Cover
Cover - shares | 6 Months Ended | |
Jun. 30, 2021 | Jul. 30, 2021 | |
Cover [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Quarterly Report | true | |
Document Transition Report | false | |
Document Period End Date | Jun. 30, 2021 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2021 | |
Current Fiscal Year End Date | --12-31 | |
Entity File Number | 001-31972 | |
Entity Registrant Name | TELKONET, INC. | |
Entity Central Index Key | 0001094084 | |
Entity Tax Identification Number | 87-0627421 | |
Entity Incorporation, State or Country Code | UT | |
Entity Address, Address Line One | 20800 Swenson Drive | |
Entity Address, Address Line Two | Suite 175 | |
Entity Address, City or Town | Waukesha | |
Entity Address, State or Province | WI | |
Entity Address, Postal Zip Code | 53186 | |
City Area Code | (414) | |
Local Phone Number | 302-2299 | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 136,311,335 | |
Entity Information, Former Legal or Registered Name | None |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($) | Jun. 30, 2021 | Dec. 31, 2020 |
Current assets: | ||
Cash and cash equivalents | $ 3,254,806 | $ 3,011,811 |
Accounts receivable, net | 1,126,280 | 865,174 |
Inventories, net | 876,417 | 1,388,262 |
Contract assets | 311,586 | 104,989 |
Prepaid expenses | 629,902 | 142,733 |
Income taxes receivable | 0 | 105,745 |
Total current assets | 6,198,991 | 5,618,714 |
Property and equipment, net | 104,083 | 127,672 |
Other assets: | ||
Deposits | 7,000 | 7,000 |
Operating lease right of use assets | 655,966 | 737,551 |
Total other assets | 662,966 | 744,551 |
Total Assets | 6,966,040 | 6,490,937 |
Current liabilities: | ||
Accounts payable | 937,406 | 1,043,007 |
Accrued liabilities | 762,468 | 563,312 |
Line of credit | 350,000 | 267,289 |
Contract liabilities – current | 1,387,154 | 888,060 |
Operating lease liabilities – current | 223,972 | 242,299 |
Note payable – current | 913,063 | 913,063 |
Income taxes payable | 7,509 | 0 |
Total current liabilities | 4,581,572 | 3,917,030 |
Long-term liabilities: | ||
Contract liabilities – long-term | 180,539 | 164,307 |
Operating lease liabilities – long-term | 525,895 | 592,341 |
Accrued royalties – long-term | 430,000 | 500,000 |
Total long-term liabilities | 1,136,434 | 1,256,648 |
Total liabilities | 5,718,006 | 5,173,678 |
Commitments and contingencies | ||
Stockholders’ Equity | ||
Common stock, par value $.001 per share; 190,000,000 shares authorized; 136,311,335 and 136,311,335 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively. | 136,311 | 136,311 |
Additional paid-in-capital | 127,737,345 | 127,733,714 |
Accumulated deficit | (128,328,247) | (128,255,391) |
Total stockholders’ equity | 1,248,034 | 1,317,259 |
Total Liabilities and Stockholders’ Equity | 6,966,040 | 6,490,937 |
Series A Preferred Stock [Member] | ||
Stockholders’ Equity | ||
Preferred Stock, Value, Issued | 1,340,566 | 1,340,566 |
Series B Preferred Stock [Member] | ||
Stockholders’ Equity | ||
Preferred Stock, Value, Issued | $ 362,059 | $ 362,059 |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) - USD ($) | Jun. 30, 2021 | Dec. 31, 2020 |
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 | 136,311,335 |
Common stock, shares outstanding | 136,311,335 | 136,311,335 |
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 | $ 1,785,130 | $ 1,748,423 |
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 | $ 487,107 | $ 476,782 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2021 | Jun. 30, 2020 | Jun. 30, 2021 | Jun. 30, 2020 | |
Total Net Revenue | $ 1,855,489 | $ 1,281,682 | $ 3,149,698 | $ 3,085,106 |
Total Cost of Sales | 747,221 | 861,668 | 1,335,935 | 1,851,043 |
Gross Profit | 1,108,268 | 420,014 | 1,813,763 | 1,234,063 |
Operating Expenses: | ||||
Research and development | 296,413 | 291,849 | 607,861 | 661,092 |
Selling, general and administrative | 951,089 | 1,056,721 | 2,162,192 | 2,127,331 |
Depreciation and amortization | 10,349 | 14,743 | 23,589 | 29,538 |
Total Operating Expenses | 1,257,851 | 1,363,313 | 2,793,642 | 2,817,961 |
Operating Loss | (149,583) | (943,299) | (979,879) | (1,583,898) |
Other Income (Expenses): | ||||
Gain on debt extinguishment | 0 | 0 | 920,673 | 0 |
Interest expense, net | (3,829) | (6,904) | (11,702) | (15,584) |
Total Other Income (Expenses) | (3,829) | (6,904) | 908,971 | (15,584) |
Loss before Provision for Income Taxes | (153,412) | (950,203) | (70,908) | (1,599,482) |
Income Tax Provision (Benefit) | 2,183 | (106) | 1,948 | 3,116 |
Net Loss Attributable to Common Stockholders | $ (155,595) | $ (950,097) | $ (72,856) | $ (1,602,598) |
Net Loss per Common Share: | ||||
Basic – net loss attributable to common stockholders | $ 0 | $ (0.01) | $ 0 | $ (0.01) |
Diluted – net loss attributable to common stockholders | $ 0 | $ (0.01) | $ 0 | $ (0.01) |
Weighted Average Common Shares Outstanding – basic | 136,311,335 | 136,311,335 | 136,311,335 | 135,814,956 |
Weighted Average Common Shares Outstanding – diluted | 136,311,335 | 136,311,335 | 136,311,335 | 135,814,956 |
Product [Member] | ||||
Total Net Revenue | $ 1,672,905 | $ 1,103,371 | $ 2,780,769 | $ 2,712,633 |
Total Cost of Sales | 734,899 | 835,871 | 1,312,713 | 1,802,474 |
Recurring Income [Member] | ||||
Total Net Revenue | 182,584 | 178,311 | 368,929 | 372,473 |
Total Cost of Sales | $ 12,322 | $ 25,797 | $ 23,222 | $ 48,569 |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS'EQUITY (Unaudited) - USD ($) | Preferred Stock Series A [Member] | Preferred Stock Series B [Member] | Common Stock [Member] | Additional Paid-in Capital [Member] | Retained Earnings [Member] | Total |
Beginning balance, value at Dec. 31, 2019 | $ 1,340,566 | $ 362,059 | $ 135,990 | $ 127,708,773 | $ (125,105,539) | $ 4,441,849 |
Beginning Balance, Shares at Dec. 31, 2019 | 185 | 52 | 135,990,491 | |||
Shares issued to directors | $ 321 | 17,679 | 18,000 | |||
Shares issued to directors, shares | 320,844 | |||||
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, value at Mar. 31, 2020 | $ 1,340,566 | $ 362,059 | $ 136,311 | 127,728,267 | (125,758,040) | 3,809,163 |
Ending Balance, Shares at Mar. 31, 2020 | 185 | 52 | 136,311,335 | |||
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, value at Jun. 30, 2020 | $ 1,340,566 | $ 362,059 | $ 136,311 | 127,730,083 | (126,708,137) | 2,860,882 |
Ending Balance, Shares at Jun. 30, 2020 | 185 | 52 | 136,311,335 | |||
Beginning balance, value at Dec. 31, 2020 | $ 1,340,566 | $ 362,059 | $ 136,311 | 127,733,714 | (128,255,391) | 1,317,259 |
Beginning Balance, Shares at Dec. 31, 2020 | 185 | 52 | 136,311,335 | |||
Stock-based compensation expense related to employee stock options | 1,815 | 1,815 | ||||
Net loss attributable to common stockholders | 82,739 | 82,739 | ||||
Ending balance, value at Mar. 31, 2021 | $ 1,340,566 | $ 362,059 | $ 136,311 | 127,735,529 | (128,172,652) | 1,401,813 |
Ending Balance, Shares at Mar. 31, 2021 | 185 | 52 | 136,311,335 | |||
Stock-based compensation expense related to employee stock options | 1,816 | 1,816 | ||||
Net loss attributable to common stockholders | (155,595) | (155,595) | ||||
Ending balance, value at Jun. 30, 2021 | $ 1,340,566 | $ 362,059 | $ 136,311 | $ 127,737,345 | $ (128,328,247) | $ 1,248,034 |
Ending Balance, Shares at Jun. 30, 2021 | 185 | 52 | 136,311,335 |
CONDENSED CONSOLIDATED STATEM_3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) | 6 Months Ended | |
Jun. 30, 2021 | Jun. 30, 2020 | |
Cash Flows from Operating Activities: | ||
Net loss | $ (72,856) | $ (1,602,598) |
