Note 2 - Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2014 |
Policies | |
A. Accounting Methods | a. Accounting Methods |
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The Company's financial statements are prepared using the accrual method of accounting. The Company has elected a December 31, year-end. |
B. Cash and Cash Equivalents | b. Cash and Cash Equivalents |
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For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. |
C. Accounts Receivable | c. Accounts Receivable |
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Trade receivables are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. Allowance for doubtful accounts for the years ended December 31, 2014 and 2013 was $15,000 and $15,000, respectively. Additionally, bad debt expense for the years ended December 31, 2014 and 2013 was $6,489 and $1,196 respectively. |
D. Basic and Diluted Loss Per Share | d. Basic and Diluted Loss Per Share |
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The computation of basic earnings per share of common stock is based on the weighted average number of shares outstanding during the periods presented. The computation of fully diluted earnings per share includes common stock equivalents outstanding at the balance sheet date. The Company had 0 and 2,087,137 stock options and warrants that would have been included in the fully diluted earnings per share as of December 31, 2014 and 2013, respectively. However, the common stock equivalents were not included in the computation of the loss per share computation because they are anti-dilutive. |
E. Property and Equipment | e. Property and Equipment |
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Property and equipment are recorded at cost. Depreciation and amortization are calculated on the straight-line method over the shorter of the lease term or the estimated useful lives of the assets ranging from three to five years. |
F. Newly Issued Accounting Pronouncements | f. Newly Issued Accounting Pronouncements |
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The Company has evaluated recent accounting pronouncements and their adoption has not had or is not expected to have a material impact on the Company’s financial position or financial statements. |
G. Provision For Income Taxes | g. Provision For Income Taxes |
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The Company accounts for income taxes in accordance with Accounting Standards Codification Topic 740, Income Taxes ("Topic 740"), which requires the recognition of deferred tax liabilities and assets at currently enacted tax rates for the expected future tax consequences of events that have been included in the financial statements or tax returns. A valuation allowance is recognized to reduce the net deferred tax asset to an amount that is more likely than not to be realized. |
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Topic 740 provides guidance on the accounting for uncertainty in income taxes recognized in a company's financial statements. Topic 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements. |
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At the adoption date of November 1, 2007, the Company had no unrecognized tax benefit which would affect the effective tax rate if recognized. The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operations in the provision for income taxes. As of December 31, 2014, the Company had no accrued interest or penalties related to uncertain tax positions. The Company files an income tax return in the U.S. federal jurisdiction and the state of California. With few exceptions, the Company is no longer subject to U.S. federal, state, and local, or non-U.S. income tax examinations by tax authorities for years before 2008. |
H. Estimates | h. Estimates |
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The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
I. Fair Value of Financial Instruments | i. Fair Value of Financial Instruments |
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ASC 820, “Fair Value Measurements and Disclosures” requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value: |
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Level 1 - Quoted prices in active markets for identical assets or liabilities; |
Level 2 - Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and |
Level 3 - Unobservable inputs that are supported by little or no market activity, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing. |
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The Company’s Level 2 financial liabilities consist of the derivative liability of the Company’s warrants issued to investors for cash and to consultants for services. There is no current market for these securities such that the determination of fair value requires significant judgment or estimation. The Company used a multinomial lattice model which incorporates transaction details such as Company stock price, contractual terms, default provisions, maturity, risk free rates, as well as assumptions about future financings, volatility, and holder behavior as of the date of issuance and each balance sheet date through December 31, 2013. |
J. Advertising | j. Advertising |
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The Company follows the policy of charging the costs of advertising to expense as incurred. During the year ended December 31, 2014 and 2013, the Company expensed $28,748 and $35,800, respectively. |
K. Revenue Recognition | k. Revenue Recognition |
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The Company recognizes revenue from the sale of new engines for use with compressed natural gas and engine components to convert existing engines to compressed natural gas use. Revenue is recognized when persuasive evidence of an arrangement exists; products have been shipped; pricing has been determined; and collection of the resulting receivable is reasonably assured. |
L. Concentration of Risks | l. Concentration of Risks |
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Customers |
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During the year ended December 31, 2014, eight customers accounted for approximately 56% of sales. |
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During the year ended December 31, 2013, eight customers accounted for approximately 55% of sales. |
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Suppliers |
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During the year ended December 31, 2014, four suppliers accounted for 42% of products purchased. |
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During the year ended December 31, 2013, four suppliers accounted for 55% of products purchased. |
M. Long - Lived Assets | m. Long – Lived Assets |
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The Company assesses the recoverability of its long-lived assets annually and whenever circumstances would indicate that there may be an impairment. The Company compares the estimated undiscounted future cash flows to the carrying value of the long lived assets to determine if an impairment has occurred. In the event that an impairment has occurred, the Company will recognize the impairment immediately. No impairment expense was recognized as of December 31, 2014. |
N. Research and Development | n. Research and Development |
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The Company expenses the costs of researching and developing its products during the period incurred. During the years ended December 31, 2014 and 2013, the Company incurred research and development expenses of $600,091 and $292,228, respectively. |
O. Liquidity | o. Liquidity |
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Historically, the Company has incurred net losses and negative cash flows from operations. As of December 31, 2014, the Company had an accumulated deficit of $16,842,305 and total stockholders’ equity of $2,569,108. At December 31, 2014, the Company had current assets of $3,000,693 including cash of $498,782, and current liabilities of $535,925, resulting in working capital of $2,464,768. For 2014, the Company reported a net loss of $1,828,827 and net cash used by operating activities of $1,546,195. Management believes that based on its fiscal year 2015 operating plan, including cost control measures and the projected sales for 2015, combined with funds available from its working capital will be sufficient to fund operations for the next twelve months. However, there can be no assurance that operations and operating cash flows will continue at the current levels or improve in the near future. If the Company is unable to obtain profitable operations and positive operating cash flows, it may require additional funding or be forced to scale back its development plans or to significantly reduce or terminate operations. |
P. Stock- Based Compensation | p. Stock- Based Compensation |
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The Company recognizes compensation expense for stock-based awards expected to vest on a straight-line basis over the requisite service period of the award based on their grant date fair value. The Company estimates the fair value of stock options using a Black-Scholes option pricing model which requires management to make estimates for certain assumptions regarding risk-free interest rate, expected life of options, expected volatility of stock and expected dividend yield of stock. |
Q. Held To Maturity Investments | q. Held to Maturity Investments |
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During the three months ended June 30, 2012, the Company purchased various corporate bonds. The Company intends to hold the bonds to maturity. Accordingly, the Company has recorded and is amortizing the premium on the bonds over the remaining life. During the year ended December 31, 2014, the Company received proceeds of $900,000 from bonds that matured during the period. During the year ended December 31, 2014 and 2013 the Company had correlating amortization expense of $17,245 and $34,424, respectively. |