Document_and_Entity_Informatio
Document and Entity Information | 3 Months Ended | |
Mar. 31, 2015 | 14-May-15 | |
Document And Entity Information | ||
Entity Registrant Name | DIGITAL ALLY INC | |
Entity Central Index Key | 1342958 | |
Document Type | 10-Q | |
Document Period End Date | 31-Mar-15 | |
Amendment Flag | FALSE | |
Current Fiscal Year End Date | -19 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 4,021,069 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2015 |
Consolidated_Balance_Sheets_Un
Consolidated Balance Sheets (Unaudited) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Current assets: | ||
Cash and cash equivalents | $2,272,288 | $3,049,716 |
Restricted cash | 1,500,000 | |
Accounts receivable-trade, less allowance for doubtful accounts of $65,977 - 2015 and $65,977 - 2014 | 3,152,776 | 3,043,899 |
Accounts receivable-other | 88,237 | 139,204 |
Inventories | 10,605,792 | 9,243,455 |
Prepaid expenses | 639,819 | 372,326 |
Total current assets | 16,758,912 | 17,348,600 |
Furniture, fixtures and equipment | 4,349,557 | 4,228,139 |
Less accumulated depreciation and amortization | 3,293,929 | 3,182,473 |
Net furniture, fixtures and equipment | 1,055,628 | 1,045,666 |
Intangible assets, net | 251,909 | 245,684 |
Other assets | 277,513 | 234,342 |
Total assets | 18,343,962 | 18,874,292 |
Current liabilities: | ||
Accounts payable | 1,936,195 | 2,410,876 |
Accrued expenses | 1,170,182 | 1,142,973 |
Secured convertible note payable-current | 2,019,720 | |
Subordinated note payable-current, net of discount of $22,075 - 2015 and $55,187 - 2014 | 2,477,925 | 2,444,813 |
Derivative liabilities | 591,747 | 2,186,214 |
Capital lease obligation-current | 39,351 | 61,140 |
Deferred revenue-current | 145,700 | 138,052 |
Income taxes payable | 7,957 | 7,954 |
Customer deposits | 1,878 | |
Total current liabilities | 6,369,057 | 10,413,620 |
Long-term liabilities: | ||
Secured convertible note payable-long term, at fair value | 1,253,711 | |
Capital lease obligation-long term | 1,564 | 3,849 |
Deferred revenue-long term | 1,126,600 | 939,100 |
Total long term liabilities | 1,128,164 | 2,196,660 |
Stockholder's equity: | ||
Common stock, $0.001 par value; 9,375,000 shares authorized; shares issued: 4,046,599 - 2015 and 3,092,497 - 2014 | 4,046 | 3,092 |
Additional paid in capital | 44,319,395 | 33,326,908 |
Treasury stock, at cost (shares: 63,518 - 2015 and 63,518 - 2014) | -2,157,226 | -2,157,226 |
Accumulated deficit | -31,319,474 | -24,908,762 |
Total stockholders' equity | 10,846,741 | 6,264,012 |
Total liabilities and stockholders' equity | $18,343,962 | $18,874,292 |
Consolidated_Balance_Sheets_Un1
Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Statement of Financial Position [Abstract] | ||
Allowance for doubtful accounts receivable | $65,977 | $65,977 |
Discount on subordinated notes payable, short-term | $22,075 | $55,187 |
Common stock, par value | $0.00 | $0.00 |
Common stock, shares authorized | 9,375,000 | 9,375,000 |
Common stock, shares issued | 4,046,599 | 3,092,497 |
Treasury stock shares | 63,518 | 63,518 |
Condensed_Consolidated_Stateme
Condensed Consolidated Statements of Operations (Unaudited) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Income Statement [Abstract] | ||
Product revenue | $4,057,000 | $3,781,128 |
Other revenue | 191,764 | 127,213 |
Total revenue | 4,248,764 | 3,908,341 |
Cost of revenue | 2,595,024 | 1,587,402 |
Gross profit | 1,653,740 | 2,320,939 |
Selling, general and administrative expenses: | ||
Research and development expense | 743,343 | 855,249 |
Selling, advertising and promotional expense | 843,886 | 607,144 |
Stock-based compensation expense | 269,200 | 130,847 |
General and administrative expense | 1,760,506 | 1,273,851 |
Total selling, general and administrative expenses | 3,616,935 | 2,867,091 |
Operating loss | -1,963,195 | -546,152 |
Interest income | 5,315 | 2,514 |
Change in warrant derivative liabilities | 165,722 | |
Change in fair value of secured convertible notes payable | -4,434,383 | |
Secured convertible note payable issuance expenses | -59,876 | -224,438 |
Other income (expense) | 1,878 | -3,611 |
Interest expense | -126,173 | -99,812 |
Loss before income tax expense | -6,410,712 | -871,499 |
Income tax expense | ||
Net loss | ($6,410,712) | ($871,499) |
Net loss per share information: | ||
Basic | ($1.90) | ($0.39) |
Diluted | ($1.90) | ($0.39) |
Weighted average shares outstanding: | ||
Basic | 3,371,008 | 2,252,571 |
Diluted | 3,371,008 | 2,252,571 |
Condensed_Consolidated_Stateme1
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) (USD $) | Common Stock [Member] | Additional Paid-In Capital [Member] | Treasury Stock [Member] | Accumulated Deficit [Member] | Total |
Balance at Dec. 31, 2014 | $3,092 | $33,326,908 | ($2,157,226) | ($24,908,762) | $6,264,012 |
Balance, shares at Dec. 31, 2014 | 3,092,497 | ||||
Stock-based compensation | 269,200 | 269,200 | |||
Restricted common stock grant | 87 | -87 | |||
Restricted common stock grant, shares | 86,500 | ||||
Issuance of common stock upon exercise of stock options | 662 | 662 | |||
Issuance of common stock upon exercise of stock options, shares | 94 | -94 | |||
Issuance of common stock upon exercise of common stock purchase warrants | 212 | 2,982,533 | 2,982,745 | ||
Issuance of common stock upon exercise of common stock purchase warrants, shares | 212,295 | ||||
Issuance of common stock upon conversion of secured convertible note payable to equity | 655 | 7,740,179 | 7,740,834 | ||
Issuance of common stock upon conversion of secured convertible note payable to equity, shares | 655,213 | ||||
Net loss | -6,410,712 | -6,410,712 | |||
Balance at Mar. 31, 2015 | $4,046 | $44,319,395 | ($2,157,226) | ($31,319,474) | $10,846,741 |
Balance, shares at Mar. 31, 2015 | 4,046,599 |
Condensed_Consolidated_Stateme2
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Cash Flows From Operating Activities: | ||
Net loss | ($6,410,712) | ($871,499) |
Adjustments to reconcile net loss to net cash flows used in operating activities: | ||
Depreciation and amortization | 161,977 | 115,250 |
Secured convertible note payable issuance expenses | 59,876 | 224,438 |
Change in derivative liabilities | -165,722 | |
Change in fair value of secured convertible notes payable | 4,434,383 | |
Interest expense related to stock conversion | 33,020 | |
Stock based compensation | 269,200 | 130,847 |
Provision for inventory obsolescence | 189,003 | 31,618 |
(Increase) decrease in: | ||
Accounts receivable - trade | -108,877 | -357,653 |
Accounts receivable - other | 50,967 | 46,988 |
Inventories | -1,551,340 | -168,853 |
Prepaid expenses | -277,687 | -41,403 |
Other assets | -43,171 | -8,846 |
Increase (decrease) in: | ||
Accounts payable | -474,681 | 110,414 |
Accrued expenses | 27,209 | -136,201 |
Income taxes payable | 3 | -30 |
Deposits | -1,878 | |
Unearned income | 195,148 | 171,196 |
Net cash used in operating activities | -3,673,158 | -753,734 |
Cash Flows from Investing Activities: | ||
Purchases of furniture, fixtures and equipment | -121,418 | -40,449 |
Additions to intangible assets | -13,440 | -39,333 |
Release of restricted cash related to secured convertible note | 1,500,000 | |
Net cash provided by (used) in investing activities | 1,365,142 | -79,782 |
Cash Flows from Financing Activities:: | ||
Proceeds from exercise of stock options and warrants | 1,554,662 | |
Proceeds from secured convertible note payable | 2,000,000 | |
Debt issuance expenses for secured convertible note payable | -224,438 | |
Payments on capital lease obligation | -24,074 | -22,089 |
Net cash provided by in financing activities | 1,530,588 | 1,753,473 |
Net increase (decrease) in cash and cash equivalents | -777,428 | 919,957 |
Cash and cash equivalents, beginning of period | 3,049,716 | 454,978 |
Cash and cash equivalents, end of period | 2,272,288 | 1,374,935 |
Supplemental disclosures of cash flow information: | ||
Cash payments for interest | 111,285 | 55,938 |
Cash payments for income taxes | 8,197 | 10,030 |
Supplemental disclosures of non-cash investing and financing activities: | ||
Issuance of common stock purchase warrants for senior secured note payable | 355,873 | |
Restricted common stock grant | 87 | 75 |
Conversion of secured convertible note into common stock | $7,740,179 |
Nature_of_Business_and_Summary
Nature of Business and Summary of Significant Accounting Policies | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||
Nature of Business and Summary of Significant Accounting Policies | NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||||||||
Nature of Business: | |||||||||
Digital Ally, Inc. (the “Digital Ally”) and subsidiary (collectively, the “Company”) produces digital video imaging, audio recording and related storage products for use in law enforcement and security applications. Its current products are an in-car digital video/audio recorder contained in a rear-view mirror for use in law enforcement and commercial fleets, a weather-resistant mobile digital video recording system for use on motorcycles, ATV’s and boats, a miniature digital video system designed to be worn on an individual’s body; a system that provides our law enforcement customers with audio/video surveillance from multiple vantage points; a digital video/audio recorder contained in a flashlight sold to law enforcement agencies and other security organizations; and a hand-held laser speed detection device that it is offering primarily to law enforcement agencies. The Company has active research and development programs to adapt its technologies to other applications. The Company has the ability to integrate electronic, radio, computer, mechanical, and multi-media technologies to create unique solutions to address needs in a variety of other industries and markets, including mass transit, school bus, taxi cab and the military. | |||||||||
The Company was originally incorporated in Nevada on December 13, 2000 as Vegas Petra, Inc. and had no operations until 2004. On November 30, 2004, Vegas Petra, Inc. entered into a Plan of Merger with Digital Ally, Inc., at which time the merged entity was renamed Digital Ally, Inc. | |||||||||
The following is a summary of the Company’s Significant Accounting Policies: | |||||||||
Basis of Consolidation: | |||||||||
The accompanying financial statements include the consolidated accounts of Digital Ally and its wholly-owned subsidiaries, Digital Ally International, Inc., and Medical Devices Ally, LLC. All intercompany balances and transactions have been eliminated during consolidation. | |||||||||
Digital Ally formed Digital Ally International, Inc. during August 2009 to facilitate the export sales of its products. In addition, Medical Devices Ally, LLC was formed in July 2014 and has been inactive since formation. | |||||||||
Fair Value of Financial Instruments: | |||||||||
The carrying amounts of financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable and subordinated note payable, approximate fair value because of the short-term nature of these items. The Company accounts for its secured convertible notes payable and derivative liabilities on its fair value basis. | |||||||||
Revenue Recognition: | |||||||||
Revenues from the sale of products are recorded when the product is shipped, title and risk of loss have transferred to the purchaser, payment terms are fixed or determinable and payment is reasonably assured. Customers do not have a right to return the product other than for warranty reasons for which they would only receive repair services or replacement product. | |||||||||
The Company sells its products and services to law enforcement and commercial customers in the following manner: | |||||||||
● | Sales to domestic customers are made direct to the end customer (typically a law enforcement agency or a commercial customer) through its direct sales force, which is composed of its employees. Revenue is recorded when the product is shipped to the end customer. | ||||||||
● | Sales to international customers are made through independent distributors who purchase products from the Company at a wholesale price and sell to the end user (typically law enforcement agencies or a commercial customer) at a retail price. The distributor retains the margin as its compensation for its role in the transaction. The distributor generally maintains product inventory, customer receivables and all related risks and rewards of ownership. Revenue is recorded when the product is shipped to the distributor consistent with the terms of the distribution agreement. | ||||||||
● | Repair parts and services for domestic and international customers are generally handled by our inside customer service employees. Revenue is recognized upon shipment of the repair parts and acceptance of the service or materials by the end customer. | ||||||||
Sales taxes collected on products sold are excluded from revenues and are reported as an accrued expense in the accompanying balance sheets until payments are remitted. | |||||||||
Other revenue is comprised of revenues from repair services and the sale of scrap and excess raw material and component parts. Revenue is recognized upon shipment of the product and acceptance of the service or materials by the end customer. | |||||||||
Extended warranties are offered on selected products and when a customer purchases an extended warranty the associated proceeds are treated as deferred revenue and recognized over the term of the extended warranty on a straight line method. | |||||||||
Sales returns and allowances aggregated $313,376 and $226,876 for the three months ended March 31, 2015 and 2014, respectively. Obligations for sales returns and allowances are recognized at the time of sales on an accrual basis. The accrual is determined based upon historical return rates adjusted for known changes in key variables affecting these return rates. | |||||||||
Use of Estimates: | |||||||||
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 amount of revenues and expenses during the reporting period. Actual results could differ from those estimates | |||||||||
Cash and cash equivalents: | |||||||||
Cash and cash equivalents include funds on hand, in bank and short-term investments with original maturities of ninety (90) days or less. | |||||||||
Cash and cash equivalents that are restricted as to withdrawal or use under the terms of the secured note payable are presented as restricted cash separate from cash and cash equivalents on our balance sheet. | |||||||||
Accounts Receivable: | |||||||||
Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a weekly basis. The Company determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, and current economic conditions. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. | |||||||||
A trade receivable is considered to be past due if any portion of the receivable balance is outstanding for more than thirty (30) days beyond terms. No interest is charged on overdue trade receivables. | |||||||||
Inventories: | |||||||||
Inventories consist of electronic parts, circuitry boards, camera parts and ancillary parts (collectively, “components”), work-in-process and finished goods, and are carried at the lower of cost (First-in, First-out Method) or market value. The Company determines the estimate for the reserve for slow moving or obsolete inventories by regularly evaluating individual inventory levels, projected sales and current economic conditions. | |||||||||
Furniture, fixtures and equipment: | |||||||||
