Document_and_Entity_Informatio
Document and Entity Information (USD $) | 12 Months Ended | |
Dec. 31, 2014 | Mar. 15, 2015 | |
Document And Entity Information | ||
Entity Registrant Name | Safety Quick Lighting & Fans Corp. | |
Entity Central Index Key | 1598981 | |
Document Type | 10-K | |
Document Period End Date | 31-Dec-14 | |
Amendment Flag | FALSE | |
Current Fiscal Year End Date | -19 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | No | |
Entity Filer Category | Smaller Reporting Company | |
Entity Public Float | $10,628,394 | |
Entity Common Stock, Shares Outstanding | 35,750,000 | |
Document Fiscal Period Focus | FY | |
Document Fiscal Year Focus | 2014 |
Balance_Sheets
Balance Sheets (USD $) | Dec. 31, 2014 | Dec. 31, 2013 |
Current assets: | ||
Cash and cash equivalents | $1,241,487 | $1,132,974 |
Prepaid expenses | 29,641 | 40,000 |
Other | ||
Total current assets | 1,271,128 | 1,172,974 |
Furniture and Equipment - net | 132,609 | 6,046 |
Other assets: | ||
Patent - net | 46,419 | 24,697 |
Debt issue costs - net | 161,946 | 235,211 |
GE trademark license - net | 9,565,217 | |
Other assets | 65,714 | |
Total other assets | 9,839,296 | 259,908 |
Total assets | 11,243,034 | 1,438,928 |
Current liabilities: | ||
Accounts payable & accrued expenses | 1,041,741 | 107,380 |
Convertible debt - net of $970,150 debt discount | 1,223,982 | |
Convertible debt - related parties - net of $23,001 debt discount | 26,999 | |
Notes payable - third party | 98,086 | 98,086 |
Notes payable - related party | 26,108 | |
Derivative liabilities | 4,651,762 | 2,751,504 |
Other Current liabilities | 78,622 | |
Total current liabilities | 7,121,192 | 2,983,078 |
Long term liabilities: | ||
Convertible debt - net of $1,582,087 debt discount | 688,013 | 361,245 |
Convertible debt - related parties | 50,000 | |
Notes payable | 307,009 | 405,117 |
GE royalty obligation | 12,000,000 | |
Total long term liabilities | 12,995,022 | 816,362 |
Total liabilities | 20,116,214 | 3,799,440 |
Stockholders' deficit: | ||
Preferred stock: $0 par value, 20,000,000 shares authorized; 0 shares issued and outstanding | ||
Common stock: $0 par value, 500,000,000 shares authorized; 35,750,000 and 34,500,000 shares issued and outstanding at December 31, 2014 and 2013, respectively | 127,400 | 126,400 |
Additional paid-in capital | 6,359,127 | 6,068,045 |
Accumulated deficit | -15,324,264 | -8,519,517 |
Total Stockholders' deficit | -8,837,737 | -2,325,072 |
Noncontrolling interest | -35,442 | -35,440 |
Total Deficit | -8,873,179 | -2,360,512 |
Total liabilities and stockholders' deficit | $11,243,034 | $1,438,928 |
Balance_Sheets_Parenthetical
Balance Sheets (Parenthetical) (USD $) | Dec. 31, 2014 | Dec. 31, 2013 |
Statement of Financial Position [Abstract] | ||
Preferred Stock Par Value | $0 | $0 |
Preferred Stock Authorized | 20,000,000 | 20,000,000 |
Preferred Stock Issued | 0 | 0 |
Preferred Stock Outstanding | 0 | 0 |
Common Stock Par Value | $0 | $0 |
Common Stock Authorized | 500,000,000 | 500,000,000 |
Common Stock Issued | 35,750,000 | 34,500,000 |
Common Stock Outstanding | 35,750,000 | 34,500,000 |
Convertible Debt, Currrent, Debt Discount | $970,150 | |
Convertible Debt, Current, Related Party, Debt Discount | 23,001 | |
Convertible Debt, Long Term, Debt Discount | $1,582,087 |
Statements_of_Operations
Statements of Operations (USD $) | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Income Statement [Abstract] | ||
General and administrative expenses | $4,799,696 | $1,401,435 |
Loss from operations | -4,799,696 | -1,401,435 |
Other income (expense) | ||
Interest expense | -2,139,485 | -171,590 |
Derivative expenses | -568,485 | -1,156,262 |
Change in fair value of embedded derivative liabilities | 702,917 | 34,250 |
Loss on debt extinguishment | -12,731 | |
Gain on debt forgiveness | 100,000 | |
Total other expense - net | -2,005,053 | -1,206,333 |
Net loss including noncontrolling interest | -6,804,749 | -2,607,768 |
Less: net loss attributable to noncontrolling interest | -2 | -34,433 |
Net loss attributable to Safety Quick Lighting & Fans Corp. | ($6,804,747) | ($2,573,335) |
Net loss per share - basic and diluted | ($0.20) | ($0.08) |
Weighted average number of common shares outstanding during the year - basic and diluted | 33,644,359 | 32,128,444 |
Shareholders_Equity
Shareholders Equity (USD $) | Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Noncontrolling Interest | Total |
