Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2017 | Nov. 10, 2017 | |
Document And Entity Information | ||
Entity Registrant Name | QS ENERGY, INC. | |
Entity Central Index Key | 1,103,795 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 233,788,905 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2,017 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) | Sep. 30, 2017 | Dec. 31, 2016 |
Current assets: | ||
Cash | $ 587,000 | $ 136,000 |
Prepaid expenses and other current assets | 45,000 | 26,000 |
Total current assets | 632,000 | 162,000 |
Property and equipment, net of accumulated depreciation of $43,000 and $32,000 at September 30, 2017 and December 31, 2016, respectively | 55,000 | 17,000 |
Other assets | 2,000 | 7,000 |
Total assets | 689,000 | 186,000 |
Current liabilities: | ||
Accounts payable-license agreements | 815,000 | 805,000 |
Accounts payable and accrued expenses | 800,000 | 251,000 |
Accrued expenses and accounts payable-related parties | 40,000 | 135,000 |
Deposit and other current liabilities | 0 | 5,000 |
Convertible debentures, net of discounts of $83,000 and $92,000 at September 30, 2017 and December 31, 2016, respectively | 493,000 | 348,000 |
Total current liabilities | 2,148,000 | 1,544,000 |
Stockholders' deficit | ||
Common stock, $.001 par value: 300,000,000 shares authorized, 233,348,905 and 199,045,026 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively | 233,349 | 199,045 |
Additional paid-in capital | 107,726,651 | 103,716,955 |
Accumulated deficit | (109,419,000) | (105,274,000) |
Total stockholders' deficit | (1,459,000) | (1,358,000) |
Total liabilities and stockholders' deficit | $ 689,000 | $ 186,000 |
CONDENSED CONSOLIDATED BALANCE3
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($) | Sep. 30, 2017 | Dec. 31, 2016 |
Statement of Financial Position [Abstract] | ||
Accumulated depreciation | $ 43,000 | $ 32,000 |
Discounts on convertible debentures | $ 83,000 | $ 92,000 |
Common stock, par value | $ .001 | $ 0.001 |
Common stock, shares authorized | 300,000,000 | 300,000,000 |
Common stock, shares issued | 233,348,905 | 199,045,026 |
Common stock, shares outstanding | 233,348,905 | 199,045,026 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Income Statement [Abstract] | ||||
Revenues | $ 0 | $ 0 | $ 50,000 | $ 0 |
Costs and Expenses | ||||
Operating expenses | 535,000 | 467,000 | 2,373,000 | 1,728,000 |
Research and development expenses | 53,000 | 52,000 | 173,000 | 200,000 |
Loss before other expenses | (588,000) | (519,000) | (2,496,000) | (1,928,000) |
Other income (expenses) | ||||
Interest and financing expense | (227,000) | (516,000) | (1,649,000) | (1,449,000) |
Loss on disposition of equipment | 0 | 0 | 0 | (3,000) |
Net loss | $ (815,000) | $ (1,035,000) | $ (4,145,000) | $ (3,380,000) |
Net loss per common share, basic and diluted | $ 0 | $ (0.01) | $ (0.02) | $ (0.02) |
Weighted average common shares outstanding, basic and diluted | 230,132,723 | 198,343,504 | 212,384,061 | 190,874,796 |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (Unaudited) - 9 months ended Sep. 30, 2017 - USD ($) | Common Stock [Member] | Additional Paid-in Capital [Member] | Deficit Accumulated [Member] | Total |
Beginning balance, shares at Dec. 31, 2016 | 199,045,026 | |||
Beginning balance, value at Dec. 31, 2016 | $ 199,045 | $ 103,716,955 | $ (105,274,000) | $ (1,358,000) |
Common stock issued for cash, shares | 181,355 | |||
Common stock issued for cash, value | $ 181 | 37,819 | 38,000 | |
Common stock issued on exercise of options and warrants, shares | 4,245,752 | |||
Common stock issued on exercise of options and warrants, value | $ 4,246 | 357,754 | 362,000 | |
Common stock issued on conversion of notes payable, shares issued | 29,876,772 | |||
Common stock issued on conversion of notes payable, value | $ 29,877 | 1,492,123 | 1,522,000 | |
Fair value of warrants and beneficial conversion feature of issued convertible notes | 1,469,000 | 1,469,000 | ||
Fair value of options and warrants issued as compensation | 653,000 | 653,000 | ||
Net loss | (4,145,000) | (4,145,000) | ||
Ending balance, shares at Sep. 30, 2017 | 233,348,905 | |||
Ending balance, value at Sep. 30, 2017 | $ 233,349 | $ 107,726,651 | $ (109,419,000) | $ (1,459,000) |
CONDENSED CONSOLIDATED STATEME6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) | 9 Months Ended | |
Sep. 30, 2017 | Sep. 30, 2016 | |
Cash flows from operating activities | ||
Net Loss | $ (4,145,000) | $ (3,380,000) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Stock based compensation expense | 653,000 | 358,000 |
Issuance of common stock for services | 0 | 48,000 |
Amortization of debt discount and accrual of interest | 1,667,000 | 1,450,000 |
Loss on disposition of assets | 0 | 3,000 |
Depreciation and amortization | 11,000 | 5,000 |
Changes in operating assets and liabilities: | ||
Prepaid expenses and other assets | (14,000) | 14,000 |
Accounts payable and accrued expenses | 549,000 | 28,000 |
Accounts payable - license agreements | 10,000 | 141,000 |
Accounts payable and accrued expenses - related parties | (95,000) | (48,000) |
Deposits and other current liabiilities | (5,000) | (21,000) |
Net cash used in operating activities | (1,369,000) | (1,402,000) |
Cash flows from investing activities | ||
Purchase of equipment | (49,000) | (5,000) |
Net cash used in investing activities | (49,000) | (5,000) |
Cash flows from financing activities | ||
Proceeds from issuance of common stock | 38,000 | 0 |
Net proceeds from issuance of convertible notes and warrants | 1,469,000 | 1,443,000 |
Net proceeds from exercise of warrants | 362,000 | 0 |
Net cash provided by financing activities | 1,869,000 | 1,443,000 |
Net increase in cash | 451,000 | 36,000 |
Cash, beginning of period | 136,000 | 349,000 |
Cash, end of period | 587,000 | 385,000 |
Supplemental disclosures of cash flow information | ||
Cash paid during the year for: Interest | 0 | 0 |
Cash paid during the year for: Income taxes | 0 | 0 |
Non-cash investing and financing activities | ||
Conversion of convertible debentures to common stock | 1,522,000 | 603,000 |
Fair value of warrants and beneficial conversion feature associated with issued convertible notes | $ 1,469,000 | $ 471,000 |
1. Description of Business
1. Description of Business | 9 Months Ended |
Sep. 30, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Description of Business | QS Energy, Inc. (“QS Energy”, “Company”) was incorporated on February 18, 1998, as a Nevada Corporation under the name Mandalay Capital Corporation. The Company changed its name to Save the World Air, Inc. on February 11, 1999. Effective August 11, 2015, the Company changed its name to QS Energy, Inc. The Company’s common stock is quoted under the symbol “QSEP” on the Over-the-Counter Bulletin Board. More information including the Company’s fact sheet, logos and media articles are available at our corporate website, www.qsenergy.com. Information included on, or accessed through, our website is not intended to be incorporated into, or to be part of this Form 10-Q. QS Energy develops and commercializes energy efficiency technologies that assist in meeting increasing global energy demands, improving the economics of oil extraction and transport, and reducing greenhouse gas emissions. The Company's intellectual properties include a portfolio of domestic and international patents and patents pending, a substantial portion of which have been developed in conjunction with and exclusively licensed from Temple University of Philadelphia, PA (“Temple”). QS Energy's primary technology is called Applied Oil Technology™ (AOT), a commercial-grade crude oil pipeline transportation flow-assurance product. Engineered specifically to reduce