Document_and_Entity_Informatio
Document and Entity Information | 3 Months Ended | |
Mar. 31, 2014 | 20-May-14 | |
Document And Entity Information | ' | ' |
Entity Registrant Name | 'BALQON CORP. | ' |
Entity Central Index Key | '0001169440 | ' |
Document Type | '10-Q | ' |
Document Period End Date | 31-Mar-14 | ' |
Amendment Flag | 'false | ' |
Current Fiscal Year End Date | '--12-31 | ' |
Is Entity a Well-known Seasoned Issuer? | 'No | ' |
Is Entity a Voluntary Filer? | 'No | ' |
Is Entity's Reporting Status Current? | 'Yes | ' |
Entity Filer Category | 'Smaller Reporting Company | ' |
Entity Common Stock, Shares Outstanding | ' | 36,891,530 |
Document Fiscal Period Focus | 'Q1 | ' |
Document Fiscal Year Focus | '2014 | ' |
CONDENSED_BALANCE_SHEETS_Unaud
CONDENSED BALANCE SHEETS (Unaudited) (USD $) | Mar. 31, 2014 | Dec. 31, 2013 |
Current assets | ' | ' |
Cash and cash equivalents | $12,481 | $21,573 |
Accounts receivable, trade, net of allowance for doubtful accounts of $199,300 and $199,300 respectively | 111,585 | 74,825 |
Inventories | 199,932 | 276,202 |
Prepaid expenses | 88,238 | 110,763 |
Total current assets | 412,236 | 483,363 |
Property and equipment, net | 17,215 | 19,747 |
Other assets: | ' | ' |
Deposits | 14,400 | 14,400 |
Total assets | 443,851 | 517,510 |
Current liabilities | ' | ' |
Accounts payable and accrued expenses | 2,367,259 | 2,207,731 |
Accounts payable to related parties | 2,779,050 | 2,700,250 |
Customer deposits | 1,039,058 | 1,163,470 |
Payroll taxes payable | 371,745 | 351,191 |
Accrued amounts due officer | 861,669 | 804,467 |
Advances from shareholder | 5,018 | 5,018 |
Derivative liability | 1,186,758 | 1,076,792 |
Convertible notes, net of discount - in default | 3,361,500 | 3,361,500 |
Total current liabilities | 11,972,057 | 11,670,419 |
SHAREHOLDERS' DEFICIENCY | ' | ' |
Common stock, $0.001 par value, 100,000,000 shares authorized, 36,891,530 shares issued and outstanding as of March 31, 2014 and December 31, 2013, respectively | 36,891 | 36,891 |
Additional paid in capital | 19,982,383 | 19,982,383 |
Accumulated deficit | -31,547,480 | -31,172,183 |
Total shareholders' deficiency | -11,528,206 | -11,152,909 |
Total liabilities and shareholders' deficiency | $443,851 | $517,510 |
CONDENSED_BALANCE_SHEETS_Unaud1
CONDENSED BALANCE SHEETS (Unaudited) (Parenthetical) (USD $) | Mar. 31, 2014 | Dec. 31, 2013 |
Current assets | ' | ' |
Accounts receivable, trade allowance | $199,300 | $199,300 |
Shareholders' Deficiency | ' | ' |
Common stock, par value | $0.00 | $0.00 |
Common stock, authorized | 100,000,000 | 100,000,000 |
Common stock, issued | 36,891,530 | 36,891,530 |
Common stock, outstanding | 36,891,530 | 36,891,530 |
CONDENSED_STATEMENTS_OF_OPERAT
CONDENSED STATEMENTS OF OPERATIONS (Unaudited) (USD $) | 3 Months Ended | |
Mar. 31, 2014 | Mar. 31, 2013 | |
Income Statement [Abstract] | ' | ' |
REVENUES | $424,018 | $447,387 |
COSTS OF REVENUES | 336,979 | 427,197 |
GROSS PROFIT | 87,039 | 20,190 |
OPERATING EXPENSES | ' | ' |
General and administrative | 233,943 | 780,931 |
Research and development | 7,881 | 26,678 |
Depreciation and amortization | 2,532 | 3,693 |
Total operating expenses | 244,356 | 811,302 |
LOSS FROM OPERATIONS | -157,317 | -791,112 |
Change in fair value of derivative liabilities | -109,966 | -170,953 |
Interest expense | -108,014 | -396,159 |
NET LOSS | ($375,297) | ($1,358,224) |
Net loss per share - basic and diluted | ($0.01) | ($0.04) |
Weighted average shares outstanding, basic and diluted | 36,891,530 | 36,891,530 |
CONDENSED_STATEMENT_OF_SHAREHO
CONDENSED STATEMENT OF SHAREHOLDERS' DEFICIENCY (Unaudited) (USD $) | Mar. 31, 2014 | Dec. 31, 2013 | Mar. 31, 2014 | Dec. 31, 2013 | Mar. 31, 2014 |
Common Stock | Common Stock | Additional Paid-In Capital | Additional Paid-In Capital | Accumulated Deficit | |
Beginning Balance, Shares | 36,891,530 | 36,891,530 | ' | ' | ' |
Beginning Balance, Amount | $36,891 | $36,891 | $19,982,383 | $19,982,383 | ($31,172,183) |
Net loss | ' | ' | ' | ' | -375,297 |
Ending Balance, Shares | 36,891,530 | 36,891,530 | ' | ' | ' |
Ending Balance, Amount | $36,891 | $36,891 | $19,982,383 | $19,982,383 | ($31,547,480) |
CONDENSED_STATEMENTS_OF_CASH_F
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (USD $) | 3 Months Ended | |
Mar. 31, 2014 | Mar. 31, 2013 | |
Cash flows from operating activities: | ' | ' |
Net loss | ($375,297) | ($1,358,224) |
Adjustments to reconcile net loss to net cash used in operating activities: | ' | ' |
Depreciation and amortization | 2,532 | 3,693 |
Fair value of common stock transferred by shareholder to settle Company debts | 0 | 323,176 |
Cost to induce conversion of warrants | 0 | 0 |
Change in fair value of derivative liability | 109,966 | 170,953 |
Amortization of debt discount | 0 | 280,654 |
Changes in operating assets and liabilities: | ' | ' |
Accounts receivable | -36,760 | -58,361 |
Inventories | 76,270 | 32,483 |
Prepaid expenses | 22,526 | 22,697 |
Payroll taxes payable | 20,553 | 17,791 |
Accounts payable and accrued expenses | 295,530 | 591,575 |
Customer advances | -124,412 | -33,201 |
Net cash used in operating activities | -9,092 | -6,764 |
Decrease in cash and cash equivalents | -9,092 | -6,764 |
Cash and cash equivalents, beginning of period | 21,573 | 33,869 |
Cash and cash equivalents, end of period | $12,481 | $27,105 |
1_NATURE_OF_BUSINESS_AND_SIGNI
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES | 3 Months Ended | ||||||||||||||||
Mar. 31, 2014 | |||||||||||||||||
Accounting Policies [Abstract] | ' | ||||||||||||||||
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES | ' | ||||||||||||||||
The Company | |||||||||||||||||
Balqon Corporation, a California corporation (“Balqon California”), was incorporated on April 21, 2005 and commenced business operations in 2006. On October 24, 2008, Balqon California completed a merger with BMR Solutions, Inc., a Nevada corporation (“BMR”), with BMR being the survivor of the merger. Upon the closing, BMR changed its name to Balqon Corporation (the “Company”). The Company develops and manufactures electric drive systems and energy storage systems for electric vehicles, industrial equipment and renewable energy storage devices. The Company also designs and assembles electric powered yard tractors, short haul drayage tractors and inner city Class 7 and 8 delivery trucks utilizing its proprietary drive system technologies. | |||||||||||||||||
Basis of Presentation of Unaudited Financial Information | |||||||||||||||||
The unaudited financial statements of the Company for the three months ended March 31, 2014 and 2013 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K for scaled disclosures for smaller reporting companies. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the Company’s financial position and results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2013 was derived from the audited financial statements included in the Company’s financial statements as of and for the years ended December 31, 2013 and 2012 contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on April 15, 2014. These financial statements should be read in conjunction with that report. | |||||||||||||||||
Going Concern | |||||||||||||||||
The accompanying financial statements have been prepared under the assumption that the Company will continue as a going concern. Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the three months ended March 31, 2014, the Company utilized cash flow from operations of $9,092. As of March 31, 2014, the Company had a working capital deficit of $11,559,821 and a shareholders’ deficiency of $11,528,206. In addition, the Company has not paid $371,745 in payroll taxes and is delinquent in payment of $3,361,500 in principal of its convertible notes and $869,540 of interest due on its convertible notes payable. Pursuant to the terms of the notes, the non-payment of principal and interest by the Company constitutes an event of default and, as a result, the holders of the notes may accelerate payment of all amounts outstanding under the notes by giving written notice to the Company and thereby requiring that the Company immediately pay all principal and accrued and unpaid interest. If the holders of the notes were to declare the notes due and payable, the Company presently does not have the ability to pay these notes. In addition, as of March 31, 2014, $2,006,500 of the notes are secured under the terms of a security agreement granting the holders of the notes a security interest in all of the Company’s assets (including all intellectual property assets of the Company) subject to the interests of the holders of senior indebtedness (as that term is defined in the notes). | |||||||||||||||||
