Document and Entity Information
Document and Entity Information | 12 Months Ended |
Dec. 31, 2016USD ($)shares | |
Fair value of warrants and convertibility feature of long term debt | |
Entity Registrant Name | Lightning Gaming, Inc. |
Entity Central Index Key | 1,392,545 |
Document Type | 10-K |
Document Period End Date | Dec. 31, 2016 |
Amendment Flag | false |
Current Fiscal Year End Date | --12-31 |
Is Entity a Well-known Seasoned Issuer? | No |
Is Entity a Voluntary Filer? | No |
Is Entity's Reporting Status Current? | Yes |
Entity Filer Category | Smaller Reporting Company |
Entity Public Float | $ | $ 4,688 |
Entity Common Stock, Shares Outstanding | shares | 4,688,474 |
Document Fiscal Period Focus | FY |
Document Fiscal Year Focus | 2,016 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
ASSETS | ||
Cash | $ 252,306 | $ 357,477 |
Accounts receivable, net | 452,190 | 621,894 |
Inventory | 127,753 | 143,805 |
Prepaid expenses | 95,581 | 140,941 |
Total Current Assets | 927,830 | 1,264,117 |
Property, Plant and Equipment, net | 148,467 | 407,064 |
Other Assets | 8,193 | 8,193 |
License Fees, net of accumulated amortization | 37,907 | 51,682 |
Total Assets | 1,122,397 | 1,731,056 |
Liabilities and Stockholders' Deficit | ||
Accounts payable | 194,939 | 444,637 |
Accrued expenses | 134,007 | 93,961 |
Total Current Liabilities | 328,946 | 538,598 |
Long Term Debt and Other Liabilities | ||
Long term notes payable | ||
Interest payable and other long term liabilities | ||
Other long term liabilities | 51,543 | 57,478 |
Fair value of warrants and convertibility feature of long term debt | ||
Total Long Term Debt and Other Liabilities | 51,543 | 57,478 |
Stockholders' Deficit | ||
Preferred stock: $0.001 par value; authorized 10,000,000 shares, Series A Nonvoting capital stock 6,000,000 shares authorized, -0- shares issued and outstanding as of December 31, 2016 and 2015 | ||
Common stock: $0.001 par value; authorized 90,000,000 shares; 4,916,285 and 4,660,285 shares issued at December 31, 2016 and 2015, 4,688,474 shares outstanding at December 31, 2016 and 2015 | 4,917 | 4,917 |
Additional paid in capital | 30,348,856 | 30,348,856 |
Accumulated deficit | (29,626,354) | (29,233,282) |
Treasury stock, 227,811 shares at cost, as of December 31, 2016 and 2015 | (18,811) | (18,811) |
Total Stockholders' Deficit | 741,908 | 1,134,980 |
Total Liabilities and Stockholders' Deficit | $ 1,122,397 | $ 1,731,056 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - $ / shares | Dec. 31, 2016 | Dec. 31, 2015 |
Stockholders' Deficit | ||
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, authorized shares | 10,000,000 | 10,000,000 |
Preferred Stock Series A Nonvoting capital stock, authorized shares | 6,000,000 | 6,000,000 |
Preferred Stock Series A Nonvoting capital stock, issued shares | 4,500,000 | 4,500,000 |
Preferred Stock Series A Nonvoting capital stock, outstanding shares | 3,500,000 | 4,500,000 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, authorized shares | 90,000,000 | 90,000,000 |
Common stock, issued shares | 4,916,285 | 4,688,474 |
Common stock, outstanding shares | 4,916,285 | 4,688,474 |
Consolidated Statements of Oper
Consolidated Statements of Operations - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Revenues | ||
Lease, license and service fees | $ 2,503,520 | $ 3,187,136 |
Sales of gaming products and parts | 532,658 | 866,497 |
Total revenues | 3,036,178 | 4,053,633 |
Costs and operating expenses | ||
Cost of products sold | 172,773 | 554,880 |
Operating expenses | 538,036 | 725,972 |
Research and development | 404,304 | 520,051 |
Selling, general & administrative expenses | 2,024,229 | 2,071,770 |
Total costs and operating expenses | 3,429,250 | 4,387,896 |
Operating loss | (393,072) | (334,263) |
Non-operating income (expense) | ||
Net interest expense | (294,967) | |
Change in value of warrants | $ 6,424 | |
Net loss per common share including Series A Nonvoting shares-basic and diluted | $ (0.01) | $ (0.03) |
Weighted average Series A Nonvoting shares outstanding-basic and diluted | 2,675,342 | |
Weighted average common shares outstanding- basic and diluted | 33,300,000 | 13,502,466 |
Consolidated Statements of Stoc
Consolidated Statements of Stockholders' Deficit - USD ($) | Series A Nonvoting Capital Stock | Common Stock | Nonvoting Common Stock | Additional Paid-In Capital | Retained Earnings / Accumulated Deficit | Treasury Stock | Total |
Begining Balance, Shares at Dec. 31, 2014 | 4,500,000 | 4,660,285 | 127,811 | ||||
Begining Balance, Amount at Dec. 31, 2014 | $ 4,500 | $ 4,661 | $ 7,633,255 | $ (28,610,476) | $ (13,811) | $ (20,981,871) | |
Issuance of Series A Nonvoting capital stock, Shares | 256,000 | 28,800,000 | |||||
Issuance of Series A Nonvoting capital stock, Amount | $ 256 | $ 28,800 | 22,715,010 | 22,744,066 | |||
Exchange of Stock, Shares | (4,500,000) | 4,500,000 | |||||
Exchange of Stock, Amount | $ (4,500) | $ 4,500 | |||||
Stock based compensation | 591 | 591 | |||||
Net Loss | $ (622,806) | ||||||