Furniture, fixtures and equipment is stated at cost net of accumulated depreciation. Additions and improvements are capitalized while ordinary maintenance and repair expenditures are charged to expense as incurred. Depreciation is recorded by the straight-line method over the estimated useful life of the asset, which ranges from three to ten years. | |||||||||
Intangible assets: | |||||||||
Intangible assets include deferred patent costs and license agreements. Legal expenses incurred in preparation of patent application have been deferred and will be amortized over the useful life of granted patents. Costs incurred in preparation of applications that are not granted will be charged to expense at that time. The Company has entered into several sublicense agreements under which it has been assigned the exclusive rights to certain licensed materials used in its products. These sublicense agreements generally require upfront payments to obtain the exclusive rights to such material. The Company capitalizes the upfront payments as intangible assets and amortizes such costs over their estimated useful life on a straight line method. | |||||||||
Debt: | |||||||||
The Company’s debt securities are accounted for at amortized cost, except where the Company has elected to account for its secured convertible notes payable on its fair value basis. | |||||||||
Long-Lived Assets: | |||||||||
Long-lived assets such as property, plant and equipment and purchased intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third-party appraisals, as considered necessary. As of March 31, 2015 and December 31, 2014, there were no impairment indicators that required the Company to test for impairment in the carrying value of long-lived assets. | |||||||||
Warranties: | |||||||||
The Company’s products carry explicit product warranties that extend up to two years from the date of shipment. The Company records a provision for estimated warranty costs based upon historical warranty loss experience and periodically adjusts these provisions to reflect actual experience. Accrued warranty costs are included in accrued expenses. Extended warranties are offered on selected products and when a customer purchases an extended warranty the associated proceeds are treated as deferred revenue and recognized over the term of the extended warranty. | |||||||||
Customer Deposits: | |||||||||
The Company requires deposits in advance of shipment for certain customer sales orders, in particular when accepting orders from foreign customers for which the Company does not have a payment history. Customer deposits are reflected as a current liability in the accompanying Condensed Consolidated Balance Sheets. | |||||||||
Shipping and Handling Costs: | |||||||||
Shipping and handling costs for outbound sales orders totaled $23,975 and $14,759 for the three months ended March 31, 2015 and 2014, respectively. Such costs are included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. | |||||||||
Advertising Costs: | |||||||||
Advertising expense includes costs related to trade shows and conventions, promotional material and supplies, and media costs. Advertising costs are expensed in the period in which they are incurred The Company incurred total advertising expense of approximately $125,688 and $103,106 for the three months ended March 31, 2015 and 2014, respectively. Such costs are included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. | |||||||||
Income Taxes: | |||||||||
Deferred taxes are provided for by the liability method wherein deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. | |||||||||
The Company applies the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 740 - Income Taxes that provides a framework for accounting for uncertainty in income taxes and provided a comprehensive model to recognize, measure, present, and disclose in its financial statements uncertain tax positions taken or expected to be taken on a tax return. It initially recognizes tax positions in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and all relevant facts. Application requires numerous estimates based on available information. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, and it recognized tax positions and tax benefits may not accurately anticipate actual outcomes. As it obtains additional information, the Company may need to periodically adjust its recognized tax positions and tax benefits. These periodic adjustments may have a material impact on its consolidated statements of operations. | |||||||||
The Company’s policy is to record estimated interest and penalties related to the underpayment of income taxes as income tax expense in the consolidated statements of operations. There was no interest expense related to the underpayment of estimated taxes during the three months ended March 31, 2015 and 2014. There have been no penalties in the three months ended March 31, 2015 and 2014. | |||||||||
Research and Development Expenses: | |||||||||
The Company expenses all research and development costs as incurred. Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. In most instances, the Company’s products are released soon after technological feasibility has been established. Costs incurred subsequent to achievement of technological feasibility were not significant, and software development costs were expensed as incurred during the three months ended March 31, 2015 and 2014. | |||||||||
Stock-Based Compensation: | |||||||||
The Company grants stock-based compensation to its employees, board of directors and certain third party contractors. Share-based compensation arrangements may include the issuance of options to purchase common stock in the future or the issuance of restricted stock, which generally are subject to vesting requirements. The Company records stock-based compensation expense for all stock-based compensation granted after January 1, 2006 based on the grant-date fair value. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award. | |||||||||
The Company estimates the grant-date fair value of stock-based compensation using the Black-Scholes valuation model. Assumptions used to estimate compensation expense are determined as follows: | |||||||||
● | Expected term is determined using the contractual term and vesting period of the award; | ||||||||
● | Expected volatility of award grants made in the Company’s plan is measured using the weighted average of historical daily changes in the market price of the Company’s common stock over the period equal to the expected term of the award; | ||||||||
● | Expected dividend rate is determined based on expected dividends to be declared; | ||||||||
● | Risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a maturity equal to the expected term of the awards; and | ||||||||
● | Forfeitures are based on the history of cancellations of awards granted and management’s analysis of potential forfeitures. | ||||||||
Segments of Business: | |||||||||
Management has determined that its operations are comprised of one reportable segment: the sale of digital audio and video recording and speed detection devices. For the three months ended March 31, 2015 and 2014, sales by geographic area were as follows: | |||||||||
Three months ended March 31, | |||||||||
2015 | 2014 | ||||||||
Sales by geographic area: | |||||||||
United States of America | $ | 4,209,076 | $ | 3,887,832 | |||||
Foreign | 39,688 | 20,509 | |||||||
$ | 4,248,764 | $ | 3,908,341 | ||||||
Sales to customers outside of the United States are denominated in U.S. dollars. All Company assets are physically located within the United States. | |||||||||
Recent Accounting Pronouncements: | |||||||||
In May 2014, the FASB issued Accounting Standard Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The standard is effective for interim and annual periods beginning after December 15, 2016 and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The Company has not yet selected a transition method and is currently evaluating the standard and the impact on its consolidated financial statements and footnote disclosures. |
Basic_of_Presentation
Basic of Presentation | 3 Months Ended |
Mar. 31, 2015 | |
Accounting Policies [Abstract] | |
Basic of Presentation | NOTE 2. BASIS OF PRESENTATION |
The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. | |
The balance sheet at December 31, 2014 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. | |
For further information, refer to the financial statements and footnotes included in the Company’s annual report on Form 10-K for the year ended December 31, 2014. |
Concentration_of_Credit_Risk_a
Concentration of Credit Risk and Major Customers | 3 Months Ended |
Mar. 31, 2015 | |
Risks and Uncertainties [Abstract] | |
Concentration of Credit Risk and Major Customers | NOTE 3. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS |
Financial instruments that potentially subject the Company to concentrations of credit risk consist of accounts receivable. Sales to domestic customers are typically made on credit and the Company generally does not require collateral while sales to international customers require payment before shipment or backing by an irrevocable letter or credit. The Company performs ongoing credit evaluations of its customers’ financial condition and maintains an allowance for estimated losses. Accounts are written off when deemed uncollectible and accounts receivable are presented net of an allowance for doubtful accounts. The allowance for doubtful accounts totaled $65,977 as of March 31, 2015 and December 31, 2014. | |
The Company sells through a network of unaffiliated distributors for international sales and employee-based sales agents for domestic sales. No international distributor individually exceeded 10% of total revenues for the three months ended March 31, 2015 and 2014. One individual customer receivable balance exceeded 10% of total accounts receivable as of March 31, 2015, and 2014, and totaled $312,451, or 10% of total accounts receivable, and $379,755, or 17% of total accounts receivable, respectively. | |
The Company purchases finished circuit boards and other proprietary component parts from suppliers located in the United States and on a limited basis from Asia. Although the Company obtains certain of these components from single source suppliers, management has located or is in process of locating alternative suppliers to reduce the risk in most cases to supplier problems that could result in significant production delays. The Company has not historically experienced any significant supply disruptions from any of its principal vendors and does not anticipate future supply disruptions. The Company acquires most of its components on a purchase order basis and does not have long-term contracts with its suppliers. | |
The Company entered into agreements with two unaffiliated companies (the “Manufacturers”) to develop, license and manufacture certain products that the Company offers for sale to its customers. Currently, these products represent approximately 51% of the Company’s total revenue; and one of the product lines is expected to increase in the future to the extent that it may represent an even more significant portion of the Company’s total revenue. These products can only be manufactured by the Manufacturers, except in situations where the Manufacturers are unable for any reason to supply the products. Backup proprietary documentation for each product is required to be maintained offsite by each Manufacturer thereby allowing the Company to continue production in such cases where the Manufacturers are unable to supply the product. The Manufacturers are located in the United States and in Asia. Natural disasters, financial stress, bankruptcy and other factors may cause conditions that would disrupt either Manufacturer’s ability to supply such products in quantities needed by the Company. It would take time for management to locate and activate alternative suppliers to replace the Manufacturers should it become necessary, which could result in significant production delays. The Company has discontinued purchases from one of the manufacturers of the LaserAlly product and is re-evaluating such product line. |
Inventories
Inventories | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Inventory Disclosure [Abstract] | |||||||||
Inventories | NOTE 4. INVENTORIES | ||||||||
Inventories consisted of the following at March 31, 2015 and December 31, 2014: | |||||||||
31-Mar-15 | December 31, 2014 | ||||||||
Raw material and component parts | $ | 3,338,562 | $ | 2,987,124 | |||||
Work-in-process | 350,845 | 280,429 | |||||||
Finished goods | 7,705,966 | 6,576,480 | |||||||
Subtotal | 11,395,373 | 9,844,033 | |||||||
Reserve for excess and obsolete inventory | (789,581 | ) | (600,578 | ) | |||||
Total | $ | 10,605,792 | $ | 9,243,455 | |||||
Finished goods inventory includes units held by potential customers and sales agents for test and evaluation purposes. The cost of such units totaled $577,946 and $645,300 as of March 31, 2015 and December 31, 2014, respectively. |
Subordinated_Notes_Payable_Sen
Subordinated Notes Payable, Senior Secured Convertible Note Payable, and Capital Lease Obligations | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Debt Disclosure [Abstract] | |||||||||
Subordinated Notes Payable, Senior Secured Convertible Note Payable, and Capital Lease Obligations | NOTE 5. SUBORDINATED NOTES PAYABLE, SECURED CONVERTIBLE NOTE PAYABLE, AND CAPITAL LEASE OBLIGATIONS | ||||||||
Subordinated Notes Payable | |||||||||
31-Mar-15 | 31-Dec-14 | ||||||||
Subordinated notes payable, at par | $ | 2,500,000 | $ | 2,500,000 | |||||
Unamortized discount | (22,075 | ) | (55,187 | ) | |||||
Total notes payable | 2,477,925 | 2,444,813 | |||||||
Less: Current Maturities of long-term debt | 2,477,925 | 2,444,813 | |||||||
Subordinated notes payable, long-term | $ | — | $ | — | |||||
During the year ended December 31, 2011, the Company, in two separate transactions, borrowed an aggregate of $2.5 million under two unsecured notes payable to a private, third-party lender. The loans were funded in May and November 2011 and both are represented by promissory notes (the “Notes”) that bear interest at the rate of 8% per annum and are payable interest only on a monthly basis. The maturity date of the original Note in the principal amount of $1,500,000 was extended from May 30, 2012 to May 30, 2013 in conjunction with the issuance of the second Note during November 2011. Both Notes were due and payable in full on May 30, 2013 and could be prepaid without penalty at any time. The Notes are subordinated to all existing and future senior indebtedness, as such term is defined in the Notes. | |||||||||
The Company granted the lender warrants (the “Warrants”) exercisable to purchase a total of 56,250 shares of its common stock at an exercise price of $8.00 per share (as modified) until November 30, 2013. The exercise price for the Warrants exercisable to purchase 37,500 shares issued with the first Note was reduced from $12.00 per share to $8.00 per share in consideration for the extension of the first Note’s maturity date. The Company paid fees totaling $147,500 to an unaffiliated entity and issued warrants exercisable to purchase 13,750 shares of its Common Stock on the same terms and conditions as the Warrants for its services relating to the transactions, including the modification of the warrants issued pursuant to the first Note. | |||||||||