These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to develop additional sources of capital and to ultimately achieve sustainable revenues and profitable operations. The Company’s independent auditors, in their report on our audited financial statements for the fiscal year ended December 31, 2013, expressed substantial doubt about the Company’s ability to continue as a going concern. The Company’s financial statements do not include any adjustments that might result from the outcome of these uncertainties. | |||||||||||||||||
The Company does not currently have sufficient liquidity to meet its anticipated working capital, debt service and other liquidity needs in the very near-term. The Company believes that it has sufficient working capital to continue operations only through the remainder of 2014 unless it successfully restructures its debt, experiences a significant improvement in sales and obtains other sources of liquidity. In addition, although various secured creditors holding approximately $2,006,500 in secured convertible notes and secured debentures have not exercised their rights to foreclose on all of the Company’s assets (including its intellectual property assets), no assurance can be given that these holders of secured debt will not exercise their remedies under the Company’s outstanding secured notes and secured debentures. | |||||||||||||||||
The Company has been, and currently is, working towards identifying and obtaining new sources of financing. No assurances can be given that the Company will be successful in obtaining additional financing in the future. Any future financing that the Company may obtain may cause significant dilution to existing stockholders. Any debt financing or other financing of securities senior to common stock that the Company is able to obtain will likely include financial and other covenants that will restrict the Company’s flexibility. At a minimum, the Company expects these covenants to include restrictions on its ability to pay dividends on its common stock. Any failure to comply with these covenants would have a material adverse effect on the Company’s business, prospects, financial condition, results of operations and cash flows. In addition, the Company’s senior secured convertible debentures issued between July and December 2010 contain covenants that include restrictions on the Company’s ability to pay dividends on its common stock. | |||||||||||||||||
If adequate funds are not available, the Company may be required to delay, scale back or eliminate portions of its operations and product and service development efforts or to obtain funds through arrangements with strategic partners or others that may require the Company to relinquish rights to certain of its technologies or potential products or other assets. Accordingly, the inability to obtain such financing could result in a significant loss of ownership and/or control of the Company’s proprietary technology and other important assets and could also adversely affect its ability to fund the Company’s continued operations and its product and service development efforts. Although the Company is actively pursuing a number of alternatives, including seeking to restructure its debt and seeking to raise additional debt or equity financing, or both, there can be no assurance that the Company will be successful. See “Risk Factors” | |||||||||||||||||
Estimates | |||||||||||||||||
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) 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 revenue and expenses during the reporting period. Material estimates relate to the recognition of contract revenues and estimated costs to complete, recoverability of reported amounts of long-lived assets, and assumptions made in valuing derivative instruments and equity instruments issued for compensation. Actual results may differ from those estimates. | |||||||||||||||||
Revenues | |||||||||||||||||
Sales of Production Units and Parts | |||||||||||||||||
The Company recognizes revenue from the sale of completed production units and parts when there is persuasive evidence that an arrangement exists, delivery of the product has occurred and title has passed, the selling price is both fixed and determinable, and collectability is reasonably assured, all of which generally occurs upon shipment of its product or delivery of the product to the destination specified by the customer. | |||||||||||||||||
The Company determines whether delivery has occurred based on when title transfers and the risks and rewards of ownership have transferred to the buyer, which usually occurs when the Company places the products with the buyer’s carrier. The Company regularly reviews its customers’ financial positions to ensure that collectability is reasonably assured. Except for warranties, the Company has no post-sales obligations. | |||||||||||||||||
Inventories | |||||||||||||||||
Inventories are stated at the lower of cost or market. Cost is determined principally on a first-in-first-out average cost basis. Recorded inventories at March 31, 2014 do not include approximately $250,000 of batteries and other items held on consignment from Seven One Battery Company, an affiliate of the Company’s Chairman of the Board. (See Note 5). Inventories at March 31, 2014 consisted of raw materials. | |||||||||||||||||
Loss Per Share | |||||||||||||||||
Basic loss per share has been computed using the weighted average number of common shares outstanding and issuable during the period. Diluted loss per share is computed based on the weighted average number of common shares and all common equivalent shares outstanding during the period in which they are dilutive. Common equivalent shares consist of shares issuable upon the exercise of stock options, warrants or other convertible securities such as convertible notes. For the three months ended March 31, 2014 and 2013, common stock equivalent shares have been excluded from the calculation of loss per share as their effect is anti-dilutive. | |||||||||||||||||
The following table summarizes the weighted average shares and common stock equivalents outstanding as of March 31, 2014 and 2013: | |||||||||||||||||
31-Mar-14 | 31-Mar-13 | ||||||||||||||||
Weighted average shares outstanding | 36,891,530 | 36,891,530 | |||||||||||||||
Common stock equivalents: | |||||||||||||||||
Options exercisable into common shares | – | – | |||||||||||||||
Warrants exercisable into common shares | 10,295,500 | 10,295,500 | |||||||||||||||
Notes payable convertible into common shares | 6,814,583 | 6,814,583 | |||||||||||||||
Total, common stock equivalents | 17,110,083 | 17,110,083 | |||||||||||||||
Financial Assets and Liabilities Measured at Fair Value | |||||||||||||||||
The Company’s financial instruments include cash and cash equivalents, accounts receivable, prepaid expenses, accounts payable and accrued expenses and accounts payable to related party. Management considers the carrying amounts to approximate their fair values due to their short-term nature. The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis. Financial assets recorded at fair value in the condensed balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value. Authoritative guidance provided by the Financial Accounting Standards Board (“FASB”) defines the following levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these financial assets: | |||||||||||||||||
Level 1 Quoted prices in active markets for identical assets or liabilities. | |||||||||||||||||
Level 2 Inputs, other than the quoted prices in active markets, that is observable either directly or indirectly. | |||||||||||||||||
Level 3 Unobservable inputs based on the Company’s assumptions. | |||||||||||||||||
The following table presents certain investments and liabilities of the Company’s financial assets measured and recorded at fair value on the Company’s condensed balance sheets on a recurring basis and their level within the fair value hierarchy as of March 31, 2014 and December 31, 2013. | |||||||||||||||||
31-Mar-14 | Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Fair value of Derivative Liability | $ | – | $ | – | $ | 1,186,758 | $ | 1,186,758 | |||||||||
31-Dec-13 | Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Fair value of Derivative Liability | $ | – | $ | – | $ | 1,076,792 | $ | 1,076,792 | |||||||||
Derivative Financial Instruments | |||||||||||||||||
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The Company uses a probability weighted average Black-Scholes-Merton model to value the derivative instruments. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. | |||||||||||||||||
Concentrations | |||||||||||||||||
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and unsecured accounts receivable. | |||||||||||||||||
The Company maintains cash balances at one bank. At times, the amount on deposit exceeds the federally insured limits. Management believes that the financial institution that holds the Company’s cash is financially sound and, accordingly, minimal credit risk exists. As of March 31, 2014 and March 31, 2013 the Company did not have any amount in excess of insured limits maintained at the bank. | |||||||||||||||||
