Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2018 | Nov. 14, 2018 | |
Document And Entity Information | ||
Entity Registrant Name | Surna Inc. | |
Entity Central Index Key | 1,482,541 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business Flag | true | |
Entity Emerging Growth Company | false | |
Entity Ex Transition Period | false | |
Entity Common Stock, Shares Outstanding | 224,954,604 | |
Trading Symbol | SRNA | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2,018 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (Unaudited) - USD ($) | Sep. 30, 2018 | Dec. 31, 2017 |
Current Assets | ||
Cash and cash equivalents | $ 1,416,882 | $ 2,468,199 |
Accounts receivable (net of allowance for doubtful accounts of $108,949 and $105,267, respectively) | 325,305 | 422,589 |
Other receivables | 550 | |
Inventory, net | 501,198 | 522,622 |
Prepaid expenses | 349,419 | 293,458 |
Total Current Assets | 2,592,804 | 3,707,418 |
Noncurrent Assets | ||
Property and equipment, net | 530,155 | 401,356 |
Goodwill | 631,064 | 631,064 |
Intangible assets, net | 24,282 | 37,985 |
Deposits | 51,000 | 51,000 |
Total Noncurrent Assets | 1,236,501 | 1,121,405 |
TOTAL ASSETS | 3,829,305 | 4,828,823 |
CURRENT LIABILITIES | ||
Accounts payable and accrued liabilities | 2,113,716 | 1,969,263 |
Deferred revenue | 555,417 | 1,011,871 |
Amounts due to shareholders | 6,927 | |
Derivative liability on warrants | 410,880 | |
Total Current Liabilities | 2,669,133 | 3,398,941 |
NONCURRENT LIABILITIES | ||
Deferred Rent | 112,382 | 17,396 |
Total Noncurrent Liabilities | 112,382 | 17,396 |
TOTAL LIABILITIES | 2,781,515 | 3,416,337 |
SHAREHOLDERS' EQUITY | ||
Preferred stock, $0.00001 par value; 150,000,000 shares authorized; 77,220,000 shares issued and outstanding | 772 | 772 |
Common stock, $0.00001 par value; 350,000,000 shares authorized; 223,834,604 and 206,248,522 shares issued and outstanding, respectively | 2,238 | 2,062 |
Additional paid in capital | 24,575,798 | 20,664,563 |
Accumulated deficit | (23,531,018) | (19,254,911) |
Total Shareholders' Equity | 1,047,790 | 1,412,486 |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ 3,829,305 | $ 4,828,823 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) | Sep. 30, 2018 | Dec. 31, 2017 |
Statement of Financial Position [Abstract] | ||
Allowance for doubtful accounts, net | $ 108,949 | $ 105,267 |
Preferred stock, par value | $ 0.00001 | $ 0.00001 |
Preferred stock, shares authorized | 150,000,000 | 150,000,000 |
Preferred stock, shares issued | 77,220,000 | 77,220,000 |
Preferred stock, shares outstanding | 77,220,000 | 77,220,000 |
Common stock, par value | $ 0.00001 | $ 0.00001 |
Common stock, shares authorized | 350,000,000 | 350,000,000 |
Common stock, shares issued | 223,834,604 | 206,248,522 |
Common stock, shares outstanding | 223,834,604 | 206,248,522 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Income Statement [Abstract] | ||||
Revenue, net | $ 3,324,621 | $ 1,566,256 | $ 7,387,094 | $ 4,901,241 |
Cost of revenue | 2,228,069 | 1,175,047 | 5,385,103 | 3,668,698 |
Gross profit | 1,096,552 | 391,209 | 2,001,991 | 1,232,543 |
Operating expenses: | ||||
Advertising and marketing expenses | 223,474 | 168,476 | 658,393 | 484,418 |
Product development costs | 75,448 | 60,145 | 207,537 | 250,228 |
Selling, general and administrative expenses | 1,440,995 | 1,396,957 | 5,101,773 | 3,518,528 |
Total operating expenses | 1,739,917 | 1,625,578 | 5,967,703 | 4,253,174 |
Operating loss | (643,365) | (1,234,369) | (3,965,712) | (3,020,631) |
Other income (expense): | ||||
Interest and other income (expense), net | (197) | 1,016 | 16,293 | 3,808 |
Interest expense | (35) | (41,233) | ||
Amortization of debt discount on convertible promissory notes | (10,037) | (63,157) | ||
Loss on extinguishment of debt | (228,428) | (643,428) | ||
Gain (loss) on change in derivative liabilities | (6,660) | 21,403 | 212,054 | |
Total other income (expense) | (197) | (244,109) | 37,661 | (531,956) |
Loss before provision for income taxes | (643,562) | (1,478,478) | (3,928,051) | (3,552,587) |
Income taxes | ||||
Net loss | $ (643,562) | $ (1,478,478) | $ (3,928,051) | $ (3,552,587) |
Loss per common share - basic and dilutive | $ 0 | $ (0.01) | $ (0.02) | $ (0.02) |
Weighted average number of common shares outstanding, basic and dilutive | 222,782,404 | 184,912,253 | 216,836,968 | 179,470,179 |
Condensed Consolidated Statem_2
Condensed Consolidated Statement of Changes in Shareholders' Equity (Unaudited) - 9 months ended Sep. 30, 2018 - USD ($) | Preferred Stock [Member] | Common Stock [Member] | Additional Paid in Capital [Member] | Accumulated Deficit [Member] | Total |
Balance at Dec. 31, 2017 | $ 772 | $ 2,062 | $ 20,664,563 | $ (19,254,911) | $ 1,412,486 |
Balance, shares at Dec. 31, 2017 | 77,220,000 | 206,248,522 | |||
Cumulative effect of changes due to adoption of ASC 606 revenue recognition | 56,912 | 56,912 | |||
Adjusted balance January 1, 2018 to reflect adoption of ASC 606 | $ 772 | $ 2,062 | 20,664,563 | (19,197,999) | 1,469,398 |
Adjusted balance January 1, 2018 to reflect adoption of ASC 606, shares | 77,220,000 | 206,248,522 | |||
Extinguishment of derivative liability upon exercise of investor warrants | 389,477 | 389,477 | |||
Common shares issued on cashless exercise of former director and investor warrants | $ 26 | (26) | |||
Common shares issued on cashless exercise of former director and investor warrants, shares | 2,666,865 | ||||
Common shares issued on exercise of investor warrants and employee options | $ 1 | 18,374 | 18,375 | ||
Common shares issued on exercise of investor warrants and employee options, shares | 125,000 | ||||
Common shares issued on settlement of restricted stock units and award of stock bonuses | $ 78 | (78) | |||
Common shares issued on settlement of restricted stock units and award of stock bonuses, shares | 7,867,368 | ||||
Common shares issued as compensation for services | $ 18 | 393,618 | 393,636 | ||
Common shares issued as compensation for services, shares | 1,689,349 | ||||
Common shares issued in settlement agreement | $ 8 | 226,392 | 226,400 | ||
Common shares issued in settlement agreement, shares | 800,000 | ||||
Fair value of vested restricted stock units awarded to employees and directors | 1,091,953 | 1,091,953 | |||
Fair value of vested stock options granted to employees | 50,526 | 50,526 | |||
Fair value of vested incentive stock bonuses awarded to employees | 531,076 | 531,076 | |||
Common shares issued for cash, net | $ 76 | 1,209,924 | 1,210,000 | ||
Common shares issued for cash, net, shares | 7,562,500 | ||||
Repurchase of common shares from related party | $ (31) | (399,969) | (400,000) | ||
Repurchase of common shares from related party, shares | (3,125,000) | ||||
Purchase of option to repurchase preferred stock from related party | (5,000) | (5,000) | |||
Net loss | (3,928,051) | (3,928,051) | |||
Balance at Sep. 30, 2018 | $ 772 | $ 2,238 | $ 24,575,798 | $ (23,531,018) | $ 1,047,790 |
Balance, shares at Sep. 30, 2018 | 77,220,000 | 223,834,604 |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 9 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
Cash Flows From Operating Activities: | ||
Net loss | $ (3,928,051) | $ (3,552,587) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and intangible asset amortization expense | 118,999 | 34,087 |
Amortization of debt discounts | 38,433 | |
Amortization of original issue discount on notes payable | 25,520 | |
Gain on change in derivative liabilities | (21,403) | (212,054) |
Compensation paid in equity | 2,067,191 | 1,270,933 |
Provision for doubtful accounts | 3,682 | 1,715 |
Provision for excess and obsolete inventory | 4,926 | 208,801 |
Loss on extinguishment of debt | 643,428 | |
Loss on disposal of other assets | 19,278 | |
Changes in operating assets and liabilities: | ||
Accounts and other receivable | 94,152 | (207,205) |
Inventory | 16,498 | (15,066) |
Prepaid expenses | (55,960) | (119,753) |
Accounts payable and accrued liabilities | 368,328 | 112,516 |
Deferred revenue | (399,542) | (179,525) |
Accrued interest | (10,574) | |
Deferred rent | (5,014) | |
Net cash provided by (used in) operating activities | (1,716,916) | (1,961,331) |
Cash Flows From Investing Activities | ||
Capitalization of intangible assets | (2,503) | (16,454) |
Purchases of property and equipment | (232,109) | (14,566) |
Proceeds from payment of tenant improvement allowance | 100,000 | |
Cash disbursed for equipment held for lease | (16,237) | |
Cash disbursed for lease deposit | (51,000) | |
Payments received on note receivable | 157,218 | |
Net cash provided by (used in) investing activities | (150,849) | 75,198 |
Cash Flows From Financing Activities | ||
Cash proceeds from sale of common stock and warrants | 1,210,000 | 2,685,000 |
Payments on convertible notes payable | (270,000) | |
Proceeds from issuance of notes payable | 500,000 | |
Proceeds from exercises of stock options | 3,375 | |
Proceeds from exercise of investor warrants | 15,000 | |
Repurchase of common shares from related party | (400,000) | |
Purchase of option to repurchase preferred stock from related party | (5,000) | |
Payments on loans from shareholders | (6,927) | (47,707) |
Net cash provided by (used in) financing activities | 816,448 | 2,867,293 |
Net (decrease) increase in cash | (1,051,317) | 981,160 |
Cash, beginning of period | 2,468,199 | 319,546 |
Cash, end of period | 1,416,882 | 1,300,706 |
Supplemental cash flow information: | ||
Interest paid | 35 | 44,150 |
Non-cash investing and financial activities: | ||
Conversions of promissory notes and accrued interest to common stock | 1,205,856 | |
Equity issued in settlement | 226,400 | |
Extinguishment of derivative liability on cashless exercise of warrants | 389,477 | |
Unpaid purchases of equipment and other assets | $ 2,525 |
Description of Business
Description of Business | 9 Months Ended |
Sep. 30, 2018 | |
Accounting Policies [Abstract] | |
Description of Business | Note 1 – Description of Business Surna Inc. (the “Company”) was incorporated in Nevada on October 15, 2009. The Company develops innovative technologies and products that monitor, control and or address the energy and resource intensive nature of indoor cannabis cultivation. Currently, the Company’s revenue stream is derived primarily from supplying industrial technology and products to commercial indoor cannabis cultivation facilities. Headquartered in Boulder, Colorado, the Company’s engineering and technical team provides solutions that allow growers to meet the unique demands of a cannabis cultivation environment through precise temperature, humidity, and process controls, energy and water efficiency, and satisfaction of the evolving code and regulatory requirements being imposed at the state and local levels. The Company’s objective is to leverage its experience in this space in order to bring value-added climate control solutions to its customers that help improve their overall crop quality and yield as well as optimize the resource efficiency of their controlled environment (i.e,. indoor and greenhouses) cultivation facilities. The Company is not involved in the growing, formulation or sale of cannabis products. |
Basis of Presentation; Summary
Basis of Presentation; Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2018 | |
Accounting Policies [Abstract] | |
Basis of Presentation; Summary of Significant Accounting Policies | Note 2 – Basis of Presentation; Summary of Significant Accounting Policies Financial Statement Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Pursuant to these rules and regulations, certain information and note disclosures, normally included in financial statements prepared in accordance with GAAP, have been condensed or omitted. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2018. The balance sheet as of December 31, 2017 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2017. The notes to the unaudited condensed consolidated financial statements are presented on a going concern basis. Basis of Presentation The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has experienced recurring losses since its inception. The Company incurred a net loss of approximately $3,928,000 for the nine months ended September 30, 2018, and had an accumulated deficit of approximately $23,531,000 as of September 30, 2018. Since inception, the Company has financed its activities principally through debt and equity financing and customer deposits. Management expects to incur additional losses and cash outflows in the foreseeable future in connection with its operating activities. The Company is subject to a number of risks similar to those of other similar stage companies, including dependence on key individuals, successful development, marketing and branding of products; uncertainty of product development and generation of revenues; dependence on outside sources of financing; risks associated with research and development; dependence on third-party suppliers and collaborators; protection of intellectual property; and competition with larger, better-capitalized companies. Ultimately, the attainment of profitable operations is dependent on future events, including obtaining adequate financing to fulfill its development activities and generating a level of revenues adequate to support the Company’s cost structure. There can be no assurance that the Company will be able to raise debt or equity financing in sufficient amounts, when and if needed, on acceptable terms or at all. If results of operations for 2018 do not meet management’s expectations, or additional capital is not available, management believes it has the ability to reduce certain expenditures. The precise amount and timing of the funding needs cannot be determined accurately at this time, and will depend on a number of factors, including the market demand for the Company’s products and services, the quality of product development efforts, management of working capital, and continuation of normal payment terms and conditions for purchase of the Company’s products. The Company believes its cash balances and cash flow from operations will be insufficient to fund its operations for the next 12 months. If the Company is unable to substantially increase revenues, reduce expenditures, or otherwise generate cash flows for operations, then the Company will need to raise additional funding to continue as a going concern. The foregoing factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date the financial statements are issued. These condensed consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty. Basis of Consolidation The condensed consolidated financial statements include the accounts of the Company and its controlled and wholly-owned subsidiary, Hydro Innovations, LLC (“Hydro”). Intercompany transactions, profit, and balances are eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and that affect the reported amounts of revenue and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. Key estimates include: valuation of derivative liabilities, valuation of intangible assets, valuation of equity-based compensation, valuation of deferred tax assets and liabilities, warranty accruals, inventory allowances, AR reserves, and legal contingencies. Fair Value Measurement The Company records its financial assets and liabilities at fair value. The accounting standard for fair value provides a framework for measuring fair value, clarifies the definition of fair value, and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting standard establishes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value: Level 1 - inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 - inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 - inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. On a Recurring Basis A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. On a Non-Recurring Basis Intangible assets that are amortized are evaluated for recoverability whenever adverse effects or changes in circumstances indicate that the carrying value may not be recoverable. The recoverability test consists of comparing the undiscounted projected cash flows with the carrying amount. Should the carrying amount exceed undiscounted projected cash flows, an impairment loss would be recognized to the extent the carrying amount exceeds fair value. For the Company’s indefinite-lived goodwill, the impairment test consists of comparing the fair value, determined using the market value method, with its carrying amount. An impairment loss would be recognized for the carrying amount in excess of its fair value. The Company concluded that no impairment relating to intangible assets or goodwill existed at September 30, 2018. Due to their short-term nature, the carrying values of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, approximate fair value. Revenue Recognition On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 (Topic 606), Revenue from Contracts with Customers The cumulative effect of the changes made to the condensed consolidated balance sheet for the adoption of the new revenue standard as of January 1, 2018 was as follows: Balance as of December 31, 2017 Adjustments Due to ASC 606 Balance as of January 1, 2018 Balance Sheet Liabilities Deferred Revenue $ 1,011,871 $ (56,912 ) $ 954,959 Shareholders’ Equity Accumulated deficit $ (19,254,911 ) $ 56,912 $ (19,197,999 ) In accordance with the new revenue standard’s requirements, the disclosure of the impact of adoption on the condensed consolidated income statements and balance sheets for the three and nine months ended September 30, 2018 (including insignificant true-up adjustments related to the first quarter of 2018 which have been reflected in the nine months ended September 30, 2018) was as follows: For the Three Months Ended Sept 30, 2018 For the Nine Months Ended Sept 30, 2018 As Reported Balances Without Adoption of ASC 606 Effect of Change Higher/ (Lower) As Reported Balances Without Adoption of ASC 606 Effect of Change Higher/ (Lower) Income Statement Revenues Revenues $ 3,324,621 $ 3,342,533 $ (17,912 ) $ 7,387,094 $ 7,404,506 $ (17,412 ) Net loss $ (643,562 ) $ (625,650 ) $ 17,912 $ (3,928,051 ) $ (3,910,639 ) $ 17,412 Balance Sheet Liabilities Deferred Revenue $ 555,417 $ 594,917 $ (39,500 ) $ 555,417 $ 594,917 $ (39,500 ) Shareholders’ Equity Accumulated deficit $ (23,531,018 ) $ (23,570,518 ) $ (39,500 ) $ (23,531,018 ) $ (23,570,518 ) $ (39,500 ) Revenue Recognition Accounting Policy Summary The Company accounts for revenue in accordance with the new revenue standard. Under the new revenue standard, a performance obligation is a promise in a contract with a customer to transfer a distinct good or service to the customer. Most of the Company’s contracts contain multiple performance obligations that include engineering and technical services as well as the delivery of a diverse range of climate control system equipment and components, which can span multiple phases of a customer’s project life-cycle from facility design and construction to equipment delivery and system installation and start-up. The Company does not provide construction services or system installation services. Some of the Company’s contracts with customers contain a single performance obligation, typically engineering only services contracts. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. When there are multiple performance obligations within a contract, the Company allocates the transaction price to each performance obligation based on its standalone selling price. Generally, satisfaction occurs when control of the promised goods are transferred to the customer or as services are rendered or completed in exchange for consideration in an amount for which the Company expects to be entitled. The Company recognizes revenue for the sale of goods when control transfers to the customer, which primarily occurs at the time of shipment. The Company’s historical rates of return are insignificant as a percentage of sales and, as a result, the Company does not record a reserve for returns at the time the Company recognizes revenue. The Company also recognizes revenue net of sales taxes. The revenue and cost for freight and shipping is recorded when control over the sale of goods passes to the Company’s customers. The Company also has performance obligations to perform certain engineering services that are satisfied over a period of time. Performance obligations are satisfied over-time if the customer receives the benefits as the Company performs work, if the customer controls the asset as it is being produced, or if the product being produced for the customer has no alternative use and the Company has a contractual right to payment. Revenue is recognized from this type of performance obligation as services are rendered based on the percentage completion towards certain specified milestones. The Company offers assurance-type warranties for its products and products manufactured by others to meet specifications defined by the contracts with customers and does not have any material separate performance obligations related to these warranties. The Company maintains a warranty reserve based on historical warranty costs. Other Judgments and Assumptions The Company applies the practical expedient in ASC 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less. Applying the practical expedient in ASC 340-40-25-4, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs include certain sales commissions and incentives and are included in selling, general and administrative expenses. ASC 606-10-32-18 allows the Company to not adjust the amount of consideration to be received in a contract for any significant financing component if the Company expects to receive payment within twelve months of transfer of control of goods or services. The Company has elected this expedient as it expects all consideration to be received in one year or less at contract inception. The Company has also elected not to provide the remaining performance obligations disclosures related to service contracts in accordance with the practical expedient in ASC 606-10-55-18. The Company recognizes revenue in the amount to which the entity has a right to invoice and has adopted this election to not provide the remaining performance obligations related to service contracts. Contract Assets and Contract Liabilities Contract assets reflect revenue recognized and performance obligations satisfied in advance of customer billing. Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. The Company receives payments from customers based on the terms established in its contracts. Contract assets include unbilled amounts where revenue recognized exceeds the amount billed to the customer and the right of payment is conditional, subject to completing a milestone, such as a phase of a project. The Company typically does not have material amounts of contract assets since revenue is recognized as control of goods are transferred or as services are performed. As of September 30, 2018 and December 31, 2017, the Company had no contract assets. Contract liabilities consist of advance payments in excess of revenue recognized. The Company’s contract liabilities are recorded as a current liability in Deferred Revenue in the condensed consolidated balance sheet since the timing of when the Company expects to recognize revenue is generally less than one year. As of September 30, 2018 and December 31, 2017, the deferred revenue, which was classified as a current liability, was $555,417 and $1,011,871, respectively. Accounting for Share-Based Compensation The Company recognizes the cost resulting from all share-based compensation arrangements, including stock options, restricted stock awards and restricted stock units that the Company grants under its equity incentive plan in its condensed consolidated financial statements based on their grant date fair value. The expense is recognized over the requisite service period or performance period of the award. Awards with a graded vesting period based on service are expensed on a straight-line basis for the entire award. Awards with performance-based vesting conditions, which require the achievement of a specific company financial performance goal at the end of the performance period and required service period, are recognized over the performance period. Each reporting period, the Company reassesses the probability of achieving the respective performance goal. If the goals are not expected to be met, no compensation cost is recognized and any previously recognized amount recorded is reversed. If the award contains market-based vesting conditions, the compensation cost is based on the grant date fair value and expected achievement of market condition and is not subsequently reversed if it is later determined that the condition is not likely to be met or is expected to be lower than initially expected. The grant date fair value of stock options is based on the Black-Scholes Option Pricing Model (the “Black-Scholes Model”). The Black-Scholes Model requires judgmental assumptions including volatility and expected term, both based on historical experience. The risk-free interest rate is based on U.S. Treasury interest rates whose term is consistent with the expected term of the option. The grant date fair value of restricted stock and restricted stock units is based on the closing price of the underlying stock on the date of the grant. The Company has elected to reduce share-based compensation expense for forfeitures as the forfeitures occur since the Company does not have historical data or other factors to appropriately estimate the expected employee terminations and to evaluate whether particular groups of employees have significantly different forfeiture expectations. Share-based awards granted to non-employees are recorded at the fair value of the consideration received or the fair value of the equity issued, whichever can be more readily measured, on the measurement date and are subject to periodic adjustment as the underlying share-based awards vest. Share-based compensation paid to employees, directors and non-employees totaled $573,931 and $878,964 for the three months ended September 30, 2018 and 2017, respectively, and $2,067,191 and $1,270,933 for the nine months ended September 30, 2018 and 2017, respectively. Share-based compensation expenses are classified in the condensed consolidated financial statements in the same manner as if such compensation was paid in cash. The following is a summary of share-based compensation costs included in the condensed consolidated statements of operations for the three and nine months ended September 30, 2018 and 2017, respectively: For the Three Months Ended September 30, For the Nine Months Ended September 30, 2018 2017 2018 2017 Share-based compensation expense included in: Cost of revenue $ 20,311 $ 38,104 $ 99,374 $ 38,104 Advertising and marketing expenses 2,273 7,259 5,398 7,259 Product development costs 1,137 2,640 3,411 2,640 Selling, general and administrative expenses 550,210 830,961 1,959,008 1,222,930 Total share-based compensation expense included in consolidated statement of operations $ 573,931 $ 878,964 $ 2,067,191 $ 1,270,933 Basic and Diluted Net Loss per Common Share Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. Commitments and Contingencies In the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, customer disputes, government investigations and tax matters. An accrual for a loss contingency is recognized when it is probable that an asset had been impaired or a liability had been incurred and the amount of loss can be reasonably estimated. Other Risks and Uncertainties To achieve profitable operations, the Company must successfully develop, manufacture and market its products. There can be no assurance that any such products can be developed or manufactured at an acceptable cost and with appropriate performance characteristics, or that such products will be successfully marketed. These factors could have a material adverse effect upon the Company’s financial results, financial position, and future cash flows. The Company is subject to risks common to similarly-situated companies including, but not limited to, new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, uncertainty of market acceptance of products, product liability, and the need to obtain financing for operations and capital requirements. As a supplier of services and equipment to cannabis cultivators, the Company is also subject to risks related to the cannabis industry. Although certain states and Canada, where the Company sells its products, have legalized medical and/or recreational cannabis, U.S. federal laws continue to prohibit cannabis in all its forms as well as its derivatives. The enforcement of U.S. federal laws may adversely affect the implementation of state and local cannabis laws and regulations that permit medical or recreational cannabis and, correspondingly, may adversely impact the Company’s customers and the Company. The Company’s success is also dependent upon its ability to raise additional capital and to successfully develop and market its products. Segment Information Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Company’s senior management team in deciding how to allocate resources and in assessing performance. The Company has one operating segment that is dedicated to the manufacture and sale of its products. Recent Accounting Pronouncements In February 2016, the FASB adopted ASU 2016-02, Leases Codification Improvements to Topic 842, Leases Targeted Improvements to Topic 842, Leases In June 2018, the Financial Accounting Standards Board (“FASB”) adopted ASU 2018-07, “Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” which expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer, or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted, but no earlier than the Company’s adoption of ASC 606. The Company is currently evaluating the effect that adopting this new accounting guidance will have on its consolidated results of operations, cash flows and financial position. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the disclosure requirements for fair value measurement, which modifies the disclosure requirements on fair value measurements in Topic 820. The amendment will be effective for reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company is currently assessing the impact of the ASU on the Company’s Condensed Consolidated Financial Statements. Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures. |