The Company allocated $236,726 of the proceeds of the Notes to additional paid-in-capital, which represented the grant date fair value of the Warrant for 56,250 common shares issued to the lender and the warrant for 13,750 shares issued to the unaffiliated third party who arranged the transactions. In addition, the cash fees paid to the unaffiliated third party totaling $147,500 is included in the discount on the Notes. The modification of the original Note that occurred during November 2011 was treated as an early extinguishment of the debt. | |||||||||
On July 24, 2012, the Company entered into an agreement with the third party lender that extended the maturity date of the Notes from May 30, 2013 to May 30, 2014. In connection with the extension, the Company reduced the exercise price for the Warrants exercisable to purchase 56,250 shares previously granted to the lender from $8.00 to $4.00 and extended their expiration date from November 30, 2013 to November 30, 2015. The Company issued an unaffiliated third party a warrant exercisable to purchase 6,250 shares of Common Stock at a price of $4.00 per share through November 30, 2015 for its services in connection with the extension of the maturity dates of the Notes. Additionally, the Company reduced the exercise price of warrants it had issued to such firm in May and November 2011 from $8.00 per share to $4.00 per share and extended their maturity dates to November 30, 2015. Such warrants are exercisable to purchase 13,750 shares of Common Stock. The Company allocated $38,052 to additional paid in capital, which represented the grant date fair value of the new warrants issued to the independent third party in July 2012 and the modification of the warrants for reducing the exercise price from $8.00 to $4.00 associated with extending the maturity date of the Note from May 30, 2013 to May 30, 2014. The restructuring of the Notes that occurred in July 2012 was treated as a modification of the debt and the remaining unamortized discount of the notes payable will be amortized to interest expense ratably over the modified terms of the Notes. | |||||||||
On December 4, 2013, the Company entered into an agreement with the same third party lender to extend the maturity date of the Notes from May 30, 2014 to May 30, 2015. In connection with the extension, the Company granted the lender warrants exercisable to purchase 40,000 shares of its common stock at $8.50 per share through December 3, 2018. The Company also paid fees totaling $10,000 to an unaffiliated third party and issued a warrant exercisable to purchase 10,000 shares of Common Stock at a price of $8.50 per share through December 3, 2018 for its services in connection with the extension of the maturity dates of the Notes. The Company allocated $205,820 to additional paid in capital, which represented the grant date fair value of the new warrants issued to the lender and the unaffiliated third party who arranged the transaction. In addition, the cash fees paid to the unaffiliated third party totaling $10,000 were included in the discount on the Notes. The restructuring of the Notes that occurred in December 2013 was treated as a modification of the debt and the remaining unamortized discount of the notes payable will be amortized to interest expense ratably over the modified terms of the Notes. The discount amortized to interest expense totaled $33,112 and $41,639 for the three months ended March 31, 2015, and 2014, respectively. | |||||||||
Secured Convertible Note Payable | |||||||||
31-Mar-15 | 31-Dec-14 | ||||||||
Secured convertible note payable, at fair value | $ | — | $ | 3,273,431 | |||||
Less: Current maturities | — | (2,019,720 | ) | ||||||
Secured convertible note payable, long-term | $ | — | $ | 1,253,711 | |||||
On August 28, 2014, the Company completed a second private placement to the holder of the Secured Convertible Note of $4.0 million aggregate principal amount of a Secured Convertible Note (the “$4.0 million Secured Convertible Note”). The $4.0 million Secured Convertible Note bore interest at 6% per annum, payable quarterly, and was secured by all assets of the Company. Principal payments were not required until the sixth month after origination and continued ratably for the remaining 18-month term of the $4.0 million Secured Convertible Note. The principal and interest payments could be made through the payment of cash or in-kind by transferring unrestricted and fully registered shares in an amount equivalent to 80% of the volume weighted average trading price for the 20 consecutive trading days preceding the payment date. The $4.0 million Secured Convertible Note was convertible into common shares at the holder’s option at a conversion price of $6.10 per share at any time it was outstanding. In addition, the Company could force conversion if the market price exceeded $12.20 per share for 20 consecutive trading days. | |||||||||
In connection with the second private placement the Company issued a warrant (the “August Warrant”) to purchase 262,295 shares of common stock at $7.32 per share. The August Warrant is exercisable immediately and expires August 28, 2019. The $4.0 million Secured Convertible Note and August Warrant contain anti-dilution provisions and restrict the incurrence of additional secured indebtedness. | |||||||||
The August Warrant was treated as a derivative liability for accounting purposes. Accordingly, the Company has estimated the fair value of the warrant derivative as of the date the $4.0 million Secured Convertible Note was issued at $992,521. Changes in the fair value of the warrant derivative liabilities totaled $1,193,694 through December 31, 2014, and the derivative liability was $2,186,214 as of December 31, 2014 in the accompanying Consolidated Balance Sheet. | |||||||||
On December 4, 2014, the holder of the $4.0 million Secured Convertible Note exercised its right to convert $36,600 of principal on the into 6,000 shares of common stock of the Company at the conversion price of $6.10 per share. The increase in fair market value of these 6,000 shares over the $36,600 principal retired was $89,400, representing the increase in the Company’s stock price over the conversion rate as of the conversion date. Such amount was recognized as a charge to the income statement during the year ended December 31, 2014 and included in change in fair value of secured convertible notes payable. | |||||||||
The Company paid a placement agent fee of $240,000 and approximately $101,500 of third party costs for the transaction, which included legal fees. The Company elected to account for the $4.0 million Secured Convertible Note on its fair value basis, therefore, all related debt issuance expenses which totaled $354,628 were charged to other expenses in the year ended December 31, 2014. The fair market value of the $4.0 million Secured Note was $3,273,431 at December 31, 2014 and the $302,552 change in fair market value of the note was included in change in fair value of secured notes payable in the Condensed Consolidated Statement of Operations. | |||||||||
The holder of the $4.0 million Secured Convertible Note had no right to convert the Secured Convertible Notes or exercise the Warrants to the extent that such conversions or exercises would result in the holder being the beneficial owner in excess of 4.99% of the Company’s stock. In addition, the holder had no right to convert the $4.0 million Secured Convertible Note or exercise the August Warrant if the issuance of shares of the common stock upon such conversion or exercise would breach the Company’s limitation under the applicable Nasdaq listing rules (the “Exchange Cap”). For these purposes the Exchange Cap limit applicable to such conversions or exercises of the Secured Convertible Note and the $4.0 million Secured Convertible Note and the Warrant and August Warrant was based upon the aggregation of such instruments as one issuance and on the number of shares the Company had issued and outstanding when it issued the Secured Convertible Note and Warrant in March 2014. The Exchange Cap limitation would not apply if the Company’s shareholders approve issuances above the Exchange Cap. | |||||||||
The Company was required to maintain a minimum cash balance of not less than $1.5 million until such time as the Company satisfied all of the “Equity Conditions,” as defined in the $4.0 million Secured Convertible Note. Such Equity Conditions included the Company’s shareholders approving the issuance of shares above the Exchange Cap. The $1.5 million minimum cash balance was been reported as restricted cash separate from cash and cash equivalents in the consolidated balance sheet as of December 31, 2014. | |||||||||
The Company called a Special Meeting of Shareholders in which it sought approval from its shareholders for issuances of shares above the Exchange Cap. On February 13, 2015 its shareholders gave such approval. Upon such approval, the Company satisfied all of the “Equity Conditions” which released all of the restrictions on cash balances. | |||||||||
Between February 13 and 25, 2015 the holder of the $4.0 million Secured Convertible Note exercised its right to convert the remaining principal of $3,963,780 into 655,738 shares of common stock and 5,475 shares for accrued interest at the conversion price of $7.32 per share. The increase in fair market value of these 655,213 shares over the $3,963,780 principal retired was $4,434,383 representing the increase in our stock price over the conversion rate as of the conversion dates. Such amount was recognized as a charge to the Condensed Consolidated Statement of Operations during the three months ended March 31, 2015 and included in change in fair value of secured convertible notes payable. | |||||||||
The holder also exercised 212,295 of its August Warrants on March 24, 2015 with the change in value of the warrant derivative totaling $340,722 being recognized as income in the Condensed Consolidated Statement of Operations representing the change in our stock price compared to the exercise price at the respective exercise date. | |||||||||
Capital Leases. Future minimum lease payments under non-cancelable capital leases having terms in excess of one year are as follows: | |||||||||
Year ending December 31: | |||||||||
2015 (period from April 1, 2015 to December 31, 2015) | $ | 38,368 | |||||||
2016 | 3,961 | ||||||||
2017 | — | ||||||||
2018 | — | ||||||||
2019 and thereafter | — | ||||||||
Total future minimum lease payments | 42,329 | ||||||||
Less amount representing interest | 1,415 | ||||||||
Present value of minimum lease payments | 40,914 | ||||||||
Less current portion | 39,351 | ||||||||
Capital lease obligations, less current portion | $ | 1,564 | |||||||
Assets under capital leases are included in furniture, fixtures and equipment as follows: | |||||||||
31-Mar-15 | 31-Dec-14 | ||||||||
Office furniture, fixtures and equipment | $ | 280,304 | $ | 280,304 | |||||
Less: accumulated amortization | (152,752 | ) | (135,115 | ) | |||||
Net furniture, fixtures and equipment | $ | 127,552 | $ | 145,189 |
Fair_Value_Measurement
Fair Value Measurement | 3 Months Ended | ||||||||||||||||
Mar. 31, 2015 | |||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||
Fair Value Measurement | NOTE 6. Fair Value Measurement | ||||||||||||||||
In accordance with ASC Topic 820 — Fair Value Measurements and Disclosures (“ASC 820”), the Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or a group of assets or liabilities, such as a business. | |||||||||||||||||
ASC 820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: | |||||||||||||||||
● | Level 1 — Quoted prices in active markets for identical assets and liabilities | ||||||||||||||||
● | Level 2 — Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities) | ||||||||||||||||
● | Level 3 — Significant unobservable inputs (including the Company’s own assumptions in determining the fair value) | ||||||||||||||||
The following table represents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2015. | |||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||
Liabilities | |||||||||||||||||
Warrant derivative liability | $ | - | $ | - | $ | 591,747 | $ | 591,747 | |||||||||
$ | - | $ | - | $ | 591,747 | $ | 591,747 |
Accrued_Expenses
Accrued Expenses | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Accrued Liabilities [Abstract] | |||||||||
Accrued Expenses | NOTE 7. ACCRUED EXPENSES | ||||||||
Accrued expenses consisted of the following at March 31, 2015 and December 31, 2014: | |||||||||
31-Mar-15 | 31-Dec-14 | ||||||||
Accrued warranty expense | $ | 240,562 | $ | 247,082 | |||||
Accrued sales commissions | 30,662 | 89,600 | |||||||
Accrued payroll and related fringes | 264,965 | 154,851 | |||||||
Accrued insurance | 39,019 | 81,431 | |||||||
Accrued rent | 251,813 | 260,634 | |||||||
Accrued litigation and related charges | — | 53,666 | |||||||
Other | 343,161 | 255,709 | |||||||
$ | 1,170,182 | $ | 1,142,973 | ||||||
Accrued warranty expense was comprised of the following for the three months ended March 31, 2015: | |||||||||
2015 | |||||||||
Beginning balance | $ | 247,082 | |||||||
Provision for warranty expense | 13,533 | ||||||||
Charges applied to warranty reserve | (20,054 | ) | |||||||
Ending balance | $ | 240,562 |
Income_Taxes
Income Taxes | 3 Months Ended |
Mar. 31, 2015 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | NOTE 8. INCOME TAXES |
The effective tax rate for the three months ended March 31, 2015 and 2014 varied from the expected statutory rate as a result of the Company’s decision to provide a 100% valuation allowance on net deferred tax assets. The Company has further determined that it would be appropriate to continue providing a full valuation allowance on net deferred tax assets as of March 31, 2014 because of the overall net operating loss carryforwards available. | |
The valuation allowance on deferred tax assets totaled $15,635,000 and $12,692,000 as of March 31, 2015 and December 31, 2014, respectively. We record the benefit we will derive in future accounting periods from tax losses and credits and deductible temporary differences as “deferred tax assets,” which are included in the caption “Deferred income taxes, net” on our consolidated balance sheets. In accordance with Accounting Standards Codification (ASC) 740, “Income Taxes,” we record a valuation allowance to reduce the carrying value of our deferred tax assets if, based on all available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. | |
The recovery from the economic recession, which adversely impacted state and local governmental budgets in particular, remained weak in 2015 and 2014, and we incurred operating losses during this period. Law enforcement agencies are our primary customer and are typically funded through state and local tax rolls. The economy showed improvement in 2015 and 2014, but the establishment of a long-term positive impact on the state and local budgets is still uncertain at best. Despite the improvement in general economic conditions, and our ongoing cost containment efforts, we incurred additional losses in the three months ended March 31, 2015 that placed us in a three-year cumulative loss position at March 31, 2015. Accordingly, we determined there was not sufficient positive evidence regarding our potential for future profits to outweigh the negative evidence of our three-year cumulative loss position under the guidance provided in ASC 740. Therefore, we determined to increase our valuation allowance by $2,943,000 to continue to fully reserve our deferred tax assets at March 31, 2015. We expect to continue to maintain a full valuation allowance until we determine that we can sustain a level of profitability that demonstrates our ability to realize these assets. To the extent we determine that the realization of some or all of these benefits is more likely than not based upon expected future taxable income, a portion or all of the valuation allowance will be reversed. Such a reversal would be recorded as an income tax benefit and, for some portion related to deductions for stock option exercises, an increase in shareholders’ equity. | |