Beginning Balance, Amount at Dec. 31, 2011 | $4,294,675 | ($5,101,600) | ($806,925) | |||
Beginning Balance, Shares at Dec. 31, 2011 | 31,133,000 | |||||
Sale of interest in subsidiary | 768,807 | 5,193 | 774,000 | |||
Imputed interest | 3,385 | 3,385 | ||||
Net loss | -844,582 | -25,738 | -870,320 | |||
Ending Balance, Amount at Dec. 31, 2012 | 5,066,867 | -5,946,182 | -20,545 | -899,860 | ||
Beginning Balance, Shares at Dec. 31, 2012 | 31,133,000 | |||||
Debt forgiveness - related parties | 83,000 | 83,000 | ||||
Reclassification of derivative liability associated with warrants | 311,709 | 311,709 | ||||
Loss on debt extinguishment - related party | -3,278 | -3,278 | ||||
Exercise of stock warrants for cash, Shares | 1,400,000 | |||||
Exercise of stock warrants for cash, Value | 1,400 | 1,400 | ||||
Common stock issued for services - related party, Shares | 500,000 | 3,066,750 | ||||
Issuance of shares to reacquire ownership in subsidiary, Value | 125,000 | 125,000 | ||||
Issuance of shares to reacquire ownership in subsidiary, Shares | 1,467,000 | |||||
us-gaap:StockIssuedDuringPeriodValueAcquisitions | -19,538 | 19,538 | ||||
Common stock transferred from existing stockholders for services rendered | 562,500 | 562,500 | ||||
Stock options issued for services - related parties | 66,785 | 125,000 | ||||
Net loss | -2,573,335 | -34,433 | -2,607,768 | |||
Ending Balance, Amount at Dec. 31, 2013 | 126,400 | 6,068,045 | -8,519,517 | -35,440 | -2,360,512 | |
Ending Balance, Shares at Dec. 31, 2013 | 34,500,000 | |||||
Payment for exercise of options from Grannus Financial, Shares | 1,000,000 | |||||
Payment for exercise of options from Grannus Financial, Amount | 1,000 | 1,000 | ||||
Reclassification of derivative liability associated with warrants | 214,769 | 214,769 | ||||
Common stock transferred from existing stockholders for services rendered | ||||||
Stock options issued for services - related parties | 76,312 | |||||
Common stock issued per mutual release and waiver, Shares | 250,000 | |||||
Common stock issued per mutual release and waiver, Amount | 62,500 | 62,500 | ||||
Unvested share issued for services - related party | 13,812 | 13,812 | ||||
Net loss | -6,804,747 | -2 | -6,804,749 | |||
Ending Balance, Amount at Dec. 31, 2014 | $127,400 | $6,359,127 | ($15,324,264) | ($35,442) | ($8,873,179) | |
Ending Balance, Shares at Dec. 31, 2014 | 35,750,000 |
Statements_of_Cash_Flows
Statements of Cash Flows (USD $) | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Cash flows from operating activities: | ||
Net loss attributable to Safety Quick Lighting & Fans Corp. | ($6,804,747) | ($2,573,335) |
Net loss attributable to noncontrolling interest | -2 | -34,433 |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation expense | 17,253 | 262 |
Amortization of debt issue costs | 142,867 | 11,986 |
Amortization of debt discount | 1,507,108 | 92,304 |
Amortization of patent | 3,002 | 2,457 |
Amortization of GE trademark license | 2,434,783 | |
Change in fair value of derivative liabilities | 702,917 | 34,250 |
Derivative expense | 568,485 | 1,156,262 |
Loss on debt extinguishment | 12,731 | |
Gain on debt forgiveness | 23,451 | -100,000 |
Common stock transferred from existing stockholders for services rendered | 562,500 | |
Stock issued for services - related party | 76,312 | 125,000 |
Stock options issued for services - related parties | 66,785 | |
Change in operating assets and liabilities: | ||
Prepaid expenses | 10,359 | -40,000 |
Deferred royalty | -12,000,000 | |
Royalty payable | 12,000,000 | |
Other | 12,908 | 2,500 |
Accounts payable & accrued expenses | 910,641 | 63,502 |
Net cash used in operating activities | -1,800,231 | -685,729 |
Cash flows from investing activities: | ||
Purchase of property & equipment | -143,816 | -6,013 |
Payment of patent costs | -24,724 | |
Net cash used in investing activities | -168,540 | -6,013 |
Cash flows from financing activities: | ||
Direct issue costs paid | -69,600 | -247,197 |
Proceeds from issuance of convertible notes | 2,270,100 | 2,000,000 |
Proceeds from note payable | 160,000 | |
Proceeds from note payable - related party | 61,655 | |
Repayments of notes | -98,108 | -116,331 |
Repayments of notes - related party | -26,108 | -35,547 |
Proceeds from the exercise of warrants | 1,400 | |
Proceeds from issuance of stock | 1,000 | |
Net cash provided by financing activities | 2,077,284 | 1,823,980 |