Purchase of stock for the treasury, shares | 100,000 | ||||||
Purchase of stock for the treasury, amount | $ (5,000) | (5,000) | |||||
Ending Balance, Shares at Dec. 31, 2015 | 4,916,285 | 33,300,000 | (29,233,282) | 227,811 | |||
Ending Balance, Amount at Dec. 31, 2015 | $ 4,917 | $ 33,300 | 30,348,856 | $ (18,811) | 1,134,980 | ||
Net Loss | $ (393,072) | ||||||
Ending Balance, Shares at Dec. 31, 2016 | 4,916,285 | 33,300,000 | 227,811 | ||||
Ending Balance, Amount at Dec. 31, 2016 | $ 4,917 | $ 33,300 | $ 30,348,856 | $ (29,626,354) | $ (18,811) | $ 741,908 |
Nature of Business and Signific
Nature of Business and Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2016 | |
PaymentOnCapitalLease | |
Nature of Business and Significant Accounting Policies | Note 1. Nature of Business and Summary of Significant Accounting Policies Nature of Business Lightning Poker was formed to manufacture and market a fully automated, proprietary electronic poker table (the Poker Table) to commercial and tribal casinos, card clubs, and other gaming and lottery venues. Lightning Pokers Poker Table is designed to improve economics for casino operators while improving overall player experience. In 2008, the Company, as the sole member, established Lightning Slot Machines, LLC (Lightning Slots) through which it commenced the design, manufacture, marketing, sale and operation of video slot machines to customers in various gaming jurisdictions. The current slot machine products are: · Popeye · Jungle Book · Popeyes Bonus Voyage · Jumbo Fish Stacks · Popeyes Seven Seas · Just Jackpots · Olive Oyls Jumbo Stacks · Lightning Lotto · Flash Gordon · Penny Palooza · Garfield · Si Shou · Around the World in 80 Days · Slotto · Candy Cash · Snow White · Cash Flow · Swamp Fever · Cinderella · Swamp Frenzy · Duck Dynamite · Vampires Fortune · Fins N Wins · Year of the Horse · Golden Egg · Ye Xian · Hao Yun Our gaming products feature advanced graphics and engaging games based on licensed, well-recognized brands, cartoon characters and proprietary non-branded themes. Our consolidated financial statements include the accounts of the Company, including All inter-company accounts and transactions have been eliminated. The accompanying consolidated financial statements have been prepared on a going concern basis, which assumes realization of all assets and settlement or payment of all liabilities in the ordinary course of business. The Company has had net operating losses and negative cash flows from operations however it has maintained and sustained working capital surpluses. An increase in sales contracts is an indication that conditions have recently been improving and the Company expects these conditions to continue to improve, however the generation of cash flow sufficient to meet the Companys cash needs in the future will depend on the Companys ability to distribute its products and successfully market them to more casinos and card clubs. Based on our current financial condition, cash flow projections and anticipated revenues, we believe we have sufficient cash flows to support our operations for the next twelve months, however if supplemental financing becomes necessary, there is no assurance that the Company would be able to obtain such financing, on reasonable and feasible terms, or at all. If the Company needs additional funding and is unable to obtain it, its financial condition would be adversely affected. In that event, it would have to postpone or discontinue planned operations and projects for expansion. The Companys continuance as a going concern is dependent upon these factors, among others. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. A summary of the Companys significant accounting policies is as follows: Revenue Recognition If multiple units of our products are included in any one sale or lease agreement, revenue is allocated to each unit based upon its respective fair value against the total contract value and revenue recognition is deferred on those units where all requirements of revenue recognition have not been met. There are also instances in which a lease may be offered to a customer with the option to convert to a sale upon the completion of certain obligations such as a pre-determined paid or reduced-rate lease term and/or a free-trial period. In addition, circumstances may arise in which a customer wishes to purchase machines after being on lease at their facility. In all of these situations, the initial revenue is recorded as lease revenue and the agreed upon sales price is shown as sales revenue when the lease is converted to a sale. For the years 2016 and 2015 revenue from customers outside the United States accounted for approximately $-0- and $2,889 of revenues, respectively. Two and three casino customers accounted for 11% and 21% of our revenues for the years ended December 31, 2016 and 2015, respectively. One casino group represented 10% and 8% of total revenues for each of the years ended December 31, 2016 and 2015, respectively. Use