At March 31, 2015, the Company had available approximately $26,630,000 of net operating loss carryforwards available to offset future taxable income generated. Such tax net operating loss carryforwards expire between 2024 and 2035. In addition, the Company had research and development tax credit carryforwards approximating $1,620,000 available as of March 31, 2015, which expire between 2023 and 2035. | |
The Internal Revenue Code contains provisions under Section 382 which limit a company’s ability to utilize net operating loss carry-forwards in the event that it has experienced a more than 50% change in ownership over a three-year period. Current estimates prepared by the Company indicate that due to ownership changes which have occurred, approximately $765,000 of its net operating loss and $175,000 of its research and development tax credit carryforwards are currently subject to an annual limitation of approximately $1,151,000, but may be further limited by additional ownership changes which may occur in the future. As stated above, the net operating loss and research and development credit carryforwards expire between 2023 and 2035, allowing the Company to potentially utilize all of the limited net operating loss carry-forwards during the carryforward period. | |
As discussed in Note 1, “Summary of Significant Accounting Policies,” tax positions are evaluated in a two-step process. We first determine whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold, it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Management has identified no tax positions taken that would meet or exceed these thresholds and therefore there are no gross interest, penalties and unrecognized tax expense/benefits that are not expected to ultimately result in payment or receipt of cash in the consolidated financial statements. | |
The Company’s federal and state income tax returns are closed for examination purposes by relevant statute and by examination for 2011 and all prior tax years. |
Commitments_and_Contingencies
Commitments and Contingencies | 3 Months Ended | ||||
Mar. 31, 2015 | |||||
Commitments and Contingencies Disclosure [Abstract] | |||||
Commitments and Contingencies | NOTE 9. COMMITMENTS AND CONTINGENCIES | ||||
Operating Leases. We have a non-cancelable long term operating lease agreement for office and warehouse space that expires during April 2020. We have also entered into month-to-month leases for equipment and facilities. Rent expense for the three months ended March 31, 2015 and 2014 was $99,431 and $99,431, respectively, related to these leases. Following are our minimum lease payments for each year and in total. | |||||
Year ending December 31: | |||||
2015(period from April 1, 2015 to December 31, 2015) | $ | 325,713 | |||
2016 | 439,707 | ||||
2017 | 445,449 | ||||
2018 | 451,248 | ||||
2019 | 457,327 | ||||
Thereafter | 154,131 | ||||
$ | 2,273,575 | ||||
License agreements. The Company has several license agreements under which it has been assigned the rights to certain licensed materials used in its products. Certain of these agreements require the Company to pay ongoing royalties based on the number of products shipped containing the licensed material on a quarterly basis. Royalty expense related to these agreements aggregated $6,539 and $7,427 for the three months ended March 31, 2015 and 2014, respectively. | |||||
Supply and distribution agreement. The Company entered into a supply and distribution agreement with Dragoneye Technology, LLC (“Dragoneye”) on May 1, 2010 under which it was granted the exclusive world-wide right to sell and distribute a proprietary law enforcement speed measurement device and derivatives to its customers. The term of the agreement was 42 months after the date Dragoneye began full scale production of the product which commenced in August 2010 and final certification of the product was obtained. The agreement had minimum purchase requirements of 1,000 units per period over three commitment periods. On January 31, 2012, the agreement was amended to reduce the minimum purchase commitment over the second and third years by 52% of the original commitment. The Company agreed to release its world-wide right to exclusively market the product to the law enforcement community in exchange for the reduction in the purchase commitment. | |||||
The agreement originally required minimum order quantities that represent a remaining unfulfilled commitment to acquire $634,680 of product as of December 31 2014. Dragoneye is responsible for all warranty, damage or other claims, losses or liabilities related to the product and is obligated to defend and indemnify us against such risks. The Company held approximately $1,325,000 of such products in finished goods inventory as of March 31, 2015 and had sold approximately 980 units since the beginning of the agreement through March 31, 2015. | |||||
The Company filed a lawsuit on June 15, 2013 against Dragoneye for breaching the contract. See “Litigation” below. The Company discontinued purchases of additional units as of that date. | |||||
Litigation. The Company is subject to various legal proceedings arising from normal business operations. Although there can be no assurances, based on the information currently available, management believes that it is probable that the ultimate outcome of each of the actions will not have a material adverse effect on the consolidated financial statements of the Company. However, an adverse outcome in certain of the actions could have a material adverse effect on the financial results of the Company in the period in which it is recorded. | |||||
On June 5, 2013, we filed a lawsuit in the District Court of Johnson County, Kansas against Dragoneye. We had entered into a supply and distribution agreement with Dragoneye on May 1, 2010 under which we were granted the right to sell and distribute a proprietary law enforcement speed measurement device and derivatives to our customers under the trade name LaserAlly. The parties amended the agreement on January 31, 2012. In our complaint we allege that Dragoneye breached the contract because it failed to maintain as confidential information our customer list; it infringed on our trademarks, including LaserAlly and Digital Ally; it tortiously interfered with our existing contracts and business relationships with our dealers, distributors, customers and trading partners; and it engaged in unfair competition and violated the Kansas Uniform Trade Secrets Statutes. We amended the complaint to include claims regarding alleged material defects in the products supplied under the agreement. During 2014, the parties agreed in principle to resolve their claims; however, the parties have been unable to negotiate the terms of a final settlement agreement. Under the agreement in principle, we would have paid all outstanding and unpaid invoices, including interest at 10% per annum, through the date the settlement agreement was to be executed. Such amount approximated $210,000 and has been recorded in accounts payable and accrued liabilities at March 31, 2015 and December 31, 2014. In return, Dragoneye was to cancel our remaining obligation to purchase LaserAlly products and accept responsibility for and correct the material defects in the products delivered to us under the contract at its cost. As a result of the parties’ failure to reach terms of a final settlement, we are now seeking the court to require Dragoneye to accept the return of all product currently in inventory (approximately $1,280,000) for a full refund as a result of alleged material defects in the products. We have filed a Motion for Summary Judgment seeking the court to order Dragoneye to accept the return of all inventory and refund our purchase price. The Court has not yet acted upon our Motion. | |||||
On October 25, 2013, we filed a complaint in the United States District Court for the District of Kansas to eliminate threats by a competitor, Utility Associates, Inc. (“Utility”), of alleged patent infringement regarding U.S. Patent No. 6,831,556 (the “ ‘556 patent”). Specifically, the lawsuit seeks a declaration that our mobile video surveillance systems do not infringe any claim of the ‘556 patent. We became aware that Utility had mailed letters to current and prospective purchasers of our mobile video surveillance systems threatening that the use of such systems purchased from third parties not licensed to the ‘556 patent would create liability for them for patent infringement. We reject Utility’s assertion and will vigorously defend the right of end-users to purchase such systems from providers other than Utility. The United States District Court for the District of Kansas dismissed the lawsuit because it decided that Kansas was not the proper jurisdictional forum for the dispute. The court’s decision was not a ruling on the merits of the case. We appealed the decision and the Federal Circuit affirmed the Court’s previous decision. | |||||
In addition, we began proceedings to invalidate the ‘556 patent through a request for inter partes review of the ‘556 patent at the United States Patent and Trademark Office (“USPTO”). We received notice in October 2014 that the USPTO granted our request to examine the validity of certain claims of Utility’s ‘556 patent. In its decision, the Patent Trial and Appeal Board declared that “we are persuaded, on this record, that [Digital Ally] demonstrates a reasonable likelihood of prevailing in showing the unpatentability of claims 1-7 and 9-25 of the ‘556 patent.” Utility must now appear before the Board and defend the validity of its patent. | |||||
On June 4, 2014 we filed an Unfair Competition lawsuit against Utility Associates, Inc. (“Utility”) in the United States District Court for the District of Kansas. In the lawsuit we contend that Utility has defamed us and illegally interfered with our contracts, customer relationships and business expectancies by falsely asserting to our customers and others that our products violate the ‘556 Patent, of which Utility claims to be the holder. | |||||
Our suit also includes claims against Utility for tortious interference with contract and violation of the Kansas Uniform Trade Secrets Act (KUSTA), arising out of Utility’s employment of one of our employees, in violation of that employee’s Non-Competition and Confidentiality agreements with us. In addition to damages, we seek temporary, preliminary, and permanent injunctive relief, prohibiting Utility from, among other things, continuing to threaten or otherwise interfere with our customers. | |||||
On March 4, 2015, an initial hearing was held upon our request for injunctive relief. | |||||
Based upon facts revealed at the March 4, 2015 hearing, on March 16, 2015, our attorneys sought leave to amend our Complaint in the Kansas suit to assert additional claims against Utility. Those new claims include claims of actual or attempted monopolization, in violation of § 2 of the Sherman Act, claims arising under a new Georgia statute that prohibits threats of patent infringement in “bad faith”, and additional claims of unfair competition/false advertising in violation of § 63(a) of the Lanham Act. As these statutes expressly provide, we will seek treble damages, punitive damages and attorneys’ fees as well as injunctive relief. The Court concluded its hearing on April 22, 2015, and allowed us leave to amend our complaint, but denied our preliminary injunction. The case is now in the initial discovery stage. | |||||
On June 13, 2014, Utility filed suit in the United States District Court for the Northern District of Georgia against us alleging infringement of the ‘556 patent.” The suit was served on us on June 20, 2014. As alleged in our first filed lawsuit described above, we believe the ‘556 patent is both invalid and not infringed. Further, proceedings seeking to invalidate the ‘556 patent already has been accepted by the USPTO, as noted above. We believe that the suit filed by Utility is without merit and we will vigorously defend the claims asserted against us. An adverse resolution of the foregoing litigation or patent proceedings could have a material adverse effect on our business, prospects, results of operations, financial condition, and liquidity. The Court has stayed all proceedings with respect to this lawsuit pending the outcome of the patent review being performed by the USPTO. | |||||
On or about May 22, 2014, Stephen Gans, a former director and former principal shareholder of us, filed a complaint in the Eighth Judicial District Court, Clark County, Nevada that asserts claims against us and Stanton E. Ross, Leroy C. Richie, Daniel F. Hutchins and Elliot M. Kaplan (the “Defendant Directors”), who are members of its Board of Directors. We were served with the complaint on May 28, 2014. Among other things, the complaint alleges (i) that the Defendant Directors breached their fiduciary duties by failing to consider a financing proposal offered by Mr. Gans and his affiliates; and (ii) that the Defendant Directors, acting at the direction of Stanton E. Ross, did not independently and objectively evaluate Mr. Gans’ protestations about certain alleged transactions between us and Infinity Energy Resources, Inc., and by so doing, breached their fiduciary duties. We and the Defendant Directors will vigorously defend the claims asserted against us and them. We and the Defendant Directors have filed a response denying all of the plaintiff’s allegations and have asserted counter-claims that allege that Gans committed improper acts that included: (a) failing to disclose the nature and substance of an SEC investigation of Gans; (b) engaging in potential insider trading; (c) misappropriating our confidential information; (d) attempting to use his position as a director to personally enrich himself; and (e) making unauthorized, misleading, and factually inaccurate filings to the SEC about us. | |||||
On December 11, 2014, the parties agreed in principle, to compromise and dismiss with prejudice, substantially all of their claims. Within the scope of that settlement are each of the “shareholder derivative claims” which Gans had asserted against us and the Defendant Directors. The settlement to which the parties have agreed will result in no monetary recovery by any party. On April 7, 2015 the Court approved the settlement of all shareholder derivative claims and the matter is now closed. | |||||
We are also involved as a plaintiff and defendant in ordinary, routine litigation and administrative proceedings incidental to its business from time to time, including customer collections, vendor and employment-related matters. Management believes the likely outcome of any other pending cases and proceedings will not be material to its business or its financial condition. | |||||