Increase cash and cash equivalents | 108,513 | 1,132,238 |
Cash and cash equivalents at beginning of year | 1,132,974 | |
Cash and cash equivalents at end of year | 1,241,487 | 1,132,974 |
Supplementary disclosure of non-cash financing activities: | ||
Conversion of note payable and accrued interest to convertible note | 244,133 | |
Debt forgiveness - related parties | 83,000 | |
Debt discount recorded on convertible debt accounted for as a derivative liability | 2,249,458 | 1,925,191 |
Reclassification of derivative liability to additional paid-in-capital | 214,769 | 311,709 |
Loss on debt extinguishment - related party | 3,278 | |
Reacquired subsidiary ownership | 19,538 | |
Cash paid during the year for: | ||
Interest | 41,487 | 27,669 |
Income taxes |
1_Organization_and_Nature_of_O
1. Organization and Nature of Operations | 12 Months Ended |
Dec. 31, 2014 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
1. Organization and Nature of Operations | Note 1 Organization and Nature of Operations |
Safety Quick Lighting & Fans Corp. (the “Company”), a Florida corporation, was originally organized in May 2004 as a limited liability company under the name of Safety Quick Light, LLC (“SQL-LLC”). The Company was converted to corporation on November 6, 2012. The Company holds a number of worldwide patents, and has received a variety of final electrical code approvals, including UL-Listing and CSA approval (for the United States and Canadian Markets), and CE (for the European market). The Company maintains an office in Foshan, Peoples Republic of China with three staff of quality control engineers. | |
The Company’s patented product is a quick-connect, Power-Plug device (that is certified to hold up to 50 pounds) used in light fixtures and ceiling fans. The two-part device consists of a female receptacle which installs into all junction boxes, and a male plug which is pre-installed in the lighting fixtures and ceiling fans. The connection device allows for safe, quick and easy installation of a light fixture and ceiling fan, similar to Plugging-In a table lamp into a wall outlet and eliminating the need to deal with or touch electrical wires. | |
The Company markets consumer friendly, energy saving “Plug-In” ceiling fans and light fixtures under the GE brand as well as ‘conventional’ ceiling lights and fans carrying the GE brand. The Company also owns 98.8% of SQL Lighting & Fans LLC (the “Subsidiary”). The Subsidiary was incorporated in Florida on April 27, 2011 and is in the business of manufacturing the patented device that the Company owns. The subsidiary had no activity in 2014. | |
The Company’s fiscal year end is December 31. |
2_Summary_of_Significant_Accou
2. Summary of Significant Accounting Policies | 12 Months Ended | ||||||||
Dec. 31, 2014 | |||||||||
Accounting Policies [Abstract] | |||||||||
2. Summary of Significant Accounting Policies | Note 2 Summary of Significant Accounting Policies | ||||||||
Basis of Presentation | |||||||||
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) under the accrual basis of accounting. | |||||||||
Use of Estimates | |||||||||
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. | |||||||||
Such estimates and assumptions impact both assets and liabilities, including but not limited to: net realizable value of accounts receivable and inventory, estimated useful lives and potential impairment of property and equipment, the valuation of intangible assets, estimate of fair value of share based payments and derivative liabilities, estimates of fair value of warrants issued and recorded as debt discount, estimates of tax liabilities and estimates of the probability and potential magnitude of contingent liabilities. | |||||||||
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future non-conforming events. Accordingly, actual results could differ significantly from estimates. | |||||||||
Risks and Uncertainties | |||||||||
The Company’s operations are subject to risk and uncertainties including financial, operational, regulatory and other risks including the potential risk of business failure. | |||||||||
The Company has experienced, and in the future expects to continue to experience, variability in its sales and earnings. The factors expected to contribute to this variability include, among others, (i) the uncertainty associated with the commercialization and ultimate success of the product, (ii) competition inherent at large national retail chains where product is expected to be sold (iii) general economic conditions and (iv) the related volatility of prices pertaining to the cost of sales. | |||||||||