of Estimates Significant estimates include the recoverable value of long-lived assets, projected cash flows, and the fair market value of warrants and the convertible feature of long-term debt, if applicable. Cash Concentrations of Credit Risk Receivables and Allowance for Doubtful Accounts At December 31, 2016 and 2015, accounts receivable from four and five casino customers, respectively, represented 54% and 72%, respectively, of total accounts receivable. One customer represented 20% of the total accounts receivable balance as of December 31, 2016 and one customer represented 40% of the accounts receivable balance as of December 31, 2015. License Fees: Patents Research and Development Inventory Fair Value Measurements Property and Equipment Income Taxes The Company has assessed its tax position and does not believe there are any uncertain tax positions. Our policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the Statement of Operations. The Company has determined that there are no unrecognized tax benefits, and accordingly, has not recognized any interest or penalties during 2016 and 2015 related to unrecognized tax benefits. There is no accrual for interest or penalties as of December 31, 2016 and 2015. The Company files U.S. income tax returns and multiple state and foreign income tax returns. With few exceptions, the U.S. and state income tax returns filed for the tax years ending on December 31, 2013 and thereafter are subject to examination by the relevant taxing authorities. Advertising Impairment of Long-Lived Assets - Going Concern he Company evaluates whether there are conditions or events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern for a period of one year after the date that the financial statements are issued, taking into consideration the quantitative and qualitative information regarding the Companys current financial condition, conditional and unconditional obligations due and the funds and cash flow necessary to maintain operations within that time period. Based on managements evaluation, the Company will be able to continue in operation on a going concern basis for at least the next twelve months from the date these financial statements are issued. Stock Option Plans Earnings (loss) per share: The Company uses the two-class method in computing earnings per share. Under the two-class method, undistributed earnings are allocated among common and participating shares to the extent each security may share in such earnings. In computing earnings per share, the Company's Nonvoting Stock is considered a participating security. Each share of Nonvoting Stock has identical rights, powers, limitations and restrictions in all respects as each share of common stock of the Company including the right to receive the same consideration per share payable in respect of each share of common stock, except that holders of Nonvoting Stock shall have no voting rights or powers whatsoever. The following table summarizes the number of dilutive shares, which may dilute future earnings per share, outstanding for each of the periods presented, but not included in the calculation of diluted loss per share: December 31, 2016 December 31, 2015 Stock options 885,000 1,198,000 |
Inventory
Inventory | 12 Months Ended |
Dec. 31, 2016 | |
PaymentOnCapitalLease | |
Inventory | Note 2. Inventory Inventory consisted of the following: December 31, December 31, 2015 Finished products $ 19,989 $ 1,685 Raw materials 107,764 142,120 Inventory $ 127,753 $ 143,805 |
Property and Equipment
Property and Equipment | 12 Months Ended |
Dec. 31, 2016 | |
PaymentOnCapitalLease | |
Property and Equipment | Note 3. Property and Equipment Property and equipment consisted of the following: December 31, 2016 December 31, 2015 Equipment, principally gaming equipment $ 3,956,072 $ 4,108,598 Delivery truck 28,140 28,140 Furniture and fixtures 92,237 90,525 Leasehold improvements 91,794 91,794 Property and equipment 4,168,243 4,319,057 Less accumulated depreciation (4,019,776 ) (3,911,993 ) Property and equipment, net $ 148,467 $ 407,064 Depreciation expense related to the property and equipment included in the consolidated Statements of Operations was $279,908 and $447,348 for the years ended December 31, 2016 and 2015, respectively. |
License Fees
License Fees | 12 Months Ended |
Dec. 31, 2016 | |
PaymentOnCapitalLease | |
License Fees | Note 4. License Fees License fees consist of the following: December 31, 2016 December 31, 2015 Purchased licenses $ 363,229 $ 367,004 Less accumulated amortization (325,322 ) (315,322 ) License fees, net $ 37,907 $ 51,682 The weighted average useful life of purchased licenses is 3 years. Amortization expense included in the consolidated Statements of Operations and relating to the purchased licenses was $10,000 and $67,875 for the years ended December 31, 2016 and 2015, respectively. Estimated amortization expense related to recorded license fees is as follows: Year Ending Amount 2017 $ 32,073 2018 5,834 $ 37,907 |
Debt
Debt | 12 Months Ended |