Inventory
Inventory | 9 Months Ended |
Sep. 30, 2018 | |
Inventory Disclosure [Abstract] | |
Inventory | Note 3 – Inventory Inventory consisted of the following: September 30, December 31, 2018 2017 Finished goods $ 536,512 $ 569,047 Work in progress 10,159 14,348 Raw materials 282,837 262,611 Allowance for excess & obsolete inventory (328,310 ) (323,384 ) Inventory, net $ 501,198 $ 522,622 Overhead expenses of $34,081 and $28,554 were included in the inventory balance as of September 30, 2018 and December 31, 2017, respectively. |
Property and Equipment
Property and Equipment | 9 Months Ended |
Sep. 30, 2018 | |
Property, Plant and Equipment [Abstract] | |
Property and Equipment | Note 4 – Property and Equipment Property and equipment consisted of the following: September 30, December 31, 2018 2017 Furniture and equipment $ 352,434 $ 326,894 Equipment held for lease to related party 176,042 159,806 Vehicles 15,000 15,000 Leasehold improvements 215,193 33,257 758,669 534,957 Accumulated depreciation (228,514 ) (133,601 ) Property and equipment, net $ 530,155 $ 401,356 |
Accounts Payable and Accrued Li
Accounts Payable and Accrued Liabilities | 9 Months Ended |
Sep. 30, 2018 | |
Payables and Accruals [Abstract] | |
Accounts Payable and Accrued Liabilities | Note 5 – Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consisted of the following: September 30, December 31, 2018 2017 Accounts payable $ 1,561,706 $ 1,159,975 Sales commissions payable 96,525 21,931 Accrued payroll liabilities 146,773 58,557 Product warranty accrual 130,042 105,122 Commercial dispute settlement - 332,418 Other accrued expenses 178,670 291,260 Total $ 2,113,716 $ 1,969,263 |
Related Party Agreements and Tr
Related Party Agreements and Transactions | 9 Months Ended |
Sep. 30, 2018 | |
Related Party Transactions [Abstract] | |
Related Party Agreements and Transactions | Note 6 – Related Party Agreements and Transactions Sterling Pharms Equipment Agreement On May 10, 2017, the Board approved a three-year equipment, demonstration and product testing agreement between the Company and Sterling Pharms, LLC (“Sterling”), an entity controlled by Mr. Keen, a principal shareholder of the Company, which operates a Colorado-regulated cannabis cultivation facility. Under this agreement, the Company agreed to provide to Sterling certain lighting, environmental control, and air sanitation equipment for use at the Sterling facility in exchange for a quarterly fee of $16,500 from Sterling. Also, under this agreement, Sterling agreed to allow the Company and its existing and prospective customers to have access to the Sterling facility for demonstration tours in a working environment, which the Company believes will assist it in the sale of its products. Sterling also agreed to monitor, test and evaluate the Company’s products installed at the Sterling facility and to collect data and provide feedback to the Company on the energy and operational efficiency and efficacy of the installed products, which the Company intends to use to improve, enhance and develop new or additional product features, innovations and technologies. In consideration for access to the Sterling facility to conduct demonstration tours and for the product testing and data to be provided by Sterling, the Company will pay Sterling a quarterly fee of $12,000. On March 22, 2018, the Company and Sterling entered into an amendment of the original agreement to include additional leased equipment and to increase the quarterly fee payable to the Company to $18,330. The amendment of the original agreement also provided that, upon expiration of the initial three-year term, either: (i) the leased equipment would be returned to the Company and the agreement would terminate, (ii) Sterling could purchase the leased equipment at the agreed upon residual value of $81,827, or (iii) Sterling and the Company could agree to an extension of the original agreement at mutually agreed to quarterly payments to and from the parties. After giving effect to the amended quarterly equipment lease fees received from Sterling of $18,330 (the “Lease Fee”) and the quarterly demonstration and testing fees paid to Sterling of $12,000 (the “Demo and Testing Fee”), the Company will receive a net payment of $6,330 from Sterling each quarter. Sterling accepted delivery of the remaining leased equipment and completed installation of the equipment at its facility on May 1, 2018. Accordingly, the term of this agreement, which commenced upon complete installation of the equipment, commenced May 1, 2018 and will expire April 30, 2021. The Company is treating the equipment rental arrangement and related Lease Fee payment as an operating lease. Accordingly, the equipment held for lease has been recorded as property and equipment on the balance sheets and will be depreciated over the term of the lease. The Lease Fee will be recorded as “Interest and other income, net” in the condensed consolidated statements of operations. For the three and nine months ended September 30, 2018, the Company recorded Lease Fees of $18,330 and $30,550, respectively. The Company will record the Demo and Testing Fee as operating expenses in the condensed consolidated statements of operations. For the three and nine months ended September 30, 2018, the Company recorded Demo and Testing Fees of $12,000 and $20,000, respectively. Company Purchase of Common Stock from Stephen and Brandy Keen On May 29, 2018, the Company and the Keens entered into a Stock Repurchase Agreement (the “Stock Repurchase Agreement”), pursuant to which the Company agreed to repurchase from the Keens shares of the Company’s common stock at the Repurchase Price per Share (as defined below) for a total repurchase price of $400,000 (“Repurchased Shares”). The Company’s obligation to repurchase the Repurchased Shares was contingent on the closing of a private placement offering to accredited investors of the Company’s common stock, which occurred during the second quarter of 2018. The Repurchase Price per Share was $0.128, which was equal to 80% of the $0.16 unit price paid by investors in the private placement offering to reflect the estimated value of the warrant included in the unit. On June 19, 2018, the Company closed the transaction under the Stock Repurchase Agreement and repurchased 3,125,000 shares of the Company’s common stock from the Keens. Company Option to Purchase of Preferred Stock from Stephen and Brandy Keen On May 29, 2018, the Company and the Keens entered into a Preferred Stock Option Agreement under which the Company has the right, but not the obligation, to acquire all 35,189,669 shares of preferred stock owned by the Keens (the “Preferred Stock”). Pursuant to the Preferred Stock Option Agreement, upon exercise of the option by the Company, the Company will issue one share of common stock for each 1,000 shares of preferred stock purchased by the Company. The common stock issued upon exercise will be restricted shares. The option will expire on April 30, 2020. As consideration for the Keens’ grant of the option, the Company paid them $5,000. As of September 30, 2018, the Company has not exercised this option. See Note 9 and Note 12. |
Derivative Liabilities
Derivative Liabilities | 9 Months Ended |
Sep. 30, 2018 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Derivative Liabilities | Note 7 – Derivative Liabilities The Company determined that certain warrants issued in 2015 qualified as derivative financial instruments. Accordingly, the warrants were recorded as derivative liabilities and were marked to market at the end of each reporting period. Any change in fair value during the period was recorded as gain (loss) on change in derivative liabilities in the condensed consolidated statements of operations. During the first quarter of 2018, all of the outstanding warrants were exercised on a cashless basis and the Company extinguished the derivative liability of approximately $389,000 and recorded an increase in additional paid-in capital of the same amount. The gain on change in derivative liabilities presented in the statements of operations for the three and nine months ended September 30, 2018 of $0 and $21,403, respectively, represent the gain on derivatives through the date of the cashless exercise of the warrants. The following table sets forth movement in the derivative liability related to the warrants: Balance December 31, 2017 $ 410,880 Gain on change in derivative liability, net (21,403 ) Balance prior to exercise of associated warrants 389,477 Extinguishment of derivative liability on cashless exercise of associated warrants (389,477 ) Balance September 30, 2018 $ - |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Note 8 – Commitments and Contingencies Litigation From time to time, in the normal course of its operations, the Company is subject to litigation matters and claims. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict and the Company’s view of these matters may change in the future as the litigation and events related thereto unfold. The Company expenses legal fees as incurred. The Company records a liability for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. An unfavorable outcome to any legal matter, if material, could have an adverse effect on the Company’s operations or its financial position, liquidity or results of operations. Internal Revenue Service Penalties The Company was penalized by the Internal Revenue Service (“IRS”) for failure to file its Foreign Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations, for the years 2011, 2012 and 2014 on a timely basis. In September 2018, the IRS notified the Company that it granted an abatement of the full amount of the assessed penalties and interest. No prior accrual was recorded as management determined the abatement was more likely than not. Building Lease The Company has a lease agreement for its manufacturing and office space consisting of approximately 18,600 square feet, which commenced on September 29, 2017 and continues through August 31, 2022. The monthly rental rate was $18,979 until August 31, 2018. Beginning September 1, 2018, the monthly rent increased by 3% and will continue to increase by 3% each year through the end of the lease. The current monthly rental rate is $19,548. The Company made a security deposit of $51,000 and received a $100,000 tenant allowance for leasehold improvements. The following is a schedule by years of the minimum future lease payments on the building lease as of September 30, 2018. Year Ended December 31, 2018 $ 58,645 2019 236,926 2020 244,034 2021 251,355 2022 170,888 Total future minimum lease payments $ 961,848 Total rent under the building lease is charged to expense over the term of the lease on a straight-line basis, resulting in the same monthly rent expense throughout the lease. The difference between the rent expense amount and the actual rent paid is recorded to deferred rent on the condensed consolidated balance sheets. The Company recorded to deferred rent a credit for the tenant improvements paid for or reimbursed by the landlord during the three and nine months ended September 30, 2018. Depreciation of the leasehold improvements and amortization of the credit have been determined based on a straight-line basis over the remaining term of the lease. The amortization of the credit for the tenant improvement allowance will result in a corresponding reduction in rent expense over the term of the lease. Other Commitments In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with its directors and certain of its officers and employees that will require the Company to, among other things, indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers, or employees. The Company maintains director and officer insurance, which may cover certain liabilities arising from its obligation to indemnify its directors and certain of its officers and employees, and former officers, directors, and employees of acquired companies, in certain circumstances. |
Non-compensatory Equity Transac
Non-compensatory Equity Transactions | 9 Months Ended |
Sep. 30, 2018 | |
Equity [Abstract] | |