pipeline pressure loss, increase pipeline flow rate and capacity, and reduce shippers’ reliance on diluents and drag reducing agents to meet pipeline maximum viscosity requirements, AOT is a 100% solid-state system that reduces crude oil viscosity by applying a high intensity electrical field to crude oil feedstock while in transit. The AOT product has transitioned from the research and development stage to initial production for continued testing in advance of our goal of seeking acceptance and adoption by the midstream pipeline marketplace. The Company plans to restart shortly commercial development of a suite of products based around the Joule Heat technology. The Company began fabrication of prototype equipment to be operated under a joint development agreement with a commercial entity in the fourth quarter of 2014. The Company’s first Joule Heat prototype was installed for testing purposes at the Newfield facility in June 2015 and the system is operational; however, changes to the prototype configuration will be required to determine commercial effectiveness of this unit. In addition, the Company filed two additional provisional patents related to the technology’s method and apparatus. In December 2015, we temporarily suspended Joule Heat development activities to focus Company resources on finalizing commercial development of the AOT Midstream. We currently plan to resume Joule Heat development in 2018 depending on the availability of sufficient capital and other resources. Basis of Presentation The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the SEC. The condensed consolidated balance sheet as of December 31, 2016 included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, including notes, required by GAAP. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to fairly present the Company's financial position and results of operations for the interim periods reflected. Except as noted, all adjustments contained herein are of a normal recurring nature. Results of operations for the fiscal periods presented herein are not necessarily indicative of fiscal year-end results. |
2. Summary of Significant Accou
2. Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2017 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | Consolidation Policy The accompanying consolidated financial statements of QS Energy, Inc. include the accounts of QS Energy, Inc. (the Parent) and its wholly owned subsidiaries, QS Energy Pool, Inc. and STWA Asia Pte. Limited. Intercompany transactions and balances have been eliminated in consolidation. Going Concern The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, during the nine-months ended September 30, 2017, the Company incurred a net loss of $4,145,000, used cash in operations of $1,369,000 and had a stockholders’ deficit of $1,459,000 as of that date. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. In addition, the Company's independent registered public accounting firm, in its report on the Company's December 31, 2016 financial statements, has raised substantial doubt about the Company's ability to continue as a going concern. At September 30, 2017, the Company had cash on hand of $587,000. Management estimates that the current funds on hand will be sufficient to continue operations through January 2018 No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders in case of equity financing. Basic and Diluted Income (loss) per share Our computation of earnings per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as the income (loss) available to common stockholders divided by the weighted average common shares outstanding for the period. Diluted income (loss) per share reflects the potential dilution, using the treasury stock method, that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the income (loss) of the Company as if they had been converted at the beginning of the periods presented, or issuance date, if later. In computing diluted income (loss) per share, the treasury stock method assumes that outstanding options and warrants are exercised and the proceeds are used to purchase common stock at the average market price during the period. Options and warrants may have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options and warrants. Potential common shares that have an antidilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. Income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the respective periods. Basic and diluted (loss) per common share is the same for periods in which the Company reported an operating loss because all warrants and stock options outstanding are anti-dilutive. At September 30, 2017 and 2016, we excluded the outstanding securities summarized below, which entitle the holders thereof to acquire shares of common stock as their effect would have been anti-dilutive. September 30, 2017 September 30, 2016 Options 35,575,677 23,624,256 Warrants 17,420,770 12,451,892 Common stock issuable upon conversion of notes payable 4,957,333 3,776,792 Total 57,953,780 39,852,940 Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates 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. Significant estimates include those related to assumptions used in valuing equity instruments issued for financing and for services, and reduction of deferred tax assets. Actual results could differ from those estimates. Revenue Recognition Policy The Company recognizes lease revenue upon commencement of the lease. Revenue on future product sales will be recognized upon meeting the following criteria: persuasive evidence of an arrangement exists; delivery has occurred, or services rendered; the seller's price to the buyer is fixed or determinable; and collectability is reasonably assured. In the fourth quarter 2016, the Company entered a contract to provide onsite testing services to a Canadian oil producer and pipeline operator at a fixed price of $50,000. The testing service was performed in January 2017 and was completed in March 2017. Research and Development Costs Costs incurred for research and development are expensed as incurred. Purchased materials that do not have an alternative future use are also expensed. Furthermore, costs incurred in the construction of prototypes with no certainty of any alternative future use and established commercial uses are also expensed. For the nine-month periods ended September 30, 2017 and 2016 research and development costs were $173,000 and $200,000, respectively. Patent Costs Patent costs consist of patent-related legal and filing fees. Due to the uncertainty associated with the successful development of our AOT and Joule Heat products, all patent costs are expensed as incurred. During the nine-month periods ended September 30, 2017 and 2016, patent costs were $38,000 and $49,000, respectively, and were included as part of operating expenses in the accompanying consolidated statements of operations. During the three-month periods ended September 30, 2017 and 2016, patent costs were $14,000 and $19,000, respectively, and were included as part of operating expenses in the accompanying consolidated statements of operations. Increase in Authorized Capital In October 2017, the Company amended its articles of incorporation and increased its authorized shares of common stock from 300,000,000 shares to 500,000,000 shares. In addition, the Company also created a new class of preferred stock which the Company is authorized to issue up to 100,000,000 shares of preferred stock. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is in the process of evaluating the impact of ASU 2014-09 on the Company’s financial statements and disclosures. In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of ASU 2016-02 on the Company’s financial statements and disclosures. In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases In July 2017, the FASB issued Accounting Standards Update No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features; (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). ASU 2017-11 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value of a down round feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The guidance in ASU 2017-11 is to be applied using a full or modified retrospective approach. The adoption of ASU 2017-11 is not currently expected to have any impact on the Company’s financial statement presentation or disclosures. Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statement presentation or disclosures. |