Principles of Consolidation | |||||||||
The consolidated financial statements include the accounts of Safety Quick Lighting & Fans Corp and its subsidiary, SQL Lighting & Fans LLC. All inter-company accounts and transactions have been eliminated in consolidation. | |||||||||
Non-Controlling Interest | |||||||||
In May 2012, in connection with the sale of the Company’s member units in the Subsidiary, the Company’s ownership percentage decreased from 98.8% to 94.35%. The Company then reacquired these member units in June 2013 increasing the ownership percentage from 94.35% back to 98.8%. During 2014, there was no activity in the subsidiary. Its pro rata share of the 2014 loss from operations is recognized in the financial statements. | |||||||||
Cash and Cash Equivalents | |||||||||
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less. The Company had $1,201,813 and $ -0- in money market as of December 31, 2014 and 2013, respectively. | |||||||||
Accounts Receivable and Allowance for Doubtful Accounts | |||||||||
Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. | |||||||||
The Company recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. | |||||||||
As of December 31, 2014 and 2013, the company had no accounts receivable. | |||||||||
The net balance of accounts receivable for years ending December 2014 and 2013 were as follows | |||||||||
2014 | 2013 | ||||||||
Accounts Receivable | $ | — | $ | — | |||||
Allowance for Doubtful Accounts | — | — | |||||||
Net Accounts Receivable | $ | — | $ | — | |||||
For the years ended 2014 and 2013, the Company recorded bad debt expense of $0 and $0, respectively. | |||||||||
Inventory | |||||||||
Inventory will consist of finished goods purchased, which are valued at the lower of cost or market value, with cost being determined on the first-in, first-out method. The Company will periodically review historical sales activity to determine potentially obsolete items and also evaluates the impact of any anticipated changes in future demand. | |||||||||
At December 31, 2014 and 2013, the Company had no inventory, and accordingly, no allowance for damaged, obsolete or unsaleable inventory. | |||||||||
Valuation of Long-Lived Assets and Identifiable Intangible Assets | |||||||||
The Company reviews for impairment of long-lived assets and certain identifiable intangible assets whenever events or changes in circumstances indicate that the carrying amount of any asset may not be recoverable. In the event of impairment, the asset is written down to its fair market value. The company determined no impairment adjustment was necessary during years 2014 and 2013. | |||||||||
Property and Equipment | |||||||||
Property and equipment is stated at cost, less accumulated depreciation and is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. | |||||||||
Depreciation of property and equipment is provided utilizing the straight-line method over the estimated useful lives, ranging from 5-7 years of the respective assets. Expenditures for maintenance and repairs are charged to expense as incurred. | |||||||||
Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations. | |||||||||
Intangible Asset - Patent | |||||||||
The Company developed a patent for an installation device used in light fixtures and ceiling fans. Costs incurred for submitting the applications to the United States Patent and Trademark Office for these patents have been capitalized. Patent costs are being amortized using the straight-line method over the related 15 year lives. The Company begins amortizing patent costs once a filing receipt is received stating the patent serial number and filing date from the Patent Office. | |||||||||
The Company incurs certain legal and related costs in connection with patent applications. The Company capitalizes such costs to be amortized over the expected life of the patent to the extent that an economic benefit is anticipated from the resulting patent or alternative future use is available to the Company. The Company also capitalizes legal costs incurred in the defense of the Company’s patents when it is believed that the future economic benefit of the patent will be maintained or increased and a successful defense is probable. Capitalized patent defense costs are amortized over the remaining expected life of the related patent. The Company’s assessment of future economic benefit or a successful defense of its patents involves considerable management judgment, and an unfavorable outcome of litigation could result in a material impairment charge up to the carrying value of these assets. | |||||||||