Non-compensatory Equity Transactions | Note 9 – Non-compensatory Equity Transactions Private Placement Offering During the second quarter of 2018, the Company completed a private placement offering of investment units (the “Units”), at a price of $0.16 per Unit, with certain accredited investors. Each Unit consisted of one share of the Company’s common stock and one warrant for the purchase of one share of the Company’s common stock. The Company issued a total of 7,562,500 Units for aggregate proceeds of $1,210,000. No commissions or fees were paid in connection with the offering. The proceeds are being used for working capital and general corporate purposes, after $400,000 from the proceeds was used to repurchase shares of common stock from the Keens. The warrants have an exercise price of $0.25 per share of the common stock underlying each warrant, subject to adjustment as provided in the warrant. The warrants are exercisable commencing July 1, 2018 until June 30, 2021. The warrant may be exercised only for cash. Each warrant is callable at the Company’s option, beginning on July 1, 2019 until the expiration date of the warrant, provided the closing price of the Company’s common stock is $0.40 (subject to adjustment as provided in the warrant) or greater for five consecutive trading days (the “Call Condition”). Commencing at any time after the date on which the Call Condition is satisfied, the Company has the right, upon notice to the holders, to redeem the shares of common stock underlying each warrant at a price of $0.01 per share, but such redemption may not occur earlier than sixty-one (61) days following the date of the receipt of notice by the holder (the “Redemption Date”). The holder may exercise the warrant (in whole or in part) prior to the Redemption Date at the Exercise Price. Other Equity Issuances During the nine months ended September 30, 2018, the Company issued shares of its restricted common stock as follows: ● 100,000 shares upon the exercise of certain warrants by an investor and payment of the exercise price of $15,000; ● 1,498,325 shares upon the exercise of certain warrants by a former director on a cashless exercise basis; ● 1,168,540 shares upon exercise of certain warrants by investors on a cashless exercise basis; ● 800,000 shares in connection with the settlement of a commercial dispute; ● 273,675 shares to consultants as compensation for services rendered; ● 31,562 shares to certain employees under a sales incentive plan; Purchase of Preferred Stock Option On May 29, 2018, the Company acquired an option to purchase 35,189,669 shares of preferred stock owned by the Keens. The Company paid the Keens $5,000 for this option. See Note 6. The Company recorded the purchase price for the option as an increase to accumulated deficit. See Note 12. |
Equity Incentive Plan
Equity Incentive Plan | 9 Months Ended |
Sep. 30, 2018 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Equity Incentive Plan | Note 10 – Equity Incentive Plan On August 1, 2017, the Board adopted and approved the 2017 Equity Plan in order to attract, motivate, retain, and reward high-quality executives and other employees, officers, directors, consultants, and other persons who provide services to the Company by enabling such persons to acquire an equity interest in the Company. Under the 2017 Equity Plan, the Board (or the compensation committee of the Board, if one is established) may award stock options, stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), restricted stock unit awards (“RSUs”), shares granted as a bonus or in lieu of another award, and other stock-based performance awards. The 2017 Equity Plan allocates 50,000,000 shares of the Company’s common stock (“Plan Shares”) for issuance of equity awards under the 2017 Equity Plan. If any shares subject to an award are forfeited, expire, or otherwise terminate without issuance of such shares, the shares will, to the extent of such forfeiture, expiration, or termination, again be available for awards under the 2017 Equity Plan. As of September 30, 2018, the Company has granted, under the 2017 Equity Plan, awards in the form of RSAs for services rendered by independent directors and consultants, non-qualified stock options, RSUs and stock bonus awards totaling 41,069,342 shares. Of these total awards, as of September 30, 2018, (i) awards related to 5,411,666 shares have been forfeited or expired, (ii) 11,896,974 shares have been issued on settlement of vested awards, and (iii) awards related to 23,760,702 remain outstanding. On July 9, 2018, the Board appointed a new Chief Financial Officer (“CFO”) and Treasurer. In connection with this appointment, the Company and the new CFO entered into an employment agreement that will continue until June 30, 2020. Under the employment agreement, the new CFO is eligible to receive an aggregate of 4,000,000 shares of the Company’s common stock, as determined by the Board in its sole discretion, as follows: (i) for the six-month period ended December 31, 2018, the new CFO will be eligible to receive a special bonus of 1,000,000 shares of the Company’s common stock, provided the Board has determined that his performance has been average or better for such period, and (ii) for each of the six-month periods ended June 30, 2019, December 31, 2019 and June 30, 2020, the new CFO will be eligible to receive a special bonus of 1,000,000 shares of the Company’s common stock, provided the Board has determined that he has achieved certain benchmarks and milestones as mutually agreed to by him and the Board in advance of each such period. On July 13, 2018, the Company issued 1,000,000 shares to Brandy Keen in settlement of RSUs that vested on June 30, 2018. On August 2, 2018, the Board approved the following: ● The issuance of 105,634 shares of common stock to independent directors in lieu of cash director fees of $15,000 related to the second quarter of 2018; ● The issuance of 560,000 shares pursuant to a special incentive stock bonus earned by an employee for the six-month period ended June 30, 2018, subject to the remittance of required withholding taxes by the recipient; and ● The grant to a new employee of 120,000 RSUs that vest on the six-month anniversary of employment. On September 12, 2018, the Board approved the following: ● The grant to an independent director in lieu of cash director fees of $30,000 of 394,736 RSU’s of which 197,368 vested on his appointment and were settled by issuance of 197,368 shares in September 2018 and 197,368 of which will vest on completion of one year of service; and ● During September 2018, the issuance of 300,000 shares pursuant to incentive stock bonuses earned by employees upon completion of their first year of employment. The total unrecognized compensation expense for unvested non-qualified stock options, RSUs and stock bonus awards at September 30, 2018 was $1,294,958, which will be recognized over approximately 2.0 years. This unrecognized compensation expense does not include the potential future compensation expense related to non-qualified stock options and RSUs which are subject to vesting based on the achievement of $18,000,000 in revenue for 2018 and $25,000,000 in revenue for 2019 (the “Performance-based Awards”). As of September 30, 2018 and the grant date, the Company has determined that the likelihood of performance levels being obtained is remote; therefore, no expense was recognized. The unrecognized compensation expense with respect to these Performance-based Awards at September 30, 2018 was $995,154. Non-Qualified Stock Options The Company uses the Black-Scholes Model to determine the fair value of options granted. Option-pricing models require the input of highly subjective assumptions, particularly for the expected stock price volatility and the expected term of options. Changes in the subjective input assumptions can materially affect the fair value estimate. The expected stock price volatility assumptions are based on the historical volatility of the Company’s common stock over periods that are similar to the expected terms of grants and other relevant factors. The Company derives the expected term based on an average of the contract term and the vesting period taking into consideration the vesting schedules and future employee behavior with regard to option exercise. The risk-free interest rate is based on U.S. Treasury yields for a maturity approximating the expected term calculated at the date of grant. The Company has never paid any cash dividends on its common stock and the Company has no intention to pay a dividend at this time; therefore, the Company assumes that no dividends will be paid over the expected terms of option awards. The Company determines the assumptions used in the valuation of option awards as of the date of grant. Differences in the expected stock price volatility, expected term or risk-free interest rate may necessitate distinct valuation assumptions at those grant dates. As such, the Company may use different assumptions for options granted throughout the year. During the nine months ended September 30, 2018, the valuation assumptions used to determine the fair value of each option award on the date of grant were: expected stock price volatility 118.90%; expected term in years 7.5 and risk-free interest rate 2.77%. A summary of the non-qualified stock options granted to employees under the 2017 Equity Plan as of September 30, 2018, and changes during the nine months then ended, are presented in the table below: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding as of December 31, 2017 10,235,000 $ 0.121 8.7 $ 1,218,375 Granted 1,000,000 $ 0.283 Exercised (25,000 ) $ 0.135 Forfeited (2,183,332 ) $ 0.196 Expired (33,334 ) $ 0.135 Outstanding as of September 30, 2018 8,993,334 $ 0.121 7.8 $ 210,640 Exercisable as of September 30, 2018 1,826,674 $ 0.124 3.5 $ 36,390 Oustanding vested and expected to vest as of September 30, 2018 2,693,334 $ 0.126 5.2 $ 47,690 Performance options based on 2018 and 2019 revenue thresholds - uncertain vesting as of September 30, 2018 6,300,000 $ 0.118 8.9 $ 162,950 A summary of non-vested non-qualified stock options granted to employees under the as of September 30, 2018, and any changes during the nine months then ended, are presented in the table below: Number of Options Weighted Average Grant-Date Fair Value Aggregate Intrinsic Value Nonvested as of December 31, 2017 8,349,992 $ 0.107 $ 1,000,499 Granted 1,000,000 $ 0.257 Vested - - Forfeited (2,183,332 ) $ 0.177 Expired - - Nonvested as of September 30, 2018 7,166,660 $ 0.106 $ 174,250 During the nine months ended September 30, 2018, the Company recorded $38,321 as compensation expense related to vested options issued to employees, net of forfeitures. As of September 30, 2018, total unrecognized share-based compensation related to unvested options was $695,329, of which $35,874 was related to time-based vesting and $659,454 was related to performance-based vesting. As of September 30, 2018, the Company had granted non-qualified options to purchase 10,250,000 shares which were performance-based, of which 1,950,000 were forfeited due to the failure to satisfy the 2017 revenue and bookings performance thresholds and 2,000,000 were forfeited due to employee terminations. Of the remaining non-qualified options to purchase 6,300,000 shares which are performance-based, the Company has determined that the likelihood of the 2018 and 2019 performance thresholds being satisfied is remote as of the date of grant and September 30, 2018; therefore, no expense was recognized. As of September 30, 2018, the performance-based non-qualified stock options include: (i) 2,550,000 options that vest if the Company achieves 2018 revenue of $18,000,000, and (ii) 3,750,000 options that vest if the Company achieves 2019 revenue of $25,000,000. A summary of the non-qualified stock options granted to the directors under the 2017 Equity Plan as of September 30, 2018, and changes during the nine months then ended, are presented in the table below: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value ($000) Outstanding, December 31, 2017 900,000 $ 0.135 9.6 $ 94,500 Granted - - Exercised - - Forfeited/Cancelled - - Expired - - Outstanding, September 30, 2018 900,000 $ 0.135 8.9 $ 8,100 Exerciseable, September 30, 2018 900,000 $ 0.135 8.9 $ 8,100 Outstanding vested, September 30, 2018 900,000 $ 0.135 8.9 $ 8,100 A summary of non-vested non-qualified stock options granted to directors under the as of September 30, 2018, and any changes during the nine months then ended, are presented in the table below: Number of Options Weighted Average Grant-Date Fair Value Aggregate Intrinsic Value Nonvested, December 31, 2017 450,000 $ 0.123 $ 52,470 Granted - - Vested (450,000 ) $ 0.123 Forfeited - - Expired - - Nonvested, September 30, 2018 - - $ - During the nine months ended September 30, 2018, the Company recorded $12,205 as compensation expense related to vested options issued to directors. As of September 30, 2018, total unrecognized share-based compensation related to unvested options was $0. Restricted Stock Units A summary of the RSUs awarded to employees, directors and consultants under the 2017 Equity Plan as September 30, 2018, and changes during the nine months then ended, are presented in the table below: Number of Units Weighted Average Grant-Date Fair Value Aggregate Intrinsic Value Outstanding as of December 31, 2017 13,800,000 $ 0.122 $ 3,312,000 Granted 5,514,736 $ 0.185 Vested and Settled with Share Issuance (5,447,368 ) $ 0.147 Forfeited - - Outstanding as of September 30, 2018 13,867,368 $ 0.137 $ 1,996,901 Expected to vest as of September 30, 2018 10,867,368 $ 0.144 $ 1,564,901 2018/2019 performance-based units - uncertain vesting 3,000,000 $ 0.112 $ 432,000 During the nine months ended September 30, 2018, the Company recorded $1,091,953 as compensation expense related to vested RSUs issued to employees, directors and consultants. As of September 30, 2018, total unrecognized share-based compensation related to unvested RSUs was $864,143, of which $528,443was related to time-based vesting and $335,700 was related to performance-based vesting. The total intrinsic value of RSUs vested and settled or to be settled with share issuance was $1,637,100 for the nine months ended September 30, 2018, based on the closing price of the Company’s stock on the vesting date. As of September 30, 2018, the Company had granted 3,000,000 RSUs to the CEO which were performance-based. The Company has determined that the likelihood of the performance thresholds being satisfied is remote as of the date of grant and September 30, 2018; therefore, no expense was recognized. As of September 30, 2018, the performance-based RSUs include: (i) 1,500,000 RSUs that vest if the Company achieves 2018 revenue of $18,000,000, and (ii) 1,500,000 options that vest if the Company achieves 2019 revenue of $25,000,000. Incentive Stock Bonus Awards Incentive stock bonuses awarded pursuant to certain employment agreements are treated as vesting over each award’s service period based on the fair value of the award at the time of grant. Even though the awards are subject to Board approval, the awards are treated as vesting over each service period based on the employee performance standards for such awards included in the employment agreements. Since the awards are denominated in shares of common stock, the fair value of the vested award is charged to additional paid-in capital. In the event the Board does not approve these incentive stock bonus awards or the employee terminates employment, the Company would reverse any previously recognized compensation costs related to these awards. A summary of the incentive stock bonus awards granted to employees under the 2017 Equity Plan as of September 30, 2018, and changes during the nine months then ended, are presented in the table below: Number of Shares Weighted Average Grant-Date Fair Value Aggregate Intrinsic Value Unvested, December 31, 2017 7,040,000 $ 0.113 $ 1,689,600 Granted 4,000,000 $ 0.170 Vested (1,860,000 ) $ 0.113 Forfeited (200,000 ) $ 0.121 Unvested, September 30, 2018 8,980,000 $ 0.138 $ 1,293,120 During the nine months ended September 30, 2018, the Company recorded $531,076 as compensation expense related to vested stock bonus awards issued to employees, net of forfeitures related to employee terminations. As of September 30, 2018, total unrecognized share-based compensation related to unvested stock bonus awards was $730,641. |