401 (k) Plan. In July 2008, the Company amended and restated its 401(k) retirement savings plan. The amended plan requires the Company to provide 100% matching contributions for employees who elect to contribute up to 3% of their compensation to the plan and 50% matching contributions for employee’s elective deferrals on the next 2% of their contributions. The Company had made matching contributions totaling $36,830 and $40,957 for the three months ended March 31, 2015 and 2014, respectively. Each participant is 100% vested at all times in employee and employer matching contributions. |
StockBased_Compensation
Stock-Based Compensation | 3 Months Ended | |||||||||||||||
Mar. 31, 2015 | ||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||
Stock-Based Compensation | NOTE 10. STOCK-BASED COMPENSATION | |||||||||||||||
The Company recorded pretax compensation expense related to the grant of stock options and restricted stock issued of $269,200 and $130,847 for the three months ended March 31, 2015 and 2014, respectively. | ||||||||||||||||
As of March 31, 2015, the Company had adopted six separate stock option and restricted stock plans: (i) the 2005 Stock Option and Restricted Stock Plan (the “2005 Plan”), (ii) the 2006 Stock Option and Restricted Stock Plan (the “2006 Plan”), (iii) the 2007 Stock Option and Restricted Stock Plan (the “2007 Plan”), (iv) the 2008 Stock Option and Restricted Stock Plan (the “2008 Plan”), (v) the 2011 Stock Option and Restricted Stock Plan (the “2011 Plan”) and (vi) the 2013 Stock Option and Restricted Stock Plan (the “2013 Plan”). These Plans permit the grant of stock options or restricted stock to its employees, non-employee directors and others for up to a total of 1,175,000 shares of common stock. The Company believes that such awards better align the interests of its employees with those of its shareholders. Option awards have been granted with an exercise price equal to the market price of the Company’s stock at the date of grant with such option awards generally vesting based on the completion of continuous service and having ten-year contractual terms. These option awards provide for accelerated vesting if there is a change in control (as defined in the Plans) or the death or disability of the holder. The Company has registered all shares of common stock that are issuable under its Plans with the SEC. A total of 11,468 options remain available for grant under the various Plans as of March 31, 2015. | ||||||||||||||||
In addition to the Stock Option and Restricted Stock Plans described above, the Company has issued other options outside of these Plans to non-employees for services rendered that are subject to the same general terms as the Plans, of which 1,250 options are fully vested and remain outstanding as of March 31, 2015. | ||||||||||||||||
The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model. The assumptions used for determining the grant-date fair value of options granted during the three months ended March 31, 2015 are reflected in the following table: | ||||||||||||||||
Options | Shares | Weighted Average Exercise Price | ||||||||||||||
Outstanding at January 1, 2015 | 370,743 | $ | 18.97 | |||||||||||||
Granted | — | — | ||||||||||||||
Exercised | (94 | ) | (7.04 | ) | ||||||||||||
Forfeited | (563 | ) | (7.04 | ) | ||||||||||||
Outstanding at March 31, 2015 | 370,086 | $ | 18.99 | |||||||||||||
Exercisable at March 31, 2015 | 302,485 | $ | 22.35 | |||||||||||||
Weighted-average fair value for options granted during the period at fair value | — | $ | — | |||||||||||||
The Plans allow for the cashless exercise of stock options. This provision allows the option holder to surrender/cancel options with an intrinsic value equivalent to the purchase/exercise price of other options exercised. There were no shares surrendered pursuant to cashless exercises during the three months ended March 31, 2015. | ||||||||||||||||
At March 31, 2015, the aggregate intrinsic value of options outstanding was approximately $1,223,700, and the aggregate intrinsic value of options exercisable was approximately $631,067. The aggregate intrinsic value of options exercised during the three months ended March 31, 2015 was $520. | ||||||||||||||||
As of March 31, 2015, the unamortized portion of stock compensation expense on all existing stock options was $72,722, which will be recognized over the next 35 months. | ||||||||||||||||
The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable options under the Company’s option plans as of March 31, 2015: | ||||||||||||||||
Outstanding options | Exercisable options | |||||||||||||||
Exercise price range | Number of options | Weighted average remaining contractual life | Number of options | Weighted average remaining contractual life | ||||||||||||
$0.01 to $3.99 | 64,624 | 8.0 years | 18,250 | 7.2 years | ||||||||||||
$4.00 to $6.99 | 40,250 | 7.5 years | 28,773 | 7.4 years | ||||||||||||
$7.00 to $9.99 | 56,215 | 2.8 years | 46,465 | 1.9 years | ||||||||||||
$10.00 to $12.99 | 52,808 | 2.2 years | 52,808 | 2.2 years | ||||||||||||
$13.00 to $15.99 | 51,439 | 5.4 years | 51,439 | 5.4 years | ||||||||||||
$16.00 to $18.99 | 1,375 | 2.1 years | 1,375 | 2.1 years | ||||||||||||
$19.00 to $29.99 | 6,500 | 4.4 years | 6,500 | 4.4 years | ||||||||||||
$30.00 to $55.00 | 96,875 | 2.7 years | 96,875 | 2.7 years | ||||||||||||
370,086 | 4.5 years | 302,485 | 3.7 years | |||||||||||||
Restricted stock grants. The Board of Directors has granted restricted stock awards under the Plans. Restricted stock awards are valued on the date of grant and have no purchase price for the recipient. Restricted stock awards typically vest over six months to four years corresponding to anniversaries of the grant date. Under the Plans, unvested shares of restricted stock awards may be forfeited upon the termination of service to or employment with the Company, depending upon the circumstances of termination. Except for restrictions placed on the transferability of restricted stock, holders of unvested restricted stock have full stockholder’s rights, including voting rights and the right to receive cash dividends. | ||||||||||||||||
A summary of all restricted stock activity under the equity compensation plans for the three months ended March 31, 2015 is as follows: | ||||||||||||||||
Restricted | Weighted average | |||||||||||||||
stock | grant date | |||||||||||||||
fair value | ||||||||||||||||
Nonvested balance, January 1, 2015 | 188,500 | $ | 5.32 | |||||||||||||
Granted | 86,500 | 11.5 | ||||||||||||||
Vested | (43,000 | ) | (8.45 | ) | ||||||||||||
Forfeited | — | — | ||||||||||||||
Nonvested balance, March 31, 2015 | 232,000 | $ | 7.04 | |||||||||||||
The Company estimated the fair market value of these restricted stock grants based on the closing market price on the date of grant. As of March 31, 2015, there were $1,121,783 of total unrecognized compensation costs related to all remaining non-vested restricted stock grants, which will be amortized over the next 35 months in accordance with the graduated vesting scale. | ||||||||||||||||
The nonvested balance of restricted stock vests as follows: | ||||||||||||||||
Year ended December 31, | Number of shares | |||||||||||||||
2015 (April 1, 2015 through December 31, 2015) | 115,500 | |||||||||||||||
2016 | 65,300 | |||||||||||||||
2017 | 37,950 | |||||||||||||||
2018 | 13,250 |
Common_Stock_Purchase_Warrants
Common Stock Purchase Warrants | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Common Stock Purchase Warrants | |||||||||
Common Stock Purchase Warrants | NOTE 11. COMMON STOCK PURCHASE WARRANTS | ||||||||
The Company issued common stock purchase warrants (the “Warrants”) in conjunction with the original issuance and extension of the Notes and Secured Convertible Note and the $4.0 million Secured Convertible Note (see Note 5). The Warrants are immediately exercisable and allow the holders to purchase up to 94,186 shares of common stock at $4.00 to $8.50 per share after modification. The Warrants expire from November 30, 2015 through August 29, 2019 and allow for cashless exercise. The holder of the Secured Convertible Note and the $4.0 million Secured Convertible Note has registration rights, but the holder of the Notes does not have such rights. The fair value of the Warrants was estimated on the date of grant using a Black-Scholes option valuation model. The assumptions used for determining the grant-date fair value of the Warrants outstanding as of March 31, 2015 are reflected in the following table. | |||||||||
Expected term of the Warrants | 60 months | ||||||||
Expected volatility of Company stock | 113% - 254% | ||||||||
Expected dividends | None | ||||||||
Risk-free interest rate | 1.67% - 1.78% | ||||||||
Forfeiture rate | 0% | ||||||||
Warrants | Weighted average | ||||||||
exercise price | |||||||||
Vested Balance, January 1, 2015 | 306,481 | $ | 7.47 | ||||||
Granted | — | — | |||||||
Exercised | (212,295 | ) | (7.32 | ) | |||||
Vested Balance, March 31, 2015 | 94,186 | $ | 7.79 | ||||||
The total intrinsic value of all outstanding warrants aggregated $466,878 as of March 31, 2015 and the weighted average remaining term is 48 months. |
Net_Loss_Per_Share
Net Loss Per Share | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Earnings Per Share [Abstract] | |||||||||
Net Loss Per Share | NOTE 12. NET LOSS PER SHARE | ||||||||
The calculation of the weighted average number of shares outstanding and loss per share outstanding for the three months ended March 31, 2015 and 2014 are as follows: | |||||||||
Three months ended March 31, | |||||||||
2015 | 2014 | ||||||||
Numerator for basic and diluted loss per share – Net loss | $ | (6,410,712 | ) | $ | (871,499 | ) | |||
Denominator for basic loss per share – weighted average shares outstanding | 3,371,008 | 2,252,571 | |||||||
Dilutive effect of shares issuable under stock options and warrants outstanding | — | — | |||||||
Denominator for diluted loss per share – adjusted weighted average shares outstanding | 3,371,008 | 2,252,571 | |||||||
Net loss per share: | |||||||||
Basic | $ | (1.90 | ) | $ | (.39 | ) | |||
Diluted | $ | (1.90 | ) | $ | (.39 | ) | |||
Basic loss per share is based upon the weighted average number of common shares outstanding during the period. For the three months ended March 31, 2015 and 2014, all outstanding stock options to purchase common stock were antidilutive, and, therefore, not included in the computation of diluted net loss per share. |
Nature_of_Business_and_Summary1
Nature of Business and Summary of Significant Accounting Policies (Policies) | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||
Nature of Business | Nature of Business: | ||||||||
Digital Ally, Inc. (the “Digital Ally”) and subsidiary (collectively, the “Company”) produces digital video imaging, audio recording and related storage products for use in law enforcement and security applications. Its current products are an in-car digital video/audio recorder contained in a rear-view mirror for use in law enforcement and commercial fleets, a weather-resistant mobile digital video recording system for use on motorcycles, ATV’s and boats, a miniature digital video system designed to be worn on an individual’s body; a system that provides our law enforcement customers with audio/video surveillance from multiple vantage points; a digital video/audio recorder contained in a flashlight sold to law enforcement agencies and other security organizations; and a hand-held laser speed detection device that it is offering primarily to law enforcement agencies. The Company has active research and development programs to adapt its technologies to other applications. The Company has the ability to integrate electronic, radio, computer, mechanical, and multi-media technologies to create unique solutions to address needs in a variety of other industries and markets, including mass transit, school bus, taxi cab and the military. | |||||||||
The Company was originally incorporated in Nevada on December 13, 2000 as Vegas Petra, Inc. and had no operations until 2004. On November 30, 2004, Vegas Petra, Inc. entered into a Plan of Merger with Digital Ally, Inc., at which time the merged entity was renamed Digital Ally, Inc. | |||||||||
Basis of Consolidation | Basis of Consolidation: | ||||||||
The accompanying financial statements include the consolidated accounts of Digital Ally and its wholly-owned subsidiaries, Digital Ally International, Inc., and Medical Devices Ally, LLC. All intercompany balances and transactions have been eliminated during consolidation. | |||||||||
Digital Ally formed Digital Ally International, Inc. during August 2009 to facilitate the export sales of its products. In addition, Medical Devices Ally, LLC was formed in July 2014 and has been inactive since formation. | |||||||||
Fair Value of Financial Instruments | Fair Value of Financial Instruments: | ||||||||
The carrying amounts of financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable and subordinated note payable, approximate fair value because of the short-term nature of these items. The Company accounts for its secured convertible notes payable and derivative liabilities on its fair value basis. | |||||||||
Revenue Recognition | Revenue Recognition: | ||||||||
Revenues from the sale of products are recorded when the product is shipped, title and risk of loss have transferred to the purchaser, payment terms are fixed or determinable and payment is reasonably assured. Customers do not have a right to return the product other than for warranty reasons for which they would only receive repair services or replacement product. | |||||||||
The Company sells its products and services to law enforcement and commercial customers in the following manner: | |||||||||
● | Sales to domestic customers are made direct to the end customer (typically a law enforcement agency or a commercial customer) through its direct sales force, which is composed of its employees. Revenue is recorded when the product is shipped to the end customer. | ||||||||
● | Sales to international customers are made through independent distributors who purchase products from the Company at a wholesale price and sell to the end user (typically law enforcement agencies or a commercial customer) at a retail price. The distributor retains the margin as its compensation for its role in the transaction. The distributor generally maintains product inventory, customer receivables and all related risks and rewards of ownership. Revenue is recorded when the product is shipped to the distributor consistent with the terms of the distribution agreement. | ||||||||
● | Repair parts and services for domestic and international customers are generally handled by our inside customer service employees. Revenue is recognized upon shipment of the repair parts and acceptance of the service or materials by the end customer. | ||||||||
Sales taxes collected on products sold are excluded from revenues and are reported as an accrued expense in the accompanying balance sheets until payments are remitted. | |||||||||
Other revenue is comprised of revenues from repair services and the sale of scrap and excess raw material and component parts. Revenue is recognized upon shipment of the product and acceptance of the service or materials by the end customer. | |||||||||
Extended warranties are offered on selected products and when a customer purchases an extended warranty the associated proceeds are treated as deferred revenue and recognized over the term of the extended warranty on a straight line method. | |||||||||