3. Accrued Expenses and Account
3. Accrued Expenses and Accounts Payable - Related Parties | 9 Months Ended |
Sep. 30, 2017 | |
Related Party Transactions [Abstract] | |
Accrued Expenses and Accounts Payable - Related Parties | Accrued expense and accounts payable – related parties consist of accrued salaries of officers and fees due to members of the Board of Directors. As of September 30, 2017 and December 31, 2016, accrued expenses and accounts payable to related parties amounted to $40,000 and $135,000, respectively. |
4. Property and Equipment
4. Property and Equipment | 9 Months Ended |
Sep. 30, 2017 | |
Property, Plant and Equipment [Abstract] | |
Property and Equipment | At September 30, 2017 and December 31, 2016, property and equipment consist of the following: September 30, 2017 December 31, 2016 (unaudited) Office equipment $ 30,000 $ 28,000 Furniture and fixtures 5,000 3,000 Testing equipment 37,000 – Leasehold improvements 26,000 18,000 Subtotal 98,000 49,000 Less accumulated depreciation (43,000 ) (32,000 ) Total $ 55,000 $ 17,000 Depreciation expense for the nine-month periods ended September 30, 2017 and 2016 was $11,000 and $5,000, respectively. Depreciation expense for the three-month periods ended September 30, 2017 and 2016 was $6,000 and $2,000, respectively. |
5. Convertible Notes
5. Convertible Notes | 9 Months Ended |
Sep. 30, 2017 | |
Debt Disclosure [Abstract] | |
Convertible Notes | September 30, 2017 December 31, 2016 (unaudited) Convertible notes outstanding $ 515,000 $ 417,000 Accrued interest 61,000 23,000 Subtotal 576,000 440,000 Unamortized note discounts (83,000 ) (92,000 ) Balance on convertible notes, net of note discounts $ 493,000 $ 348,000 The Company issues convertible notes in exchange for cash. The notes typically do not bear any interest; however, there is an implied interest rate of 10% since the notes are issued at a price 10% less than its face value. The notes are unsecured, and usually mature twelve months from issuance. The notes are convertible at the option of the note holder into the Company’s common stock at a conversion price stipulated in the conversion agreement. In addition, the note holders received warrants to purchase shares of common stock that are fully vested and will expire in one year from the date of issuance. As a result, the Company records a note discount to account for the relative fair value of the warrants, the notes’ beneficial conversion feature or BCF, and original issue discount of 10% (OID). The note discounts are amortized over the term of the notes or amortized in full upon its conversion to common stock. At December 31, 2016, total outstanding notes payable amounted to $417,000, accrued penalty interest of $23,000 and unamortized note discount of $92,000, or a net balance of $348,000. During the nine-month period ending September 30, 2017, the Company issued similar convertible promissory notes in the aggregate of $1,616,000 for cash of $1,469,000 or a discount of $147,000. The notes do not bear any interest; however, the implied interest rate used was 10% since the notes were issued at a price 10% less than its face value. The notes are unsecured, mature in twelve months from issuance and convertible at $0.05 per share. In addition, the Company also granted these note holders warrants to purchase 16,160,770 shares of the Company’s common stock. The warrants are fully vested, exercisable at $0.05 per share and will expire in one year. As a result, the Company recorded a note discount of $1,616,000 to account for the relative fair value of the warrants, the notes’ BCF, and OID. The note discounts are being amortized over the term of the note or amortized in full upon the conversion to common stock. During the nine-month period ended September 30, 2017, a total of $1,522,000 notes payable was converted to 29,876,772 shares of common stock. In addition, the note discount of $1,625,000 was amortized to interest expense, and interest of $42,000 was accrued. As of September 30, 2017, total outstanding notes payable amounted to $515,000, accrued interest of $61,000 and unamortized note discount of $83,000 for a net balance of $493,000. In addition, a total of four notes amounting to $381,000 reached maturity and are past due. The Company is currently in negotiations with the noteholders to settle the matured notes payable. |
6. Research and Development
6. Research and Development | 9 Months Ended |
Sep. 30, 2017 | |
Research and Development [Abstract] | |
Research and Development | The Company constructs, develops and tests the AOT technology with internal resources and through the assistance of various third-party entities. Costs incurred and expensed include fees such as license fees, purchase of test equipment, pipeline pumping equipment, crude oil tank batteries, viscometers, SCADA systems, computer equipment, payroll and other related equipment and various logistical expenses for the purposes of evaluating and testing the Company’s AOT prototypes. For the nine-month periods ended September 30, 2017 and 2016, our research and development expenses were $173,000 and $200,000 respectively. For the three-month periods ended September 30, 2017 and 2016, our research and development expenses were $53,000 and $52,000, respectively. AOT Product Development and Testing During the nine-month periods ended September 30, 2017 and 2016, the Company incurred total expenses of $30,000 and $59,000, respectively, in the manufacture, delivery and testing of the AOT prototype equipment. During the three-month periods ended September 30, 2017 and 2016, the Company incurred total expenses of $6,000 and $5,000, respectively. These expenses have been reflected as part of Research and Development expenses on the accompanying consolidated statements of operations. Temple University Licensing Agreement On August 1, 2011, the Company and Temple University (“Temple”) entered into two (2) Exclusive License Agreements (collectively, the “License Agreements”) relating to Temple’s patent applications, patents and technical information pertaining to technology associated with an electric and/or magnetic field assisted fuel injector system (the “First Temple License”), and to technology to reduce crude oil viscosity (the “Second Temple License”). The License Agreements are exclusive, and the territory licensed to the Company is worldwide and replace previously issued License Agreements. Pursuant to the two licensing agreements, the Company agreed to pay Temple the following: (i) non-refundable license maintenance fee of $300,000; (ii) annual maintenance fees of $187,500; (iii) royalty fee ranging from 4% up to 7% from revenues generated from the licensing agreements; and (iv) 25% of all revenues generated from sub-licensees to secure or maintain the sub-license or option thereon. Temple also agreed to defer $37,500 of the amount due if the Company agreed to fund at least $250,000 in research or development of Temple’s patent rights licensed to the Company. The term of the licenses