Income Taxes
Income Taxes | 9 Months Ended |
Sep. 30, 2018 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Note 11 – Income Taxes As of December 31, 2017, the Company had U.S. federal and state net operating losses (“NOLs”) of approximately $10,848,000. With the tax returns being finalized or amended, a $366,000 true-up was made bringing the balance to $11,214,000. These NOLs will expire, if not utilized, in the years 2034 through 2037. Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, use of the Company’s NOLs carryforwards may be limited in the event of cumulative changes in ownership of more than 50% within a three-year period. The Company must assess the likelihood that its net deferred tax assets (including NOLs) will be recovered from future taxable income, and to the extent the Company believes that recovery is not likely, the Company establishes a valuation allowance. Management’s judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against the net deferred tax assets. The Company recorded a full valuation allowance as of December 31, 2017 and September 30, 2018. Based on the available evidence, the Company believes it is more likely than not that it will not be able to utilize its net deferred tax assets (including NOLs) in the foreseeable future. |
Subsequent Events
Subsequent Events | 9 Months Ended |
Sep. 30, 2018 | |
Subsequent Events [Abstract] | |
Subsequent Events | Note 12 – Subsequent Events The Company has evaluated all subsequent events through November 14, 2018, the date the financial statements were available to be issued. The following events occurred after September 30, 2018. Equity-related Transactions On November 8, 2018, the Board approved the following: ● The issuance of 120,000 shares of common stock to independent directors in lieu of cash director fees of $15,000 related to the third quarter of 2018; and ● The issuance of 1,000,000 shares as a special incentive stock bonus earned by the CEO for the six-month period ended June 30, 2018, subject to the remittance of required withholding taxes by the recipient. ● The exercise of the Company option to purchase the preferred stock from Stephen and Brandy Keen, which has not been completed at this time. |
Basis of Presentation; Summar_2
Basis of Presentation; Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2018 | |
Accounting Policies [Abstract] | |
Financial Statement Presentation | Financial Statement Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Pursuant to these rules and regulations, certain information and note disclosures, normally included in financial statements prepared in accordance with GAAP, have been condensed or omitted. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2018. The balance sheet as of December 31, 2017 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2017. The notes to the unaudited condensed consolidated financial statements are presented on a going concern basis. |
Basis of Presentation | Basis of Presentation The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has experienced recurring losses since its inception. The Company incurred a net loss of approximately $3,928,000 for the nine months ended September 30, 2018, and had an accumulated deficit of approximately $23,531,000 as of September 30, 2018. Since inception, the Company has financed its activities principally through debt and equity financing and customer deposits. Management expects to incur additional losses and cash outflows in the foreseeable future in connection with its operating activities. The Company is subject to a number of risks similar to those of other similar stage companies, including dependence on key individuals, successful development, marketing and branding of products; uncertainty of product development and generation of revenues; dependence on outside sources of financing; risks associated with research and development; dependence on third-party suppliers and collaborators; protection of intellectual property; and competition with larger, better-capitalized companies. Ultimately, the attainment of profitable operations is dependent on future events, including obtaining adequate financing to fulfill its development activities and generating a level of revenues adequate to support the Company’s cost structure. There can be no assurance that the Company will be able to raise debt or equity financing in sufficient amounts, when and if needed, on acceptable terms or at all. If results of operations for 2018 do not meet management’s expectations, or additional capital is not available, management believes it has the ability to reduce certain expenditures. The precise amount and timing of the funding needs cannot be determined accurately at this time, and will depend on a number of factors, including the market demand for the Company’s products and services, the quality of product development efforts, management of working capital, and continuation of normal payment terms and conditions for purchase of the Company’s products. The Company believes its cash balances and cash flow from operations will be insufficient to fund its operations for the next 12 months. If the Company is unable to substantially increase revenues, reduce expenditures, or otherwise generate cash flows for operations, then the Company will need to raise additional funding to continue as a going concern. The foregoing factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date the financial statements are issued. These condensed consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty. |
Basis of Consolidation | Basis of Consolidation The condensed consolidated financial statements include the accounts of the Company and its controlled and wholly-owned subsidiary, Hydro Innovations, LLC (“Hydro”). Intercompany transactions, profit, and balances are eliminated in consolidation. |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and that affect the reported amounts of revenue and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. Key estimates include: valuation of derivative liabilities, valuation of intangible assets, valuation of equity-based compensation, valuation of deferred tax assets and liabilities, warranty accruals, inventory allowances, AR reserves, and legal contingencies. |
Fair Value Measurement | Fair Value Measurement The Company records its financial assets and liabilities at fair value. The accounting standard for fair value provides a framework for measuring fair value, clarifies the definition of fair value, and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting standard establishes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value: Level 1 - inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 - inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 - inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. On a Recurring Basis A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. On a Non-Recurring Basis Intangible assets that are amortized are evaluated for recoverability whenever adverse effects or changes in circumstances indicate that the carrying value may not be recoverable. The recoverability test consists of comparing the undiscounted projected cash flows with the carrying amount. Should the carrying amount exceed undiscounted projected cash flows, an impairment loss would be recognized to the extent the carrying amount exceeds fair value. For the Company’s indefinite-lived goodwill, the impairment test consists of comparing the fair value, determined using the market value method, with its carrying amount. An impairment loss would be recognized for the carrying amount in excess of its fair value. The Company concluded that no impairment relating to intangible assets or goodwill existed at September 30, 2018. Due to their short-term nature, the carrying values of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, approximate fair value. |
Revenue Recognition | Revenue Recognition On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 (Topic 606), Revenue from Contracts with Customers The cumulative effect of the changes made to the condensed consolidated balance sheet for the adoption of the new revenue standard as of January 1, 2018 was as follows: Balance as of December 31, 2017 Adjustments Due to ASC 606 Balance as of January 1, 2018 Balance Sheet Liabilities Deferred Revenue $ 1,011,871 $ (56,912 ) $ 954,959 Shareholders’ Equity Accumulated deficit $ (19,254,911 ) $ 56,912 $ (19,197,999 ) In accordance with the new revenue standard’s requirements, the disclosure of the impact of adoption on the condensed consolidated income statements and balance sheets for the three and nine months ended September 30, 2018 (including insignificant true-up adjustments related to the first quarter of 2018 which have been reflected in the nine months ended September 30, 2018) was as follows: For the Three Months Ended Sept 30, 2018 For the Nine Months Ended Sept 30, 2018 As Reported Balances Without Adoption of ASC 606 Effect of Change Higher/ (Lower) As Reported Balances Without Adoption of ASC 606 Effect of Change Higher/ (Lower) Income Statement Revenues Revenues $ 3,324,621 $ 3,342,533 $ (17,912 ) $ 7,387,094 $ 7,404,506 $ (17,412 ) Net loss $ (643,562 ) $ (625,650 ) $ 17,912 $ (3,928,051 ) $ (3,910,639 ) $ 17,412 Balance Sheet Liabilities Deferred Revenue $ 555,417 $ 594,917 $ (39,500 ) $ 555,417 $ 594,917 $ (39,500 ) Shareholders’ Equity Accumulated deficit $ (23,531,018 ) $ (23,570,518 ) $ (39,500 ) $ (23,531,018 ) $ (23,570,518 ) $ (39,500 ) Revenue Recognition Accounting Policy Summary The Company accounts for revenue in accordance with the new revenue standard. Under the new revenue standard, a performance obligation is a promise in a contract with a customer to transfer a distinct good or service to the customer. Most of the Company’s contracts contain multiple performance obligations that include engineering and technical services as well as the delivery of a diverse range of climate control system equipment and components, which can span multiple phases of a customer’s project life-cycle from facility design and construction to equipment delivery and system installation and start-up. The Company does not provide construction services or system installation services. Some of the Company’s contracts with customers contain a single performance obligation, typically engineering only services contracts. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. When there are multiple performance obligations within a contract, the Company allocates the transaction price to each performance obligation based on its standalone selling price. Generally, satisfaction occurs when control of the promised goods are transferred to the customer or as services are rendered or completed in exchange for consideration in an amount for which the Company expects to be entitled. The Company recognizes revenue for the sale of goods when control transfers to the customer, which primarily occurs at the time of shipment. The Company’s historical rates of return are insignificant as a percentage of sales and, as a result, the Company does not record a reserve for returns at the time the Company recognizes revenue. The Company also recognizes revenue net of sales taxes. The revenue and cost for freight and shipping is recorded when control over the sale of goods passes to the Company’s customers. The Company also has performance obligations to perform certain engineering services that are satisfied over a period of time. Performance obligations are satisfied over-time if the customer receives the benefits as the Company performs work, if the customer controls the asset as it is being produced, or if the product being produced for the customer has no alternative use and the Company has a contractual right to payment. Revenue is recognized from this type of performance obligation as services are rendered based on the percentage completion towards certain specified milestones. The Company offers assurance-type warranties for its products and products manufactured by others to meet specifications defined by the contracts with customers and does not have any material separate performance obligations related to these warranties. The Company maintains a warranty reserve based on historical warranty costs. Other Judgments and Assumptions The Company applies the practical expedient in ASC 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less. Applying the practical expedient in ASC 340-40-25-4, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs include certain sales commissions and incentives and are included in selling, general and administrative expenses. ASC 606-10-32-18 allows the Company to not adjust the amount of consideration to be received in a contract for any significant financing component if the Company expects to receive payment within twelve months of transfer of control of goods or services. The Company has elected this expedient as it expects all consideration to be received in one year or less at contract inception. The Company has also elected not to provide the remaining performance obligations disclosures related to service contracts in accordance with the practical expedient in ASC 606-10-55-18. The Company recognizes revenue in the amount to which the entity has a right to invoice and has adopted this election to not provide the remaining performance obligations related to service contracts. Contract Assets and Contract Liabilities Contract assets reflect revenue recognized and performance obligations satisfied in advance of customer billing. Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. The Company receives payments from customers based on the terms established in its contracts. Contract assets include unbilled amounts where revenue recognized exceeds the amount billed to the customer and the right of payment is conditional, subject to completing a milestone, such as a phase of a project. The Company typically does not have material amounts of contract assets since revenue is recognized as control of goods are transferred or as services are performed. As of September 30, 2018 and December 31, 2017, the Company had no contract assets. Contract liabilities consist of advance payments in excess of revenue recognized. The Company’s contract liabilities are recorded as a current liability in Deferred Revenue in the condensed consolidated balance sheet since the timing of when the Company expects to recognize revenue is generally less than one year. As of September 30, 2018 and December 31, 2017, the deferred revenue, which was classified as a current liability, was $555,417 and $1,011,871, respectively. |