Dec. 31, 2016 | |
PaymentOnCapitalLease | |
Debt | Note 5. Debt On August 6, 2015, the Company entered into an agreement with The Co-Investment Fund II, L.P. (CI II) in which the entire principal and accrued interest on promissory notes and other related loan agreements outstanding and due to CI II, including warrants to purchase a maximum of 12,151,385 shares of Company stock, as well as the 4,500,000 shares of Preferred Series A Nonvoting Capital Stock then outstanding, were converted into181,000 shares of (voting) Common Stock, par value $0.001, and 33,300,000 shares of Nonvoting Common Stock, par value $0.001, of the Company. Upon the conversion, all notes, loans, accrued interest, and warrants due to CI II were terminated in their entirety and all obligations were extinguished. Prior to conversion, substantially all of the Companys assets had been pledged as collateral on debt and all of the notes were due on June 30, 2017 with interest at 8% on each note payable at maturity. In May 2015, the lender agreed to suspend the accrual of interest on all of the notes outstanding, effective April 1, 2015, in anticipation of converting its debt and related obligations to equity in the transaction described above. See Note 7, Stockholders Equity and Note 9, Related Party Transactions for more information on debt and warrant transactions. |
Commitments
Commitments | 12 Months Ended |
Dec. 31, 2016 | |
PaymentOnCapitalLease | |
Commitments | Note 6. Commitments In November 2009, the Company entered into a lease agreement for its corporate offices which became effective in January 2010 for a term of sixty-seven months. In September 2014, the lease was amended to include the following: 1) an extension of the lease term to February 28, 2021; 2) modification of the minimum annual and monthly rents for the extended lease term; 3) a rent abatement period of six months commencing October 1, 2014; and 4) an option to extend the term for a period of five years. Rental expense is recognized on a straight-line basis over the life of the lease and is recorded as a deferred rent obligation during the abatement period. The deferred rent is reduced by the difference between the rent due and the straight-line expense upon commencement of the rental payments. Rental expense under this lease for the years ended December 31, 2016 and 2015 was $153,026 and $141,086, respectively. Future minimum lease payments are as follows: Year Ending December 31, Amount 2017 $ 99,337 2018 101,821 2019 104,366 2020 106,975 2021 and thereafter 18,124 $ 430,623 The Company routinely enters into license agreements for the use of intellectual properties and technologies. These agreements generally provide for royalty advances and license fee payments when the agreements are signed and minimum commitments which are cancelable in certain circumstances. In October 2009, the Company entered into an exclusive license agreement with Hearst Holdings, Inc. and King Features Syndicate Division to use the brands POPEYE and related family of characters in gaming devices distributed worldwide excluding the United Kingdom and Japan. The initial term of the agreement was for one year with the Companys right to extend the agreement for eight additional one-year terms upon payment of minimum royalties. The Company paid the minimum royalties and extended the term of the agreement to December 2013. In April 2013, the Company was granted the right to sublicense the POPEYE brand for distribution to bar and salon customers only in Spain for the remainder of the renewal term. In December 2013, the Company and Hearst Holdings entered into a second renewal agreement extending the license and sublicense renewal term from January 1, 2014 to December 31, 2016, and a third renewal agreement extending the license and sublicense renewal term from January 1, 2017 to December 31, 2018. The third renewal agreement is subject to a guaranteed minimum royalty of $50,000, $25,000 payable on or before December 31, 2017 and $25,000 payable on or before December 31, 2018. In June 2011, the Company entered into a license agreement with Hearst Holdings, Inc. to use the brand Blondie and related family of characters in gaming devices distributed worldwide. The initial term of the agreement was for two years with the Companys right to extend the agreement for eight additional one- In November 2011, the Company entered into a license agreement with Hearst Holdings, Inc. to use the brand Beetle Bailey and related family of characters in gaming devices distributed worldwide. The initial term of the agreement was for two years with the Companys right to extend the agreement for eight additional one-year terms upon payment of minimum royalties during the term of the agreement. The Company and Hearst Holdings entered into a renewal agreement extending the renewal term from January 1, 2014 to December 31, 2015. The renewal period has expired and all royalty obligations have been paid in full. In March 2013, the Company entered into a license