commenced in August 2011 and will expire upon the expiration of the patents. The agreement can also be terminated by either party upon notification under terms of the licensing agreements or if the Company ceases the development of the patent or failure to commercialize the patent rights. Total expenses recognized during each nine-month period ended September 30, 2017 and 2016 pursuant to these two agreements amounted to $173,000. Total expenses recognized during each three-month period ended September 30, 2017 and 2016 pursuant to these two agreements amounted to $47,000, respectively. These expenses have been reflected in Research and Development expenses on the accompanying consolidated statements of operations. As of December 31, 2016, total unpaid fees due to Temple pursuant to these agreements amounted to $727,000, which are included as part of Accounts Payable – licensing agreement in the accompanying consolidated balance sheets. In July 2017, the Company and Temple amended the Second Temple License agreement. Pursuant to the amendment, the Company paid Temple $62,000 and Temple agreed to defer payment of the remaining $135,000 in unpaid licensing fee until such time the Company generates revenues totaling $835,000 from the license. In addition, the unpaid balance of $135,000 will accrue interest of 9% per annum. As of September 30, 2017, total unpaid fees due to Temple pursuant to these agreements amounted to $786,000, which are included as part of Accounts Payable – licensing agreement in the accompanying consolidated balance sheets. With regards to the unpaid fees to Temple, a total of $108,000 are current, $370,000 are deferred until such time the Company achieves a revenue milestone of $835,000 or upon termination of the licensing agreements and the remaining $308,000 are deemed past due. The Company is currently in negotiations with Temple to settle or cure the past due balance. The Company generated $50,000 in revenue from the viscosity reduction license during the nine-month period ended September 30, 2017. This amount is not sufficient to be subject to additional license fees under the license agreement. No revenues were earned from the two license agreements during the nine-month period ended September 2016. Temple University Sponsored Research Agreement On March 19, 2012, the Company entered into a Sponsored Research Agreement (“Research Agreement”) with Temple University (“Temple”), whereby Temple, under the direction of Dr. Rongjia Tao, performed research related to the Company’s AOT device (the “Project”), for the period April 1, 2012, through April 1, 2014. All rights and title to intellectual property resulting from Temple’s work related to the Project were subjected to the Exclusive License Agreements between Temple and the Company, dated August 1, 2011. In exchange for Temple’s research efforts on the Project, the Company has agreed to pay Temple $500,000, payable in quarterly installments of $62,500. The agreement expired in August 2015. On July 14, 2017, the Company and Temple reached agreement to settle these past due amounts under a payment plan, paying the amount before the end of December 2017. As of September 30, 2017 and December 31, 2016, total unpaid fees due to Temple pursuant to this agreement amounted to $29,000 and $78,000, respectively, which are included as part of Accounts Payable – licensing agreement in the accompanying consolidated balance sheets. In addition, Temple continues to provide laboratory testing and support related to the Company’s commercialization efforts. This continuing work is provided on at a fixed price, on an ad hoc basis depending upon the scope of work. During the nine-month period ending September 30, 2017, the Company incurred a total of $2,000 in ad hoc testing with Temple University. No ad hoc testing was performed during the three-month period ending September 30, 2017. Temple ad hoc testing expense is reported as part of Research and development expenses in the accompanying consolidated statements of operations. |
7. Common Stock
7. Common Stock | 9 Months Ended |
Sep. 30, 2017 | |
Stockholders' Equity Note [Abstract] | |
Common Stock | During the nine months ended September 30, 2017, the Company issued a total of 34,303,879 shares of its common stock as follows: a. 181,355 shares of common stock were issued upon the private sale at a price of $0.21 per share with proceeds of $38,000; b. 29,876,772 shares were issued upon the conversion of $1,522,000 in convertible notes at conversion rates ranging from $0.05 and $0.48 per share; and c. 4,245,752 shares were issued upon the exercise of options and warrants to purchase common stock at exercise prices ranging from $0.05 to $0.13 per share, resulting in cash proceeds to the Company of $362,000. |
8. Stock Options and Warrants
8. Stock Options and Warrants | 9 Months Ended |
Sep. 30, 2017 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract] | |
Stock Options and Warrants | The Company periodically issues stock options and warrants to directors, employees, and non-employees in capital raising transactions, for services and for financing costs. Options vest and expire according to terms established at the grant date. Options Options vest according to the terms of the specific grant and expire from 2 to 10 years from date of grant. The weighted-average, remaining contractual life of employee and non-employee options outstanding at September 30, 2017 was 5.9 years. Stock option activity for the period January 1, 2017 up to September 30, 2017, was as follows: Options Weighted January 1, 2017 23,474,256 $ 0.28 Granted 12,561,852 0.12 Exercised (271,752 ) 0.09 Forfeited (188,679 ) 0.53 September 30, 2017 35,575,677 $ 0.23 The weighted average exercise prices, remaining contractual lives for options granted, exercisable, and expected to vest as of September 30, 2017 were as follows: Outstanding Options Exercisable Options Option Exercise Price Per Share Shares Life (Years) Weighted Average Exercise Price Shares Weighted Average Exercise Price $ 0.05 - $ 0.99 35,425,231 5.9 $ 0.22 29,857,602 $ 0.23 $ 1.00 - $ 1.99 150,446 5.8 $ 1.18 150,446 $ 1.18 35,575,677 5.9 $ 0.23 30,008,048 $ 0.23 During the nine-month period ending September 30, 2017, the Company granted options to purchase 8,339,285 shares of common stock to members of the Company’s Board of Directors. The options are exercisable at $0.05 to $0.19 per share, vest monthly over a twelve-month period, and expire ten years from the date granted. Total fair value of these options at grant date was $909,000 using the Black-Scholes Option Pricing model with the following assumptions: life of 5 years; risk free interest rate of 1.94%; volatility of 123% to 144%, and dividend yield of 0%. During the nine-month period ending September 30, 2017, the Company granted two officers and employees of the Company stock options to purchase a total of 4,222,567 shares of common stock. The stock options vest over a two-year period, exercisable at a price range of $0.07 through $0.40 per share and will expire in 10 years. Total fair value of the stock options amounted to $246,000 which will be expensed over the vesting period. In addition, as a result of the resignation of the Company’s CEO and three members of the Board of Directors, the Company agreed to modify the vesting term of 4.5 million options granted to them in January 2017 and fully vested those options resulting in a charge of $308,000 to account for the fair value of these options. There were no other changes in the remaining terms of the original grant. During the nine-month periods ended September 30, 2017 and 2016, the Company recognized total compensation costs based on the fair value of options that vested of $653,000 