Accounting for Share-Based Compensation | Accounting for Share-Based Compensation The Company recognizes the cost resulting from all share-based compensation arrangements, including stock options, restricted stock awards and restricted stock units that the Company grants under its equity incentive plan in its condensed consolidated financial statements based on their grant date fair value. The expense is recognized over the requisite service period or performance period of the award. Awards with a graded vesting period based on service are expensed on a straight-line basis for the entire award. Awards with performance-based vesting conditions, which require the achievement of a specific company financial performance goal at the end of the performance period and required service period, are recognized over the performance period. Each reporting period, the Company reassesses the probability of achieving the respective performance goal. If the goals are not expected to be met, no compensation cost is recognized and any previously recognized amount recorded is reversed. If the award contains market-based vesting conditions, the compensation cost is based on the grant date fair value and expected achievement of market condition and is not subsequently reversed if it is later determined that the condition is not likely to be met or is expected to be lower than initially expected. The grant date fair value of stock options is based on the Black-Scholes Option Pricing Model (the “Black-Scholes Model”). The Black-Scholes Model requires judgmental assumptions including volatility and expected term, both based on historical experience. The risk-free interest rate is based on U.S. Treasury interest rates whose term is consistent with the expected term of the option. The grant date fair value of restricted stock and restricted stock units is based on the closing price of the underlying stock on the date of the grant. The Company has elected to reduce share-based compensation expense for forfeitures as the forfeitures occur since the Company does not have historical data or other factors to appropriately estimate the expected employee terminations and to evaluate whether particular groups of employees have significantly different forfeiture expectations. Share-based awards granted to non-employees are recorded at the fair value of the consideration received or the fair value of the equity issued, whichever can be more readily measured, on the measurement date and are subject to periodic adjustment as the underlying share-based awards vest. Share-based compensation paid to employees, directors and non-employees totaled $573,931 and $878,964 for the three months ended September 30, 2018 and 2017, respectively, and $2,067,191 and $1,270,933 for the nine months ended September 30, 2018 and 2017, respectively. Share-based compensation expenses are classified in the condensed consolidated financial statements in the same manner as if such compensation was paid in cash. The following is a summary of share-based compensation costs included in the condensed consolidated statements of operations for the three and nine months ended September 30, 2018 and 2017, respectively: For the Three Months Ended September 30, For the Nine Months Ended September 30, 2018 2017 2018 2017 Share-based compensation expense included in: Cost of revenue $ 20,311 $ 38,104 $ 99,374 $ 38,104 Advertising and marketing expenses 2,273 7,259 5,398 7,259 Product development costs 1,137 2,640 3,411 2,640 Selling, general and administrative expenses 550,210 830,961 1,959,008 1,222,930 Total share-based compensation expense included in consolidated statement of operations $ 573,931 $ 878,964 $ 2,067,191 $ 1,270,933 |
Basic and Diluted Net Loss Per Common Share | Basic and Diluted Net Loss per Common Share Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. |
Commitments and Contingencies | Commitments and Contingencies In the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, customer disputes, government investigations and tax matters. An accrual for a loss contingency is recognized when it is probable that an asset had been impaired or a liability had been incurred and the amount of loss can be reasonably estimated. |
Other Risks and Uncertainties | Other Risks and Uncertainties To achieve profitable operations, the Company must successfully develop, manufacture and market its products. There can be no assurance that any such products can be developed or manufactured at an acceptable cost and with appropriate performance characteristics, or that such products will be successfully marketed. These factors could have a material adverse effect upon the Company’s financial results, financial position, and future cash flows. The Company is subject to risks common to similarly-situated companies including, but not limited to, new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, uncertainty of market acceptance of products, product liability, and the need to obtain financing for operations and capital requirements. As a supplier of services and equipment to cannabis cultivators, the Company is also subject to risks related to the cannabis industry. Although certain states and Canada, where the Company sells its products, have legalized medical and/or recreational cannabis, U.S. federal laws continue to prohibit cannabis in all its forms as well as its derivatives. The enforcement of U.S. federal laws may adversely affect the implementation of state and local cannabis laws and regulations that permit medical or recreational cannabis and, correspondingly, may adversely impact the Company’s customers and the Company. The Company’s success is also dependent upon its ability to raise additional capital and to successfully develop and market its products. |
Segment Information | Segment Information Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Company’s senior management team in deciding how to allocate resources and in assessing performance. The Company has one operating segment that is dedicated to the manufacture and sale of its products. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In February 2016, the FASB adopted ASU 2016-02, Leases Codification Improvements to Topic 842, Leases Targeted Improvements to Topic 842, Leases In June 2018, the Financial Accounting Standards Board (“FASB”) adopted ASU 2018-07, “Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” which expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer, or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted, but no earlier than the Company’s adoption of ASC 606. The Company is currently evaluating the effect that adopting this new accounting guidance will have on its consolidated results of operations, cash flows and financial position. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the disclosure requirements for fair value measurement, which modifies the disclosure requirements on fair value measurements in Topic 820. The amendment will be effective for reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company is currently assessing the impact of the ASU on the Company’s Condensed Consolidated Financial Statements. Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures. |
Basis of Presentation; Summar_3
Basis of Presentation; Summary of Significant Accounting Policies (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Accounting Policies [Abstract] | |
Schedule of Impact of Adoption of New Revenue Standard on Condensed Consolidated Income Statement and Balance Sheet | The cumulative effect of the changes made to the condensed consolidated balance sheet for the adoption of the new revenue standard as of January 1, 2018 was as follows: Balance as of December 31, 2017 Adjustments Due to ASC 606 Balance as of January 1, 2018 Balance Sheet Liabilities Deferred Revenue $ 1,011,871 $ (56,912 ) $ 954,959 Shareholders’ Equity Accumulated deficit $ (19,254,911 ) $ 56,912 $ (19,197,999 ) In accordance with the new revenue standard’s requirements, the disclosure of the impact of adoption on the condensed consolidated income statements and balance sheets for the three and nine months ended September 30, 2018 (including insignificant true-up adjustments related to the first quarter of 2018 which have been reflected in the nine months ended September 30, 2018) was as follows: For the Three Months Ended Sept 30, 2018 For the Nine Months Ended Sept 30, 2018 As Reported Balances Without Adoption of ASC 606 Effect of Change Higher/ (Lower) As Reported Balances Without Adoption of ASC 606 Effect of Change Higher/ (Lower) Income Statement Revenues Revenues $ 3,324,621 $ 3,342,533 $ (17,912 ) $ 7,387,094 $ 7,404,506 $ (17,412 ) Net loss $ (643,562 ) $ (625,650 ) $ 17,912 $ (3,928,051 ) $ (3,910,639 ) $ 17,412 Balance Sheet Liabilities Deferred Revenue $ 555,417 $ 594,917 $ (39,500 ) $ 555,417 $ 594,917 $ (39,500 ) Shareholders’ Equity Accumulated deficit $ (23,531,018 ) $ (23,570,518 ) $ (39,500 ) $ (23,531,018 ) $ (23,570,518 ) $ (39,500 ) |
Summary of Share-based Compensation Costs | The following is a summary of share-based compensation costs included in the condensed consolidated statements of operations for the three and nine months ended September 30, 2018 and 2017, respectively: For the Three Months Ended September 30, For the Nine Months Ended September 30, 2018 2017 2018 2017 Share-based compensation expense included in: Cost of revenue $ 20,311 $ 38,104 $ 99,374 $ 38,104 Advertising and marketing expenses 2,273 7,259 5,398 7,259 Product development costs 1,137 2,640 3,411 2,640 Selling, general and administrative expenses 550,210 830,961 1,959,008 1,222,930 Total share-based compensation expense included in consolidated statement of operations $ 573,931 $ 878,964 $ 2,067,191 $ 1,270,933 |
Inventory (Tables)
Inventory (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Inventory Disclosure [Abstract] | |
Schedule of Inventory | Inventory consisted of the following: September 30, December 31, 2018 2017 Finished goods $ 536,512 $ 569,047 Work in progress 10,159 14,348 Raw materials 282,837 262,611 Allowance for excess & obsolete inventory (328,310 ) (323,384 ) Inventory, net $ 501,198 $ 522,622 |
Property and Equipment (Tables)
Property and Equipment (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Property, Plant and Equipment [Abstract] | |
Schedule of Property and Equipment | Property and equipment consisted of the following: September 30, December 31, 2018 2017 Furniture and equipment $ 352,434 $ 326,894 Equipment held for lease to related party 176,042 159,806 Vehicles 15,000 15,000 Leasehold improvements 215,193 33,257 758,669 534,957 Accumulated depreciation (228,514 ) (133,601 ) Property and equipment, net $ 530,155 $ 401,356 |
Accounts Payable and Accrued _2
Accounts Payable and Accrued Liabilities (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Payables and Accruals [Abstract] | |
Schedule of Accounts Payable and Accrued Liabilities | Accounts payable and accrued liabilities consisted of the following: September 30, December 31, 2018 2017 Accounts payable $ 1,561,706 $ 1,159,975 Sales commissions payable 96,525 21,931 Accrued payroll liabilities 146,773 58,557 Product warranty accrual 130,042 105,122 Commercial dispute settlement - 332,418 Other accrued expenses 178,670 291,260 Total $ 2,113,716 $ 1,969,263 |
Derivative Liabilities (Tables)
Derivative Liabilities (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Schedule of Derivative Liabilities Activity | The following table sets forth movement in the derivative liability related to the warrants: Balance December 31, 2017 $ 410,880 Gain on change in derivative liability, net (21,403 ) Balance prior to exercise of associated warrants 389,477 Extinguishment of derivative liability on cashless exercise of associated warrants (389,477 ) Balance September 30, 2018 $ - |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Schedule of Future Minimum Lease Payments | The following is a schedule by years of the minimum future lease payments on the building lease as of September 30, 2018. Year Ended December 31, 2018 $ 58,645 2019 236,926 2020 244,034 2021 251,355 2022 170,888 Total future minimum lease payments $ 961,848 |
Equity Incentive Plan (Tables)
Equity Incentive Plan (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Schedule of Restricted Stock Units Activity | A summary of the RSUs awarded to employees, directors and consultants under the 2017 Equity Plan as September 30, 2018, and changes during the nine months then ended, are presented in the table below: Number of Units Weighted Average Grant-Date Fair Value Aggregate Intrinsic Value Outstanding as of December 31, 2017 13,800,000 $ 0.122 $ 3,312,000 Granted 5,514,736 $ 0.185 Vested and Settled with Share Issuance (5,447,368 ) $ 0.147 Forfeited - - Outstanding as of September 30, 2018 13,867,368 $ 0.137 $ 1,996,901 Expected to vest as of September 30, 2018 10,867,368 $ 0.144 $ 1,564,901 2018/2019 performance-based units - uncertain vesting 3,000,000 $ 0.112 $ 432,000 |
Schedule of Incentive Stock Bonus Awarded to Employees | A summary of the incentive stock bonus awards granted to employees under the 2017 Equity Plan as of September 30, 2018, and changes during the nine months then ended, are presented in the table below: Number of Shares Weighted Average Grant-Date Fair Value Aggregate Intrinsic Value Unvested, December 31, 2017 7,040,000 $ 0.113 $ 1,689,600 Granted 4,000,000 $ 0.170 Vested (1,860,000 ) $ 0.113 Forfeited (200,000 ) $ 0.121 Unvested, September 30, 2018 8,980,000 $ 0.138 $ 1,293,120 |
2017 Equity Plan [Member] | Employee [Member] | |