Adjustments to reconcile net loss to cash used in operating activities: | ||
Stock-based compensation expense related to employee stock options | 3,631 | 3,631 |
Stock issued to directors as compensation | 0 | 18,000 |
Depreciation and amortization | 23,589 | 29,538 |
Noncash operating lease expense | 114,774 | 116,168 |
Gain on debt extinguishment | (920,673) | 0 |
Changes in operating assets and liabilities: | ||
Accounts receivable, net | (261,106) | 1,409,619 |
Inventories, net | 511,845 | 208,081 |
Prepaid expenses | (487,169) | (133,750) |
Deposits | 0 | 10,130 |
Accounts payable | (105,601) | (534,543) |
Accrued royalties – long-term | (70,000) | 0 |
Accrued liabilities | 206,766 | 63,190 |
Contract liabilities | 515,326 | (109,430) |
Contract assets | (206,597) | 144,254 |
Operating lease liabilities | (117,962) | (110,000) |
Accrued income tax payable | 7,509 | 0 |
Income taxes receivable | 105,745 | (397) |
Net Cash Used In Operating Activities | (752,779) | (488,107) |
Cash Flows From Financing Activities: | ||
Proceeds from note payable | 913,063 | 913,063 |
Proceeds from line of credit | 3,627,000 | 4,105,000 |
Payments on line of credit | (3,544,289) | (4,729,347) |
Net Cash Provided By Financing Activities | 995,774 | 288,716 |
Net increase (decrease) in cash and cash equivalents | 242,995 | (199,391) |
Cash, cash equivalents at the beginning of the period | 3,011,811 | 3,300,600 |
Cash and cash equivalents at the end of the period | 3,254,806 | 3,101,209 |
Cash transactions: | ||
Cash paid during the period for interest | $ 12,626 | $ 23,786 |
BASIS OF PRESENTATION AND SIGNI
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended |
Jun. 30, 2021 | |
Organization, Consolidation and Presentation of Financial Statements [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” or “Telkonet”) have been prepared in accordance with Rule S-X of the Securities and Exchange Commission (the “SEC”) and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. However, the results from operations for the three months ended June 30, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated December 31, 2020 financial statements and footnotes thereto included in the Company's Form 10-K filed with the SEC. Business and Basis of Presentation Telkonet, Inc., formed in 1999 and incorporated under the laws of the state of Utah, is the creator of the EcoSmart and the Rhapsody Platforms 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. In 2020, the Company launched the Rhapsody Platform, which simplifies the installation and setup of the Company’s newest products and integrations. Both platforms provide comprehensive savings, management reporting, analytics and virtual engineering of a customer’s portfolio and/or property’s room-by-room energy consumption. Telkonet has deployed more than a half million intelligent devices worldwide in properties within the hospitality, educational, governmental and other commercial markets. The platforms are 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., operating as a single reportable business segment. Going Concern and Management’s Plan The accompanying financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future and, thus, do not include any adjustments relating to the recoverability and classification of assets and liabilities that may be necessary if the Company is unable to continue as a going concern. Since inception through June 30, 2021, we have incurred cumulative losses of $ 128,328,247 752,779 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. 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. Rising cases of COVID-19 in certain areas, the emergence of new virus strains, including the more transmissible Delta variant, and a stagnation of vaccinations has exacerbated the uncertainty of the pandemic’s length and severity. Although certain of these restrictions have been lessened or eliminated, they may be reinstated due to rising cases, and business travel, which comprises the largest source of hotel revenue, remains limited. Although a slow return is expected in the second half of 2021, business travel is not expected to return to 2019 levels until at least 2023. [1] [2] In addition, on November 30, 2020, the Company entered into the License Agreement with Sipco and IPCO, LLC dba Intus IQ 78,000 430,000 The Company took and continues 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 a loan under the Paycheck Protection Program (the “First PPP Loan”) on April 17, 2020 (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. 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, the Company has received two loans under the Paycheck Protection Program (the “PPP”) administered by the United States Small Business Administration (the “SBA”) and authorized by the Keeping American Workers Employed and Paid Act, which is part of the CARES Act, enacted on March 27, 2020. On April 17, 2020, the Company entered into an unsecured promissory note for $ 913,063 913,063 [1] [2] On April 27, 2021, the Company entered into an unsecured promissory note (the “Note”), dated as of April 26, 2021 (the “Second PPP Loan”, together with the First PPP Loan, the “PPP Loans”), with Heritage Bank under a second draw of the PPP. The principal amount of the Second PPP Loan is $ 913,063 The Company also has a $ 2 September 30, 2021 350,000 The Company is in discussions with Heritage about extending the maturity date of the Credit Facility and has discussed the possibility of a waiver or a change to the financial covenant with Heritage Bank. Any covenant waiver or amendment could lead to increased costs, increased interest rates, and a decrease in the size of the line of credit, additional restrictive covenants, or other lender protections. There is no assurance, however, that the Company will be able to extend the maturity date of the Credit Facility. There is also no assurance 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 Second 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 Second PPP Loan, and the Company plans to submit an application for forgiveness of the Second PPP Loan when all eligible funds have been used. 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 Second 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 the extent the maturity date is extended and it remains in compliance with the covenants) 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. As disclosed previously, the Company’s Board has also been considering 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. On August 6, 2021, the Company executed a Stock Purchase Agreement (the “Purchase Agreement”) with VDA Group S.p.A. (“VDA”) pursuant to which VDA will contribute $5 million to the Company and, in exchange, the Company will issue to VDA (i) 162,900,947 shares of common stock of the Company and (ii) a warrant to purchase additional shares of common stock (the Financing and the Issuance referred to collectively as the “Transaction”). The Transaction is expected to close in the fourth quarter of 2021. 