For the three months ended March 31, 2014, 40%, 24% and 12% of revenues were from three customers. For the three months ended March 31, 2013, 38% of total revenues were from one customer. At March 31, 2014, a single customer represented 76% of total accounts receivable. Accounts receivable from a single customer represented 69% of total accounts receivable at December 31, 2013. | |||||||||||||||||
For the three months ended March 31, 2014, 44% of costs of revenue were to one vendor. At March 31, 2014, accounts payable to the largest vendor represented 60% of total accounts payable. The vendor is a related party. (See Note 5) | |||||||||||||||||
For the three months ended March 31, 2013, 88% of costs of revenue were to one vendor. At March 31, 2013, accounts payable to the largest vendor represented 58% of total accounts payable. The vendor is a related party. (See Note 5) | |||||||||||||||||
Recent Accounting Pronouncements | |||||||||||||||||
In April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360)." ASU 2014-08 amends the requirements for reporting discontinued operations and requires additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations or that have a major effect on the Company's operations and financial results should be presented as discontinued operations. This new accounting guidance is effective for annual periods beginning after December 15, 2014. The Company is currently evaluating the impact of adopting ASU 2014-08 on the Company's results of operations or financial condition. | |||||||||||||||||
Other accounting pronouncements did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements. |
2_CONVERTIBLE_PROMISSORY_NOTES
2. CONVERTIBLE PROMISSORY NOTES - IN DEFAULT | 3 Months Ended | ||||||||
Mar. 31, 2014 | |||||||||
Debt Disclosure [Abstract] | ' | ||||||||
CONVERTIBLE NOTES PAYABLE IN DEFAULT | ' | ||||||||
Convertible notes payable in default consist of the following as of March 31, 2014 and December 31, 2013: | |||||||||
March 31, | December 31, | ||||||||
2014 | 2013 | ||||||||
Subordinated secured convertible notes payable, interest at 10% per annum payable quarterly, due March 31, 2013 (1) | $ | 891,500 | $ | 891,500 | |||||
Subordinated unsecured convertible notes payable, interest at 10% per annum payable quarterly, due March 31, 2012 (2) | 25,000 | 25,000 | |||||||
Subordinated unsecured convertible notes payable, interest at 10% per annum payable quarterly, due September 1, 2012 (3) | 1,330,000 | 1,330,000 | |||||||
Senior secured convertible notes payable, interest at 10% per annum payable quarterly, due March 31, 2013 (4) | 775,000 | 775,000 | |||||||
Secured Convertible Note Payable, Interest at 10% per annum payable quarterly, due March 31, 2013 (5) | 340,000 | 340,000 | |||||||
Convertible notes payable | $ | 3,361,500 | $ | 3,361,500 | |||||
(1) In March, 2009, the Company entered into agreements with 34 accredited investors for the sale by the Company 10% Unsecured Subordinated Convertible Promissory Notes which are convertible into an aggregate of 1,000,000 shares of the Company’s common stock at a conversion price of $1.00 per share of common stock, subject to adjustment. The notes are subordinated to the right to the prior payment of all Senior Indebtedness (as defined in the notes). Additionally, the Company issued three-year warrants to purchase an aggregate of 1,000,000 shares of the Company’s common stock at an exercise price of $1.50 per share. | |||||||||
During the three months ended March 31, 2012, the Company negotiated Amendment and Exchange Agreements with holders of its 10% unsecured notes payable that matured on March 31, 2012. The terms of the Amendment and Exchange Agreements provide that the maturity date of these notes (the “Amended Notes”) was extended until March 31, 2013, and are now currently in default. The Amended Notes continue to accrue interest at the rate of 10% and are subject to a security agreement. The Amendment and Exchange Agreements also provide that the Amended Notes are convertible into common stock of the Company at a price of $0.40 per share, subject to adjustment for a weighted average anti-dilution provision. In connection with the issuance of the Amended Notes, the Company issued three-year warrants to purchase up to 975,000 shares of common stock at an exercise price per share of $0.40. As of March 31, 2014 and December 31, 2013, $891,500 was outstanding under these notes. | |||||||||
The Amended Notes were due on March 31, 2013 (the “Maturity Date”) and are currently in default due to non-payment of the note by the Company. The Amended Notes are secured under the terms of a security agreement granting the holders of the Amended Notes a security interest in all of the Company’s personal property subject to the interests of the holders of Senior Indebtedness (as defined in the Amended Notes). The security interest granted is subordinate to existing bank financing and the 10% Senior Secured Convertible Debentures that currently have a principal balance due of $775,000. | |||||||||
Each of the agreements governing the Amended Notes and warrants includes an anti-dilution provision that allows for the automatic reset of the conversion or exercise price upon any future sale of the Company’s common stock, warrants, options, convertible debt or any other equity-linked securities at an issuance, exercise or conversion price below the current conversion price of the Amended Notes or exercise price of the warrants issued with the Amended Notes. The Company considered the current FASB guidance of “Determining Whether an Instrument Indexed to an Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability or whether or not within the issuers’ control, means the instrument is not indexed to the issuers own stock. Accordingly, the Company determined that the conversion price of the Amended Notes and the exercise price of the warrants are not a fixed amount because they are subject to fluctuation based on the occurrence of future offerings or events. As a result, the Company determined that the conversion features and the warrants are not considered indexed to the Company’s own stock and characterized the initial fair value of these conversion features and warrants as derivative liabilities upon issuance. The fair value of these conversion features and warrants was considered a note discount at issuance and was amortized as interest expense over the life of the Note.. During the three month ended March 31, 2013 the Company included in interest expense $207,357, relating to the amortization of this discount. As of March 31, 2014 and December 31, 2013, the note discount was fully amortized. | |||||||||
(2) A holder of $25,000 in principal of the Company’s 10% Unsecured Convertible Promissory Notes issued between March 25, 2009 and June 19, 2009 did not accept the Company’s offer under the Amendment and Exchange Agreements (see note 1 above) to exchange this note for an Amended Note that matures on March 31, 2013. As such, this 10% Unsecured Convertible Promissory Note matured on March 31, 2012 and is in default due to non-payment of the note by the Company. | |||||||||
(3) Between February 5, 2010 and April 12, 2010, the Company entered into agreements with seven accredited investors for the sale by the Company of an aggregate of $1,500,000 of 10% Unsecured Subordinated Convertible Promissory Notes which are convertible into an aggregate of 1,999,993 shares of the Company’s common stock at a conversion price of $0.75 per share of common stock, subject to adjustment. As of March 31, 2014 and December 31, 2013, $1,330,000 in principal was outstanding under these notes. The notes matured on September 1, 2012 and are presently in default due to non-payment. | |||||||||
The fair value of the conversion features and warrants was considered a note discount at issuance and was amortized as interest expense over the life of the Note. As of March 31, 2014 and December 31, 2013, the note discount was fully amortized. | |||||||||
(4) Between July 2010 and December 2010, the Company entered into agreements with 26 accredited investors for the sale by the Company of an aggregate of $850,000 of 10% Senior Secured Convertible Debentures (the “Debentures”) which are convertible into an aggregate of 1,133,333 shares of the Company’s common stock at a conversion price of $0.75 per share, subject to adjustment. In connection with this offering, the Company also issued to the investors warrants to purchase an aggregate of 850,000 shares of the Company’s common stock at an exercise price of $0.75 per share, subject to adjustment. The Company also issued to its placement agent warrants to purchase 68,000 shares of the Company’s common stock at exercise price of $0.75 per share, subject to the same adjustments and terms as those warrants issued to investors. Under the adjustment provisions of the Debentures and warrants, the conversion price of the Debentures and the exercise price of the warrants were reduced to $0.56 in connection with various dilutive issuances made in 2011 and 2010. | |||||||||