agreement with Hearst Holdings, Inc. to use the brand Hagar the Horrible and related family of characters in gaming devices distributed worldwide. The initial term of the agreement ran from April 1, 2013 to June 30, 2015. The Company had the right to extend the agreement for eight additional one-year terms upon payment of $50,000 in minimum royalties. The Company opted not to extend the agreement and all royalty obligations have been paid in full. In October 2014, the Company entered into a license agreement with Paws, Inc. to use the brand Garfield and associated family of characters in gaming devices distributed worldwide, except in the embargo countries of Cuba, Iran and Sudan. The initial term of the agreement runs from December 1, 2014 to November 30, 2017 and is subject to a guaranteed minimum royalty of $75,000. In December 2014, 2015, and 2016, the Company paid $25,000 as non-refundable advances against the guaranteed royalty. The guaranteed advanced payments are recoupable out of royalties earned on the license. In November 2014, the Company entered into a license agreement with Hearst Holdings, Inc. for the worldwide distribution of gaming devices using Flash Gordon and associated family of characters. The initial term of the agreement runs from November 1, 2014 to October 31, 2017 with royalties based on a percentage of revenues earned on the license, payable on a quarterly basis which commenced on January 31, 2016. In July 2016, the Company entered into a license agreement with Ainsworth Game Technology Ltd for the intellectual property rights to use certain game technology in slot machines titled as Flash Gordon, Ye Xian and Cash Flow. The term of the agreement runs from July 1, 2016 to May 30, 2018 with royalties based on a percentage of revenues earned on the slot machines running the aforementioned titles, payable on a quarterly basis with the first royalty payment due October 31, 2016. At December 31, 2016, the Company had total license fee commitments and advance payments made as follows: Minimum Total royalty and license fee commitments $ 81,250 Advances made (81,250 ) Potential future payments $ As of December 31, 2016, the Company estimates that all potential future royalty payments have been paid. |
Stockholders_ Deficit
Stockholders’ Deficit | 12 Months Ended |
Dec. 31, 2016 | |
PaymentOnCapitalLease | |
Stockholders’ Deficit | Note 7. Stockholders Equity Stock Option Plans Options generally vest at 20% per year starting from the grant date and are fully vested after five years. The options can be exercised in partial or full amounts upon a change in control and at such other times as specified in the award agreements. In order to provide an incentive to designated employees, officers, directors, consultants, independent contractors and other service providers who perform services contributing to the growth of the Company, and by aligning the interests of participants with the interests of stockholders, the Board declared it advisable and in the Companys best interest and on May 25, 2016, approved the 2016 Stock Option Plan (the 2016 Plan). The 2016 Plan will permit the granting of nonqualified stock options. The shares underlying the options will be shares of the Companys nonvoting common stock, par value $0.001 per share, and the total aggregate number of shares that may be issued under the 2016 Plan is 5,700,000 shares. The purchase price of each option will be determined by the Board at the time the option is granted, but in no event will be less than 100% of the fair market value of the common stock at the time of grant. Options granted will not be exercisable after 10 years from the grant date. As of December 31, 2016, there were no options granted under the 2016 Plan. Expense relating to the stock option plans was $-0- and $591 for the years ended December 31, 2016, and 2015, respectively. A summary of option transactions in 2016 and 2015 under the 2007 Plan is as follows: Shares Weighted Average Exercise Options at January 1, 2015 1,198,000 $1.64 Options granted Options cancelled Options at December 31, 2015 1,198,000 1.64 Options granted Options cancelled (313,000 ) 1.17 Options at December 31, 2016 885,000 1.80 Options exercisable at December 31, 2016 885,000 1.80 Shares available for grant at December 31, 2016 1,615,000 Shares available for grant at December 31, 2016 under the 2016 Plan 5,700,000 The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. Expected volatility is based upon publicly traded companies with similar characteristics. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. There were no options granted during 2016 or 2015. Stock-based compensation expense is recognized in the Statements of Operations based on awards ultimately expected to vest and may be reduced for estimated forfeitures. There was no adjustment in 2016 or 2015 with respect to forfeited awards. The following table summarizes information with respect to stock options outstanding at December 31, 2016 under the 2007 Plan: Options Outstanding Vested Options Number Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Aggregate Intrinsic Value Number Weighted Average Contractual Term (Years) Weighted Average Exercise Price Aggregate Intrinsic Value 885,000 1.3 $1.80 - 885,000 1.3 $1.80 - The following table summarizes information with respect to stock options outstanding at December 31, 2015 under the 2007 Plan: Options Outstanding Vested Options Number Weighted Average Remaining Contractual Life Years Weighted Average Exercise Price Aggregate Intrinsic Value Number Weighted Average Contractual Term Years Weighted Average Exercise Price Aggregate Intrinsic Value 1,198,000 2.0 $1.64 - 1,198,000 2.0 $1.64 - As of December 31, 2016, all compensation costs related to share-based compensation arrangements granted under the 2007 Plan had been fully recognized. Warrants On August 6, 2015, the Company entered into an agreement with CI II in which the entire principal and accrued interest on promissory notes and other related loan agreements outstanding and due to CI II, including the warrants described above, as well as the 4,500,000 shares of Preferred Series A Nonvoting Capital Stock then outstanding, were converted into 181,000 shares of (voting) Common Stock, par value $0.001, and 33,300,000 shares of Nonvoting Common Stock, par value $0.001, of the Company. The following table is a summary of the Companys warrant activity for the years ended December 31, 2016 and 2015: Warrants Outstanding Weighted Average Exercise Price Outstanding at January 1, 2015 12,151,385 1.00 Warrants granted Warrants exercised Warrants cancelled (12,151,385 ) 1.00 Warrants at December 31, 2015 Warrants exercisable at December 31, 2016 and 2015 The fair value of each warrant is estimated using the Binomial pricing model. The following assumptions were used to determine the fair value of the options prior to their termination on August 6, 2015: 2015 Weighted average volatility 40.7 % Expected dividend yield Expected term (in years) 1.1 Weighted average risk free interest rate .4 % The fair value of the warrants was recognized currently in earnings and included in other long-term liabilities in the accompanying Balance Sheets prior to conversion. Also, certain notes had contained a right to convert the principal amount of the note and accrued interest into shares of common stock. The Company accounted for the value of the warrants and the debt conversion right in the same manner used for stock-based compensation. In accordance with FASB guidance, warrants and the debt conversion feature are classified within Level 3 because they are valued using the Binomial model. Some of the inputs to these valuations are unobservable in the market and are significant. The changes in Level 3 liabilities measured at fair value on a recurring basis are summarized as follows: Fair Value of Fair Value of Balance January 1, 2015 $ $ 26,945 Net change in fair value (6,424 ) Warrants converted (20,521 ) Balance December 31, 2015 $ $ |
Income Taxes
Income Taxes | 12 Months Ended |
Dec. 31, 2016 | |
PaymentOnCapitalLease | |
Income Taxes | Note 8. Income Taxes The components of the income tax provision (benefit) for the years ended December 31, 2016 and 2015 are as follows: 2016 2015 Current tax expense: Federal $ - $ - State - - $ - $ - Deferred tax benefit (expense): Federal $ (3,469,000 ) $ (549,000 ) State (1,121,000 ) (178,000 ) Valuation reserve 4,590,000 727,000 $ $ Net deferred tax assets consist of the following components as of December 31, 2016 and 2015: 2016 2015 Deferred tax asset: Net operating loss carryforward $ 5,491,000 $ 10,176,000 Accounts receivable reserves 5,000 7,000 Property and equipment (126,000 ) (125,000 ) Accrued expenses 86,000 (34,000 ) Impairment charge 296,000 296,000 Start-up costs 24,000 28,000 Stock based compensation 62,000 62,000 Inventory reserves 4,000 4,000 Other 49,000 67,000 5,891,000 10,481,000 Less valuation allowance (5,891,000 ) (10,481,000 ) Net deferred taxes $ $ A reconciliation of income tax expense at statutory rates to the income tax expense reported in the Statements of Operations is as follows for the years ended December 31, 2016 and 2015. Year ended December 31, 2016 2015 Federal tax benefit at statutory rate $ (133,000 ) $ (212,000 ) State tax benefit net of federal taxes (26,000 ) (41,000 ) Warrant valuation (2,000 ) Cancellation of debt 4,735,000 966,000 Other 14,000 16,000 Decrease in valuation allowance (4,590,000 ) (727,000 ) Income tax expense $ $ As of December 31, 2016, the Company has available, for federal and state income tax purposes, net operating loss (NOL) carryforwards of approximately $13,548,000, which expire at various times through 2036. As a result of the cancellation of debt and accrued interest on debt on August 6, 2015 and the correction of interest expense previously deferred for tax purposes, the Company recognized an attribute reduction of the NOL carryforward effective January 1, 2016 of approximately $11,978,000, reducing the NOL carryforward available as of that date from $25,104,000 to $13,126,000. The utilization of the NOL carryforwards is dependent upon the ability of the Company to generate sufficient taxable income during the carryforward periods. The NOL carryforwards are also subject to certain limitations on their utilization should changes in Company ownership occur. The Company has not recognized any NOL carryforward benefits or other net deferred tax assets in the current financial statements. |