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 and potential inability to access sources of liquidity to continue its operations, 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 six months ended June 30, 2021 and 2020, 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: Schedule of diluted EPS Three Months Ended Six Months Ended June 30, 2021 2020 2021 2020 Weighted average common shares outstanding - basic 136,311,335 136,311,335 136,311,335 135,814,956 Dilutive effect of stock options – – – – Weighted average common shares outstanding - diluted 136,311,335 136,311,335 136,311,335 135,814,956 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 availability of net operating losses at the statutory rates expected in future periods. The Company has a policy of establishing a valuation allowance when it is more likely than not that the Company will not realize the benefits of its deferred income tax assets in the future. The Company follows ASC 740-10-25, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740-10-25 also provides guidance on de-recognition, classification, treatment of interest and penalties, and disclosure of such positions. Revenue from Contracts with Customers Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606, the Standard”) supersedes nearly all legacy revenue recognition guidance. ASC 606, the Standard outlines a comprehensive five-step revenue recognition model based on the principle that an entity should recognize revenue based on when it satisfies its performance obligations by transferring control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for said goods or services. Identify the customer contracts The Company accounts for a customer contract under ASC 606 when the contract is legally enforceable. A contract is legally enforceable when all of the following criteria are met: (1) the contract has been approved by the Company and the customer and both parties are committed to perform their respective obligations, (2) the Company can identify each party’s rights regarding goods or services transferred, (3) the Company can identify payment terms for goods or services transferred, (4) the contract has commercial substance, and (5) collectability of all the consideration to which the Company is entitled in exchange for the goods or services transferred is probable. A contract does not exist if 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 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 revenue recognition 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 June 30, 2022. 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 Condensed Consolidated Balance Sheet. 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 three months ended June 30, 2021 and the year ended December 31, 2020, the Company experienced returns of approximately 1% to 3% 24,531 45,328 Product warranties for the six months ended June 30, 2021 and the year ended December 31, 2020 are as follows: Schedule of product warranties June 30, December 31, Beginning balance $ 45,328 $ 58,791 Warranty claims incurred (6,166 ) (20,499 ) Provision charged (credited) to expense (14,631 ) 7,036 Ending balance $ 24,531 $ 45,328 Advertising The Company follows the policy of charging the costs of advertising to expenses as incurred. The Company incurred $ 1,482 1,269 2,975 7,162 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 June 30, 2021 and 2020 were $ 296,413 291,849 607,861 661,092 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 condensed 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. Stock-based compensation expense in connection with options granted to employees for both the three months ended June 30, 2021 and 2020 was $ 1,816 3,631 |
NEW ACCOUNTING PRONOUNCEMENTS
NEW ACCOUNTING PRONOUNCEMENTS | 6 Months Ended |
Jun. 30, 2021 | |
Accounting Changes and Error Corrections [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. |
REVENUE
REVENUE | 6 Months Ended |
Jun. 30, 2021 | |
Revenue from Contract with Customer [Abstract] | |
REVENUE | NOTE C – REVENUE The following table presents the Company’s product and recurring revenues disaggregated by industry for the three months ended June 30, 2021. Disaggregation of revenues Hospitality Education Multiple Government Healthcare Total Product $ 1,554,754 $ 10,295 $ 84,473 $ 4,972 $ 18,411 $ 1,672,905 Recurring 149,600 13,648 19,336 – – 182,584 $ 1,704,354 $ 23,943 $ 103,809 $ 4,972 $ 18,411 $ 1,855,489 The following table presents the Company’s product and recurring revenues disaggregated by industry for the six months ended June 30, 2021. Hospitality Education Multiple Government Healthcare Total Product $ 2,267,662 $ 84,397 $ 257,208 $ 123,307 $ 48,195 $ 2,780,769 Recurring 312,394 30,074 26,461 – – 368,929 $ 2,580,056 $ 114,471 $ 283,669 $ 123,307 $ 48,195 $ 3,149,698 The following table presents the Company’s product and recurring revenues disaggregated by industry for the three months ended June 30, 2020. Hospitality Education Multiple Government Healthcare Total Product $ 979,720 $ 72,733 $ 37,198 $ 13,720 $ – $ 1,103,371 Recurring 142,351 20,099 15,861 – – 178,311 $ 1,122,071 $ 92,832 $ 53,059 $ 13,720 $ – $ 1,281,682 The following table presents the Company’s product and recurring revenues disaggregated by industry for the six months ended June 30, 2020. Hospitality Education Multiple Government Healthcare Total Product $ 2,182,060 $ 322,166 $ 130,270 $ 78,137 $ – $ 2,712,633 Recurring 315,923 40,362 16,188 – – 372,473 $ 2,497,983 $ 362,528 $ 146,458 $ 78,137 $ – $ 3,085,106 Sales taxes and other usage-based taxes are excluded from revenues. Remaining performance obligations As of June 30, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ 1.2 100 Contract assets and liabilities Contract Assets and Liabilities June 30, December 31, Contract assets $ 311,586 $ 104,989 Contract liabilities 1,567,693 1,052,367 Net contract liabilities $ 1,256,107 $ 947,378 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 three-month period ended June 30, 2021 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 Sheet. 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. |
ACCOUNTS RECEIVABLE
ACCOUNTS RECEIVABLE | 6 Months Ended |
Jun. 30, 2021 | |
Receivables [Abstract] | |
ACCOUNTS RECEIVABLE | NOTE D – ACCOUNTS RECEIVABLE Components of accounts receivable as of June 30, 2021 and December 31, 2020 are as follows: Schedule of accounts receivable June 30, December 31, Accounts receivable $ 1,130,729 $ 873,147 Allowance for doubtful accounts (4,449 ) (7,973 ) Accounts receivable, net $ 1,126,280 $ 865,174 |
INVENTORIES
INVENTORIES | 6 Months Ended |
Jun. 30, 2021 | |
Inventory Disclosure [Abstract] | |
INVENTORIES | NOTE E – INVENTORIES Components of inventories as of June 30, 2021 and December 31, 2020 are as follows: Components of inventories June 30, December 31, Product purchased for resale $ 1,299,485 $ 1,792,262 Reserve for obsolescence (423,068 ) (404,000 ) Inventory, net $ 876,417 $ 1,388,262 |
CURRENT ACCRUED LIABILITIES
CURRENT ACCRUED LIABILITIES | 6 Months Ended |
Jun. 30, 2021 | |
Payables and Accruals [Abstract] | |
CURRENT ACCRUED LIABILITIES | NOTE F – CURRENT ACCRUED LIABILITIES Current accrued liabilities at June 30, 2021 and December 31, 2020 are as follows: Schedule of accrued liabilities and expenses June 30, December 31, Accrued payroll and payroll taxes $ 286,830 $ 252,595 Accrued professional 185,198 176,842 Accrued sales taxes, penalties, and interest 6,297 31,396 Product warranties 24,531 45,328 Other accrued liabilities 259,612 57,151 Total current accrued liabilities $ 762,468 $ 563,312 |
DEBT
DEBT | 6 Months Ended |
Jun. 30, 2021 | |