As of March 31, 2014 and December 31, 2013 $775,000 in principal was outstanding under these Debentures. The Debentures were due on September 30, 2012, and subsequently extended to, March 31, 2013 (the “Maturity Date”) and are now in default due to non-payment The Debentures are secured under the terms of a security agreement granting the holders of the Debentures a security interest in all of the Company’s personal property. | |||||||||
Each of the agreements governing the Debentures and warrants includes an anti-dilution provision that allows for the automatic reset of the conversion or exercise price upon any future sale of common stock instruments at or below the current exercise price. The Company considered the current FASB guidance of “Determining Whether an Instrument Indexed to an Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability or whether or not within the issuers’ control, means the instrument is not indexed to the issuers own stock. Accordingly, the Company determined that the conversion price of the Debentures and the exercise price of the warrants are not a fixed amount because they are subject to fluctuation based on the occurrence of future offerings or events. As a result, the Company determined that the conversion features and the warrants are not considered indexed to the Company’s own stock and characterized the fair value of these warrants as derivative liabilities upon issuance. The fair value of the conversion features and warrants was considered a note discount at issuance and was amortized as interest expense over the life of the Note. As of March 31, 2014 and December 31, 2013, the note discount was fully amortized. | |||||||||
(5) On May 18, 2012, the Company entered into Agreements with 3 accredited investors for a sale by the Company of an aggregate of $340,000 10% Secured Subordinated Convertible Promissory Notes (the “May 2012 Notes”) which are convertible into an aggregate of 850,000 shares of the Company’s common stock at a conversion price of $0.40 per share of common stock, subject to adjustment. The notes were due on March 31, 2013 and are now in default due to non-payment. The May 2012 Notes are subordinated to the right to the prior payment of all Senior Indebtedness (as defined in the notes). The notes pay quarterly interest at the rate of 10% and are subject to a security agreement that secures the notes by the Company’s assets. The security agreement is subordinate to existing bank financing and the Debentures (as defined below) that currently have a principal balance due of $775,000 and the Amended Notes that currently have a balance due of $891,500. Additionally, the Company issued three-year warrants to purchase an aggregate of 340,000 shares of the Company’s common stock at an exercise price of $0.40 per share, subject to standard anti-dilution adjustments. As of March 31, 2014 and December 31, 2013 $340,000 was outstanding under these notes. | |||||||||
The conversion price of the May 2012 Notes are subject to full ratchet anti-dilution provisions and also subject to adjustment based on stock splits, stock dividends, spin-offs, rights offerings, or recapitalization through a large, nonrecurring cash dividend. Each of the agreements governing the May 2012 Notes include an anti-dilution provision that allows for the automatic reset of the conversion price upon any future sale of the Company’s common stock, warrants, options, convertible debt or any other equity-linked securities at an issuance, exercise or conversion price below the current conversion price of the May 2012 Notes. The Company considered the current FASB guidance of “Determining Whether an Instrument Indexed to an Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability or whether or not within the issuers’ control, means the instrument is not indexed to the issuers own stock. Accordingly, the Company determined that the conversion price of the May 2012 Notes are not a fixed amount because they are subject to fluctuation based on the occurrence of future offerings or events. As a result, the Company determined that the conversion features are not considered indexed to the Company’s own stock and characterized the fair value of the conversion feature of the notes as derivative liabilities upon issuance. The fair value of the conversion features and warrants was considered a note discount at issuance and was amortized as interest expense over the life of the Note. As of March 31, 2014 and December 31, 2013, the note discount was fully amortized. | |||||||||
3_DERIVATIVE_LIABILITY
3. DERIVATIVE LIABILITY | 3 Months Ended | ||||
Mar. 31, 2014 | |||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ' | ||||
DERIVATIVE LIABILITY | ' | ||||
In June 2008, the FASB issued authoritative guidance on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. Under the authoritative guidance, effective January 1, 2009, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The conversion feature of the Company’s Debentures (described in Note 2), and the related warrants, do not have fixed settlement provisions because their conversion and exercise prices, respectively, may be lowered if the Company issues securities at lower prices in the future. The Company was required to include the reset provisions in order to protect the holders of the Debentures from the potential dilution associated with future financings. In accordance with the FASB authoritative guidance, the conversion feature of the Debentures was separated from the host contract (i.e., the Debentures) and recognized as a derivative instrument. Both the conversion feature of the Debentures and the related warrants have been characterized as derivative liabilities to be re-measured at the end of every reporting period with the change in value reported in the statement of operations. | |||||
The derivative liabilities were valued using a probability weighted average Black-Scholes pricing model with the following assumptions: | |||||
March 31, | 31-Dec-13 | ||||
2014 | |||||
Conversion feature: | |||||
Risk-free interest rate | 0.13% | 0.13% | |||
Expected volatility | 286.51% | 229% | |||
Expected life (in years) | .50 years | .75 years | |||
Expected dividend yield | 0 | 0 | |||
Warrants: | |||||
Risk-free interest rate | 0.13% | 0.13% | |||
Expected volatility | 286.51% | 229% | |||
Expected life (in years) | 1.50 years | 1.75 years | |||
Expected dividend yield | 0 | 0 | |||
Fair Value: | $998,807 | $982,792 | |||
Conversion feature | |||||
Warrants | 187,951 | 94,000 | |||
$1,186,758 | $1,076,792 | ||||
The risk-free interest rate was based on rates established by the Federal Reserve Bank. The expected volatility was based on the historical statistical volatility of the Company over the past 12 months. The expected life of the conversion feature of the Debentures was based on the term of the Debentures and the expected life of the warrants was determined by the expiration date of the warrants. The expected dividend yield was based on the fact that the Company has not paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future. | |||||
As of March 31, 2014 and December 31, 2013, the aggregate derivative liability of the conversion feature and the warrants was $1,186,758 and $1,076,792, respectively. For the three months ended March 31, 2014, the Company recorded a change in fair value of the derivative liabilities of $109,966. |
4_STOCK_OPTIONS_AND_WARRANTS
4. STOCK OPTIONS AND WARRANTS | 3 Months Ended | ||||||||||
Mar. 31, 2014 | |||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ' | ||||||||||
STOCK OPTIONS AND WARRANTS | ' | ||||||||||
Stock Options | |||||||||||
Under our 2008 Stock Incentive plan, we have authorized 7,500,000 shares of common stock for employee incentive. As March 31, 2014, no options to purchase shares of common stock were issued and outstanding under the 2008 Plan. | |||||||||||
Warrants | |||||||||||
At March 31, 2014, warrant shares outstanding were as follows: | |||||||||||
Shares | Weighted | ||||||||||
Average Exercise Price | |||||||||||
Balance at December 31, 2013 | 10,295,500 | $0.44 | |||||||||
Granted | — | — | |||||||||
Exercised | — | — | |||||||||
Expired | — | — | |||||||||
Balance at March 31, 2014 | 10,295,500 | $0.44 | |||||||||
The following table summarizes information about stock warrants outstanding and exercisable as of March 31, 2014: | |||||||||||
Warrants Outstanding | Warrants Exercisable | ||||||||||
Range of | Number | Weighted | Weighted | Number | Weighted | ||||||
Exercise | of Shares | Average | Average | of Shares | Average | ||||||
Prices | Underlying | Exercise | Remaining Contractual | Exercise Price | |||||||
Warrants | Price | Life (in years) | |||||||||
$0.40 | 8,745,500 | (i) | $0.40 | 2.3 | 8,745,500 | $0.40 | |||||