Schedule of Non-Qualified Stock Option Activity | A summary of the non-qualified stock options granted to employees under the 2017 Equity Plan as of September 30, 2018, and changes during the nine months then ended, are presented in the table below: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding as of December 31, 2017 10,235,000 $ 0.121 8.7 $ 1,218,375 Granted 1,000,000 $ 0.283 Exercised (25,000 ) $ 0.135 Forfeited (2,183,332 ) $ 0.196 Expired (33,334 ) $ 0.135 Outstanding as of September 30, 2018 8,993,334 $ 0.121 7.8 $ 210,640 Exercisable as of September 30, 2018 1,826,674 $ 0.124 3.5 $ 36,390 Oustanding vested and expected to vest as of September 30, 2018 2,693,334 $ 0.126 5.2 $ 47,690 Performance options based on 2018 and 2019 revenue thresholds - uncertain vesting as of September 30, 2018 6,300,000 $ 0.118 8.9 $ 162,950 |
Summary of Non-vested Non-Qualified Stock Option Activity | A summary of non-vested non-qualified stock options granted to employees under the as of September 30, 2018, and any changes during the nine months then ended, are presented in the table below: Number of Options Weighted Average Grant-Date Fair Value Aggregate Intrinsic Value Nonvested as of December 31, 2017 8,349,992 $ 0.107 $ 1,000,499 Granted 1,000,000 $ 0.257 Vested - - Forfeited (2,183,332 ) $ 0.177 Expired - - Nonvested as of September 30, 2018 7,166,660 $ 0.106 $ 174,250 |
2017 Equity Plan [Member] | Director [Member] | |
Schedule of Non-Qualified Stock Option Activity | A summary of the non-qualified stock options granted to the directors under the 2017 Equity Plan as of September 30, 2018, and changes during the nine months then ended, are presented in the table below: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value ($000) Outstanding, December 31, 2017 900,000 $ 0.135 9.6 $ 94,500 Granted - - Exercised - - Forfeited/Cancelled - - Expired - - Outstanding, September 30, 2018 900,000 $ 0.135 8.9 $ 8,100 Exerciseable, September 30, 2018 900,000 $ 0.135 8.9 $ 8,100 Outstanding vested, September 30, 2018 900,000 $ 0.135 8.9 $ 8,100 |
Summary of Non-vested Non-Qualified Stock Option Activity | A summary of non-vested non-qualified stock options granted to directors under the as of September 30, 2018, and any changes during the nine months then ended, are presented in the table below: Number of Options Weighted Average Grant-Date Fair Value Aggregate Intrinsic Value Nonvested, December 31, 2017 450,000 $ 0.123 $ 52,470 Granted - - Vested (450,000 ) $ 0.123 Forfeited - - Expired - - Nonvested, September 30, 2018 - - $ - |
Basis of Presentation; Summar_4
Basis of Presentation; Summary of Significant Accounting Policies (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | Dec. 31, 2017 | |
Accounting Policies [Abstract] | |||||
Net loss | $ 643,562 | $ 1,478,478 | $ 3,928,051 | $ 3,552,587 | |
Accumulated deficit | 23,531,018 | 23,531,018 | $ 19,254,911 | ||
Deferred revenue | 555,417 | 555,417 | $ 1,011,871 | ||
Share based compensation expense | $ 573,931 | $ 878,964 | $ 2,067,191 | $ 1,270,933 |
Basis of Presentation; Summar_5
Basis of Presentation; Summary of Significant Accounting Policies - Schedule of Impact of Adoption of New Revenue Standard on Condensed Consolidated Income Statement and Balance Sheet (Details) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | Dec. 31, 2017 | |
Deferred revenue | $ 555,417 | $ 555,417 | $ 1,011,871 | ||
Accumulated deficit | (23,531,018) | (23,531,018) | $ (19,254,911) | ||
Revenues | 3,324,621 | $ 1,566,256 | 7,387,094 | $ 4,901,241 | |
Net loss | (643,562) | $ (1,478,478) | (3,928,051) | $ (3,552,587) | |
Adjustments Due to ACS 606 [Member] | |||||
Deferred revenue | (56,912) | (56,912) | |||
Accumulated deficit | 56,912 | 56,912 | |||
Balance as of January 1, 2018 [Member] | |||||
Deferred revenue | 954,959 | 954,959 | |||
Accumulated deficit | (19,197,999) | (19,197,999) | |||
Effect of Change Higher/(Lower) [Member] | |||||
Deferred revenue | (39,500) | (39,500) | |||
Accumulated deficit | (39,500) | (39,500) | |||
Revenues | (17,912) | (17,412) | |||
Net loss | 17,912 | 17,412 | |||
Balances Without Adoption of ASC 606 [Member] | |||||
Deferred revenue | 594,917 | 594,917 | |||
Accumulated deficit | (23,570,518) | (23,570,518) | |||
Revenues | 3,342,533 | 7,404,506 | |||
Net loss | $ (625,650) | $ (3,910,639) |
Basis of Presentation; Summar_6
Basis of Presentation; Summary of Significant Accounting Policies - Summary of Share-based Compensation Costs (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Total share-based compensation expense included in consolidated statement of operations | $ 573,931 | $ 878,964 | $ 2,067,191 | $ 1,270,933 |
Cost of Revenue [Member] | ||||
Total share-based compensation expense included in consolidated statement of operations | 20,311 | 38,104 | 99,374 | 38,104 |
Advertising and Marketing Expenses [Member] | ||||
Total share-based compensation expense included in consolidated statement of operations | 2,273 | 7,259 | 5,398 | 7,259 |
Product Development Costs [Member] | ||||
Total share-based compensation expense included in consolidated statement of operations | 1,137 | 2,640 | 3,411 | 2,640 |
Selling, General and Administrative Expenses [Member] | ||||
Total share-based compensation expense included in consolidated statement of operations | $ 550,210 | $ 830,961 | $ 1,959,008 | $ 1,222,930 |
Inventory (Details Narrative)
Inventory (Details Narrative) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2018 | Dec. 31, 2017 | |
Service [Member] | ||
Overhead expenses | $ 34,081 | $ 28,554 |
Inventory - Schedule of Invento
Inventory - Schedule of Inventory (Details) - USD ($) | Sep. 30, 2018 | Dec. 31, 2017 |
Inventory Disclosure [Abstract] | ||
Finished goods | $ 536,512 | $ 569,047 |
Work in progress | 10,159 | 14,348 |
Raw materials | 282,837 | 262,611 |
Allowance for excess & obsolete inventory | (328,310) | (323,384) |
Inventory, net | $ 501,198 | $ 522,622 |
Property and Equipment - Schedu
Property and Equipment - Schedule of Property and Equipment (Details) - USD ($) | Sep. 30, 2018 | Dec. 31, 2017 |
Property and equipment, Gross | $ 758,669 | $ 534,957 |
Accumulated depreciation | (228,514) | (133,601) |
Property and equipment, net | 530,155 | 401,356 |
Furniture and Equipment [Member] | ||
Property and equipment, Gross | 352,434 | 326,894 |
Equipment Held For Lease to Related Party [Member] | ||
Property and equipment, Gross | 176,042 | 159,806 |
Vehicles [Member] | ||
Property and equipment, Gross | 15,000 | 15,000 |
Leasehold Improvements [Member] | ||
Property and equipment, Gross | $ 215,193 | $ 33,257 |
Accounts Payable and Accrued _3
Accounts Payable and Accrued Liabilities - Schedule of Accounts Payable and Accrued Liabilities (Details) - USD ($) | Sep. 30, 2018 | Dec. 31, 2017 |
Payables and Accruals [Abstract] | ||
Accounts payable | $ 1,561,706 | $ 1,159,975 |
Sales commissions payable | 96,525 | 21,931 |
Accrued payroll liabilities | 146,773 | 58,557 |
Product warranty accrual | 130,042 | 105,122 |
Commercial dispute settlement | 332,418 | |
Other accrued expenses | 178,670 | 291,260 |
Total | $ 2,113,716 | $ 1,969,263 |
Related Party Agreements and _2
Related Party Agreements and Transactions (Details Narrative) - USD ($) | Jun. 19, 2018 | May 29, 2018 | Mar. 22, 2018 | May 10, 2017 | Sep. 30, 2018 | Sep. 30, 2018 |
Lease fees | $ 18,330 | $ 30,550 | ||||
Demo and testing fees | $ 12,000 | 20,000 | ||||
Repurchase of common stock, value | $ 400,000 | |||||
Sterling Facility [Member] | ||||||
Quarterly fee, receivable | $ 18,330 | |||||
Residual value of leased equipment | 81,827 | |||||
Quarterly fee paid to related party | 12,000 | |||||
Payment from related party | $ 6,330 | |||||
Sterling Pharms Equipment Agreement [Member] | Sterling Pharms, LLC [Member] | ||||||
Agreement term | 3 years | |||||
Quarterly fee, receivable | $ 16,500 | |||||
Quarterly fee, payable | $ 12,000 | |||||
Consulting Agreement [Member] | ||||||
Agreement term description | Commenced May 1, 2018 and will expire April 30, 2021. | |||||
Stock Repurchase Agreement [Member] | Stephen and Brandy Keen [Member] | ||||||
Repurchase of common stock, value | $ 400,000 | |||||
Repurchase price per share | $ 0.128 | |||||
Share price, description | The Repurchase Price per Share was $0.128, which was equal to 80% of the $0.16 unit price paid by investors in the private placement offering to reflect the estimated value of the warrant included in the unit. | |||||
Repurchase of common stock, shares | 3,125,000 | |||||
Preferred Stock Option Agreement [Member] | Stephen and Brandy Keen [Member] | ||||||
Repurchase of common stock, shares | 35,189,669 | |||||
Stock option expiration | Apr. 30, 2020 | |||||
Payments of option to repurchase preferred stock from related party | $ 5,000 |
Derivative Liabilities (Details
Derivative Liabilities (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | Mar. 31, 2018 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||
Extinguished derivative liability | $ 389,000 | ||||
Gain on change in fair value of derivative liabilities | $ (6,660) | $ 21,403 | $ 212,054 |
Derivative Liabilities - Schedu
Derivative Liabilities - Schedule of Derivative Liabilities Activity (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||
Derivative liabilities balance, beginning | $ 410,880 | |||
(Gain) on change in derivative liability, net | $ 6,660 | (21,403) | $ (212,054) | |
Balance prior to exercise of associated warrants | 389,477 | |||
Extinguishment of derivative liability on cashless exercise of associated warrants | (389,477) | |||
Derivative liabilities balance, ending |
Commitments and Contingencies_2
Commitments and Contingencies (Details Narrative) | 9 Months Ended | |
Sep. 30, 2018USD ($)ft² | Sep. 30, 2017USD ($) | |
Lease monthly rental value | $ 19,548 | |
Lease security deposit | 51,000 | |
Tenant allowance for leasehold improvements received | $ 100,000 | |
New Building Lease [Member] | ||
Lease agreement, manufacturing and office space, square feet | ft² | 18,600 | |
Lease commenced date | Sep. 29, 2017 | |
Lease expiration date | Aug. 31, 2022 | |
New Building Lease [Member] | August 31, 2018 [Member] | ||
Lease monthly rental value | $ 18,979 | |
New Building Lease [Member] | September 1, 2018 [Member] | ||
Rate of monthly rent increase | 3.00% |
Commitments and Contingencies -
Commitments and Contingencies - Schedule of Future Minimum Lease Payments (Details) | Sep. 30, 2018USD ($) |
Commitments and Contingencies Disclosure [Abstract] | |
2,018 | $ 58,645 |
2,019 | 236,926 |
2,020 | 244,034 |
2,021 | 251,355 |
2,022 | 170,888 |
Total future minimum lease payments | $ 961,848 |
Non-Compensatory Equity Trans_2
Non-Compensatory Equity Transactions (Details Narrative) - USD ($) | May 29, 2018 | Sep. 30, 2018 | Sep. 30, 2017 |
Payments for repurchase of common stock | $ 400,000 | ||
Restricted Stock [Member] | |||
Number of shares of common stock issued | 800,000 | ||
Restricted Stock [Member] | Former Director [Member] | |||
Number of warrant shares upon the exercise price | 1,498,325 | ||
Restricted Stock [Member] | Investors [Member] | Warrants [Member] | |||
Number of warrant shares upon the exercise price | 1,168,540 | ||
Restricted Stock [Member] | Consultants [Member] | |||
Shares issued for services | 273,675 | ||
July 1, 2019 [Member] | |||
Warrant exercise price per share | $ 0.40 | ||
Redemption Date [Member] | |||
Warrant exercise price per share | $ 0.01 | ||
Brandy Keen [Member] | |||
Number of options acquired to purchase shares of preferred stock | 35,189,669 | ||
Payments for repurchase of preferred stock options | $ 5,000 | ||
Investors [Member] | Restricted Stock [Member] | |||
Number of warrant shares upon the exercise price | 100,000 | ||
Payment of warrant exercise price | $ 15,000 | ||
Employee [Member] | Employees Sales Incentive Plan [Member] | |||
Number of shares of common stock issued | 31,562 | ||
Private Placement Offering [Member] | |||
Offering price per unit | $ 0.16 | ||
Offering unit description | Each Unit consisted of one share of the Company's common stock and one warrant for the purchase of one share of the Company's common stock. | ||
Number of units issued, shares | 7,562,500 | ||
Aggregate proceeds from issuane of common stock | $ 1,210,000 | ||
Warrant exercise price per share | $ 0.25 | ||
Private Placement Offering [Member] | Brandy Keen [Member] | |||
Payments for repurchase of common stock | $ 400,000 |
Equity Incentive Plan (Details
Equity Incentive Plan (Details Narrative) - USD ($) | Sep. 12, 2018 | Aug. 02, 2018 | Jul. 13, 2018 | Jul. 09, 2018 | Sep. 30, 2018 | Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 |
Number of share awards granted | 23,760,702 | 23,760,702 | 23,760,702 | ||||||
Share based compensation expense | $ 573,931 | $ 878,964 | $ 2,067,191 | $ 1,270,933 | |||||
Incentive Stock Bonus Awards [Member] | |||||||||
Number of shares issued as special incentive bonus | 560,000 | 300,000 | |||||||
Restricted Stock [Member] | |||||||||
Number of restricted common stock issued | 800,000 | ||||||||
Unrecognized compensation expense | $ 864,143 | 864,143 | $ 864,143 | ||||||
Share based compensation - time based vesting | 528,443 | ||||||||
Share based compensation - performance based vesting | 335,700 | ||||||||
Total intrinsic value of restricted stock unit | $ 1,637,100 | ||||||||
Restricted Stock [Member] | 2018 Revenue [Member] | |||||||||
Number of share awards vested in period | 1,500,000 | ||||||||
Unrecognized compensation expense | 18,000,000 | 18,000,000 | $ 18,000,000 | ||||||
Restricted Stock [Member] | 2019 Revenue [Member] | |||||||||
Number of share awards vested in period | 1,500,000 | ||||||||
Unrecognized compensation expense | 25,000,000 | 25,000,000 | $ 25,000,000 | ||||||
Brandy Keen [Member] | Restricted Stock Units (RSUs) [Member] | |||||||||
Number of shares vested and to be settled with issued shares | 1,000,000 | ||||||||
Employee [Member] | Incentive Stock Bonus Awards [Member] | |||||||||
Share based compensation expense | 531,076 | ||||||||
Unrecognized compensation expense | $ 730,641 | $ 730,641 | $ 730,641 | ||||||
Independent Directors [Member] | |||||||||
Number of shares of common stock issued | 105,634 | ||||||||
Director fees | $ 30,000 | $ 15,000 | |||||||
Independent Directors [Member] | Restricted Stock Units (RSUs) [Member] | |||||||||
Number of shares vested and to be settled with issued shares | 197,368 | 197,368 | |||||||
Vested number of restricted common stock grant | 394,736 | ||||||||
Number of shares excepted to vest | 197,368 | ||||||||
New Employee [Member] | Restricted Stock Units (RSUs) [Member] | |||||||||