Sales returns and allowances aggregated $313,376 and $226,876 for the three months ended March 31, 2015 and 2014, respectively. Obligations for sales returns and allowances are recognized at the time of sales on an accrual basis. The accrual is determined based upon historical return rates adjusted for known changes in key variables affecting these return rates. | |||||||||
Use of Estimates | Use of Estimates: | ||||||||
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 amount of revenues and expenses during the reporting period. Actual results could differ from those estimates | |||||||||
Cash and Cash Equivalents | Cash and cash equivalents: | ||||||||
Cash and cash equivalents include funds on hand, in bank and short-term investments with original maturities of ninety (90) days or less. | |||||||||
Cash and cash equivalents that are restricted as to withdrawal or use under the terms of the secured note payable are presented as restricted cash separate from cash and cash equivalents on our balance sheet. | |||||||||
Accounts Receivable | Accounts Receivable: | ||||||||
Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a weekly basis. The Company determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, and current economic conditions. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. | |||||||||
A trade receivable is considered to be past due if any portion of the receivable balance is outstanding for more than thirty (30) days beyond terms. No interest is charged on overdue trade receivables. | |||||||||
Inventories | Inventories: | ||||||||
Inventories consist of electronic parts, circuitry boards, camera parts and ancillary parts (collectively, “components”), work-in-process and finished goods, and are carried at the lower of cost (First-in, First-out Method) or market value. The Company determines the estimate for the reserve for slow moving or obsolete inventories by regularly evaluating individual inventory levels, projected sales and current economic conditions. | |||||||||
Furniture, Fixtures and Equipment | Furniture, fixtures and equipment: | ||||||||
Furniture, fixtures and equipment is stated at cost net of accumulated depreciation. Additions and improvements are capitalized while ordinary maintenance and repair expenditures are charged to expense as incurred. Depreciation is recorded by the straight-line method over the estimated useful life of the asset, which ranges from three to ten years. | |||||||||
Intangible Assets | Intangible assets: | ||||||||
Intangible assets include deferred patent costs and license agreements. Legal expenses incurred in preparation of patent application have been deferred and will be amortized over the useful life of granted patents. Costs incurred in preparation of applications that are not granted will be charged to expense at that time. The Company has entered into several sublicense agreements under which it has been assigned the exclusive rights to certain licensed materials used in its products. These sublicense agreements generally require upfront payments to obtain the exclusive rights to such material. The Company capitalizes the upfront payments as intangible assets and amortizes such costs over their estimated useful life on a straight line method. | |||||||||
Debt | Debt: | ||||||||
The Company’s debt securities are accounted for at amortized cost, except where the Company has elected to account for its secured convertible notes payable on its fair value basis. | |||||||||
Long-Lived Assets | Long-Lived Assets: | ||||||||
Long-lived assets such as property, plant and equipment and purchased intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third-party appraisals, as considered necessary. As of March 31, 2015 and December 31, 2014, there were no impairment indicators that required the Company to test for impairment in the carrying value of long-lived assets. | |||||||||
Warranties | Warranties: | ||||||||
The Company’s products carry explicit product warranties that extend up to two years from the date of shipment. The Company records a provision for estimated warranty costs based upon historical warranty loss experience and periodically adjusts these provisions to reflect actual experience. Accrued warranty costs are included in accrued expenses. Extended warranties are offered on selected products and when a customer purchases an extended warranty the associated proceeds are treated as deferred revenue and recognized over the term of the extended warranty. | |||||||||
Customer Deposits | Customer Deposits: | ||||||||
The Company requires deposits in advance of shipment for certain customer sales orders, in particular when accepting orders from foreign customers for which the Company does not have a payment history. Customer deposits are reflected as a current liability in the accompanying Condensed Consolidated Balance Sheets. | |||||||||
Shipping and Handling Costs | Shipping and Handling Costs: | ||||||||
Shipping and handling costs for outbound sales orders totaled $23,975 and $14,759 for the three months ended March 31, 2015 and 2014, respectively. Such costs are included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. | |||||||||
Advertising Costs | Advertising Costs: | ||||||||
Advertising expense includes costs related to trade shows and conventions, promotional material and supplies, and media costs. Advertising costs are expensed in the period in which they are incurred The Company incurred total advertising expense of approximately $125,688 and $103,106 for the three months ended March 31, 2015 and 2014, respectively. Such costs are included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. | |||||||||
Income Taxes | Income Taxes: | ||||||||
Deferred taxes are provided for by the liability method wherein deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. | |||||||||
The Company applies the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 740 - Income Taxes that provides a framework for accounting for uncertainty in income taxes and provided a comprehensive model to recognize, measure, present, and disclose in its financial statements uncertain tax positions taken or expected to be taken on a tax return. It initially recognizes tax positions in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and all relevant facts. Application requires numerous estimates based on available information. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, and it recognized tax positions and tax benefits may not accurately anticipate actual outcomes. As it obtains additional information, the Company may need to periodically adjust its recognized tax positions and tax benefits. These periodic adjustments may have a material impact on its consolidated statements of operations. | |||||||||
The Company’s policy is to record estimated interest and penalties related to the underpayment of income taxes as income tax expense in the consolidated statements of operations. There was no interest expense related to the underpayment of estimated taxes during the three months ended March 31, 2015 and 2014. There have been no penalties in the three months ended March 31, 2015 and 2014. | |||||||||
Research and Development Expenses | Research and Development Expenses: | ||||||||
The Company expenses all research and development costs as incurred. Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. In most instances, the Company’s products are released soon after technological feasibility has been established. Costs incurred subsequent to achievement of technological feasibility were not significant, and software development costs were expensed as incurred during the three months ended March 31, 2015 and 2014. | |||||||||
Stock-Based Compensation | Stock-Based Compensation: | ||||||||
The Company grants stock-based compensation to its employees, board of directors and certain third party contractors. Share-based compensation arrangements may include the issuance of options to purchase common stock in the future or the issuance of restricted stock, which generally are subject to vesting requirements. The Company records stock-based compensation expense for all stock-based compensation granted after January 1, 2006 based on the grant-date fair value. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award. | |||||||||
The Company estimates the grant-date fair value of stock-based compensation using the Black-Scholes valuation model. Assumptions used to estimate compensation expense are determined as follows: | |||||||||
● | Expected term is determined using the contractual term and vesting period of the award; | ||||||||
● | Expected volatility of award grants made in the Company’s plan is measured using the weighted average of historical daily changes in the market price of the Company’s common stock over the period equal to the expected term of the award; | ||||||||
● | Expected dividend rate is determined based on expected dividends to be declared; | ||||||||
● | Risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a maturity equal to the expected term of the awards; and | ||||||||
● | Forfeitures are based on the history of cancellations of awards granted and management’s analysis of potential forfeitures. | ||||||||
Segments of Business | Segments of Business: | ||||||||
Management has determined that its operations are comprised of one reportable segment: the sale of digital audio and video recording and speed detection devices. For the three months ended March 31, 2015 and 2014, sales by geographic area were as follows: | |||||||||
Three months ended March 31, | |||||||||
2015 | 2014 | ||||||||
Sales by geographic area: | |||||||||
United States of America | $ | 4,209,076 | $ | 3,887,832 | |||||
Foreign | 39,688 | 20,509 | |||||||
$ | 4,248,764 | $ | 3,908,341 | ||||||
Sales to customers outside of the United States are denominated in U.S. dollars. All Company assets are physically located within the United States. | |||||||||
Recent Accounting Pronouncements | Recent Accounting Pronouncements: | ||||||||
In May 2014, the FASB issued Accounting Standard Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The standard is effective for interim and annual periods beginning after December 15, 2016 and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The Company has not yet selected a transition method and is currently evaluating the standard and the impact on its consolidated financial statements and footnote disclosures. |
Nature_of_Business_and_Summary2
Nature of Business and Summary of Significant Accounting Policies (Tables) | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||
Summary of Sales by Geographic Area | For the three months ended March 31, 2015 and 2014, sales by geographic area were as follows: | ||||||||
Three months ended March 31, | |||||||||
2015 | 2014 | ||||||||
Sales by geographic area: | |||||||||
United States of America | $ | 4,209,076 | $ | 3,887,832 | |||||
Foreign | 39,688 | 20,509 | |||||||
$ | 4,248,764 | $ | 3,908,341 |
Inventories_Tables
Inventories (Tables) | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Inventory Disclosure [Abstract] | |||||||||
Schedule of Inventories | Inventories consisted of the following at March 31, 2015 and December 31, 2014: | ||||||||
31-Mar-15 | December 31, 2014 | ||||||||
Raw material and component parts | $ | 3,338,562 | $ | 2,987,124 | |||||
Work-in-process | 350,845 | 280,429 | |||||||
Finished goods | 7,705,966 | 6,576,480 | |||||||
Subtotal | 11,395,373 | 9,844,033 | |||||||
Reserve for excess and obsolete inventory | (789,581 | ) | (600,578 | ) | |||||
Total | $ | 10,605,792 | $ | 9,243,455 |
Subordinated_Notes_Payable_Sen1
Subordinated Notes Payable, Senior Secured Convertible Note Payable, and Capital Lease Obligations (Tables) | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Summary of Notes Payable | Subordinated Notes Payable | ||||||||
31-Mar-15 | 31-Dec-14 | ||||||||
Subordinated notes payable, at par | $ | 2,500,000 | $ | 2,500,000 | |||||
Unamortized discount | (22,075 | ) | (55,187 | ) | |||||
Total notes payable | 2,477,925 | 2,444,813 | |||||||
Less: Current Maturities of long-term debt | 2,477,925 | 2,444,813 | |||||||
Subordinated notes payable, long-term | $ | — | $ | — | |||||
Summary of Future Minimum Lease Payments | Capital Leases. Future minimum lease payments under non-cancelable capital leases having terms in excess of one year are as follows: | ||||||||
Year ending December 31: | |||||||||
2015 (period from April 1, 2015 to December 31, 2015) | $ | 38,368 | |||||||
2016 | 3,961 | ||||||||
2017 | — | ||||||||
2018 | — | ||||||||
2019 and thereafter | — | ||||||||
Total future minimum lease payments | 42,329 | ||||||||
Less amount representing interest | 1,415 | ||||||||
Present value of minimum lease payments | 40,914 | ||||||||
Less current portion | 39,351 | ||||||||
Capital lease obligations, less current portion | $ | 1,564 | |||||||
Summary of Assets Under Capital Leases | Assets under capital leases are included in furniture, fixtures and equipment as follows: | ||||||||
31-Mar-15 | 31-Dec-14 | ||||||||
Office furniture, fixtures and equipment | $ | 280,304 | $ | 280,304 | |||||
Less: accumulated amortization | (152,752 | ) | (135,115 | ) | |||||
Net furniture, fixtures and equipment | $ | 127,552 | $ | 145,189 | |||||
Secured Convertible Note Payable [Member] | |||||||||
Summary of Notes Payable | Secured Convertible Note Payable | ||||||||
31-Mar-15 | 31-Dec-14 | ||||||||
Secured convertible note payable, at fair value | $ | — | $ | 3,273,431 | |||||
Less: Current maturities | — | (2,019,720 | ) | ||||||
Secured convertible note payable, long-term | $ | — | $ | 1,253,711 |
Fair_Value_Measurement_Tables
Fair Value Measurement (Tables) | 3 Months Ended | ||||||||||||||||
Mar. 31, 2015 | |||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||
Financial Assets and Liabilities Measured at Fair Value on Recurring Basis | The following table represents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2015. | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||
Liabilities | |||||||||||||||||
Warrant derivative liability | $ | - | $ | - | $ | 591,747 | $ | 591,747 | |||||||||
$ | - | $ | - | $ | 591,747 | $ | 591,747 |
Accrued_Expenses_Tables
Accrued Expenses (Tables) | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Accrued Liabilities [Abstract] | |||||||||
Accrued Expenses | Accrued expenses consisted of the following at March 31, 2015 and December 31, 2014: | ||||||||
31-Mar-15 | 31-Dec-14 | ||||||||
Accrued warranty expense | $ | 240,562 | $ | 247,082 | |||||
Accrued sales commissions | 30,662 | 89,600 | |||||||
Accrued payroll and related fringes | 264,965 | 154,851 | |||||||
Accrued insurance | 39,019 | 81,431 | |||||||
Accrued rent | 251,813 | 260,634 | |||||||
Accrued litigation and related charges | — | 53,666 | |||||||
Other | 343,161 | 255,709 | |||||||
$ | 1,170,182 | $ | 1,142,973 | ||||||
Accrued Warranty Expense | Accrued warranty expense was comprised of the following for the three months ended March 31, 2015: | ||||||||
2015 | |||||||||
Beginning balance | $ | 247,082 | |||||||
Provision for warranty expense | 13,533 | ||||||||
Charges applied to warranty reserve | (20,054 | ) | |||||||
Ending balance | $ | 240,562 |
Commitments_and_Contingencies_
Commitments and Contingencies (Tables) | 3 Months Ended | ||||
Mar. 31, 2015 | |||||
Commitments and Contingencies Disclosure [Abstract] | |||||
Future Minimum Lease Payments | . Following are our minimum lease payments for each year and in total. | ||||
Year ending December 31: | |||||
2015(period from April 1, 2015 to December 31, 2015) | $ | 325,713 | |||
2016 | 439,707 | ||||
2017 | 445,449 | ||||
2018 | 451,248 | ||||