and $265,000 respectively, which is included in Operating expenses in the Company’s statement of operations. During the three-month periods ended September 30, 2017 and 2016, the Company recognized compensation costs based on the fair value of options that vested of $117,000 and $84,000 respectively, which is included in Operating expenses in the Company’s statement of operations. During the period ended September 30, 2017, the Company issued 271,752 shares of common stock upon exercise of stock options which resulted in proceeds of $25,000. At September 30, 2017, the Company’s closing stock price was $0.29 per share. The aggregate intrinsic value of the options outstanding at September 30, 2017 was $3,042,000. Future unamortized compensation expense on the unvested outstanding options at September 30, 2017 is $295,000 to be recognized through December 2017. Warrants The following table summarizes certain information about the Company’s stock purchase warrants activity for the period starting January 1, 2017 up to September 30, 2017. Warrants Weighted Avg. January 1, 2017 11,446,892 $ 0.15 Granted 16,160,770 0.05 Exercised (3,974,000 ) 0.08 Cancelled (6,212,892 ) 0.12 September 30, 2017 17,420,770 $ 0.08 The weighted average exercise prices, remaining contractual lives for warrants granted, exercisable, and expected to vest as of September 30, 2017 were as follows: Outstanding Warrants Exercisable Warrants Warrant Exercise Price Per Share Shares Life (Years) Weighted Average Exercise Price Shares Weighted Average Exercise Price $ 0.05 - $ 0.99 17,420,770 1.1 $ 0.08 17,370,770 $ 0.08 $ 1.00 - $ 1.99 – – – – – 17,420,770 1.1 $ 0.08 17,370,770 $ 0.08 During the nine-month period ending September 30, 2017, pursuant to terms of convertible notes issued, the Company granted warrants to purchase 16,160,770 shares of common stock with an exercise price of $0.05 per share, vesting immediately upon grant and expiring one year from the date of grant (see Note 5). During the period ended September 30, 2017, the Company issued 3,974,000 shares of common stock upon exercise of warrants which resulted in proceeds of $337,000. During the nine-month periods ended September 30, 2017 and 2016, the Company recognized compensation costs of $1,000 and $108,000, respectively, based on the fair value of warrants previously issued for services that vested during the period, which is included in Operating expenses in the Company’s statement of operations. During the three-month periods ended September 30, 2017 and 2016, the Company recognized compensation costs of $2,000 and $21,000, respectively, based on the fair value of warrants that vested, which is included in Operating expenses in the Company’s statement of operations. At September 30, 2017, the aggregate intrinsic value of the warrants outstanding was $3,638,000. Future unamortized compensation expense on the unvested outstanding warrants at September 30, 2017 is approximately $1,000 to be recognized through July 2018. |
9. Commitments and Contingencie
9. Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | There is no current or pending litigation of any significance with the exception of the matters that have arisen under, and are being handled in, the normal course of business. On April 1, 2017, the Company executed a separation agreement and release effective with the Company’s Chief Executive Officer (CEO). As part of the agreement, the Company agreed to pay the CEO $580,000 in severance, payable in equal installment over 24 months. In addition, the Company also agreed to pay the CEO’s medical insurance for 24 months and provide use of a cell phone for 12 months with an estimated cost of $44,000. As a result, the Company accrued the entire amount of $624,000 which was also reported as part of Operating Expenses in the accompanying consolidated statements of operations. As of September 30, 2017, the outstanding balance amounted to $468,000 which was reported as part of Accounts Payable and Accrued Expenses in the accompanying consolidated balance sheets. |
10. Subsequent Events
10. Subsequent Events | 9 Months Ended |
Sep. 30, 2017 | |
Subsequent Events [Abstract] | |
Subsequent Events | Amendment to Articles of Incorporation or Bylaws On October 10, 2017, the Company filed a Certificate of Amendment to the Company’s Articles of Incorporation with the Nevada Secretary of State to increase the Company’s authorized shares of common stock from 300 million to 500 million and to create a new class of preferred stock and authorize the Company to issue up to 100 million shares of preferred stock. Exercise of Warrants From October 1, 2017 up to October 20, 2017, the Company issued 440,000 shares of restricted common stock on the exercise of warrants in aggregate value of $22,000. Amendment to Employment Agreement On November 13, 2017, in an effort to clarify and more accurately reflect the original intentions of the Company and the Company’s Chief Executive Officer (CEO) in signing the employment agreement between them (the “Employment Agreement”), the Company executed an amendment to the Employment Agreement (the “Amendment”). Pursuant to the Amendment, any transactions involving the Company’s AOT technology, executed by the Company during the term of the Employment Agreement, shall be considered sourced by the CEO for the purposes of bonus eligibility. Any payments received by the Company as a result of such transactions shall be deemed net of any fees or commissions for the purpose of calculating bonus payments. The terms of the bonus structure under the Employment Agreement is otherwise unchanged. In addition, pursuant to the Amendment, the CEO shall be eligible to participate in any group health insurance plan offered by the Company to employees, or, should the CEO select private health insurance outside of the Company’s group plan, the CEO shall receive each month an amount from the Company equal to the premium paid by the CEO for such private health insurance. |
2. Summary of Significant Acc17
2. Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2017 | |
Accounting Policies [Abstract] | |
Description of business | QS Energy, Inc. (“QS Energy”, “Company”) was incorporated on February 18, 1998, as a Nevada Corporation under the name Mandalay Capital Corporation. The Company changed its name to Save the World Air, Inc. on February 11, 1999. Effective August 11, 2015, the Company changed its name to QS Energy, Inc. The Company’s common stock is quoted under the symbol “QSEP” on the Over-the-Counter Bulletin Board. More information including the Company’s fact sheet, logos and media articles are available at our corporate website, www.qsenergy.com. Information included on, or accessed through, our website is not intended to be incorporated into, or to be part of this Form 10-Q. QS Energy develops and commercializes energy efficiency technologies that assist in meeting increasing global energy demands, improving the economics of oil extraction and transport, and reducing greenhouse gas emissions. The Company's intellectual properties include a portfolio of domestic and international patents and patents pending, a substantial portion of which have been developed in conjunction with and exclusively licensed from Temple University of Philadelphia, PA (“Temple”). QS Energy's primary technology is called Applied Oil Technology™ (AOT), a commercial-grade crude oil pipeline transportation flow-assurance product. Engineered specifically to reduce pipeline pressure loss, increase pipeline flow rate and capacity, and reduce shippers’ reliance on diluents and drag reducing agents to meet pipeline maximum viscosity requirements, AOT is a 100% solid-state system that reduces crude oil viscosity by applying a high