| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES Liquidity We have historically incurred losses
from operations and we may continue to generate negative cash flows as we implement our business plan. Our condensed consolidated
financial statements are prepared using US GAAP as applicable to a going concern, which contemplates the realization of assets
and liquidation of liabilities in the normal course of business. We originally filed a Registration Statement
on Form S-1 (File No. 333-209131) with the SEC on April 11, 2016 which was declared effective by the SEC on April 13, 2016. The
Registration Statement registered up to 3,000,000 shares of common stock at a fixed price of $8.00 per share to the general public
in a self-underwritten offering (the “Offering” or our “IPO”). Post-Effective Amendment No. 1 to the Registration
Statement was declared effective August 26, 2016, Post-Effective Amendment No. 2 was declared effective August 31, 2016, Post-Effective
Amendment No. 3 was declared effective January 17, 2017, and Post-Effective Amendments No. 4 and No. 5 were dated April 12, 2017.
Post-Effective Amendment No. 5 was In December 2016, we entered into
a draw loan note and agreement (the “Dow Facility”) with The Dow Chemical Company (“Dow”) to provide up
to $10 million of secured debt financing at an interest rate of 5% per year, drawable at our request under certain conditions.
As of August 10, 2018, we had drawn $5.0 million under the Dow Facility. The remaining $5 million will become available to us once
we have raised $10 million of equity capital after October 31, 2016. As of August 10, 2018, we have sold 1,534,507 shares
of common stock pursuant to our IPO at a price of $8.00 per share for gross proceeds of $12,276,056. However, only $9,075,024 of
this amount has been raised during the measurement period beginning November 1, 2016. Thus, we still need to raise $924,976 of
additional equity capital prior to the remaining $5.0 million under the Dow Facility becoming available to us. As of August 10, 2018, we had cash
on hand of $1,549,219. We believe our cash from increasing commercial sales activity and various financing sources will fund our
operations for at least the next 12 months. We intend that the primary means for raising funds will be through our IPO and the
additional $5 million of proceeds from the Dow Facility that becomes available to us after we have raised another $924,976 of
equity capital as noted above; however, we can make no assurances that we will raise such equity capital and be able to access
the additional $5 million under the Dow Facility. Taking into account our current cash position as noted above, an additional
$924,976 in proceeds from our IPO, which would allow us to draw up to $5 million from the Dow Facility, we believe that we can
fund our operations including planned capital expenditures for at least the next 12 months. If needed, two of our shareholders
have committed to provide the additional $924,976 million of equity capital needed to open up to the remaining $5 million of availability
under the Dow Facility to the extent such funding is not provided by other third parties. This commitment is good through March
31, 2019. In the event we are unable to
fund our operations from existing cash on hand, operating cash flows, additional borrowings or raising equity capital, we may
be forced to reduce our expenses, slow down our growth rate, or discontinue operations. Our condensed consolidated financial statements
do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should we be unable to continue as a going concern. Use of Estimates The preparation of our condensed consolidated
financial statements in conformity with GAAP requires us to make estimates, judgments and assumptions that affect the reported
amounts of assets, liabilities, revenue and expenses, together with amounts disclosed in the related notes to the financial statements.
Actual results and outcomes may differ from our estimates, judgments and assumptions. Significant estimates, judgments and assumptions
used in these condensed consolidated financial statements include, but are not limited to, those related to revenue, accounts receivable
and related allowances, contingencies, useful lives and recovery of long-term assets, including intangible assets, income taxes,
and the fair value of stock-based compensation. These estimates, judgments, and assumptions are reviewed periodically and the effects
of material revisions in estimates are reflected in the financial statements prospectively from the date of the change in estimate. Inventory Inventory consists of raw materials,
work-in-process and finished goods, all of which are stated at the lower of cost or market. Cost is determined on a first in, first
out basis.
The following amounts were included in inventory at the end of the period:
June 30, December 31,
2018 2017
Raw materials $ 90,307 $ 39,841
Finished goods 153,730 132,023
Total $ 244,037 $ 171,864 Derivative Financial Instruments We do not use derivative instruments
to hedge exposures to cash flow, market or foreign currency risk. The terms of convertible preferred stock and convertible notes
that we issue are reviewed to determine whether or not they contain embedded derivative instruments that are required by ASC 815:
“Derivatives and Hedging” to be accounted for separately from the host contract and recorded at fair value. In addition,
freestanding warrants are also reviewed to determine if they achieve equity classification. Certain stock warrants that we issued
did not meet the conditions for equity classification at inception and were classified as derivative instrument liabilities measured
at fair value. In July 2017, the FASB issued Accounting
Standards Update No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities From Equity (Topic 480), Derivatives and
Hedging (Topic 815) (“ASU 2017-11”). This update changes the classification analysis of certain equity-linked financial
instruments with down-round features. We elected to early adopt ASU 2017-11 at September 30, 2017 by applying the standard retrospectively
to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the Company’s
beginning accumulated deficit as of January 1, 2017. There were 972,720, warrants indexed to Series A Preferred Stock which were
originally recorded as derivative liabilities because of their anti-dilution features. We chose to early adopt ASU 2017-11 because
it permitted these warrants to be recorded as equity rather than derivative liabilities. The impact to the financial statements
is as follows:
For the three months ended June 30, 2017
As previously As
reported Adjusted
Operating loss $ (1,375,442 ) $ (1,375,442 )
Other income (expense):
Interest expense, net (54,445 ) (54,445 )
Loss from change in fair value of derivative liability- warrants (53,056 ) (32,629 )
Government incentives, net (74,000 ) (74,000 )
Total other income (expense) (181,501 ) (161,074 )
Net loss $ (1,556,943 ) $ (1,536,516 )
For the six months ended June 30, 2017
As previously As
reported Adjusted
Operating loss $ (2,841,324 ) $ (2,841,324 )
Other income (expense):
Interest expense, net (113,533 ) (113,533 )
Gain (Loss) from change in fair value of derivative liability-warrants 101,596 (3,458 )
Government incentives, net (74,024 ) (74,024 )
Total other income (expense) (85,961 ) (191,015 )
Net loss $ (2,927,285 ) $ (3,032,339 ) Fair Value Measurements The Company utilizes a valuation hierarchy
that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques related to its
financial assets and financial liabilities in accordance to Accounting Standards Codification (“ASC”) Topic 820 Fair
Value Measurements and Disclosures. For financial instruments such as cash,
accounts payable and other current liabilities, the Company considers the recorded value of such financial instruments approximate
to the current fair value because of their short-term nature. Recent Accounting Pronouncements ASU No. 2014-09 (ASC 606), Revenue
from Contracts with Customers ASU No. 2016-18, Restricted Cash
Flows The following table provides additional
detail by financial statement line item of the ASU 2016-18 impact on our Condensed Consolidated Statement of Cash Flows for the
six months ended June 30, 2018 and 2017:
(In thousands) As Reported ASU 2016-18 Reported (Post Adoption)
Six Months Ended June 30, 2018
Cash, cash equivalents and restricted cash, beginning of period $ 2,845,798 $ 195,792 $ 3,041,590
Six Months Ended June 30, 2017
Net change in cash, cash equivalents and restricted cash (1,354,236 ) 145 (1,354,091 )
Cash, cash equivalents and restricted cash, beginning of period 1,785,343 195,499 1,980,842
Cash, cash equivalents and restricted cash, end of period $ 431,107 $ 195,644 $ 626,751 ASU No. 2016-15, Statement of Cash
Flows – Classification of Certain Cash Receipts and Cash Payments ASU No. 2016-02, Leases |