2019 | 457,327 | ||||
Thereafter | 154,131 | ||||
$ | 2,273,575 |
StockBased_Compensation_Tables
Stock-Based Compensation (Tables) | 3 Months Ended | |||||||||||||||
Mar. 31, 2015 | ||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||
Summary of Stock Options Outstanding | The assumptions used for determining the grant-date fair value of options granted during the three months ended March 31, 2015 are reflected in the following table: | |||||||||||||||
Options | Shares | Weighted Average Exercise Price | ||||||||||||||
Outstanding at January 1, 2015 | 370,743 | $ | 18.97 | |||||||||||||
Granted | — | — | ||||||||||||||
Exercised | (94 | ) | (7.04 | ) | ||||||||||||
Forfeited | (563 | ) | (7.04 | ) | ||||||||||||
Outstanding at March 31, 2015 | 370,086 | $ | 18.99 | |||||||||||||
Exercisable at March 31, 2015 | 302,485 | $ | 22.35 | |||||||||||||
Weighted-average fair value for options granted during the period at fair value | — | $ | — | |||||||||||||
Shares Authorized under Stock Option Plans by Exercise Price Range | The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable options under the Company’s option plans as of March 31, 2015: | |||||||||||||||
Outstanding options | Exercisable options | |||||||||||||||
Exercise price range | Number of options | Weighted average remaining contractual life | Number of options | Weighted average remaining contractual life | ||||||||||||
$0.01 to $3.99 | 64,624 | 8.0 years | 18,250 | 7.2 years | ||||||||||||
$4.00 to $6.99 | 40,250 | 7.5 years | 28,773 | 7.4 years | ||||||||||||
$7.00 to $9.99 | 56,215 | 2.8 years | 46,465 | 1.9 years | ||||||||||||
$10.00 to $12.99 | 52,808 | 2.2 years | 52,808 | 2.2 years | ||||||||||||
$13.00 to $15.99 | 51,439 | 5.4 years | 51,439 | 5.4 years | ||||||||||||
$16.00 to $18.99 | 1,375 | 2.1 years | 1,375 | 2.1 years | ||||||||||||
$19.00 to $29.99 | 6,500 | 4.4 years | 6,500 | 4.4 years | ||||||||||||
$30.00 to $55.00 | 96,875 | 2.7 years | 96,875 | 2.7 years | ||||||||||||
370,086 | 4.5 years | 302,485 | 3.7 years | |||||||||||||
Summary of Restricted Stock Activity | A summary of all restricted stock activity under the equity compensation plans for the three months ended March 31, 2015 is as follows: | |||||||||||||||
Restricted | Weighted average | |||||||||||||||
stock | grant date | |||||||||||||||
fair value | ||||||||||||||||
Nonvested balance, January 1, 2015 | 188,500 | $ | 5.32 | |||||||||||||
Granted | 86,500 | 11.5 | ||||||||||||||
Vested | (43,000 | ) | (8.45 | ) | ||||||||||||
Forfeited | — | — | ||||||||||||||
Nonvested balance, March 31, 2015 | 232,000 | $ | 7.04 | |||||||||||||
Nonvested Balance of Restricted Stock | The nonvested balance of restricted stock vests as follows: | |||||||||||||||
Year ended December 31, | Number of shares | |||||||||||||||
2015 (April 1, 2015 through December 31, 2015) | 115,500 | |||||||||||||||
2016 | 65,300 | |||||||||||||||
2017 | 37,950 | |||||||||||||||
2018 | 13,250 |
Common_Stock_Purchase_Warrants1
Common Stock Purchase Warrants (Tables) | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Common Stock Purchase Warrants | |||||||||
Common Stock Purchase Warrants Assumptions | The assumptions used for determining the grant-date fair value of the Warrants outstanding as of March 31, 2015 are reflected in the following table. | ||||||||
Expected term of the Warrants | 60 months | ||||||||
Expected volatility of Company stock | 113% - 254% | ||||||||
Expected dividends | None | ||||||||
Risk-free interest rate | 1.67% - 1.78% | ||||||||
Forfeiture rate | 0% | ||||||||
Summary of Warrant Activity | Warrants | Weighted average | |||||||
exercise price | |||||||||
Vested Balance, January 1, 2015 | 306,481 | $ | 7.47 | ||||||
Granted | — | — | |||||||
Exercised | (212,295 | ) | (7.32 | ) | |||||
Vested Balance, March 31, 2015 | 94,186 | $ | 7.79 |
Net_Loss_Per_Share_Tables
Net Loss Per Share (Tables) | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Earnings Per Share [Abstract] | |||||||||
Calculation of Weighted Average Number of Shares Outstanding and Loss per Share Outstanding | The calculation of the weighted average number of shares outstanding and loss per share outstanding for the three months ended March 31, 2015 and 2014 are as follows: | ||||||||
Three months ended March 31, | |||||||||
2015 | 2014 | ||||||||
Numerator for basic and diluted loss per share – Net loss | $ | (6,410,712 | ) | $ | (871,499 | ) | |||
Denominator for basic loss per share – weighted average shares outstanding | 3,371,008 | 2,252,571 | |||||||
Dilutive effect of shares issuable under stock options and warrants outstanding | — | — | |||||||
Denominator for diluted loss per share – adjusted weighted average shares outstanding | 3,371,008 | 2,252,571 | |||||||
Net loss per share: | |||||||||
Basic | $ | (1.90 | ) | $ | (.39 | ) | |||
Diluted | $ | (1.90 | ) | $ | (.39 | ) |
Nature_of_Business_and_Summary3
Nature of Business and Summary of Significant Accounting Policies (Details Narrative) (USD $) | 3 Months Ended | ||
Mar. 31, 2015 | Mar. 31, 2014 | Dec. 31, 2014 | |
Sales returns and allowances | $313,376 | $226,876 | |
Long lived assets | |||
Shipping and handling costs | 23,975 | 14,759 | |
Advertising expense | 125,688 | 103,106 | |
Percentage of minimum income tax benefits recognized | 0.00% | ||
Interest expense related to underpayment of estimated taxes | 0 | 0 | |
Penalties | 0 | 0 | |
Software development cost | |||
Minimum [Member] | |||
Estimated useful life of furniture, fixtures and equipment | 3 years | ||
Maximum [Member] | |||
Estimated useful life of furniture, fixtures and equipment | 10 years |
Nature_of_Business_and_Summary4
Nature of Business and Summary of Significant Accounting Policies - Summary of Sales by Geographic Area (Details) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Sales by geographic area | $4,248,764 | $3,908,341 |
United States of America [Member] | ||
Sales by geographic area | 4,209,076 | 3,887,832 |
Foreign [Member] | ||
Sales by geographic area | $39,688 | $20,509 |
Concentration_of_Credit_Risk_a1
Concentration of Credit Risk and Major Customers (Details Narrative) (USD $) | 3 Months Ended | ||
Mar. 31, 2015 | Mar. 31, 2014 | Dec. 31, 2014 | |
Allowance for doubtful accounts | $65,977 | $65,977 | |
Maximum percentage of revenue | 51.00% | ||
International Distributor [Member] | |||
Maximum percentage of revenue | 10.00% | ||
Accounts receivable | $312,451 | $379,755 | |
Maximum percentage of accounts receivable | 10.00% | 10.00% |
Inventories_Details_Narrative
Inventories (Details Narrative) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Inventory Disclosure [Abstract] | ||
Finished goods inventory | $577,946 | $645,300 |
Inventories_Schedule_of_Invent
Inventories - Schedule of Inventories (Details) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Inventory Disclosure [Abstract] | ||
Raw material and component parts | $3,338,562 | $2,987,124 |
Work-in-process | 350,845 | 280,429 |
Finished goods | 7,705,966 | 6,576,480 |
Subtotal | 11,395,373 | 9,844,033 |
Reserve for excess and obsolete inventory | -789,581 | -600,578 |
Total | $10,605,792 | $9,243,455 |
Subordinated_Notes_Payable_Sen2
Subordinated Notes Payable, Senior Secured Convertible Note Payable, and Capital Lease Obligations (Details Narrative) (USD $) | 0 Months Ended | 1 Months Ended | 3 Months Ended | 12 Months Ended | 1 Months Ended | 0 Months Ended | 1 Months Ended | 0 Months Ended | 12 Months Ended | 0 Months Ended | |||||||||
Apr. 28, 2014 | Dec. 04, 2013 | Nov. 30, 2011 | 31-May-11 | Jul. 31, 2012 | Mar. 31, 2015 | Mar. 31, 2014 | Dec. 31, 2011 | Dec. 31, 2013 | Jul. 24, 2013 | Mar. 31, 2014 | Jul. 24, 2012 | Mar. 24, 2014 | Dec. 31, 2014 | Jul. 15, 2014 | Jul. 10, 2014 | Feb. 25, 2015 | Dec. 04, 2014 | Aug. 28, 2014 | |
Segment | |||||||||||||||||||
Unsecured notes payable | $2,500,000 | ||||||||||||||||||
Number of unsecured notes payable | 2 | ||||||||||||||||||
Promissory notes, interest rate | 8.00% | ||||||||||||||||||
Principal amount of note payable | 1,500,000 | ||||||||||||||||||
Notes payable maturity date description | from May 30, 2012 to May 30, 2013 | ||||||||||||||||||
Warrants granted to purchase number of common stock | 40,000 | 56,250 | |||||||||||||||||
Warrants exercise price per share | $8.50 | ||||||||||||||||||
Debt allocated to additional paid in capital | 38,052 | 236,726 | |||||||||||||||||
Debt instrument, maturity date | 3-Dec-18 | 30-Nov-15 | 30-Nov-15 | ||||||||||||||||
Discount amortized to interest expense | 33,112 | 41,639 | |||||||||||||||||
Income (loss) from derivative valuation | 165,722 | ||||||||||||||||||
Debt issuance costs | 59,876 | 224,438 | |||||||||||||||||
Derivative liabilities | 2,186,214 | ||||||||||||||||||
Placement agent fee | 240,000 | ||||||||||||||||||
Third party costs for transaction | 101,500 | ||||||||||||||||||
Debt issuance expenses | 354,628 | 224,438 | |||||||||||||||||
Secured convertible note payable at fair value | 3,273,431 | ||||||||||||||||||
Change in fair market value | 302,552 | ||||||||||||||||||
Change in fair value of secured convertible notes payable | 4,434,383 | ||||||||||||||||||
Minimum cash balance maintain | |||||||||||||||||||
Warrant [Member] | |||||||||||||||||||
Value of the warrant derivative | 3,330,210 | ||||||||||||||||||
Unaffiliated Entity [Member] | |||||||||||||||||||
Warrants granted to purchase number of common stock | 10,000 | 13,750 | |||||||||||||||||
Warrants exercise price per share | $8.50 | ||||||||||||||||||
Debt allocated to additional paid in capital | 205,820 | ||||||||||||||||||
Fees paid by the company to an unaffiliated entity | 10,000 | 147,500 | 10,000 | ||||||||||||||||
Debt instrument, maturity date | 3-Dec-18 | ||||||||||||||||||
Maximum [Member] | |||||||||||||||||||
Warrants exercise price per share | 4 | 4 | $8 | $8 | $10 | $10 | |||||||||||||
Debt instrument, maturity date | 30-May-15 | 30-May-14 | 30-Nov-15 | 30-May-14 | |||||||||||||||
Number of shares issued upon exercise of Warrant | 100,000 | ||||||||||||||||||
Minimum [Member] | |||||||||||||||||||
Warrants exercise price per share | 8 | 8 | $4 | $4 | $7.32 | $7.32 | |||||||||||||
Debt instrument, maturity date | 30-May-14 | 30-May-13 | 30-Nov-13 | 30-May-13 | |||||||||||||||
Number of shares issued upon exercise of Warrant | 136,621 | ||||||||||||||||||
First Note [Member] | |||||||||||||||||||
Warrants granted to purchase number of common stock | 37,500 | ||||||||||||||||||
Warrants exercise price per share | $8 | ||||||||||||||||||
First Note [Member] | Maximum [Member] | |||||||||||||||||||
Warrants exercise price per share | $12 | ||||||||||||||||||
First Note [Member] | Minimum [Member] | |||||||||||||||||||
Warrants exercise price per share | $8 | ||||||||||||||||||
Note One [Member] | |||||||||||||||||||
Warrants granted to purchase number of common stock | 6,250 | ||||||||||||||||||
Warrants exercise price per share | $4 | ||||||||||||||||||
Debt instrument, maturity date | 30-Nov-15 | ||||||||||||||||||
Senior Secured Convertible Note Payable [Member] | |||||||||||||||||||
Promissory notes, interest rate | 6.00% | ||||||||||||||||||
Principal amount of note payable | 2,000,000 | ||||||||||||||||||
Warrants granted to purchase number of common stock | 100,000 | ||||||||||||||||||
Warrants exercise price per share | $10 | ||||||||||||||||||
Fees paid by the company to an unaffiliated entity | 224,438 | ||||||||||||||||||
Minimum common stock per share for additional conversion | $17.10 | ||||||||||||||||||
Percentage of volume weighted average trading price | 80.00% | ||||||||||||||||||
Secured Convertible Note, conversion price | $8.55 | ||||||||||||||||||
Terms of conversion feature | the Company may force conversion if the market price exceeds $17.10 per share for 20 consecutive trading days. | ||||||||||||||||||
Warrants, expiration date | 3/24/19 | ||||||||||||||||||
Payments for placement agent fee | 120,000 | ||||||||||||||||||
Legal fees | 104,500 | ||||||||||||||||||
Warrants expiration date | 3/24/19 | ||||||||||||||||||
Secured convertible note payable at fair value | 3,273,431 | ||||||||||||||||||
Secured Convertible Note One [Member] | |||||||||||||||||||
Secured Convertible Note, conversion price | $8.55 | $6.25 | |||||||||||||||||
Conversion of convertible debt into common stock | 384,614 | ||||||||||||||||||
Convesion of debt instruments period | August 28, 2014 and September 19, 2014. | period from July 11 to July 14, 2014. | |||||||||||||||||
Conversion amount | 1,777,778 | ||||||||||||||||||
Interest expense debt | 2,963 | ||||||||||||||||||
Number of stock converted into common stock | 284,928 | ||||||||||||||||||
Secured Convertible Note Payable [Member] | |||||||||||||||||||
Promissory notes, interest rate | 6.00% | ||||||||||||||||||
Principal amount of note payable | 4,000,000 | 4,000,000 | |||||||||||||||||
Secured Convertible Note, conversion price | $7.32 | $6.10 | $6.10 | ||||||||||||||||
Conversion of convertible debt into common stock | 4,000,000 | 3,963,780 | 36,600 | ||||||||||||||||
Convesion of debt instruments period | Principal payments are not required until the sixth month after origination and continue ratably for the remaining 18-month term of the $4.0 million Secured Convertible Note. | ||||||||||||||||||
Conversion of note into common stock | 5,475 | 6,000 | |||||||||||||||||
Value of shares retired | 89,400 | ||||||||||||||||||
Value of the warrant derivative | 4,000,000 | ||||||||||||||||||
Percentage of unrestricted and fully registered shares amount equivalen | 80.00% | ||||||||||||||||||
Debt instruments face amount | 4,000,000 | ||||||||||||||||||
Convertible debt outstanding | 4,000,000 | ||||||||||||||||||
Conversion price exceeds per share for 20 consecutive trading days | $12.20 | ||||||||||||||||||
Debt issuance costs | 992,521 | ||||||||||||||||||
Changes in fair value of warrant derivatives | 1,193,694 | ||||||||||||||||||
Secured convertible note payable at fair value | 4,000,000 | ||||||||||||||||||
Percentage of beneficial owner in excess | 4.99% | ||||||||||||||||||
Rights to convert secured convertible note description | The holder of the $4.0 million Secured Convertible Note has no right to convert the Secured Convertible Notes or exercise the Warrants to the extent that such conversions or exercises would result in the holder being the beneficial owner in excess of 4.99% of the Company’s stock. In addition, the holder has no right to convert the $4.0 million Secured Convertible Note or exercise the August Warrant if the issuance of shares of the common stock upon such conversion or exercise would breach the Company’s limitation under the applicable Nasdaq listing rules (the “Exchange Cap”). For these purposes the Exchange Cap limit applicable to such conversions or exercises of the Secured Convertible Note and the $4.0 million Secured Convertible Note and the Warrant and August Warrant will be based upon the aggregation of such instruments as one issuance and on the number of shares the Company had issued and outstanding when it issued the Secured Convertible Note and Warrant in March 2014. | ||||||||||||||||||
Minimum cash balance maintain | 1,500,000 | ||||||||||||||||||
Increase in fair market value of principal retired amount | 3,963,780 | ||||||||||||||||||
Number of share increase in fair market value | 655,213 | ||||||||||||||||||
Representing increase in stock price over the conversion rate | 4,434,383 | ||||||||||||||||||
Number of warrant exercised | 212,295 | ||||||||||||||||||
Changes in vlaue of warrant derivative | 340,722 | ||||||||||||||||||
