS AND CONTINGENC_6
I. COMMITMENTS AND CONTINGENCIES (Details-Sales Tax Accrual) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2020 | Dec. 31, 2019 | |
Change in the sales tax accrual | ||
Balance, Beginning of year | $ 26,957 | $ 43,400 |
Sales tax collected | 67,413 | 167,233 |
Provisions (reversals) | 24,353 | (10,664) |
Payments | (101,215) | (173,012) |
Balance, End of period | $ 17,508 | $ 26,957 |
I. COMMITMENTS AND CONTINGENC_7
I. COMMITMENTS AND CONTINGENCIES (Details Narrative) | 3 Months Ended | 9 Months Ended | ||||
Sep. 30, 2020USD ($)ft² | Sep. 30, 2019USD ($) | Sep. 30, 2020USD ($)ft² | Sep. 30, 2019USD ($) | Dec. 31, 2019USD ($) | Jan. 02, 2019USD ($) | |
Rental expenses | $ 86,329 | $ 87,633 | $ 275,281 | $ 268,465 | ||
Right of use asset | 777,052 | 777,052 | $ 892,170 | |||
Operating lease liability | 873,670 | 873,670 | ||||
Sipco [Member] | ||||||
Accrued litigation current | 100,000 | 100,000 | ||||
Accrued litigation noncurrent | $ 500,000 | $ 500,000 | ||||
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 Floor Space [Member] | ||||||
Lease expiration date | May 31, 2024 | |||||
Leased square feet | ft² | 5,838 | 5,838 | ||||
Germantown, MD [Member] | ||||||
Lease expiration date | Jan. 31, 2019 | |||||
Leased square feet | ft² | 2,237 | 2,237 | ||||
Waukesha, WI Office Space [Member] | ||||||
Lease expiration date | Apr. 30, 2026 | |||||
Leased square feet | ft² | 10,344 | 10,344 |
J. BUSINESS CONCENTRATION (Deta
J. BUSINESS CONCENTRATION (Details Narrative) - USD ($) | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Dec. 31, 2019 | |
One Supplier [Member] | |||
Due to suppliers | $ 716,000 | $ 579,000 | |
Supplier Concentration Risk [Member] | One Supplier [Member] | |||
Concentration percentage | 90.00% | 84.00% | |
Purchases from major suppliers | $ 1,973,000 | $ 2,522,000 | |
Sales Revenue, Net [Member] | Two Customers [Member] | |||
Concentration percentage | 33.00% | ||
Sales Revenue, Net [Member] | Three Customers [Member] | |||
Concentration percentage | 44.00% | ||
Accounts Receivable [Member] | Two Customers [Member] | |||
Concentration percentage | 55.00% | 36.00% |