Related Party Transactions
Related Party Transactions | 12 Months Ended |
Dec. 31, 2016 | |
PaymentOnCapitalLease | |
Related Party Transactions | Note 9. Related Party Transactions In May 2015, CI II agreed to suspend the accrual of interest on all of the notes outstanding, effective April 1, 2015, in anticipation of entering into an agreement with the Company to convert its debt outstanding into equity. On August 6, 2015, the Company entered into an agreement with CI II in which the entire principal and accrued interest on promissory notes and other related loan agreements outstanding and due to CI II, including warrants to purchase a maximum of 12,151,385 shares of Company stock, as well as the 4,500,000 shares of Preferred Series A Nonvoting Capital Stock then outstanding, were converted into 181,000 shares of the Companys Common Stock, par value $0.001 per share, and 33,300,000 shares of the Companys Nonvoting Common Stock, $0.001 par value per share. Upon the conversion, all notes, loans, accrued interest, and warrants due to CI II were terminated in their entirety and all obligations were extinguished. During the twelve months ended December 31, 2016 and 2015, respectively, interest on all of the loans amounted to $-0- and $294,970. During 2015, the Company made no principal or interest payments on those loans and on August 6, 2015, the loans were converted into equity in the transaction as described above. |
Subsequent Events
Subsequent Events | 12 Months Ended |
Dec. 31, 2016 | |
Subsequent Events [Abstract] | |
Subsequent Events | Note 11. Subsequent Event On March 8, 2017, the Board of Directors approved by unanimous written consent, the authorization to grant to employees with at least one year of service, non-qualified stock options to purchase 4,015,000 shares of nonvoting common stock of the Company under its 2016 Plan. The options were issued at an exercise price of $.28 per share and vest ratably over five years. The options are subject to the terms and conditions of the 2016 Plan and each individuals stock option agreement. |
Recently Issued Pronouncements
Recently Issued Pronouncements | 12 Months Ended |
Dec. 31, 2016 | |
PaymentOnCapitalLease | |
Concentration of Risk - Major Customer | Note 10. Recently Issued Pronouncements In May 2014, the FASB and the International Accounting Standards Board issued converged guidance on recognizing revenue from contracts with customers. The new guidance removes inconsistencies in current revenue recognition requirements, provides a framework for addressing revenue issues, improves comparability of revenue recognition across industries, entities and jurisdictions, and provides more useful information to users of financial statements through improved disclosure requirements. This guidance replaces the numerous GAAP revenue recognition requirements that are industry specific and establishes the principles to report about the nature, timing, and uncertainty of revenue from contracts with customers to users of financial statements. Additions to this update were issued by the FASB and IASB in March 2016, clarifying the operability and understandability on principal versus agent considerations. In April 2016, further clarifications were issued on two aspects: identifying performance obligations and clarifying the licensing implementation guidance. An additional update was issued in May 2016, which included a technical correction, clarifying the objective of assessing the collectability criterion, the presentation of sales and other similar taxes collected from customers, specifying that the measurement date for noncash consideration is at contract inception, and practical guidance for applying contract modifications and completed contracts at the transition date. Additional technical corrections and improvements to clarify and correct unintended application of the guidance were issued in December 2016. These updates do not change the core principles of this guidance but rather provide clarification and implementation within the scope of this topic. The guidance is effective for annual and interim reporting periods beginning after December 15, 2017, and the Company is assessing the impact it will have on our financial statements. In August 2014, the FASB issued guidance regarding disclosures in the presentation of financial statements when the uncertainty exists about an entitys ability to continue as a going concern. The update provides guidance in GAAP about managements responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entitys