GE Trademark Licensing Agreement | |||||||||
The Company entered into an agreement with General Electric on June, 2011 allowing the company to utilize the “GE trademark” on products which meet the stringent manufacturing and quality requirements of General Electric. As described further in note 5 to these financial statements, the Company and General Electric amended that agreement in August 2014. As a result of that amendment, the Company is required to pay a minimum Trademark Licensing Fee (Royalty Obligation) to General Electric of $12,000,000. The repayment schedule is based on a percent of sales, with any unpaid balance due in December, 2018. Under SFAS 142 “Accounting for Certain Intangible Assets” the company has recorded the value of the GE Licensing Agreement and will amortize it over the life of the agreement which is 60 months. | |||||||||
Fair Value of Financial Instruments | |||||||||
The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. | |||||||||
The following are the hierarchical levels of inputs to measure fair value: | |||||||||
• | Level 1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities. | ||||||||
• | Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means. | ||||||||
• | Level 3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available. | ||||||||
The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses, certain notes payable and notes payable – related party, approximate their fair values because of the short maturity of these instruments. | |||||||||
The Company accounts for its derivative liabilities, at fair value, on a recurring basis under level 3. See Note 6. | |||||||||
Embedded Conversion Features | |||||||||
The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature. | |||||||||
Derivative Financial Instruments | |||||||||
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of it financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. | |||||||||
For option-based simple derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. | |||||||||
Beneficial Conversion Feature | |||||||||
For conventional convertible debt where the rate of conversion is below market value, the Company records a "beneficial conversion feature" ("BCF") and related debt discount. | |||||||||
When the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument (offset to additional paid in capital) and amortized to interest expense over the life of the debt. | |||||||||
Debt Issue Costs and Debt Discount | |||||||||
The Company may record debt issue costs and/or debt discounts in connection with raising funds through the issuance of debt. These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed. | |||||||||
Original Issue Discount | |||||||||
For certain convertible debt issued, the Company may provide the debt holder with an original issue discount. The original issue discount would be recorded to debt discount, reducing the face amount of the note and is amortized to interest expense over the life of the debt. | |||||||||
Extinguishments of Liabilities | |||||||||
The Company accounts for extinguishments of liabilities in accordance with ASC 860-10 (formerly SFAS 140) “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”. When the conditions are met for extinguishment accounting, the liabilities are derecognized and the gain or loss on the sale is recognized. | |||||||||
Stock-Based Compensation - Employees | |||||||||
The Company accounts for its stock based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. | |||||||||
The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur. | |||||||||
If the Company is a newly formed corporation or shares of the Company are thinly traded, the use of share prices established in the Company’s most recent private placement memorandum (based on sales to third parties) (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market. | |||||||||
The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows: | |||||||||