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 outstanding principal balance of the Credit Facility bears interest at the Prime Rate plus 3.00% 6.25 250,000 0.20 October 9, 2021 September 30, 2021 September 30, 2019 The Heritage Bank Loan Agreement contains covenants that place restrictions on, among other things, the incurrence of debt, granting of liens and sale of assets. The Heritage Bank Loan Agreement also contains financial covenants. As discussed above, the EBITDA loss covenant was eliminated in the eleventh amendment to the Credit Facility. The sole financial covenants are a minimum asset coverage ratio and a minimum unrestricted cash balance of $2 million, both of which are measured at the end of each month. A violation of 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 $ 350,000 267,289 544,854 442,000 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 27, 2021, the Company entered into an unsecured promissory note, dated as of April 26, 2021, for the Second PPP Loan, with Heritage Bank under a second draw of the PPP administered by the SBA and authorized by the Keeping American Workers Employed and Paid Act, which is part of the Coronavirus Aid, Relief, and Economic Security Act, enacted on March 27, 2020. The principal amount of the Second PPP Loan is $ 913,063 1.0 Under the terms of the PPP, the Company can apply for, and be granted, forgiveness for all or a portion of the Second 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. At least 60% of such loan proceeds 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 Covered Period (as defined in the Note). No assurance is provided that the Company will obtain forgiveness of the Second PPP Loan in whole or in part. |
CAPITAL STOCK
CAPITAL STOCK | 6 Months Ended |
Jun. 30, 2021 | |
Equity [Abstract] | |
CAPITAL STOCK | NOTE H – CAPITAL STOCK The Company has authorized 15,000,000 215 567 185 52 The Company has authorized 190,000,000 136,311,335 During the six months ended June 30, 2021, the Company did not issue any shares of common stock. During the three months ended June 30, 2020, the Company issued 320,844 18,000 During the three months ended June 30, 2021 and 2020, no During the three months ended June 30, 2021 and 2020, no |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 6 Months Ended |
Jun. 30, 2021 | |
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 April 30, 2026 In January 2016, the Company entered into a lease agreement for 2,237 In May 2017, the Company entered into a lease agreement for 5,838 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 1,095,761 71,877 The components of lease expense for the six months ended June 30, were as follows: Components of lease expense 2021 2020 Operating lease expense: Operating lease cost - fixed $ 114,774 $ 116,167 Variable lease cost 61,475 72,785 Total operating lease cost $ 176,249 $ 188,952 Other information related to leases as of June 30, was as follows: Other information related to leases 2021 2020 Operating lease liability - current $ 223,972 $ 231,796 Operating lease liability - long-term $ 525,895 $ 680,087 Operating cash outflows from operating leases $ 117,962 $ 110,000 Weighted-average remaining lease term of operating leases 4.41 5.22 Weighted-average discount rate of operating leases 8.5 8.5 Future annual minimum operating lease payments as of June 30, 2021 were as follows: Future annual minimum operating lease payments 2021 (excluding the six months ended June 30, 2021) $ 124,338 2022 195,176 2023 193,169 2024 172,424 2025 and thereafter 211,694 Total minimum lease payments 896,801 Less imputed interest (146,934 ) Total $ 749,867 Rental expenses charged to operations for the three months ended June 30, 2021 and 2020 were $ 88,725 91,441 176,249 188,952 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, and which has been terminated, 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 Litigation and License Agreement 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 contended that the Company sold, and was 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 alleged patent infringement and sought damages, costs, expenses, pre-judgment and post-judgment interest and post-judgment royalties. The complaint also alleged that the infringement was willful and that this is an “exceptional case” and requested treble damages and attorneys’ fees. On November 30, 2020, the Company entered into a Wireless Network Patent License Agreement (the “License Agreement”) with SIPCO, LLC (“Sipco”) and IPCO, LLC dba IntusIQ (collectively, the “Licensors”) in order to settle the Sipco Lawsuit, without the expense of costly litigation. Pursuant to the terms of the License Agreement, on November 30, 2020, Sipco and the Company filed a Stipulation of Dismissal in the United States District Court for the Eastern District of Wisconsin to stipulate to the dismissal of the Sipco Lawsuit in its entirety, with prejudice. Under the terms of the License Agreement, the Company is required to pay the Licensors royalties on (a) all Licensed Products (as defined in the License Agreement) sold by Telkonet or its affiliates from July 1, 2020 to December 31, 2024 and (b) all Licensed Products in Telkonet or its affiliates’ possession, but not sold, as of December 31, 2024. Specifically, the Company is required to pay a royalty fee, calculated quarterly, equal to 3.50% of applicable sales for the period beginning on July 1, 2020 and continuing until December 31, 2021 (the “First Period”). There was also an upfront payment of $40,000 that was paid in the fourth quarter of 2020. Based on the Company and its affiliates’ applicable sales in the three months ended September 30, 2020, the three months ended December 31, 2020, the three months ended March 31, 2021, and the three months ended June 30, 2021, the royalty fees were approximately $59,000 for the third quarter of 2020, approximately $28,000 for the fourth quarter of 2020, approximately $31,000 for the first quarter of 2021, and approximately $43,000 for the second quarter of 2021. The royalty fees for the remaining quarters in the First Period will be dependent on the Company and its affiliates’ sales of applicable products. Beginning on January 1, 2022 and continuing until June 30, 2023, the Company is required to pay a quarterly royalty fee equal to 3.75% of applicable sales or $35,000, whichever is greater Beginning on July 1, 2023 and continuing until December 31, 2024, the Company is required to pay a royalty fee, calculated quarterly, equal to 4% of applicable sales or $40,000, whichever is greater. Finally, the Company is required to pay a closing payment of $50,000 no later than January 31, 2025. Upon termination of the License Agreement, Telkonet and its affiliates have six months to sell off any unsold inventory of Licensed Products as of date of termination, paying the appropriate royalty on a quarterly basis as the Licensed Products are sold, and then pay a final royalty on any such inventory of Licensed Products still unsold after six months. The minimum payments required under the License Agreement have been accrued for on the Company’s Condensed Consolidated Balance Sheet in accordance with GAAP, which specifies that when a liability is probable and the amount can be reasonably estimated, said liability should be recorded in the current reporting period. Per the License Agreement, the contractual minimum payments begin on January 1, 2022 and continue until December 31, 2024, thus satisfying both criteria of probable and reasonably estimable. Accordingly, a long-term liability was recorded representing the sum of those contractual minimums. As of June 30, 2021, the Company had a current liability of approximately $78,000 and a non-current liability of $430,000 included in accrued royalties – long-term recorded on its Condensed Consolidated Balance Sheet. All quarterly payments are due within thirty days of the end of the relevant three-month period (with the exception of the payment for the quarter ended September 30, 2020, which was due by December 31, 2020). In the event (a) the Company fails to make the payments and provide the statements required under the License Agreement and such breach is not cured within thirty days of written notice from the Licensors and (b) the Licensors elect not to terminate the License Agreement, the Licensors are entitled to an immediate and accelerated payment of any remaining payments due under the License Agreement. In addition to the payment terms described above, the License Agreement contains representations and warranties and other provisions customary to agreements of this nature. 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 June 30, 2021 and December 31, 2020: Sales tax accrual June 30, December 31, Balance, beginning of year $ 31,396 $ 26,957 Sales tax collected 26,738 94,904 Provisions (reversals) (8,572 ) 27,916 Payments (43,265 ) (118,381 ) Balance, end of period $ 6,297 $ 31,396 |