ability to continue as a going concern and to provide related footnote disclosures. Along with requiring managements assessment of the entitys ability to continue as a going concern, the guidance provides: ● a definition for the term substantial doubt; ● requires an evaluation every reporting period including interim periods; ● provides principles for considering the mitigating effect of managements plans; ● requires certain disclosures when substantial doubt is alleviated as a result of consideration of managements plans; ● requires an express statement and other disclosures when substantial doubt is not alleviated; and ● requires an assessment for a period of one year after the date that the financial statements are issued. The amendment became effective for the annual and interim periods ending after December 15, 2016 and did not have a material impact on our financial statements. In July 2015, the FASB issued an update under the inventory topic which more clearly articulates the requirements for the measurement and disclosure of inventory, stating that an entity should measure inventory at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The amendments in this update do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendment is effective for the fiscal years beginning after December 15, 2016 and interim periods beginning after December 15, 2017. The Company is assessing the impact this guidance may have on our financial statements. In November 2015, the FASB issued an update under the income taxes topic, simplifying the presentation of deferred income taxes, requiring that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This update aligns the presentation of deferred income tax assets and liabilities with International Financial Reporting Standards (IFRS). The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2016, and the Company is assessing the impact this guidance may have on our financial statements. In February 2016, the FASB finalized the accounting standard and issued an update under the Leases topic. The update provides for major changes by lessees in that a lessee must recognize on its statement of financial position both an asset (right-of-use), representing its right to use the underlying asset, and a lease liability for all leases, other than short-term leases with terms of twelve months or less. The guidance defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. Control over the use of the identified asset means that the customer has both (1) the right to obtain substantially all of the economic benefits from the use of the asset and (2) the right to direct the use of the asset. Differentiation between finance and operating leases still remains however the most notable difference from previous guidance is recognizing the asset and liability on the statement of financial position for operating leases. For finance leases, lessees are required to: 1. Recognize a right-of-use asset and a lease liability in the statement of financial position which is initially measured at the present value of the lease payments; 2. Recognize interest in the statement of comprehensive income on the lease liability separately from amortization of the right-of-use asset; and 3. Classify in the statement of cash flows repayments of the principal portion of the lease liability within financing activities and payments of interest on the lease liability and variable lease payments within operating activities. For operating leases, lessees are required to: 1. Recognize a right-of-use asset and a lease liability in the statement of financial position which is initially measured at the present value of the lease payments; 2. Recognize a single lease cost, generally allocated over the lease term on a straight-line basis; and 3. Classify all cash payments in the statement of cash flows as operating activities. Under the update, lessor accounting for leases remains largely unchanged providing that lessor accounting is aligned with changes made to the lessee accounting guidance and key aspects under the revenue recognition guidance. The amendments in this update are effective for fiscal and interim periods beginning after December 15, 2018 and the Company is assessing the impact this guidance will have on our financial statements. In March 2016, the FASB issued an update on the stock compensation topic, simplifying several aspects of the accounting for share-based payment transactions, including income tax consequences, balance sheet classification of awards as either equity or liabilities, and statement of cash flows classification. While the amendments in the update are effective for annual and interim periods beginning after December 15, 2016, certain aspects of the amendment, such as those relating to the timing of excess tax benefits recognized, minimum statutory withholding requirements, forfeitures, and cash flow classification must be applied retrospectively. The Company is assessing the impact this guidance will have on our financial statements. |