intensity electrical field to crude oil feedstock while in transit. The AOT product has transitioned from the research and development stage to initial production for continued testing in advance of our goal of seeking acceptance and adoption by the midstream pipeline marketplace. The Company plans to restart shortly commercial development of a suite of products based around the Joule Heat technology. The Company began fabrication of prototype equipment to be operated under a joint development agreement with a commercial entity in the fourth quarter of 2014. The Company’s first Joule Heat prototype was installed for testing purposes at the Newfield facility in June 2015 and the system is operational; however, changes to the prototype configuration will be required to determine commercial effectiveness of this unit. In addition, the Company filed two additional provisional patents related to the technology’s method and apparatus. In December 2015, we temporarily suspended Joule Heat development activities to focus Company resources on finalizing commercial development of the AOT Midstream. We currently plan to resume Joule Heat development in 2018 depending on the availability of sufficient capital and other resources. Basis of Presentation The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the SEC. The condensed consolidated balance sheet as of December 31, 2016 included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, including notes, required by GAAP. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to fairly present the Company's financial position and results of operations for the interim periods reflected. Except as noted, all adjustments contained herein are of a normal recurring nature. Results of operations for the fiscal periods presented herein are not necessarily indicative of fiscal year-end results. |
Consolidation policy | Consolidation Policy The accompanying consolidated financial statements of QS Energy, Inc. include the accounts of QS Energy, Inc. (the Parent) and its wholly owned subsidiaries, QS Energy Pool, Inc. and STWA Asia Pte. Limited. Intercompany transactions and balances have been eliminated in consolidation. |
Going concern | Going Concern The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, during the nine-months ended September 30, 2017, the Company incurred a net loss of $4,145,000, used cash in operations of $1,369,000 and had a stockholders’ deficit of $1,459,000 as of that date. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. In addition, the Company's independent registered public accounting firm, in its report on the Company's December 31, 2016 financial statements, has raised substantial doubt about the Company's ability to continue as a going concern. At September 30, 2017, the Company had cash on hand of $587,000. Management estimates that the current funds on hand will be sufficient to continue operations through January 2018 No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders in case of equity financing. |
Basic and Diluted Income (loss) per share | Basic and Diluted Income (loss) per share Our computation of earnings per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as the income (loss) available to common stockholders divided by the weighted average common shares outstanding for the period. Diluted income (loss) per share reflects the potential dilution, using the treasury stock method, that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the income (loss) of the Company as if they had been converted at the beginning of the periods presented, or issuance date, if later. In computing diluted income (loss) per share, the treasury stock method assumes that outstanding options and warrants are exercised and the proceeds are used to purchase common stock at the average market price during the period. Options and warrants may have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options and warrants. Potential common shares that have an antidilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. Income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the respective periods. Basic and diluted (loss) per common share is the same for periods in which the Company reported an operating loss because all warrants and stock options outstanding are anti-dilutive. At September 30, 2017 and 2016, we excluded the outstanding securities summarized below, which entitle the holders thereof to acquire shares of common stock as their effect would have been anti-dilutive. September 30, 2017 September 30, 2016 Options 35,575,677 23,624,256 Warrants 17,420,770 12,451,892 Common stock issuable upon conversion of notes payable 4,957,333 3,776,792 Total 57,953,780 39,852,940 |
Estimates | Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates 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. Significant estimates include those related to assumptions used in valuing equity instruments issued for financing and for services, and reduction of deferred tax assets. Actual results could differ from those estimates. |
Revenue Recognition Policy | Revenue Recognition Policy The Company recognizes lease revenue upon commencement of the lease. Revenue on future product sales will be recognized upon meeting the following criteria: persuasive evidence of an arrangement exists; delivery has occurred, or services rendered; the seller's price to the buyer is fixed or determinable; and collectability is reasonably assured. In the fourth quarter 2016, the Company entered a contract to provide onsite testing services to a Canadian oil producer and pipeline operator at a fixed price of $50,000. The testing service was performed in January 2017 and was completed in March 2017. |
Research and Development Costs | Research and Development Costs Costs incurred for research and development are expensed as incurred. Purchased materials that do not have an alternative future use are also expensed. Furthermore, costs incurred in the construction of prototypes with no certainty of any alternative future use and established commercial uses are also expensed. For the nine-month periods ended September 30, 2017 and 2016 research and development costs were $173,000 and $200,000, respectively. |
Patent costs | Patent Costs Patent costs consist of patent-related legal and filing fees. Due to the uncertainty associated with the successful development of our AOT and Joule Heat products, all patent costs are expensed as incurred. During the nine-month periods ended September 30, 2017 and 2016, patent costs were $38,000 and $49,000, respectively, and were included as part of operating expenses in the accompanying consolidated statements of operations. During the three-month periods ended September 30, 2017 and 2016, patent costs were $14,000 and $19,000, respectively, and were included as part of operating expenses in the accompanying consolidated statements of operations. |
Increase in Authorized Capital | Increase in Authorized Capital In October 2017, the Company amended its articles of incorporation and increased its authorized shares of common stock from 300,000,000 shares to 500,000,000 shares. In addition, the Company also created a new class of preferred stock which the Company is authorized to issue up to 100,000,000 shares of preferred stock. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is in the process of evaluating the impact of ASU 2014-09 on the Company’s financial statements and disclosures. In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of ASU 2016-02 on the Company’s financial statements and disclosures. In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases In July 2017, the FASB issued Accounting Standards Update No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features; (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). ASU 2017-11 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value of a down round feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The guidance in ASU 2017-11 is to be applied using a full or modified retrospective approach. The adoption of ASU 2017-11 is not currently expected to have any impact on the Company’s financial statement presentation or disclosures. Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statement presentation or disclosures. |