BUSINESS CONCENTRATION
BUSINESS CONCENTRATION | 6 Months Ended |
Jun. 30, 2021 | |
Risks and Uncertainties [Abstract] | |
BUSINESS CONCENTRATION | NOTE J – BUSINESS CONCENTRATION For the six months ended June 30, 2021, one customer represented approximately 20 14 As of June 30, 2021, three customers accounted for approximately 63 21 Purchases from one supplier approximated $ 735,000 86 838,000 85 144,000 470,000 |
SUBSEQUENT EVENT
SUBSEQUENT EVENT | 6 Months Ended |
Jun. 30, 2021 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENT | NOTE K – SUBSEQUENT EVENT Also in connection with the Transaction, the majority of the existing members of Telkonet’s board of directors (the “Board”) will resign and the vacancies resulting from those resignations will be filled by individuals designated by VDA and appointed by the remaining Board members, resulting in a change of control of the Board. Following the issuance of 162,900,947 shares of Common Stock to VDA upon the closing of the Transaction, VDA will own 53% of the issued and outstanding Common Stock on a fully diluted as exercised/converted basis and could eventually own as much as 65% of the issued and outstanding Common Stock on a fully diluted as exercised/converted basis if it fully exercises the Warrant. As a result, our current stockholders would own between 35% and 47% of the Common Stock and Common Stock equivalents ( i.e The Transaction is subject to customary closing conditions, including, without limitation: (i) approval by the stockholders of Telkonet of an amendment to Telkonet’s Amended and Restated Articles of Incorporation (the “Amendment”) and the filing of the Amendment; (ii) the approval by the stockholders of Telkonet of the Issuance to effectuate the Transaction; (iii) the absence of a material adverse effect on the Company; and (iv) certain Company cash flow requirements. The Purchase Agreement also contains customary representations and warranties of each of the parties. |
BASIS OF PRESENTATION AND SIG_2
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies) | 6 Months Ended |
Jun. 30, 2021 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
General | General The accompanying unaudited condensed consolidated financial statements of Telkonet, Inc. (the “Company” or “Telkonet”) have been prepared in accordance with Rule S-X of the Securities and Exchange Commission (the “SEC”) and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. However, the results from operations for the three months ended June 30, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated December 31, 2020 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., formed in 1999 and incorporated under the laws of the state of Utah, is the creator of the EcoSmart and the Rhapsody Platforms 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. In 2020, the Company launched the Rhapsody Platform, which simplifies the installation and setup of the Company’s newest products and integrations. Both platforms provide comprehensive savings, management reporting, analytics and virtual engineering of a customer’s portfolio and/or property’s room-by-room energy consumption. Telkonet has deployed more than a half million intelligent devices worldwide in properties within the hospitality, educational, governmental and other commercial markets. The platforms are 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., operating as a single reportable business segment. |
Going Concern and Management’s Plan | Going Concern and Management’s Plan The accompanying financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future and, thus, do not include any adjustments relating to the recoverability and classification of assets and liabilities that may be necessary if the Company is unable to continue as a going concern. Since inception through June 30, 2021, we have incurred cumulative losses of $ 128,328,247 752,779 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. 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. Rising cases of COVID-19 in certain areas, the emergence of new virus strains, including the more transmissible Delta variant, and a stagnation of vaccinations has exacerbated the uncertainty of the pandemic’s length and severity. Although certain of these restrictions have been lessened or eliminated, they may be reinstated due to rising cases, and business travel, which comprises the largest source of hotel revenue, remains limited. Although a slow return is expected in the second half of 2021, business travel is not expected to return to 2019 levels until at least 2023. [1] [2] In addition, on November 30, 2020, the Company entered into the License Agreement with Sipco and IPCO, LLC dba Intus IQ 78,000 430,000 The Company took and continues 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 a loan under the Paycheck Protection Program (the “First PPP Loan”) on April 17, 2020 (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. 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, the Company has received two loans under the Paycheck Protection Program (the “PPP”) administered by the United States Small Business Administration (the “SBA”) and authorized by the Keeping American Workers Employed and Paid Act, which is part of the CARES Act, enacted on March 27, 2020. On April 17, 2020, the Company entered into an unsecured promissory note for $ 913,063 913,063 [1] [2] On April 27, 2021, the Company entered into an unsecured promissory note (the “Note”), dated as of April 26, 2021 (the “Second PPP Loan”, together with the First PPP Loan, the “PPP Loans”), with Heritage Bank under a second draw of the PPP. The principal amount of the Second PPP Loan is $ 913,063 The Company also has a $ 2 September 30, 2021 350,000 The Company is in discussions with Heritage about extending the maturity date of the Credit Facility and has discussed the possibility of a waiver or a change to the financial covenant with Heritage Bank. Any covenant waiver or amendment could lead to increased costs, increased interest rates, and a decrease in the size of the line of credit, additional restrictive covenants, or other lender protections. There is no assurance, however, that the Company will be able to extend the maturity date of the Credit Facility. There is also no assurance 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 Second 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 Second PPP Loan, and the Company plans to submit an application for forgiveness of the Second PPP Loan when all eligible funds have been used. 