Second Private Placement [Member] | |||||||||||||||||||
Warrants, expiration date | 8/28/19 | ||||||||||||||||||
Proceeds from private placement | 4,000,000 | ||||||||||||||||||
Issuance of warrants to purchase of common stock | 262,295 | ||||||||||||||||||
Common stock price per share | $7.32 | ||||||||||||||||||
Warrants expiration date | 8/28/19 | ||||||||||||||||||
Anti-dilution provisions and restrict the incurrence of additional secured indebtedness | $4,000,000 |
Subordinated_Notes_Payable_Sen3
Subordinated Notes Payable, Senior Secured Convertible Note Payable, and Capital Lease Obligations - Summary of Notes Payable (Details) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Debt Disclosure [Abstract] | ||
Subordinated notes payable, at par | $2,500,000 | $2,500,000 |
Unamortized discount | -22,075 | -55,187 |
Total notes payable | 2,477,925 | 2,444,813 |
Less: Current maturities of long-term debt | 2,477,925 | 2,444,813 |
Subordinated notes payable, long-term |
Subordinated_Notes_Payable_Sen4
Subordinated Notes Payable, Senior Secured Convertible Note Payable, and Capital Lease Obligations - Summary of Senior Secured Convertible Note Payable (Details) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Secured convertible note payable at fair value | $3,273,431 | |
Less: Current maturities | -2,019,720 | |
Secured convertible note payable, long-term | 1,253,711 | |
Senior Secured Convertible Note Payable [Member] | ||
Secured convertible note payable at fair value | 3,273,431 | |
Less: Current maturities | -2,019,720 | |
Secured convertible note payable, long-term | $1,253,711 |
Subordinated_Notes_Payable_Sen5
Subordinated Notes Payable, Senior Secured Convertible Note Payable, and Capital Lease Obligations - Summary of Future Minimum Lease Payments (Details) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Debt Disclosure [Abstract] | ||
2015 (period from April 1, 2015 to December 31, 2015) | $38,368 | |
2016 | 3,961 | |
2017 | ||
2018 | ||
2019 and thereafter | ||
Total future minimum lease payments | 42,329 | |
Less amount representing interest | 1,415 | |
Present value of minimum lease payments | 40,914 | |
Less current portion | 39,351 | 61,140 |
Capital lease obligations, less current portion | $1,564 | $3,849 |
Subordinated_Notes_Payable_Sen6
Subordinated Notes Payable, Senior Secured Convertible Note Payable, and Capital Lease Obligations - Summary of Assets Under Capital Leases (Details) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Debt Disclosure [Abstract] | ||
Office furniture, fixtures and equipment | $280,304 | $280,304 |
Less: accumulated amortization | -152,752 | -135,115 |
Net furniture, fixtures and equipment | $127,552 | $145,189 |
Fair_Value_Measurement_Financi
Fair Value Measurement - Financial Assets and Liabilities Measured at Fair Value on Recurring Basis (Details) (USD $) | Mar. 31, 2015 |
Warrant derivative liabilitiy | $591,747 |
Liabilities | 591,747 |
Level 1 [Member] | |
Warrant derivative liabilitiy | |
Liabilities | |
Level 2 [Member] | |
Warrant derivative liabilitiy | |
Liabilities | |
Level 3 [Member] | |
Warrant derivative liabilitiy | 591,747 |
Liabilities | $591,747 |
Accrued_Expenses_Accrued_Expen
Accrued Expenses - Accrued Expenses (Details) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Accrued Liabilities [Abstract] | ||
Accrued warranty expense | $240,562 | $247,082 |
Accrued sales commissions | 30,662 | 89,600 |
Accrued payroll and related fringes | 264,965 | 154,851 |
Accrued insurance | 39,019 | 81,431 |
Accrued rent | 251,813 | 260,634 |
Accrued litigation and related charges | 53,666 | |
Other | 343,161 | 255,709 |
Total accrued expenses | $1,170,182 | $1,142,973 |
Accrued_Expenses_Accrued_Warra
Accrued Expenses - Accrued Warranty Expense (Details) (USD $) | 3 Months Ended |
Mar. 31, 2015 | |
Accrued Liabilities [Abstract] | |
Beginning balance | $247,082 |
Provision for warranty expense | 13,533 |
Charges applied to warranty reserve | -20,054 |
Ending balance | $240,562 |
Income_Taxes_Details_Narrative
Income Taxes (Details Narrative) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Dec. 31, 2014 | |
Valuation allowance on deferred tax assets | $15,635,000 | $12,692,000 |
Increase valuation allowance on deferred tax assets | 2,943,000 | |
Net operating loss carry forwards | 26,630,000 | |
Operating loss carryforwards expiration years | between 2024 and 2035 | |
Percentage of changes in ownership | 50.00% | |
Duration for changes in ownership | 3 years | |
Net operating loss due to ownership changes | 765,000 | |
Research and development tax credit carryforwards due to ownership changes | 175,000 | |
Annual limitation due to ownership changes | 1,151,000 | |
Operating loss, research and development tax credit forwards expiration year | 2023 and 2035 | |
Percentage of minimum income tax benefits recognized | 0.00% | |
Research And Development [Member] | ||
Tax credit carryforwards | $1,620,000 | |
Tax credit carryforwards, expiration date | between 2023 and 2035 |
Commitments_and_Contingencies_1
Commitments and Contingencies (Details Narrative) (USD $) | 1 Months Ended | 3 Months Ended | 12 Months Ended | |
Aug. 31, 2010 | Mar. 31, 2015 | Mar. 31, 2014 | Dec. 31, 2014 | |
Units | Segment | |||
Non-cancelable operating lease | 30-Apr-20 | |||
Rent expense | $99,431 | $99,431 | ||
Royalty expense | 6,539 | 7,427 | ||
Minimum purchase requirement of the agreement, units | 1,000 | |||
Percentage of reduction in minimum purchase commitment over the second and third years | 52.00% | |||
Minimum order quantities requires to acquire the product | 634,680 | |||
Products in finished goods inventory | 1,325,000 | |||
Sale of finished goods inventory, units | 980 | |||
Accounts payable and accrued liabilities | 210,000 | |||
Description of matching contributions to employees | 401 (k) Plan. In July 2008, the Company amended and restated its 401(k) retirement savings plan. The amended plan requires the Company to provide 100% matching contributions for employees who elect to contribute up to 3% of their compensation to the plan and 50% matching contributions for employee’s elective deferrals on the next 2% of their contributions. | |||
Matching contributions to 401 (k) Plan | $36,830 | $40,957 | ||
Percentage of employer matching contribution | 100.00% | 100.00% | ||
3% Of Employee Contribution [Member] | ||||
Percentage of employer matching contribution | 100.00% | |||
2% Of Employee Contribution [Member] | ||||
Percentage of employer matching contribution | 50.00% |
Commitments_and_Contingencies_2
Commitments and Contingencies - Future Minimum Lease Payments (Details) (USD $) | Mar. 31, 2015 |
Commitments and Contingencies Disclosure [Abstract] | |
2015(period from April 1, 2015 to December 31, 2015) | $325,713 |
2016 | 439,707 |
2017 | 445,449 |
2018 | 451,248 |
2019 | 457,327 |
Thereafter | 154,131 |
Net lease commitments | $2,273,575 |
StockBased_Compensation_Detail
Stock-Based Compensation (Details Narrative) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Stock based compensation | $269,200 | $130,847 |
Contractual terms | 10 years | |
Number of common stock authorized to grant | 1,175,000 | |
Options, available for grant | 11,468 | |
Options that are fully vested and remain outstanding | 1,250 | |
Aggregate intrinsic value of options outstanding | 1,223,700 | |
Intrinsic value of options exercisable | 631,067 | |
Intrinsic value of options exercised | 520 | |
Unamortized portion of stock compensation expense | 72,722 | |
Stock options recognized over period | 35 months | |
Restricted Stock [Member] | ||
Unrecognized compensation costs | $1,121,783 |
StockBased_Compensation_Summar
Stock-Based Compensation - Summary of Stock Options (Details) (USD $) | 3 Months Ended |
Mar. 31, 2015 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Options Outstanding, Beginning balance | 370,743 |
Options Granted | |
Options Exercised | -94 |
Options Forfeited | -94 |
Options Outstanding, Ending balance | 370,086 |
Options Exercisable, Ending balance | 302,485 |
Weighted-average fair value for options granted during the period at fair value | |
Weighted Average Exercise Price, Outstanding, Beginning balance | $18.97 |
Weighted Average Exercise Price, Granted | |
Weighted Average Exercise Price, Exercised | ($7.04) |
Weighted Average Exercise Price, Forfeited | ($7.04) |
Weighted Average Exercise Price, Outstanding, Ending balance | $18.99 |
Weighted Average Exercise Price, Exercisable, Ending balance | $22.35 |
Weighted-average fair value for options granted during the period at fair value |
StockBased_Compensation_Shares
Stock-Based Compensation - Shares Authorized Under Stock Option Plans by Exercise Price Range (Details) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Dec. 31, 2014 | |
Number of options, Outstanding | 370,086 | 370,743 |
Weighted average remaining contractual life, Outstanding options | 4 years 6 months | |
Number of options, Exercisable | 302,485 | |
Weighted average remaining contractual life, Exercisable options | 3 years 8 months 12 days | |
Range One [Member] | ||
Exercise price range, lower limit | 0.01 | |
Exercise price range, upper limit | 3.99 | |
Number of options, Outstanding | 64,624 | |
Weighted average remaining contractual life, Outstanding options | 8 years | |
Number of options, Exercisable | 18,250 | |
Weighted average remaining contractual life, Exercisable options | 7 years 2 months 12 days | |
Range Two [Member] | ||
Exercise price range, lower limit | 4 | |
Exercise price range, upper limit | 6.99 | |
Number of options, Outstanding | 40,250 | |
Weighted average remaining contractual life, Outstanding options | 7 years 6 months | |
Number of options, Exercisable | 28,773 | |
Weighted average remaining contractual life, Exercisable options | 7 years 4 months 24 days | |
Range Three [Member] | ||
Exercise price range, lower limit | 7 | |
Exercise price range, upper limit | 9.99 | |
Number of options, Outstanding | 56,215 | |
Weighted average remaining contractual life, Outstanding options | 2 years 9 months 18 days | |
Number of options, Exercisable | 46,465 | |
Weighted average remaining contractual life, Exercisable options | 1 year 10 months 24 days | |
Range Four [Member] | ||
Exercise price range, lower limit | 10 | |
Exercise price range, upper limit | 12.99 | |
Number of options, Outstanding | 52,808 | |
Weighted average remaining contractual life, Outstanding options | 2 years 2 months 12 days | |
Number of options, Exercisable | 52,808 | |
Weighted average remaining contractual life, Exercisable options | 2 years 2 months 12 days | |
Range Five [Member] | ||
Exercise price range, lower limit | 13 | |
Exercise price range, upper limit | 15.99 | |
Number of options, Outstanding | 51,439 | |
Weighted average remaining contractual life, Outstanding options | 5 years 4 months 24 days | |
Number of options, Exercisable | 51,439 | |
Weighted average remaining contractual life, Exercisable options | 5 years 4 months 24 days | |
Range Six [Member] | ||
Exercise price range, lower limit | 16 | |
Exercise price range, upper limit | 18.99 | |
Number of options, Outstanding | 1,375 | |
Weighted average remaining contractual life, Outstanding options | 2 years 1 month 6 days | |
Number of options, Exercisable | 1,375 | |
Weighted average remaining contractual life, Exercisable options | 2 years 1 month 6 days | |
Range Seven [Member] | ||
Exercise price range, lower limit | 19 | |
Exercise price range, upper limit | 29.99 | |
Number of options, Outstanding | 6,500 | |
Weighted average remaining contractual life, Outstanding options | 4 years 4 months 24 days | |
Number of options, Exercisable | 6,500 | |
Weighted average remaining contractual life, Exercisable options | 4 years 4 months 24 days | |
Range Eight [Member] | ||
Exercise price range, lower limit | 30 | |
Exercise price range, upper limit | 55 | |
Number of options, Outstanding | 96,875 | |
Weighted average remaining contractual life, Outstanding options | 2 years 8 months 12 days | |
Number of options, Exercisable | 96,875 | |
Weighted average remaining contractual life, Exercisable options | 2 years 8 months 12 days |
StockBased_Compensation_Summar1
Stock-Based Compensation - Summary of Restricted Stock Activity (Details) (Restricted Stock [Member], USD $) | 3 Months Ended |
Mar. 31, 2015 | |
Restricted Stock [Member] | |
Restricted stock, Nonvested Beginning Balance | 188,500 |
Restricted stock, Granted | 86,500 |
Restricted stock, Vested | -43,000 |
Restricted stock, Forfeited | |
Restricted stock, Nonvested Ending Balance | 232,000 |
Weighted average grant date fair value, Nonvested Beginning Balance | $5.32 |
Weighted average grant date fair value, Granted | $11.50 |
Weighted average grant date fair value, Vested | ($8.45) |
Weighted average grant date fair value, Forfeited | |
Weighted average grant date fair value, Nonvested Ending Balance | $7.04 |
StockBased_Compensation_Nonves
Stock-Based Compensation - Nonvested Balance of Restricted Stock (Details) (Restricted Stock [Member]) | Mar. 31, 2015 |
Restricted Stock [Member] | |
2015 (April 1, 2015 through December 31, 2015) | 115,500 |
2016 | 65,300 |
2017 | 37,950 |
2018 | 13,250 |
Common_Stock_Purchase_Warrants2
Common Stock Purchase Warrants (Details Narrative) (USD $) | 3 Months Ended |
Mar. 31, 2015 | |
Secured convertible note | $3,273,431 |
Exercisable warrants issued to purchase number of common stock | 94,186 |
Warrant [Member] | |
Warrants outstanding intrinsic value | 466,878 |
Warrants, weighted average remaining term | 48 months |
Minimum [Member] | |
Common stock, exercise per share | $4 |
Maximum [Member] | |
Common stock, exercise per share | $8.50 |
Secured Convertible Note Payable [Member] | |
Secured convertible note | 4,000,000 |
Convertible note registration rights | $4,000,000 |
Common_Stock_Purchase_Warrants3
Common Stock Purchase Warrants - Common Stock Purchase Warrants Assumptions (Details) (Warrant [Member]) | 3 Months Ended |
Mar. 31, 2015 | |
Expected term of the Warrants | 60 months |
Expected dividends | 0.00% |
Forfeiture rate | 0.00% |
Minimum [Member] | |
Expected volatility of Company stock | 113.00% |
Risk-free interest rate | 1.67% |
Maximum [Member] | |
Expected volatility of Company stock | 254.00% |
Risk-free interest rate | 1.78% |
Common_Stock_Purchase_Warrants4
Common Stock Purchase Warrants - Summary of Warrant Activity (Details) (Warrant [Member], USD $) | 3 Months Ended |
Mar. 31, 2015 | |
Warrant [Member] | |
Warrants, Vested, Beginning balance | 306,481 |
Warrants, Granted | |
Warrants, Exercised | -212,295 |
Warrants, Vested, Ending balance | 94,186 |
Weighted average exercise price, Vested, Beginning balance | $7.47 |
Weighted average exercise price, Granted | |
Weighted average exercise price, Exercised | ($7.32) |
Weighted average exercise price, Vested, Ending balance | $7.79 |
Net_Loss_Per_Share_Calculation
Net Loss Per Share - Calculation of Weighted Average Number of Shares Outstanding and Loss per Share Outstanding (Details) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Earnings Per Share [Abstract] | ||
Numerator for basic and diluted income per share - Net loss | ($6,410,712) | ($871,499) |
Denominator for basic loss per share - weighted average shares outstanding | 3,371,008 | 2,252,571 |
Dilutive effect of shares issuable under stock options and warrants outstanding | ||
Denominator for diluted loss per share - adjusted weighted average shares outstanding | 3,371,008 | 2,252,571 |
Basic | ($1.90) | ($0.39) |
Diluted | ($1.90) | ($0.39) |