$0.64 | 1,500,000 | $0.64 | 2.7 | 1,500,000 | $0.64 | ||||||
$1.00 | 50,000 | $1.00 | 1.6 | 50,000 | $1.00 | ||||||
10,295,500 | 10,295,500 | ||||||||||
As of March 31, 2014, there was no intrinsic value of the warrants outstanding and exercisable | |||||||||||
(i) As of March 31, 2014, agreements governing 1,843,000 of the warrants exercisable at $0.40 per share include an anti-dilution provision that allows for the automatic reset of the exercise price upon any future sale of the Company’s common stock, warrants, options, convertible debt or any other equity-linked securities at an issuance, exercise or conversion price below the exercise price of these warrants. |
5_RELATED_PARTY_TRANSACTIONS
5. RELATED PARTY TRANSACTIONS | 3 Months Ended |
Mar. 31, 2014 | |
Related Party Transactions [Abstract] | ' |
RELATED PARTY TRANSACTIONS | ' |
Amounts due Shareholder | |
As of March 31, 2014 and December 31, 2013, $5,018 of advances from shareholders was advanced to the Company by its President, Mr. Balwinder Samra, and is payable to Mr. Samra. This amount due to Mr. Samra, a related party, is unsecured, non-interest bearing, and does not have defined terms of repayment. | |
As of March 31, 2014 and December 31, 2013 our Chief Executive Officer, Mr. Balwinder Samra, was owed an aggregate amount of $861,669 and $804,467, respectively in accrued salaries earned in prior periods under the terms of his employment agreement, which amounts are included in the balance of accrued expenses to officer on the accompanying balance sheet | |
Shares issued by the Chief Executive Officer | |
On January 9, 2013, the Company signed an Amendment Agreement (described in note 6) extending the foreclosure date on the Lego Agreement from January 9, 2013 to July 9, 2013, in return for 1,500,000 shares of the Company’s common stock owned individually by the Company’s Chief Executive Officer, Mr. Balwinder Samra. The Company recorded the fair value of these shares of $300,000 as a cost and as a contribution to capital. | |
On January 28, 2013, the Company’s Chief Executive Officer transferred to two consultants an aggregate of 235,880 shares of the Company’s common stock owned by him for payment of services performed for the Company. The Company recorded the fair value of these shares of $46,960 as a cost and as a contribution to capital. | |
Transactions with related entities | |
During the three months ended March 31, 2014 and 2013, the Company had no sales to related parties. As of December 31, 2013, the Company had accounts receivable of $198,067 from sales to related parties in prior years which are fully reserved. During the three months ended March 31, 2014, the Company made purchases of $99,600 from related parties. As of March 31, 2014 and December 2013, the Company had trade accounts payable to related parties of $2,779,050 and $2,700,250, respectively. The related parties are suppliers of the Company related by common ownership to the Company’s Chairman. | |
On December 14, 2010, the Company entered into a Distribution Agreement with SOL (the “Distribution Agreement”). Under the Distribution Agreement, SOL has granted the Company the right to distribute lithium iron phosphate batteries and high voltage charging systems manufactured by Seven One Battery Company on an exclusive basis in the United States. The Company’s Chairman of the Board, Winston Chung, is the chief executive officer of SOL. In January 2011, based on the terms of the Distribution Agreement, the Company received battery units valued at $2,629,800 on a consignment basis. As of March 31, 2014 and December 31, 2013, the Company held battery units valued at $250,000 and $326,000 respectively held on a consignment basis, which amounts are not included in recorded inventories. During the three months ended March 31, 2014 and 2013 the Company sold $82,000 and $207,175, respectively, in batteries under the Distribution Agreement. |
6_COMMITMENTS_AND_CONTINGENCIE
6. COMMITMENTS AND CONTINGENCIES | 3 Months Ended |
Mar. 31, 2014 | |
Commitments and Contingencies Disclosure [Abstract] | ' |
COMMITMENTS AND CONTINGENCIES | ' |
California Air Quality Management District | |
In January 2014, the Company signed an agreement with the California Air Quality Management District (“AQMD”) to deliver three on-road Class 8 lithium battery powered electric tractors for an aggregate amount of $925,000. Under this agreement the Company is required to develop the next generation of its Model MX30 with fast charging capabilities using direct current (“DC”) charger. As of the date of this report, the Company has completed design and reviewed final assemblies with the AQMD to begin manufacturing. The Company plans to start shipments under this contract during the latter part of 2014. | |
City of Los Angeles Agreement | |
During 2009, under the terms of the Company’s agreement with the City of Los Angeles, the Company requested and was issued an advance payment in the amount of $1,159,601. This advance payment was recorded as a customer deposit. During June 2012, the Company billed $630,000 to the City of Los Angeles to upgrade six of the electric trucks previously delivered from lead acid batteries to lithium ion batteries. This billed amount was applied as a reduction of the advance payment leaving an unpaid balance of $529,601 on this advance as of March 31, 2014. The Company’s agreement with the City of Los Angeles has been terminated. To the extent that the Company does not receive additional purchases from the City of Los Angeles for the remaining balance due, the Company may be required to return the unpaid balance to the City of Los Angeles. The Company anticipates selling additional products and services during the next nine months to reduce the unpaid balance; however the Company presently does not have the funds to pay this advance if payment is requested by the City of Los Angeles. | |
Lego Agreement | |
On July 9, 2012, the Company entered into a Purchase and Representation Agreement (the “Lego Agreement”) with Lego Battery Sales, LLC (“Lego”). The terms of the Lego Agreement call for the sale by the Company to Lego of 1,000 batteries for an aggregate sales price of $350,000. | |
The Lego Agreement further requires that the Company serve as Lego’s exclusive sales agent and representative to market and resell the batteries on behalf of Lego. The sales prices of the batteries must be at a minimum sales price of $490 per battery. In consideration for its services as sales agent and representative, the Company will earn a sales commission equal to the excess of the sales price of each battery above the minimum sale price. The Lego Agreement is secured by a pledge of 2,450,000 shares of common stock owned individually by the Company’s Chief Executive Officer, Mr. Balwinder Samra. If Lego does not receive the minimum consideration of $490,000 for the sale of the 1,000 batteries by January 9, 2013, Lego may foreclose on these pledged shares. The term of the Lego Agreement is for six months and may be extended by mutual consent of the parties. On January 9, 2013 the parties signed an Amendment Agreement extending the foreclosure date from January 9, 2013 to July 9, 2013 in return for 1,500,000 shares of the Company’s common stock owned individually by the Company’s President, Balwinder Samra. The Company recorded the fair value of these shares of $300,000 as a cost and as contribution to capital. The Company has received a purchase order for 500 batteries from an electric vehicle manufacturer and currently is awaiting payment from the customer prior to shipment of the batteries. In addition, the Company plans to use the remainder of the batteries for production of on-road electric vehicles. The Company has informed Lego Battery Sales of its sales plan and expects to negotiate a reasonable extension of the deadline within the next sixty days. As of the date of this report, the Company has purchased 30 batteries under this Agreement from Lego Battery Sales. | |
Although the Company has not fully performed on its sales obligations under the Agreement, the other parties have not expressed a desire to foreclose on the stock pledged individually by Mr. Balwinder Samra, President of the Company, to secure the obligations of the Company under the Agreement. |
1_NATURE_OF_BUSINESS_AND_SIGNI1
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Policies) | 3 Months Ended | ||||||||||||||||
Mar. 31, 2014 | |||||||||||||||||
Accounting Policies [Abstract] | ' | ||||||||||||||||
The Company | ' | ||||||||||||||||
Balqon Corporation, a California corporation (“Balqon California”), was incorporated on April 21, 2005 and commenced business operations in 2006. On October 24, 2008, Balqon California completed a merger with BMR Solutions, Inc., a Nevada corporation (“BMR”), with BMR being the survivor of the merger. Upon the closing, BMR changed its name to Balqon Corporation (the “Company”). The Company develops and manufactures electric drive systems and energy storage systems for electric vehicles, industrial equipment and renewable energy storage devices. The Company also designs and assembles electric powered yard tractors, short haul drayage tractors and inner city Class 7 and 8 delivery trucks utilizing its proprietary drive system technologies. | |||||||||||||||||