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 Second 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 the extent the maturity date is extended and it remains in compliance with the covenants) 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. As disclosed previously, the Company’s Board has also been considering 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. On August 6, 2021, the Company executed a Stock Purchase Agreement (the “Purchase Agreement”) with VDA Group S.p.A. (“VDA”) pursuant to which VDA will contribute $5 million to the Company and, in exchange, the Company will issue to VDA (i) 162,900,947 shares of common stock of the Company and (ii) a warrant to purchase additional shares of common stock (the Financing and the Issuance referred to collectively as the “Transaction”). The Transaction is expected to close in the fourth quarter of 2021. 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 and potential inability to access sources of liquidity to continue its operations, 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 six months ended June 30, 2021 and 2020, 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: Schedule of diluted EPS Three Months Ended Six Months Ended June 30, 2021 2020 2021 2020 Weighted average common shares outstanding - basic 136,311,335 136,311,335 136,311,335 135,814,956 Dilutive effect of stock options – – – – Weighted average common shares outstanding - diluted 136,311,335 136,311,335 136,311,335 135,814,956 |
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 availability of net operating losses at the statutory rates expected in 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 | Revenue from Contracts with Customers Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606, the Standard”) supersedes nearly all legacy revenue recognition guidance. ASC 606, the Standard outlines a comprehensive five-step revenue recognition model based on the principle that an entity should recognize revenue based on when it satisfies its performance obligations by transferring control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for said goods or services. Identify the customer contracts The Company accounts for a customer contract under ASC 606 when the contract is legally enforceable. A contract is legally enforceable when all of the following criteria are met: (1) the contract has been approved by the Company and the customer and both parties are committed to perform their respective obligations, (2) the Company can identify each party’s rights regarding goods or services transferred, (3) the Company can identify payment terms for goods or services transferred, (4) the contract has commercial substance, and (5) collectability of all the consideration to which the Company is entitled in exchange for the goods or services transferred is probable. A contract does not exist if 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 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 revenue recognition 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 June 30, 2022. 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 Condensed Consolidated Balance Sheet. |
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 three months ended June 30, 2021 and the year ended December 31, 2020, the Company experienced returns of approximately 1% to 3% 24,531 45,328 Product warranties for the six months ended June 30, 2021 and the year ended December 31, 2020 are as follows: Schedule of product warranties June 30, December 31, Beginning balance $ 45,328 $ 58,791 Warranty claims incurred (6,166 ) (20,499 ) Provision charged (credited) to expense (14,631 ) 7,036 Ending balance $ 24,531 $ 45,328 |
Advertising | Advertising The Company follows the policy of charging the costs of advertising to expenses as incurred. The Company incurred $ 1,482 1,269 2,975 7,162 |
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 June 30, 2021 and 2020 were $ 296,413 291,849 607,861 661,092 |
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 condensed 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. Stock-based compensation expense in connection with options granted to employees for both the three months ended June 30, 2021 and 2020 was $ 1,816 3,631 |
BASIS OF PRESENTATION AND SIG_3
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Tables) | 6 Months Ended |
Jun. 30, 2021 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Schedule of diluted EPS | Schedule of diluted EPS Three Months Ended Six Months Ended June 30, 2021 2020 2021 2020 Weighted average common shares outstanding - basic 136,311,335 136,311,335 136,311,335 135,814,956 Dilutive effect of stock options – – – – Weighted average common shares outstanding - diluted 136,311,335 136,311,335 136,311,335 135,814,956 |
Schedule of product warranties | Schedule of product warranties June 30, December 31, Beginning balance $ 45,328 $ 58,791 Warranty claims incurred (6,166 ) (20,499 ) Provision charged (credited) to expense (14,631 ) 7,036 Ending balance $ 24,531 $ 45,328 |
REVENUE (Tables)
REVENUE (Tables) | 6 Months Ended |
Jun. 30, 2021 | |
Revenue from Contract with Customer [Abstract] | |
Disaggregation of revenues | Disaggregation of revenues Hospitality Education Multiple Government Healthcare Total Product $ 1,554,754 $ 10,295 $ 84,473 $ 4,972 $ 18,411 $ 1,672,905 Recurring 149,600 13,648 19,336 – – 182,584 $ 1,704,354 $ 23,943 $ 103,809 $ 4,972 $ 18,411 $ 1,855,489 The following table presents the Company’s product and recurring revenues disaggregated by industry for the six months ended June 30, 2021. Hospitality Education Multiple Government Healthcare Total Product $ 2,267,662 $ 84,397 $ 257,208 $ 123,307 $ 48,195 $ 2,780,769 Recurring 312,394 30,074 26,461 – – 368,929 $ 2,580,056 $ 114,471 $ 283,669 $ 123,307 $ 48,195 $ 3,149,698 The following table presents the Company’s product and recurring revenues disaggregated by industry for the three months ended June 30, 2020. Hospitality Education Multiple Government Healthcare Total Product $ 979,720 $ 72,733 $ 37,198 $ 13,720 $ – $ 1,103,371 Recurring 142,351 20,099 15,861 – – 178,311 $ 1,122,071 $ 92,832 $ 53,059 $ 13,720 $ – $ 1,281,682 The following table presents the Company’s product and recurring revenues disaggregated by industry for the six months ended June 30, 2020. Hospitality Education Multiple Government Healthcare Total Product $ 2,182,060 $ 322,166 $ 130,270 $ 78,137 $ – $ 2,712,633 Recurring 315,923 40,362 16,188 – – 372,473 $ 2,497,983 $ 362,528 $ 146,458 $ 78,137 $ – $ 3,085,106 |
Contract Assets and Liabilities | Contract Assets and Liabilities June 30, December 31, Contract assets $ 311,586 $ 104,989 Contract liabilities 1,567,693 1,052,367 Net contract liabilities $ 1,256,107 $ 947,378 |
ACCOUNTS RECEIVABLE (Tables)
ACCOUNTS RECEIVABLE (Tables) | 6 Months Ended |
Jun. 30, 2021 | |
Receivables [Abstract] | |
Schedule of accounts receivable | Schedule of accounts receivable June 30, December 31, Accounts receivable $ 1,130,729 $ 873,147 Allowance for doubtful accounts (4,449 ) (7,973 ) Accounts receivable, net $ 1,126,280 $ 865,174 |
INVENTORIES (Tables)
INVENTORIES (Tables) | 6 Months Ended |
Jun. 30, 2021 | |
Inventory Disclosure [Abstract] | |
Components of inventories | Components of inventories June 30, December 31, Product purchased for resale $ 1,299,485 $ 1,792,262 Reserve for obsolescence (423,068 ) (404,000 ) Inventory, net $ 876,417 $ 1,388,262 |
CURRENT ACCRUED LIABILITIES (Ta