Number of restricted common stock issued | 120,000 | ||||||||
Employees, Directors and Consultants [Member] | |||||||||
Number of restricted common stock issued | 1,091,953 | ||||||||
Chief Executive Officer [Member] | Restricted Stock [Member] | |||||||||
Unvested restricted stock units on performance-based | 3,000,000 | ||||||||
Employment Agreement [Member] | Chief Financial Officer [Member] | |||||||||
Number of shares of common stock issued | 4,000,000 | ||||||||
Number of common stock issued as special bonus | $ 1,000,000 | ||||||||
Number of shares vested and to be settled with issued shares | 1,000,000 | ||||||||
Board approved, description | for the six-month period ended December 31, 2018, the new CFO will be eligible to receive a special bonus of 1,000,000 shares of the Company's common stock, provided the Board has determined that his performance has been average or better for such period, and (ii) for each of the six-month periods ended June 30, 2019, December 31, 2019 and June 30, 2020, the new CFO will be eligible to receive a special bonus of 1,000,000 shares of the Company's common stock, provided the Board has determined that he has achieved certain benchmarks and milestones as mutually agreed to by him and the Board in advance of each such period. | ||||||||
2017 Equity Plan [Member] | |||||||||
Number of shares of common stock issued | 50,000,000 | ||||||||
Number of share awards granted | 41,069,342 | 41,069,342 | 41,069,342 | ||||||
Number of share awards forfeited or expired | 5,411,666 | ||||||||
Number of share awards vested in period | 11,896,974 | ||||||||
Share based compensation expense | $ 1,294,958 | ||||||||
Debt instrument term | 2 years | ||||||||
Unrecognized compensation expense | $ 1,995,154 | $ 1,995,154 | $ 1,995,154 | ||||||
2017 Equity Plan [Member] | 2018 Revenue [Member] | |||||||||
Unrecognized compensation expense | 18,000,000 | 18,000,000 | 18,000,000 | ||||||
2017 Equity Plan [Member] | 2019 Revenue [Member] | |||||||||
Unrecognized compensation expense | 25,000,000 | 25,000,000 | $ 25,000,000 | ||||||
2017 Equity Plan [Member] | Non-Qualified Stock Options [Member] | |||||||||
Number of share awards vested in period | 38,321 | ||||||||
Unrecognized compensation expense | 695,329 | 695,329 | $ 695,329 | ||||||
Volatility rate | 118.90% | ||||||||
Expected term | 7 years 6 months | ||||||||
Risk-free interest rate | 2.77% | ||||||||
Share based compensation - time based vesting | $ 35,874 | ||||||||
Share based compensation - performance based vesting | $ 659,454 | ||||||||
Stock options to purchase shares on performance-based | 10,250,000 | ||||||||
2017 Equity Plan [Member] | Non-Qualified Stock Options [Member] | 2018 Revenue [Member] | |||||||||
Number of share awards vested in period | 2,550,000 | ||||||||
Unrecognized compensation expense | 18,000,000 | 18,000,000 | $ 18,000,000 | ||||||
Stock options to purchase shares on performance-based | 6,300,000 | ||||||||
2017 Equity Plan [Member] | Non-Qualified Stock Options [Member] | 2019 Revenue [Member] | |||||||||
Number of share awards vested in period | 3,750,000 | ||||||||
Unrecognized compensation expense | 25,000,000 | 25,000,000 | $ 25,000,000 | ||||||
Stock options to purchase shares on performance-based | 6,300,000 | ||||||||
2017 Equity Plan [Member] | Non-Qualified Stock Options [Member] | 2017 Revenue [Member] | |||||||||
Stock option to purchase - thresholds - performance based | 1,950,000 | ||||||||
Stock options forfeited due to employee terminations | 2,000,000 | ||||||||
2017 Equity Plan [Member] | Directors [Member] | |||||||||
Share based compensation expense | $ 12,205 | ||||||||
2017 Equity Plan [Member] | Employees, Directors and Consultants [Member] | Restricted Stock Units (RSUs) [Member] | |||||||||
Vested number of restricted common stock grant | 5,447,368 | ||||||||
2017 Equity Plan [Member] | |||||||||
Unrecognized compensation expense | $ 0 | $ 0 | $ 0 |
Equity Incentive Plan - Schedul
Equity Incentive Plan - Schedule of Non-Qualified Stock Option Activity (Details) - 2017 Equity Plan [Member] | 9 Months Ended |
Sep. 30, 2018USD ($)$ / sharesshares | |
Employee [Member] | |
Number of Options, Outstanding Beginning | shares | 10,235,000 |
Number of Options, Granted | shares | 1,000,000 |
Number of Options, Exercised | shares | (25,000) |
Number of Options, Forfeited/Cancelled | shares | (2,183,332) |
Number of Options, Expired | shares | (33,334) |
Number of Options, Outstanding Ending | shares | 8,993,334 |
Number of Options, Exercisable Ending | shares | 1,826,674 |
Number of Options, Outstanding vested and Expected to vest Ending | shares | 2,693,334 |
Number of Options, Performance options based on 2018 and 2019 revenue thresholds Ending | shares | 6,300,000 |
Weighted Average Exercise Price, Outstanding Beginning | $ / shares | $ 0.121 |
Weighted Average Exercise Price, Granted | $ / shares | 0.283 |
Weighted Average Exercise Price, Exercised | $ / shares | 0.135 |
Weighted Average Exercise Price, Forfeited/Cancelled | $ / shares | 0.196 |
Weighted Average Exercise Price, Expired | $ / shares | 0.135 |
Weighted Average Exercise Price, Outstanding Ending | $ / shares | 0.121 |
Weighted Average Exercise Price, Exercisable Ending | $ / shares | 0.124 |
Weighted Average Exercise Price, Outstanding vested and Expected to vest Ending | $ / shares | 0.126 |
Weighted Average Exercise Price, Performance options based on 2018 and 2019 revenue thresholds Ending | $ / shares | $ 0.118 |
Weighted Average Remaining Contractual Term, Outstanding Beginning | 8 years 8 months 12 days |
Weighted Average Remaining Contractual Term, Granted | 0 years |
Weighted Average Remaining Contractual Term, Forfeited/Cancelled | 0 years |
Weighted Average Remaining Contractual Term, Expired | 0 years |
Weighted Average Remaining Contractual Term, Outstanding Ending | 7 years 9 months 18 days |
Weighted Average Remaining Contractual Term, Vested and Exercisable | 3 years 6 months |
Weighted Average Remaining Contractual Term, Outstanding vested and expected to vest Ending | 5 years 2 months 12 days |
Weighted Average Remaining Contractual Term, Performance options based on 2018 and 2019 revenue thresholds Ending | 8 years 10 months 25 days |
Aggregate Intrinsic Value, Outstanding Beginning | $ | $ 1,218,375 |
Aggregate Intrinsic Value, Outstanding Ending | $ | 210,640 |
Aggregate Intrinsic Value, Exercisable Ending | $ | 36,390 |
Aggregate Intrinsic Value, Outstanding vested and Expected to vest Ending | $ | 47,690 |
Aggregate Intrinsic Value, Performance options based on 2018 and 2019 revenue thresholds Ending | $ | $ 162,950 |
Director [Member] | |
Number of Options, Outstanding Beginning | shares | 900,000 |
Number of Options, Granted | shares | |
Number of Options, Exercised | shares | |
Number of Options, Forfeited/Cancelled | shares | |
Number of Options, Expired | shares | |
Number of Options, Outstanding Ending | shares | 900,000 |
Number of Options, Exercisable Ending | shares | 900,000 |
Number of Options, Outstanding vested and Expected to vest Ending | shares | 900,000 |
Weighted Average Exercise Price, Outstanding Beginning | $ / shares | $ 0.135 |
Weighted Average Exercise Price, Granted | $ / shares | |
Weighted Average Exercise Price, Exercised | $ / shares | |
Weighted Average Exercise Price, Forfeited/Cancelled | $ / shares | |
Weighted Average Exercise Price, Expired | $ / shares | |
Weighted Average Exercise Price, Outstanding Ending | $ / shares | 0.135 |
Weighted Average Exercise Price, Exercisable Ending | $ / shares | 0.135 |
Weighted Average Exercise Price, Outstanding vested and Expected to vest Ending | $ / shares | $ 0.135 |
Weighted Average Remaining Contractual Term, Outstanding Beginning | 9 years 7 months 6 days |
Weighted Average Remaining Contractual Term, Granted | 0 years |
Weighted Average Remaining Contractual Term, Forfeited/Cancelled | 0 years |
Weighted Average Remaining Contractual Term, Expired | 0 years |
Weighted Average Remaining Contractual Term, Outstanding Ending | 8 years 10 months 25 days |
Weighted Average Remaining Contractual Term, Vested and Exercisable | 8 years 10 months 25 days |
Weighted Average Remaining Contractual Term, Outstanding vested and expected to vest Ending | 8 years 10 months 25 days |
Aggregate Intrinsic Value, Outstanding Beginning | $ | $ 94,500 |
Aggregate Intrinsic Value, Outstanding Ending | $ | 8,100 |
Aggregate Intrinsic Value, Exercisable Ending | $ | 8,100 |
Aggregate Intrinsic Value, Outstanding vested and Expected to vest Ending | $ | $ 8,100 |
Equity Incentive Plan - Summary
Equity Incentive Plan - Summary of Non-vested Non-Qualified Stock Option Activity (Details) - 2017 Equity Plan [Member] | 9 Months Ended |
Sep. 30, 2018USD ($)$ / sharesshares | |
Number of Options, Vested | (11,896,974) |
Employee [Member] | |
Number of Options Nonvested, beginning | 8,349,992 |
Number of Options, Granted | 1,000,000 |
Number of Options, Vested | |
Number of Options, Forfeited | (2,183,332) |
Number of Options, Expired | |
Number of Options, Nonvested, ending | 7,166,660 |
Weighted Average Grant Date Fair Value, beginning | $ / shares | $ 0.107 |
Weighted Average Grant Date Fair Value, Granted | $ / shares | 0.257 |
Weighted Average Grant Date Fair Value, Vested | $ / shares | |
Weighted Average Grant Date Fair Value, Forfeited | $ / shares | 0.177 |
Weighted Average Grant Date Fair Value, Expired | $ / shares | |
Weighted Average Grant Date Fair Value, ending | $ / shares | $ 0.106 |
Aggregated Intrinsic Value, Nonvested Beginning | $ | $ 1,000,499 |
Aggregated Intrinsic Value, Nonvested Ending | $ | $ 174,250 |
Director [Member] | |
Number of Options Nonvested, beginning | 450,000 |
Number of Options, Granted | |
Number of Options, Vested | (450,000) |
Number of Options, Forfeited | |
Number of Options, Expired | |
Number of Options, Nonvested, ending | |
Weighted Average Grant Date Fair Value, beginning | $ / shares | $ 0.123 |
Weighted Average Grant Date Fair Value, Granted | $ / shares | |
Weighted Average Grant Date Fair Value, Vested | $ / shares | 0.123 |
Weighted Average Grant Date Fair Value, Forfeited | $ / shares | |
Weighted Average Grant Date Fair Value, Expired | $ / shares | |
Weighted Average Grant Date Fair Value, ending | $ / shares | |
Aggregated Intrinsic Value, Nonvested Beginning | $ | $ 52,470 |
Aggregated Intrinsic Value, Nonvested Ending | $ |
Equity Incentive Plan - Sched_2
Equity Incentive Plan - Schedule of Restricted Stock Units Activity (Details) - 2017 Equity Plan [Member] - Restricted Stock Units (RSUs) [Member] - Employees, Directors and Consultants [Member] | 9 Months Ended |
Sep. 30, 2018USD ($)$ / sharesshares | |
Number of Units, Beginning | shares | 13,800,000 |
Number of Units, Granted | shares | 5,514,736 |
Number of Units, Vested and Settled with Share Issuance | shares | (5,447,368) |
Number of Units, Forfeited | shares | |
Number of Units, Unvested, Ending | shares | 13,867,368 |
Number of Units, Expected to Vest | shares | 10,867,368 |
Number of Units, Performance Units - Uncertain Vesting | shares | 3,000,000 |
Weighted Average Grant Date Fair Value, Beginning | $ 0.122 |
Weighted Average Grant Date Fair Value, Granted | 0.185 |
Weighted Average Grant Date Fair Value, Vested and Settled with Share Issuance | 0.147 |
Weighted Average Grant Date Fair Value, Forfeited | |
Weighted Average Grant Date Fair Value, Ending | 0.137 |
Weighted Average Grant Date Fair Value, Expected to Vest | 0.144 |
Weighted Average Grant Date Fair Value, Performance Units - Uncertain Vesting | $ 0.112 |
Aggregated Intrinsic Value, Nonvested Beginning | $ | $ 3,312,000 |
Aggregated Intrinsic Value, Nonvested Ending | $ | 1,996,901 |
Aggregated Intrinsic Value, Expected to Vested and Settled with Share Issuance | $ | $ 1,564,901 |
Aggregated Intrinsic Value, Performance Units - Uncertain Vesting | $ 432,000 |
Equity Incentive Plan - Sched_3
Equity Incentive Plan - Schedule of Incentive Stock Bonus Awarded to Employees (Details) - 2017 Equity Plan [Member] | 9 Months Ended |
Sep. 30, 2018USD ($)$ / sharesshares | |
Number of Options, Vested | (11,896,974) |
Employee [Member] | |
Number of Options Nonvested, beginning | 8,349,992 |
Number of Options, Granted | 1,000,000 |
Number of Options, Vested | |
Number of Options, Forfeited | (2,183,332) |
Number of Options, Nonvested, ending | 7,166,660 |
Weighted Average Grant Date Fair Value, beginning | $ / shares | $ 0.107 |
Weighted Average Grant Date Fair Value, Granted | $ / shares | 0.257 |
Weighted Average Grant Date Fair Value, Vested | $ / shares | |
Weighted Average Grant Date Fair Value, Forfeited | $ / shares | 0.177 |
Weighted Average Grant Date Fair Value, ending | $ / shares | $ 0.106 |
Aggregated Intrinsic Value, Nonvested Beginning | $ | $ 1,000,499 |
Aggregated Intrinsic Value, Nonvested Ending | $ | $ 174,250 |
Incentive Stock Bonus Awards [Member] | Employee [Member] | |
Number of Options Nonvested, beginning | 7,040,000 |
Number of Options, Granted | 4,000,000 |
Number of Options, Vested | (1,860,000) |
Number of Options, Forfeited | (200,000) |
Number of Options, Nonvested, ending | 8,980,000 |
Weighted Average Grant Date Fair Value, beginning | $ / shares | $ 0.113 |
Weighted Average Grant Date Fair Value, Granted | $ / shares | 0.170 |
Weighted Average Grant Date Fair Value, Vested | $ / shares | 0.113 |
Weighted Average Grant Date Fair Value, Forfeited | $ / shares | 0.121 |
Weighted Average Grant Date Fair Value, ending | $ / shares | $ 0.138 |
Aggregated Intrinsic Value, Nonvested Beginning | $ | $ 1,689,600 |
Aggregated Intrinsic Value, Nonvested Ending | $ | $ 1,293,120 |
Income Taxes (Details Narrative
Income Taxes (Details Narrative) - USD ($) | 3 Months Ended | 12 Months Ended |
Sep. 30, 2018 | Dec. 31, 2017 | |
Income Tax Disclosure [Abstract] | ||
Net operating loss carry forward amount | $ 10,848,000 | |
Tax returns | $ 366,000 | |
Tax returns balance | $ 11,214,000 | |
Net operating loss expiration term | 2034 through 2037 |
Subsequent Events (Details Narr
Subsequent Events (Details Narrative) - USD ($) | Nov. 08, 2018 | Sep. 12, 2018 | Aug. 02, 2018 |
Independent Directors [Member] | |||
Number of shares of common stock issued | 105,634 | ||
Director fees | $ 30,000 | $ 15,000 | |
Subsequent Event [Member] | Independent Directors [Member] | |||
Number of shares of common stock issued | 120,000 | ||
Director fees | $ 15,000 | ||
Subsequent Event [Member] | Chief Executive Officer [Member] | Incentive Stock Bonus Awards [Member] | |||
Number of common stock issued as special bonus | $ 1,000,000 |