Basis of Presentation of Unaudited Financial Information | ' | ||||||||||||||||
The unaudited financial statements of the Company for the three months ended March 31, 2014 and 2013 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K for scaled disclosures for smaller reporting companies. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the Company’s financial position and results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2013 was derived from the audited financial statements included in the Company’s financial statements as of and for the years ended December 31, 2013 and 2012 contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on April 15,2014. These financial statements should be read in conjunction with that report. | |||||||||||||||||
Going Concern | ' | ||||||||||||||||
The accompanying financial statements have been prepared under the assumption that the Company will continue as a going concern. Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the three months ended March 31, 2014, the Company utilized cash flow from operations of $9,092. As of March 31, 2014, the Company had a working capital deficit of $11,559,821 and a shareholders’ deficiency of $11,528,206. In addition, the Company has not paid $371,745 in payroll taxes and is delinquent in payment of $3,361,500 in principal of its convertible notes and $869,540 of interest due on its convertible notes payable. Pursuant to the terms of the notes, the non-payment of principal and interest by the Company constitutes an event of default and, as a result, the holders of the notes may accelerate payment of all amounts outstanding under the notes by giving written notice to the Company and thereby requiring that the Company immediately pay all principal and accrued and unpaid interest. If the holders of the notes were to declare the notes due and payable, the Company presently does not have the ability to pay these notes. In addition, as of March 31, 2014, $2,006,500 of the notes are secured under the terms of a security agreement granting the holders of the notes a security interest in all of the Company’s assets (including all intellectual property assets of the Company) subject to the interests of the holders of senior indebtedness (as that term is defined in the notes). | |||||||||||||||||
These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to develop additional sources of capital and to ultimately achieve sustainable revenues and profitable operations. The Company’s independent auditors, in their report on our audited financial statements for the fiscal year ended December 31, 2013, expressed substantial doubt about the Company’s ability to continue as a going concern. The Company’s financial statements do not include any adjustments that might result from the outcome of these uncertainties. | |||||||||||||||||
The Company does not currently have sufficient liquidity to meet its anticipated working capital, debt service and other liquidity needs in the very near-term. The Company believes that it has sufficient working capital to continue operations only through the remainder of 2014 unless it successfully restructures its debt, experiences a significant improvement in sales and obtains other sources of liquidity. In addition, although various secured creditors holding approximately $2,006,500 in secured convertible notes and secured debentures have not exercised their rights to foreclose on all of the Company’s assets (including its intellectual property assets), no assurance can be given that these holders of secured debt will not exercise their remedies under the Company’s outstanding secured notes and secured debentures. | |||||||||||||||||
The Company has been, and currently is, working towards identifying and obtaining new sources of financing. No assurances can be given that the Company will be successful in obtaining additional financing in the future. Any future financing that the Company may obtain may cause significant dilution to existing stockholders. Any debt financing or other financing of securities senior to common stock that the Company is able to obtain will likely include financial and other covenants that will restrict the Company’s flexibility. At a minimum, the Company expects these covenants to include restrictions on its ability to pay dividends on its common stock. Any failure to comply with these covenants would have a material adverse effect on the Company’s business, prospects, financial condition, results of operations and cash flows. In addition, the Company’s senior secured convertible debentures issued between July and December 2010 contain covenants that include restrictions on the Company’s ability to pay dividends on its common stock. | |||||||||||||||||
If adequate funds are not available, the Company may be required to delay, scale back or eliminate portions of its operations and product and service development efforts or to obtain funds through arrangements with strategic partners or others that may require the Company to relinquish rights to certain of its technologies or potential products or other assets. Accordingly, the inability to obtain such financing could result in a significant loss of ownership and/or control of the Company’s proprietary technology and other important assets and could also adversely affect its ability to fund the Company’s continued operations and its product and service development efforts. Although the Company is actively pursuing a number of alternatives, including seeking to restructure its debt and seeking to raise additional debt or equity financing, or both, there can be no assurance that the Company will be successful. See “Risk Factors” | |||||||||||||||||
Estimates | ' | ||||||||||||||||
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) 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 revenue and expenses during the reporting period. Material estimates relate to the recognition of contract revenues and estimated costs to complete, recoverability of reported amounts of long-lived assets, and assumptions made in valuing derivative instruments and equity instruments issued for compensation. Actual results may differ from those estimates. | |||||||||||||||||
Revenues | ' | ||||||||||||||||
Sales of Production Units and Parts | |||||||||||||||||
The Company recognizes revenue from the sale of completed production units and parts when there is persuasive evidence that an arrangement exists, delivery of the product has occurred and title has passed, the selling price is both fixed and determinable, and collectability is reasonably assured, all of which generally occurs upon shipment of its product or delivery of the product to the destination specified by the customer. | |||||||||||||||||
The Company determines whether delivery has occurred based on when title transfers and the risks and rewards of ownership have transferred to the buyer, which usually occurs when the Company places the products with the buyer’s carrier. The Company regularly reviews its customers’ financial positions to ensure that collectability is reasonably assured. Except for warranties, the Company has no post-sales obligations. | |||||||||||||||||
Inventories | ' | ||||||||||||||||
Inventories are stated at the lower of cost or market. Cost is determined principally on a first-in-first-out average cost basis. Recorded inventories at March 31, 2014 do not include approximately $250,000 of batteries and other items held on consignment from Seven One Battery Company, an affiliate of the Company’s Chairman of the Board. (See Note 8). Inventories at March 31, 2014 consisted of raw materials. | |||||||||||||||||
Loss Per Share | ' | ||||||||||||||||
Basic loss per share has been computed using the weighted average number of common shares outstanding and issuable during the period. Diluted loss per share is computed based on the weighted average number of common shares and all common equivalent shares outstanding during the period in which they are dilutive. Common equivalent shares consist of shares issuable upon the exercise of stock options, warrants or other convertible securities such as convertible notes. For the three months ended March 31, 2014 and 2013, common stock equivalent shares have been excluded from the calculation of loss per share as their effect is anti-dilutive. | |||||||||||||||||
The following table summarizes the weighted average shares and common stock equivalents outstanding as of March 31, 2014 and 2013: | |||||||||||||||||
31-Mar-14 | 31-Mar-13 | ||||||||||||||||
Weighted average shares outstanding | 36,891,530 | 36,891,530 | |||||||||||||||