CURRENT ACCRUED LIABILITIES (Tables) | 6 Months Ended |
Jun. 30, 2021 | |
Payables and Accruals [Abstract] | |
Schedule of accrued liabilities and expenses | Schedule of accrued liabilities and expenses June 30, December 31, Accrued payroll and payroll taxes $ 286,830 $ 252,595 Accrued professional 185,198 176,842 Accrued sales taxes, penalties, and interest 6,297 31,396 Product warranties 24,531 45,328 Other accrued liabilities 259,612 57,151 Total current accrued liabilities $ 762,468 $ 563,312 |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Tables) | 6 Months Ended |
Jun. 30, 2021 | |
Commitments and Contingencies Disclosure [Abstract] | |
Components of lease expense | Components of lease expense 2021 2020 Operating lease expense: Operating lease cost - fixed $ 114,774 $ 116,167 Variable lease cost 61,475 72,785 Total operating lease cost $ 176,249 $ 188,952 |
Other information related to leases | Other information related to leases 2021 2020 Operating lease liability - current $ 223,972 $ 231,796 Operating lease liability - long-term $ 525,895 $ 680,087 Operating cash outflows from operating leases $ 117,962 $ 110,000 Weighted-average remaining lease term of operating leases 4.41 5.22 Weighted-average discount rate of operating leases 8.5 8.5 |
Future annual minimum operating lease payments | Future annual minimum operating lease payments 2021 (excluding the six months ended June 30, 2021) $ 124,338 2022 195,176 2023 193,169 2024 172,424 2025 and thereafter 211,694 Total minimum lease payments 896,801 Less imputed interest (146,934 ) Total $ 749,867 |
Sales tax accrual | Sales tax accrual June 30, December 31, Balance, beginning of year $ 31,396 $ 26,957 Sales tax collected 26,738 94,904 Provisions (reversals) (8,572 ) 27,916 Payments (43,265 ) (118,381 ) Balance, end of period $ 6,297 $ 31,396 |
BASIS OF PRESENTATION AND SIG_4
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details - Diluted EPS) - shares | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2021 | Jun. 30, 2020 | Jun. 30, 2021 | Jun. 30, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||
Weighted average common shares outstanding - basic | 136,311,335 | 136,311,335 | 136,311,335 | 135,814,956 |
Dilutive effect of stock options | 0 | 0 | 0 | 0 |
Weighted average common shares outstanding - diluted | 136,311,335 | 136,311,335 | 136,311,335 | 135,814,956 |
BASIS OF PRESENTATION AND SIG_5
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details-Product warranties) - USD ($) | 6 Months Ended | 12 Months Ended |
Jun. 30, 2021 | Dec. 31, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Beginning balance | $ 45,328 | $ 58,791 |
Warranty claims incurred | (6,166) | (20,499) |
Provision charged (credited) to expense | (14,631) | 7,036 |
Ending balance | $ 24,531 | $ 45,328 |
BASIS OF PRESENTATION AND SIG_6
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 2 Months Ended | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||||||
Feb. 16, 2021 | Jun. 30, 2021 | Jun. 30, 2020 | Jun. 30, 2021 | Jun. 30, 2020 | Dec. 31, 2020 | Apr. 27, 2021 | Apr. 17, 2020 | Dec. 31, 2019 | Oct. 09, 2014 | |
AccountingPoliciesLineItems [Line Items] | ||||||||||
Accumulated deficit | $ 128,328,247 | $ 128,328,247 | $ 128,255,391 | |||||||
Net Cash Used In Operating Activities | 752,779 | $ 488,107 | ||||||||
Accounts payable | 937,406 | 937,406 | 1,043,007 | |||||||
Accrued royalties - long-term | 430,000 | 430,000 | 500,000 | |||||||
Note Payable - current | 913,063 | 913,063 | 913,063 | |||||||
Line of Credit, Current | 350,000 | $ 350,000 | $ 267,289 | |||||||
Guarantees and product warranty return percentage | 1% to 3% | 1% to 3% | ||||||||
Warranty liabilities | 24,531 | $ 24,531 | $ 45,328 | $ 58,791 | ||||||
Advertising expense | 1,482 | $ 1,269 | 2,975 | 7,162 | ||||||
Research and development expenses | 296,413 | 291,849 | 607,861 | 661,092 | ||||||
Stock based compensation expenses | 1,816 | $ 1,816 | 3,631 | $ 3,631 | ||||||
Heritage Bank [Member] | Revolving Credit Facility [Member] | ||||||||||
AccountingPoliciesLineItems [Line Items] | ||||||||||
Line of Credit Facility, Maximum Borrowing Capacity | 2,000,000 | $ 2,000,000 | $ 2,000,000 | |||||||
Line of Credit Facility, Expiration Date | Sep. 30, 2021 | |||||||||
Line of Credit, Current | 350,000 | $ 350,000 | $ 267,289 | |||||||
PPP Loan [Member] | ||||||||||
AccountingPoliciesLineItems [Line Items] | ||||||||||
Note Payable - current | $ 913,063 | $ 913,063 | ||||||||
Debt forgiven | $ 913,063 | |||||||||
License Agreement [Member] | ||||||||||
AccountingPoliciesLineItems [Line Items] | ||||||||||
Accounts payable | 78,000 | 78,000 | ||||||||
Accrued royalties - long-term | $ 430,000 | $ 430,000 |
REVENUE (Details - Disaggregati
REVENUE (Details - Disaggregation of income) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2021 | Jun. 30, 2020 | Jun. 30, 2021 | Jun. 30, 2020 | |
Disaggregation of Revenue [Line Items] | ||||
Revenues | $ 1,855,489 | $ 1,281,682 | $ 3,149,698 | $ 3,085,106 |
Hospitality [Member] | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues | 1,704,354 | 1,122,071 | 2,580,056 | 2,497,983 |
Education [Member] | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues | 23,943 | 92,832 | 114,471 | 362,528 |
Multiple Dwelling Units [Member] | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues | 103,809 | 53,059 | 283,669 | 146,458 |
Government 1 [Member] | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues | 4,972 | 13,720 | 123,307 | 78,137 |
Health Care 1 [Member] | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues | 18,411 | 0 | 48,195 | 0 |
Product [Member] | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues | 1,672,905 | 1,103,371 | 2,780,769 | 2,712,633 |
Product [Member] | Hospitality [Member] | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues | 1,554,754 | 979,720 | 2,267,662 | 2,182,060 |
Product [Member] | Education [Member] | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues | 10,295 | 72,733 | 84,397 | 322,166 |
Product [Member] | Multiple Dwelling Units [Member] | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues | 84,473 | 37,198 | 257,208 | 130,270 |
Product [Member] | Government 1 [Member] | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues | 4,972 | 13,720 | 123,307 | 78,137 |
Product [Member] | Health Care 1 [Member] | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues | 18,411 | 0 | 48,195 | 0 |
Recurring Income [Member] | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues | 182,584 | 178,311 | 368,929 | 372,473 |
Recurring Income [Member] | Hospitality [Member] | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues | 149,600 | 142,351 | 312,394 | 315,923 |
Recurring Income [Member] | Education [Member] | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues | 13,648 | 20,099 | 30,074 | 40,362 |
Recurring Income [Member] | Multiple Dwelling Units [Member] | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues | 19,336 | 15,861 | 26,461 | 16,188 |
Recurring Income [Member] | Government 1 [Member] | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues | 0 | 0 | 0 | 0 |
Recurring Income [Member] | Health Care 1 [Member] | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues | $ 0 | $ 0 | $ 0 | $ 0 |
REVENUE (Details - Contract ass
REVENUE (Details - Contract assets and liabilities) - USD ($) | Jun. 30, 2021 | Dec. 31, 2020 |
Revenue from Contract with Customer [Abstract] | ||
Contract assets | $ 311,586 | $ 104,989 |
Contract liabilities | 1,567,693 | 1,052,367 |