2. Summary of Significant Acc18
2. Summary of Significant Accounting Policies (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Accounting Policies [Abstract] | |
Antidilutive shares | September 30, 2017 September 30, 2016 Options 35,575,677 23,624,256 Warrants 17,420,770 12,451,892 Common stock issuable upon conversion of notes payable 4,957,333 3,776,792 Total 57,953,780 39,852,940 |
4. Property and Equipment (Tabl
4. Property and Equipment (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Property, Plant and Equipment [Abstract] | |
Property and equipment | September 30, 2017 December 31, 2016 (unaudited) Office equipment $ 30,000 $ 28,000 Furniture and fixtures 5,000 3,000 Testing equipment 37,000 – Leasehold improvements 26,000 18,000 Subtotal 98,000 49,000 Less accumulated depreciation (43,000 ) (32,000 ) Total $ 55,000 $ 17,000 |
5. Convertible Notes (Tables)
5. Convertible Notes (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Debt Disclosure [Abstract] | |
Convertible Notes and Warrants | September 30, 2017 December 31, 2016 (unaudited) Convertible notes outstanding $ 515,000 $ 417,000 Accrued interest 61,000 23,000 Subtotal 576,000 440,000 Unamortized note discounts (83,000 ) (92,000 ) Balance on convertible notes, net of note discounts $ 493,000 $ 348,000 |
8. Stock Options and Warrants (
8. Stock Options and Warrants (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract] | |
Stock options outstanding | Options Weighted Avg. Exercise Price January 1, 2017 23,474,256 $ 0.28 Granted 12,561,852 0.12 Exercised (271,752 ) 0.09 Forfeited (188,679 ) 0.53 September 30, 2017 35,575,677 $ 0.23 |
Options outstanding by Per Share Price | Outstanding Options Exercisable Options Option Exercise Price Per Share Shares Life (Years) Weighted Average Exercise Price Shares Weighted Average Exercise Price $ 0.05 - $ 0.99 35,425,231 5.9 $ 0.22 29,857,602 $ 0.23 $ 1.00 - $ 1.99 150,446 5.8 $ 1.18 150,446 $ 1.18 35,575,677 5.9 $ 0.23 30,008,048 $ 0.23 |
Warrants outstanding | Warrants Weighted Avg. Exercise Price January 1, 2017 11,446,892 $ 0.15 Granted 16,160,770 0.05 Exercised (3,974,000 ) 0.08 Cancelled (6,212,892 ) 0.12 September 30, 2017 17,420,770 $ 0.08 |
Warrants outstanding by Per Share Price | Outstanding Warrants Exercisable Warrants Warrant Exercise Price Per Share Shares Life (Years) Weighted Average Exercise Price Shares Weighted Average Exercise Price $ 0.05 - $ 0.99 17,420,770 1.1 $ 0.08 17,370,770 $ 0.08 $ 1.00 - $ 1.99 – – – – – 17,420,770 1.1 $ 0.08 17,370,770 $ 0.08 |
2. Summary of Significant Acc22
2. Summary of Significant Accounting Policies (Details) - shares | 9 Months Ended | |
Sep. 30, 2017 | Sep. 30, 2016 | |
Antidilutive shares excluded from EPS | 57,953,780 | 39,852,940 |
Options [Member] | ||
Antidilutive shares excluded from EPS | 35,575,677 | 23,624,256 |
Warrants [Member] | ||
Antidilutive shares excluded from EPS | 17,420,770 | 12,451,892 |
Convertible Notes [Member] | ||
Antidilutive shares excluded from EPS | 4,957,333 | 3,776,792 |
2. Summary of Significant Acc23
2. Summary of Significant Accounting Policies (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | ||||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | Dec. 31, 2016 | Dec. 31, 2015 | |
Accounting Policies [Abstract] | ||||||
Net loss | $ (815,000) | $ (1,035,000) | $ (4,145,000) | $ (3,380,000) | ||
Cash flow from operations | (1,369,000) | (1,402,000) | ||||
Stockholders' deficit | (1,459,000) | (1,459,000) | $ (1,358,000) | |||
Cash on Hand | 587,000 | 385,000 | 587,000 | 385,000 | $ 136,000 | $ 349,000 |
Research and development costs | 53,000 | 52,000 | 173,000 | 200,000 | ||
Patent costs | $ 14,000 | $ 19,000 | $ 38,000 | $ 49,000 |
3. Accrued Expenses and Accou24
3. Accrued Expenses and Accounts Payable - Related Parties (Details Narrative) - USD ($) | Sep. 30, 2017 | Dec. 31, 2016 |
Related Party Transactions [Abstract] | ||
Accrued expenses and accounts payable-related parties | $ 40,000 | $ 135,000 |
4. Property and Equipment (Deta
4. Property and Equipment (Details) - USD ($) | Sep. 30, 2017 | Dec. 31, 2016 |
Property and equipment, gross | $ 98,000 | $ 49,000 |
Less: accumulated depreciation | (43,000) | (32,000) |
Property and equipment, net | 55,000 | 17,000 |
Office equipment [Member] | ||
Property and equipment, gross | 30,000 | 28,000 |
Furniture and fixtures [Member] | ||
Property and equipment, gross | 5,000 | 3,000 |
Testing equipment [Member] | ||
Property and equipment, gross | 37,000 | 0 |
Leasehold Improvements [Member] | ||
Property and equipment, gross | $ 26,000 | $ 18,000 |
4. Property and Equipment (De26
4. Property and Equipment (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Property, Plant and Equipment [Abstract] | ||||
Depreciation expense | $ 6,000 | $ 2,000 | $ 11,000 | $ 5,000 |
5. Convertible Notes (Details)
5. Convertible Notes (Details) - USD ($) | Sep. 30, 2017 | Dec. 31, 2016 |
Debt Disclosure [Abstract] | ||
Balance due on convertible notes | $ 515,000 | $ 417,000 |
Accrued Interest | 61,000 | 23,000 |
Convertible notes payable | 576,000 | 440,000 |
Unamortized note discount | (83,000) | (92,000) |
Balance on convertible notes, net of note discount | $ 493,000 | $ 348,000 |
5. Convertible Notes (Details N
5. Convertible Notes (Details Narrative) - USD ($) | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Dec. 31, 2016 | |
Debt Disclosure [Abstract] | |||
Convertible notes issued | $ 1,616,000 | ||
Proceeds from convertible notes | 1,469,000 | $ 1,443,000 | |
Discount on notes issued | $ 147,000 | ||
Warrants issued with notes | 16,160,770 | ||
Discount on fair value of warrants, BCF and OID | $ 1,616,000 | ||
Notes payable balance | 515,000 | $ 417,000 | |
Unamortized discount | 83,000 | 92,000 | |
Debt converted during year | $ 1,522,000 | ||
Debt converted, shares issued | 29,876,772 | ||
Discount amortized to interest expense | $ 1,625,000 | ||
Interest accrued on converted notes | 42,000 | ||
Accrued interest payable | 61,000 | 23,000 | |
Convertible notes outstanding, net | 493,000 | $ 348,000 | |
Debt in default | $ 381,000 |
6. Research and Development (De
6. Research and Development (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | Dec. 31, 2016 | |
Research and Development Arrangement, Contract to Perform for Others [Line Items] | |||||
Research and development expenses | $ 53,000 | $ 52,000 | $ 173,000 | $ 200,000 | |
Accounts payable - licensing agreement | 815,000 | 815,000 | $ 805,000 | ||
License revenue generated | 0 | 0 | 50,000 | 0 | |
AOT Prototypes [Member] | |||||
Research and Development Arrangement, Contract to Perform for Others [Line Items] | |||||
Research and development expenses | 6,000 | 5,000 | 30,000 | 59,000 | |
Temple University License Agreements [Member] | |||||
Research and Development Arrangement, Contract to Perform for Others [Line Items] | |||||
Research and development expenses | 47,000 | $ 47,000 | 173,000 | 173,000 | |
Accounts payable - licensing agreement | 786,000 | 786,000 | 727,000 | ||
License revenue generated | 0 | $ 0 | |||
Temple University License Agreements [Member] | Ad Hoc Testing [Member] | |||||
Research and Development Arrangement, Contract to Perform for Others [Line Items] | |||||