Common stock equivalents: | |||||||||||||||||
Options exercisable into common shares | – | – | |||||||||||||||
Warrants exercisable into common shares | 10,295,500 | 10,295,500 | |||||||||||||||
Notes payable convertible into common shares | 6,814,583 | 6,814,583 | |||||||||||||||
Total, common stock equivalents | 17,110,083 | 17,110,083 | |||||||||||||||
Financial Assets and Liabilities Measured at Fair Value | ' | ||||||||||||||||
The Company’s financial instruments include cash and cash equivalents, accounts receivable, prepaid expenses, accounts payable and accrued expenses and accounts payable to related party. Management considers the carrying amounts to approximate their fair values due to their short-term nature. The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis. Financial assets recorded at fair value in the condensed balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value. Authoritative guidance provided by the Financial Accounting Standards Board (“FASB”) defines the following levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these financial assets: | |||||||||||||||||
Level 1 Quoted prices in active markets for identical assets or liabilities. | |||||||||||||||||
Level 2 Inputs, other than the quoted prices in active markets, that is observable either directly or indirectly. | |||||||||||||||||
Level 3 Unobservable inputs based on the Company’s assumptions. | |||||||||||||||||
The following table presents certain investments and liabilities of the Company’s financial assets measured and recorded at fair value on the Company’s condensed balance sheets on a recurring basis and their level within the fair value hierarchy as of March 31, 2014 and December 31, 2013. | |||||||||||||||||
31-Mar-14 | Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Fair value of Derivative Liability | $ | – | $ | – | $ | 1,186,758 | $ | 1,186,758 | |||||||||
31-Dec-13 | Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Fair value of Derivative Liability | $ | – | $ | – | $ | 1,076,792 | $ | 1,076,792 | |||||||||
Derivative Financial Instruments | ' | ||||||||||||||||
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations.. The Company usesd a probability weighted average Black-Scholes-Merton models to value the derivative instruments. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. | |||||||||||||||||
Concentrations | ' | ||||||||||||||||
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and unsecured accounts receivable. | |||||||||||||||||
The Company maintains cash balances at one bank. At times, the amount on deposit exceeds the federally insured limits. Management believes that the financial institution that holds the Company’s cash is financially sound and, accordingly, minimal credit risk exists. As of March 31, 2014 and March 31, 2013 the Company did not have any amount in excess of insured limits maintained at the bank. | |||||||||||||||||
For the three months ended March 31, 2014, 40%, 24% and 12% of revenues were from three customers. For the three months ended March 31, 2013, 38% of total revenues were from one customer. At March 31, 2014, a single customer represented 76% of total accounts receivable. Accounts receivable from a single customer represented 69% of total accounts receivable at December 31, 2013. | |||||||||||||||||
For the three months ended March 31, 2014, 44% of costs of revenue were to one vendor. At March 31, 2014, accounts payable to the largest vendor represented 60% of total accounts payable. The vendor is a related party. (See Note 5) | |||||||||||||||||
For the three months ended March 31, 2013, 88% of costs of revenue were to one vendor. At March 31, 2013, accounts payable to the largest vendor represented 58% of total accounts payable. The vendor is a related party. (See Note 5) | |||||||||||||||||
Recent Accounting Pronouncements | ' | ||||||||||||||||
In April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360)." ASU 2014-08 amends the requirements for reporting discontinued operations and requires additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations or that have a major effect on the Company's operations and financial results should be presented as discontinued operations. This new accounting guidance is effective for annual periods beginning after December 15, 2014. The Company is currently evaluating the impact of adopting ASU 2014-08 on the Company's results of operations or financial condition. | |||||||||||||||||
Other accounting pronouncements did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements. |
1_NATURE_OF_BUSINESS_AND_SIGNI2
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Tables) | 3 Months Ended | ||||||||||||||||
Mar. 31, 2014 | |||||||||||||||||
Accounting Policies [Abstract] | ' | ||||||||||||||||
Common stock equivalents | ' | ||||||||||||||||
31-Mar-14 | 31-Mar-13 | ||||||||||||||||
Weighted average shares outstanding | 36,891,530 | 36,891,530 | |||||||||||||||
Common stock equivalents: | |||||||||||||||||
Options exercisable into common shares | – | – | |||||||||||||||
Warrants exercisable into common shares | 10,295,500 | 10,295,500 | |||||||||||||||
Notes payable convertible into common shares | 6,814,583 | 6,814,583 | |||||||||||||||
Total, common stock equivalents | 17,110,083 | 17,110,083 | |||||||||||||||
Financial Assets and Liabilities Measured at Fair Value | ' | ||||||||||||||||
31-Mar-14 | Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Fair value of Derivative Liability | $ | – | $ | – | $ | 1,186,758 | $ | 1,186,758 |
2_CONVERTIBLE_PROMISSORY_NOTES1
2. CONVERTIBLE PROMISSORY NOTES In Default (Tables) | 3 Months Ended | ||||||||
Mar. 31, 2014 | |||||||||
Debt Disclosure [Abstract] | ' | ||||||||
Schedule of convertible notes payable | ' | ||||||||
Convertible notes payable in default consist of the following as of March 31, 2014 and December 31, 2013: | |||||||||
March 31, | December 31, | ||||||||
2014 | 2013 | ||||||||
Subordinated secured convertible notes payable, interest at 10% per annum payable quarterly, due March 31, 2013 (1) | $ | 891,500 | $ | 891,500 | |||||
Subordinated unsecured convertible notes payable, interest at 10% per annum payable quarterly, due March 31, 2012 (2) | 25,000 | 25,000 | |||||||
Subordinated unsecured convertible notes payable, interest at 10% per annum payable quarterly, due September 1, 2012 (3) | 1,330,000 | 1,330,000 | |||||||
Senior secured convertible notes payable, interest at 10% per annum payable quarterly, due March 31, 2013 (4) | 775,000 | 775,000 | |||||||
Secured Convertible Note Payable, Interest at 10% per annum payable quarterly, due March 31, 2013 (5) | 340,000 | 340,000 | |||||||
Convertible notes payable | $ | 3,361,500 | $ | 3,361,500 | |||||
3_DERIVATIVE_LIABILITY_Tables
3. DERIVATIVE LIABILITY (Tables) | 3 Months Ended | ||||
Mar. 31, 2014 | |||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ' | ||||
Derivative liability | ' | ||||
March 31, | 31-Dec-13 | ||||
2014 | |||||
Conversion feature: | |||||
Risk-free interest rate | 0.13% | 0.13% | |||
Expected volatility | 286.51% | 229% | |||
Expected life (in years) | .50 years | .75 years | |||
Expected dividend yield | 0 | 0 | |||
Warrants: | |||||
Risk-free interest rate | 0.13% | 0.13% | |||
Expected volatility | 286.51% | 229% | |||
Expected life (in years) | 1.50 years | 1.75 years | |||
Expected dividend yield | 0 | 0 | |||
Fair Value: | $998,807 | $982,792 | |||
Conversion feature | |||||
Warrants | 187,951 | 94,000 | |||
$1,186,758 | $1,076,792 |
4_STOCK_OPTIONS_AND_WARRANTS_T
4. STOCK OPTIONS AND WARRANTS (Tables) | 3 Months Ended | ||||||||||||||||||||||
Mar. 31, 2014 | |||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ' | ||||||||||||||||||||||
Stock options and warrants | ' | ||||||||||||||||||||||
At March 31, 2014, warrants shares outstanding were as follows: | |||||||||||||||||||||||
Shares | Weighted | ||||||||||||||||||||||
Average Exercise Price | |||||||||||||||||||||||
Balance at December 31, 2013 | 10,295,500 | $ | 0.44 | ||||||||||||||||||||
Granted | – | – | |||||||||||||||||||||
Exercised | – | – | |||||||||||||||||||||
Expired | – | – | |||||||||||||||||||||
Balance at March 31, 2014 | 10,295,500 | $ | 0.44 | ||||||||||||||||||||
Stock warrants outstanding and exercisable | ' | ||||||||||||||||||||||
The following table summarizes information about stock warrants outstanding and exercisable as of March 31, 2014: | |||||||||||||||||||||||
Warrants Outstanding | Warrants Exercisable | ||||||||||||||||||||||
Range of Exercise Prices | Number of Shares Underlying Warrants | Weighted Average | Weighted Average Remaining Contractual Life (in years) | Number | Weighted Average | ||||||||||||||||||
Exercise Price | of Shares | Exercise Price | |||||||||||||||||||||
$ | 0.4 | 8,745,500 | (i) | $ | 0.4 | 2.3 | 8,745,500 | $ | 0.4 | ||||||||||||||
$ | 0.64 | 1,500,000 | $ | 0.64 | 2.7 | 1,500,000 | $ | 0.64 | |||||||||||||||
$ | 1 | 50,000 | $ | 1 | 1.6 | 50,000 | $ | 1 | |||||||||||||||