Net contract liabilities | $ 1,256,107 | $ 947,378 |
REVENUE (Details Narrative)
REVENUE (Details Narrative) | Jun. 30, 2021USD ($) |
Revenue from Contract with Customer [Abstract] | |
Remaining performance obligations | $ 1,200,000 |
Revenue, Remaining Performance Obligation, Percentage | 100.00% |
ACCOUNTS RECEIVABLE (Details)
ACCOUNTS RECEIVABLE (Details) - USD ($) | Jun. 30, 2021 | Dec. 31, 2020 |
Receivables [Abstract] | ||
Accounts receivable | $ 1,130,729 | $ 873,147 |
Allowance for doubtful accounts | (4,449) | (7,973) |
Accounts receivable, net | $ 1,126,280 | $ 865,174 |
INVENTORIES (Details)
INVENTORIES (Details) - USD ($) | Jun. 30, 2021 | Dec. 31, 2020 |
Inventory Disclosure [Abstract] | ||
Product purchased for resale | $ 1,299,485 | $ 1,792,262 |
Reserve for obsolescence | (423,068) | (404,000) |
Inventory, net | $ 876,417 | $ 1,388,262 |
CURRENT ACCRUED LIABILITIES (De
CURRENT ACCRUED LIABILITIES (Details) - USD ($) | Jun. 30, 2021 | Dec. 31, 2020 | Dec. 31, 2019 |
Payables and Accruals [Abstract] | |||
Accrued payroll and payroll taxes | $ 286,830 | $ 252,595 | |
Accrued professional | 185,198 | 176,842 | |
Accrued sales taxes, penalties, and interest | 6,297 | 31,396 | |
Product warranties | 24,531 | 45,328 | $ 58,791 |
Other accrued liabilities | 259,612 | 57,151 | |
Total current accrued liabilities | $ 762,468 | $ 563,312 |
DEBT (Details Narrative)
DEBT (Details Narrative) - USD ($) | 1 Months Ended | 6 Months Ended | 9 Months Ended | ||
Apr. 27, 2021 | Jun. 30, 2021 | Oct. 09, 2014 | Dec. 31, 2020 | Nov. 06, 2019 | |
Line of Credit Facility [Line Items] | |||||
Line of credit balance | $ 350,000 | $ 267,289 | |||
PPP Loan [Member] | |||||
Line of Credit Facility [Line Items] | |||||
Proceeds from loan | $ 913,063 | ||||
Interest Rate | 1.00% | ||||
Heritage Bank [Member] | Revolving Credit Facility [Member] | |||||
Line of Credit Facility [Line Items] | |||||
Line of credit maximum borrowing capacity | $ 2,000,000 | $ 2,000,000 | |||
Line of credit interest rate description | Prime Rate plus 3.00% | ||||
Effective interest rate | 6.25% | ||||
Warrant issued | 250,000 | ||||
Warrant, exercise price | $ 0.20 | ||||
Warrant expiry date | Oct. 9, 2021 | Sep. 30, 2019 | |||
Line of credit maturity date | Sep. 30, 2021 | ||||
Line of credit balance | $ 350,000 | 267,289 | |||
Line of credit remaining borrowing capacity | $ 544,854 | $ 442,000 |
CAPITAL STOCK (Details Narrativ
CAPITAL STOCK (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020 | Jun. 30, 2021 | Jun. 30, 2020 | Dec. 31, 2020 | |
Class of Stock [Line Items] | ||||
Preferred stock, shares authorized | 15,000,000 | 15,000,000 | ||
Common stock, shares authorized | 190,000,000 | 190,000,000 | ||
Common stock, shares outstanding | 136,311,335 | 136,311,335 | ||
Common stock, shares issued | 136,311,335 | 136,311,335 | ||
Warrants exercised, shares | 0 | 0 | ||
Preferred stock converted | 0 | 0 | ||
Directors [Member] | ||||
Class of Stock [Line Items] | ||||
Shares issued to directors, shares | 320,844 | |||
Shares issued to directors, value | $ 18,000 | |||
Series A Preferred Stock [Member] | ||||
Class of Stock [Line Items] | ||||
Preferred stock, shares authorized | 215 | 215 | ||
Preferred stock, shares outstanding | 185 | 185 | ||
Series B Preferred Stock [Member] | ||||
Class of Stock [Line Items] | ||||
Preferred stock, shares authorized | 567 | 567 | ||
Preferred stock, shares outstanding | 52 | 52 |
COMMITMENTS AND CONTINGENCIES_2
COMMITMENTS AND CONTINGENCIES (Details - Lease expense) - USD ($) | 6 Months Ended | |
Jun. 30, 2021 | Jun. 30, 2020 | |
Operating lease expense: | ||
Operating lease cost - fixed | $ 114,774 | $ 116,167 |
Variable lease cost | 61,475 | 72,785 |
Total operating lease cost | $ 176,249 | $ 188,952 |
COMMITMENTS AND CONTINGENCIES_3
COMMITMENTS AND CONTINGENCIES (Details - Other information related to leases) - USD ($) | 6 Months Ended | ||
Jun. 30, 2021 | Jun. 30, 2020 | Dec. 31, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |||
Operating lease liability - current | $ 223,972 | $ 231,796 | $ 242,299 |
Operating lease liability - long term | 525,895 | 680,087 | $ 592,341 |
Operating cash flows from operating leases | $ 117,962 | $ 110,000 | |
Weighted average remaining lease term of operating leases | 4 years 4 months 28 days | 5 years 2 months 19 days | |
Weighted average discount rate of operating leases | 8.50% | 850.00% |
COMMITMENTS AND CONTINGENCIES_4
COMMITMENTS AND CONTINGENCIES (Details - Future lease payments) | Jun. 30, 2021USD ($) |
Commitments and Contingencies Disclosure [Abstract] | |
2021 (excluding the six months ended June 30, 2021) | $ 124,338 |
2022 | 195,176 |
2023 | 193,169 |
2024 | 172,424 |
2025 and thereafter | 211,694 |
Total minimum lease payments | 896,801 |
Less imputed interest | (146,934) |
Total minimum operating lease payments | $ 749,867 |
COMMITMENTS AND CONTINGENCIES_5
COMMITMENTS AND CONTINGENCIES (Details-Sales Tax Accrual) - USD ($) | 6 Months Ended | 12 Months Ended |
Jun. 30, 2021 | Dec. 31, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | ||
Balance, Beginning of year | $ 31,396 | $ 26,957 |
Sales tax collected | 26,738 | 94,904 |
Provisions (reversals) | (8,572) | 27,916 |
Payments | (43,265) | (118,381) |
Balance, End of period | $ 6,297 | $ 31,396 |
COMMITMENTS AND CONTINGENCIES_6
COMMITMENTS AND CONTINGENCIES (Details Narrative) | 3 Months Ended | 6 Months Ended | ||||
Jun. 30, 2021USD ($)ft² | Jun. 30, 2020USD ($) | Jun. 30, 2021USD ($)ft² | Jun. 30, 2020USD ($) | Dec. 31, 2020USD ($) | Jan. 01, 2019USD ($) | |
Lessee, Lease, Description [Line Items] | ||||||
Right of use asset | $ 655,966 | $ 655,966 | $ 737,551 | |||
Operating lease liability | 749,867 | 749,867 | ||||
Rental expenses | $ 88,725 | $ 91,441 | $ 176,249 | $ 188,952 | ||
Impact of Adoption of ASC 842 [Member] | ||||||
Lessee, Lease, Description [Line Items] | ||||||
Right of use asset | $ 1,042,004 | |||||
Operating lease liability | 1,095,761 | |||||
Deferred lease liability - long term | $ 71,877 | |||||
Waukesha Office [Member] | ||||||
Lessee, Lease, Description [Line Items] | ||||||
Leased square feet | ft² | 6,362 | 6,362 | ||||
Lease expiration date | Apr. 30, 2026 | |||||
Germantown [Member] | ||||||
Lessee, Lease, Description [Line Items] | ||||||
Leased square feet | ft² | 2,237 | 2,237 | ||||
Waukesha Floor [Member] | ||||||
Lessee, Lease, Description [Line Items] | ||||||
Leased square feet | ft² | 5,838 | 5,838 |
BUSINESS CONCENTRATION (Details
BUSINESS CONCENTRATION (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended | |
Jun. 30, 2020 | Jun. 30, 2021 | Jun. 30, 2020 | Dec. 31, 2020 | |
One Supplier [Member] | ||||
Concentration Risk [Line Items] | ||||
Prepaid supplies | $ 144,000 | |||
Due to suppliers | $ 470,000 | |||
Revenue Benchmark [Member] | One Customer [Member] | Customer Concentration Risk [Member] | ||||
Concentration Risk [Line Items] | ||||
Concentration percentage | 20.00% | 14.00% | ||
Accounts Receivable [Member] | One Customer [Member] | Customer Concentration Risk [Member] | ||||
Concentration Risk [Line Items] | ||||
Concentration percentage | 21.00% | |||
Accounts Receivable [Member] | Three Customers [Member] | Customer Concentration Risk [Member] | ||||
Concentration Risk [Line Items] | ||||
Concentration percentage | 63.00% | |||
Purchases [Member] | Supplier Concentration Risk [Member] | One Supplier [Member] | ||||
Concentration Risk [Line Items] | ||||
Concentration percentage | 85.00% | 86.00% | ||
Purchases from major suppliers | $ 838,000 | $ 735,000 |