Research and development expenses | 2,000 | ||||
Temple University License Agreements [Member] | Accounts payable current [Member] | |||||
Research and Development Arrangement, Contract to Perform for Others [Line Items] | |||||
Accounts payable - licensing agreement | 108,000 | 108,000 | |||
Temple University License Agreements [Member] | Accounts payable deferred [Member] | |||||
Research and Development Arrangement, Contract to Perform for Others [Line Items] | |||||
Accounts payable - licensing agreement | 370,000 | 370,000 | |||
Temple University License Agreements [Member] | Accounts payable past due [Member] | |||||
Research and Development Arrangement, Contract to Perform for Others [Line Items] | |||||
Accounts payable - licensing agreement | 308,000 | 308,000 | |||
Temple University Sponsored Research Agreement [Member] | |||||
Research and Development Arrangement, Contract to Perform for Others [Line Items] | |||||
Accounts payable - licensing agreement | $ 29,000 | $ 29,000 | $ 78,000 |
7. Common Stock (Details Narrat
7. Common Stock (Details Narrative) - USD ($) | 9 Months Ended | |
Sep. 30, 2017 | Sep. 30, 2016 | |
Proceeds from sale of common stock | $ 38,000 | $ 0 |
Value of notes converted | $ 1,522,000 | |
Private Sale [Member] | ||
Common stock issued upon private sale | 181,355 | |
Proceeds from sale of common stock | $ 38,000 | |
Convertible Notes Payable [Member] | ||
Common stock issued on conversion of notes, shares | 29,876,772 | |
Value of notes converted | $ 1,522,000 | |
Options and Warrant Exercises [Member] | ||
Common stock issued on exercise of options and warrants | 4,245,752 | |
Proceeds from exercise of options and warrants | $ 362,000 |
8. Stock Options and Warrants31
8. Stock Options and Warrants (Details-Options Outstanding) - Options [Member] | 9 Months Ended |
Sep. 30, 2017$ / sharesshares | |
Beginning Balance | shares | 23,474,256 |
Granted | shares | 12,561,852 |
Exercised | shares | (271,752) |
Forfeited | shares | (188,679) |
Ending Balance | shares | 35,575,677 |
Weighted Average Exercise Price, Outstanding Beginning Balance | $ / shares | $ 0.28 |
Weighted Average Exercise Price, Granted | $ / shares | 0.12 |
Weighted Average Exercise Price, Exercised | $ / shares | 0.09 |
Weighted Average Exercise Price, Forfeited | $ / shares | 0.53 |
Weighted Average Exercise Price, Outstanding Ending Balance | $ / shares | $ 0.23 |
8. Stock Options and Warrants32
8. Stock Options and Warrants (Details-Options by Exercise Price Per Share) - Options [Member] - $ / shares | 9 Months Ended | |
Sep. 30, 2017 | Dec. 31, 2016 | |
Outstanding Options | ||
Options outstanding | 35,575,677 | 23,474,256 |
Life (Years), options outstanding | 5 years 10 months 25 days | |
Weighted Average Exercise Price, options outstanding | $ 0.23 | $ 0.28 |
Exercisable Options | ||
Options exercisable | 30,008,048 | |
Weighted Average Exercise Price, options exercisable | $ 0.23 | |
$0.05 - $0.99 [Member] | ||
Outstanding Options | ||
Options outstanding | 35,425,231 | |
Life (Years), options outstanding | 5 years 10 months 25 days | |
Weighted Average Exercise Price, options outstanding | $ 0.22 | |
Exercisable Options | ||
Options exercisable | 29,857,602 | |
Weighted Average Exercise Price, options exercisable | $ 0.23 | |
$1.00 - $1.99 [Member] | ||
Outstanding Options | ||
Options outstanding | 150,446 | |
Life (Years), options outstanding | 5 years 9 months 18 days | |
Weighted Average Exercise Price, options outstanding | $ 1.18 | |
Exercisable Options | ||
Options exercisable | 150,446 | |
Weighted Average Exercise Price, options exercisable | $ 1.18 |
8. Stock Options and Warrants33
8. Stock Options and Warrants (Details-Warrants Outstanding) - Warrants [Member] | 9 Months Ended |
Sep. 30, 2017$ / sharesshares | |
Warrants outstanding, beginning balance | shares | 11,446,892 |
Warrants granted | shares | 16,160,770 |
Warrants exercised | shares | (3,974,000) |
Warrants cancelled | shares | (6,212,892) |
Warrants outstanding, ending balance | shares | 17,420,770 |
Weighted Average Exercise Price, Outstanding Beginning Balance | $ / shares | $ 0.15 |
Weighted Average Exercise Price, Granted | $ / shares | 0.05 |
Weighted Average Exercise Price, Exercised | $ / shares | 0.08 |
Weighted Average Exercise Price, Cancelled | $ / shares | 0.12 |
Weighted Average Exercise Price, Outstanding Ending Balance | $ / shares | $ 0.08 |
8. Stock Options and Warrants34
8. Stock Options and Warrants (Details-Warrant Exercise Price per Share) - Warrants [Member] - $ / shares | 9 Months Ended | |
Sep. 30, 2017 | Dec. 31, 2016 | |
Outstanding Warrants | ||
Warrants outstanding | 17,420,770 | 11,446,892 |
Life (Years), warrants outstanding | 1 year 1 month 6 days | |
Weighted Average Exercise Price, warrants outstanding | $ .08 | |
Exercisable Warrants | ||
Warrants exercisable | 17,370,770 | |
Weighted Average Exercise Price, warrants exercisable | $ .08 | |
$0.05-$0.99 Price Per Share [Member] | ||
Outstanding Warrants | ||
Warrants outstanding | 17,420,770 | |
Life (Years), warrants outstanding | 1 year 1 month 6 days | |
Weighted Average Exercise Price, warrants outstanding | $ .08 | |
Exercisable Warrants | ||
Warrants exercisable | 17,370,770 | |
Weighted Average Exercise Price, warrants exercisable | $ .08 | |
$1.00-$1.99 Price Per Share [Member] | ||
Outstanding Warrants | ||
Warrants outstanding | 0 | |
Weighted Average Exercise Price, warrants outstanding | $ 0 | |
Exercisable Warrants | ||
Warrants exercisable | 0 | |
Weighted Average Exercise Price, warrants exercisable | $ 0 |
8. Stock options and Warrants35
8. Stock options and Warrants (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Valuation assumptions | ||||
Share-based compensation | $ 653,000 | $ 358,000 | ||
Proceeds from exercise of warrants | $ 362,000 | 0 | ||
Options [Member] | ||||
Options granted, shares | 12,561,852 | |||
Valuation assumptions | ||||
Options vested, share based compensation expense | $ 117,000 | $ 84,000 | $ 653,000 | 265,000 |
Share-based compensation | 265,448 | |||
Aggregate intrinsic value of options outstanding | 3,042,000 | 3,042,000 | ||
Future unamortized compensation expense on unvested outstanding options | 295,000 | $ 295,000 | ||
Stock issued for exercise of stock options, shares | 271,752 | |||
Proceeds from exercise of options | $ 25,000 | |||
Options [Member] | Board of Directors [Member] | ||||
Options granted, shares | 8,339,285 | |||
Fair value of options at grant date | $ 909,000 | |||
Valuation assumptions | ||||
Expected life | 5 years | |||
Risk free interest rate | 1.94% | |||
Volatility, minimum | 123.00% | |||
Volatility, maximum | 144.00% | |||
Expected dividend yield | 0.00% | |||
Options [Member] | Two Officers and Employees [Member] | ||||
Options granted, shares | 4,222,567 | |||
Fair value of options at grant date | $ 246,000 | |||
Valuation assumptions | ||||
Options vested, share based compensation expense | 308,000 | |||
Warrants [Member] | ||||
Valuation assumptions | ||||
Share-based compensation | 2,000 | $ 21,000 | $ 1,000 | $ 108,000 |
Warrants granted | 16,160,770 | |||
Warrant exercise price | $ 0.05 | |||
Aggregate intrinsic value of warrants outstanding | 3,638,000 | $ 3,638,000 | ||
Future unamortized compensation expense on unvested outstanding warrants | $ 1,000 | $ 1,000 | ||
Stock issued for exercise of warrants, shares | 3,974,000 | |||
Proceeds from exercise of warrants | $ 337,000 |
9. Commitments and Contingenc36
9. Commitments and Contingencies (Details Narrative) - USD ($) | Sep. 30, 2017 | Dec. 31, 2016 |
Total severance accrued | $ 624,000 | |
Accounts payable and accrued expenses | 800,000 | $ 251,000 |
Severance payable [Member] | ||
Accounts payable and accrued expenses | $ 468,000 |