10,295,500 | 10,295,500 | ||||||||||||||||||||||
As of March 31, 2014, there was no intrinsic value of the warrants outstanding and exercisable | |||||||||||||||||||||||
(i) As of March 31, 2014, agreements governing 1,843,000 of the warrants exercisable at $0.40 per share include an anti-dilution provision that allows for the automatic reset of the exercise price upon any future sale of the Company’s common stock, warrants, options, convertible debt or any other equity-linked securities at an issuance, exercise or conversion price below the exercise price of these warrants | |||||||||||||||||||||||
1_NATURE_OF_BUSINESS_AND_SIGNI3
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Details-Antidilutive shares) | 3 Months Ended | |
Mar. 31, 2014 | Mar. 31, 2013 | |
Total potentially dilutive shares | 17,110,083 | 17,110,083 |
Weighted average shares outstanding | 36,891,530 | 36,891,530 |
Warrants | ' | ' |
Total potentially dilutive shares | 10,295,500 | 10,295,500 |
Convertible notes payable | ' | ' |
Total potentially dilutive shares | 6,814,583 | 6,814,583 |
1_NATURE_OF_BUSINESS_AND_SIGNI4
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Details-Fair values) (USD $) | Mar. 31, 2014 | Dec. 31, 2013 |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ' | ' |
Fair value of Derivative Liability | $1,186,758 | $1,076,792 |
Level 1 [Member] | ' | ' |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ' | ' |
Fair value of Derivative Liability | 0 | 0 |
Level 2 [Member] | ' | ' |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ' | ' |
Fair value of Derivative Liability | 0 | 0 |
Level 3 [Member] | ' | ' |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ' | ' |
Fair value of Derivative Liability | $1,186,758 | $1,076,792 |
1_NATURE_OF_BUSINESS_AND_SIGNI5
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) (USD $) | Mar. 31, 2014 | Dec. 31, 2013 | Mar. 31, 2014 | Mar. 31, 2013 | Mar. 31, 2014 | Mar. 31, 2013 | Mar. 31, 2014 | Mar. 31, 2014 | Mar. 31, 2014 | Dec. 31, 2013 | Mar. 31, 2014 | Mar. 31, 2013 |
One Vendor [Member] | One Vendor [Member] | Sales [Member] | Sales [Member] | Sales [Member] | Sales [Member] | Accounts Receivable [Member] | Accounts Receivable [Member] | Cost of Sales [Member] | Cost of Sales [Member] | |||
One Customer [Member] | One Customer [Member] | Second Customer [Member] | Third Customer [Member] | One Customer [Member] | One Customer [Member] | One Vendor [Member] | One Vendor [Member] | |||||
Working capital deficit | ($11,559,821) | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Delinquent payroll taxes | 371,745 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Convertible notes in default | 3,361,500 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Interest on convertible notes in default | 869,540 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Secured debentures | 2,006,500 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Inventory held on consignment | $250,000 | $326,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Major customers concentration risk | ' | ' | 60.00% | 58.00% | 40.00% | 38.00% | 24.00% | 12.00% | 76.00% | 69.00% | 44.00% | 88.00% |
2_CONVERTIBLE_PROMISSORY_NOTES2
2. CONVERTIBLE PROMISSORY NOTES (Details) (USD $) | Mar. 31, 2014 | Dec. 31, 2013 |
Debt Instrument [Line Items] | ' | ' |
Convertible notes payable | $3,361,500 | $3,361,500 |
Subordinated secured convertible notes payable, interest at 10% per annum payable quarterly, due March 31, 2013 [Member] | ' | ' |
Debt Instrument [Line Items] | ' | ' |
Convertible notes payable | 891,500 | 891,500 |
Subordinated unsecured convertible notes payable, interest at 10% per annum payable quarterly, due March 31, 2012 [Member] | ' | ' |
Debt Instrument [Line Items] | ' | ' |
Convertible notes payable | 25,000 | 25,000 |
Subordinated unsecured convertible notes payable, interest at 10% per annum payable quarterly, due September 1, 2012 [Member] | ' | ' |
Debt Instrument [Line Items] | ' | ' |
Convertible notes payable | 1,330,000 | 1,330,000 |
Senior secured convertible notes payable, interest at 10% per annum payable quarterly, due March 31, 2013 [Member] | ' | ' |
Debt Instrument [Line Items] | ' | ' |
Convertible notes payable | 775,000 | 775,000 |
Secured Convertible Note Payable, Interest at 10% per annum payable quarterly, due March 31, 2013 [Member] | ' | ' |
Debt Instrument [Line Items] | ' | ' |
Convertible notes payable | $340,000 | $340,000 |
2_CONVERTIBLE_PROMISSORY_NOTES3
2. CONVERTIBLE PROMISSORY NOTES (Details Narrative) (Amended Notes [Member], USD $) | 3 Months Ended | ||
Mar. 31, 2013 | Mar. 31, 2014 | Dec. 31, 2013 | |
Amended Notes [Member] | ' | ' | ' |
Interest expense | $207,357 | ' | ' |
Principal outstanding | ' | $775,000 | $775,000 |
3_DERIVATIVE_LIABILITY_Details
3. DERIVATIVE LIABILITY (Details) (USD $) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2014 | Dec. 31, 2013 | |
Derivative liability Fair value | $1,186,758 | $1,076,792 |
Conversion Feature | ' | ' |
Derivative liability Fair value | 998,807 | 982,792 |
Risk-free interest rate | 13.00% | 13.00% |
Expected volatility | 28.65% | 229.00% |
Expected life (in years) | '6 months | '9 months |
Expected dividend yield | 0.00% | 0.00% |
Warrants | ' | ' |
Derivative liability Fair value | $187,951 | $94,000 |
Risk-free interest rate | 13.00% | 13.00% |
Expected volatility | 286.51% | 229.00% |
Expected life (in years) | '1 year 6 months | '1 year 9 months |
Expected dividend yield | 0.00% | 0.00% |
3_DERIVATIVE_LIABILITY_Details1
3. DERIVATIVE LIABILITY (Details Narrative) (USD $) | 3 Months Ended | ||
Mar. 31, 2014 | Mar. 31, 2013 | Dec. 31, 2013 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ' | ' | ' |
Derivative liability Fair value | $1,186,758 | ' | $1,076,792 |
Change in fair value of the derivative liabilities | ($109,966) | ($170,953) | ' |
4_STOCK_OPTIONS_AND_WARRANTS_D
4. STOCK OPTIONS AND WARRANTS (Details-Warrant activity) (Warrants, USD $) | 3 Months Ended |
Mar. 31, 2014 | |
Warrants | ' |
Shares | ' |
Balance, beginning | 10,295,500 |
Granted | ' |
Exercised | ' |
Expired | ' |
Balance, ending | 10,295,500 |
Weighted Average Exercise Price | ' |
Balance, beginning | $0.44 |
Granted | ' |
Exercised | ' |
Expired | ' |
Balance, ending | $0.44 |
4_STOCK_OPTIONS_AND_WARRANTS_D1
4. STOCK OPTIONS AND WARRANTS (Details-Warrants outstanding) | 3 Months Ended | |
Mar. 31, 2014 | ||
Warrants Outstanding | ' | |
Warrants Outstanding | ' | |
Number of shares underlying warrants | 10,295,500 | |
Warrants Exercisable | ' | |
Warrants Outstanding | ' | |
Warrants Exercisable | 10,295,500 | |
Number of warrants exercisable | 10,295,500 | |
$0.40 | ' | |
Warrants Outstanding | ' | |
Number of shares underlying warrants | 8,745,500 | [1] |
Weighted average exercise price | 0.4 | |
Weighted average remaining contractual life | '2 years 3 months 18 days | |
Warrants Exercisable | 8,745,500 | |
Number of warrants exercisable | 8,745,500 | |
Weighted average exercise price, exercisable | 0.4 | |
$0.64 | ' | |
Warrants Outstanding | ' | |
Number of shares underlying warrants | 1,500,000 | |
Weighted average exercise price | 0.64 | |
Weighted average remaining contractual life | '2 years 8 months 12 days | |
Warrants Exercisable | 1,500,000 | |
Number of warrants exercisable | 1,500,000 | |
Weighted average exercise price, exercisable | 0.64 | |
$1.00 | ' | |
Warrants Outstanding | ' | |
Number of shares underlying warrants | 50,000 | |
Weighted average exercise price | 1 | |
Weighted average remaining contractual life | '1 year 7 months 6 days | |
Warrants Exercisable | 50,000 | |
Number of warrants exercisable | 50,000 | |
Weighted average exercise price, exercisable | 1 | |
[1] | As of March 31, 2014, agreements governing 1,843,000 of the warrants exercisable at $0.40 per share include an anti-dilution provision that allows for the automatic reset of the exercise price upon any future sale of the Company's common stock, warrants, options, convertible debt or any other equity-linked securities at an issuance, exercise or conversion price below the exercise price of these warrants |
5_RELATED_PARTY_TRANSACTIONS_D
5. RELATED PARTY TRANSACTIONS (Details Narrative) (USD $) | 3 Months Ended | ||
Mar. 31, 2014 | Mar. 31, 2013 | Dec. 31, 2013 | |
Related Party Transactions [Abstract] | ' | ' | ' |
Proceeds from related parties | $5,018 | ' | ' |
Accrued salaries | 861,669 | ' | 804,467 |
Related party account receivables | ' | ' | 198,067 |
Related party purchases | 99,600 | ' | ' |
Related party accounts payable | 2,779,050 | ' | 2,700,250 |
Batteries held on consignment | 250,000 | ' | 326,000 |
Batteries sold under distribution agreement | $82,000 | $207,175 | ' |
6_COMMITMENTS_AND_CONTINGENCIE1
6. COMMITMENTS AND CONTINGENCIES (Details Narrative) (USD $) | Mar. 31, 2014 |
Commitments And Contingencies Details Narrative | ' |
Contractual obligation with the City of Los Angeles | $529,601 |