• | Expected term of share options and similar instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and employees’ expected exercise and post-vesting employment termination behavior into the fair value (or calculated value) of the instruments. Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected term =(vesting term + original contractual term) / 2), if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. | ||||||||
• | Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market. | ||||||||
• | Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments. | ||||||||
• | Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments. | ||||||||
Generally, all forms of share-based payments, including stock option grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest. | |||||||||
The expense resulting from share-based payments is recorded in general and administrative expense in the statements of operations. | |||||||||
Stock-Based Compensation – Non Employees | |||||||||
Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services | |||||||||
The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”). | |||||||||
Pursuant to ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur. If the Company is a newly formed corporation or shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market. | |||||||||
The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows: | |||||||||
• | Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. | ||||||||
• | Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market. | ||||||||
• | Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments. | ||||||||
• | Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments. | ||||||||
Pursuant to ASC paragraph 505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the measurement date for transactions that are within the scope of this Subtopic. | |||||||||
Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a share option and similar instrument that the counterparty has the right to exercise expires unexercised. | |||||||||
Pursuant to ASC paragraph 505-50-30-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should be recorded. | |||||||||
Revenue Recognition | |||||||||
The Company derives revenues from the sale of a patented device. | |||||||||
Revenue is recorded when all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) asset is transferred to the customer without further obligation, (3) the sales price to the customer is fixed or determinable, and (4) collectability is reasonably assured. | |||||||||
Cost of Sales | |||||||||
Cost of sales represents costs directly related to the production and third party manufacturing of the Company’s products. | |||||||||
Product sold is typically shipped directly to the customer from the third party manufacturer; costs associated with shipping and handling is shown as a component of cost of sales. | |||||||||
Earnings (Loss) Per Share | |||||||||
Basic net earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. | |||||||||
The Company uses the “treasury stock” method to determine whether there is a dilutive effect of outstanding convertible debt, option and warrant contracts. For the years ended December 31, 2014 and 2013 the Company reflected net loss and a dilutive net loss, and the effect of considering any common stock equivalents would have been anti-dilutive for the period. Therefore, separate computation of diluted earnings (loss) per share is not presented for the years ended December 31, 2014 and 2013. | |||||||||
The Company has the following common stock equivalents at December 31, 2014 and 2013: | |||||||||
2014 | 2013 | ||||||||
Convertible Debt (Exercise price - $0.25/share) | 18,056,932 | 8,976,532 | |||||||
Stock Warrants (Exercise price - $0.001 - $0.375/share) | 9,728,984 | 4,338,884 | |||||||
Stock Options (Exercise price - $0.375/share) | 200,000 | 300,000 | |||||||
Unvested Restricted Stock - Chief Executive Officer | 750,000 | 750,000 | |||||||
Total | 28,735,916 | 14,365,416 | |||||||
On June 1, 2013, the Company executed a 3,113.3:1 forward stock split. All share and per share amounts have been retroactively restated to the earliest period presented. | |||||||||
Income Tax Provision | |||||||||
From the inception of SQL-LLC, and through November 6, 2012, the Company was taxed as a pass-through entity (LLC) under the Internal Revenue Code and was not subject to federal and state income taxes; accordingly, no provision had been made. | |||||||||
The financial statements reflect the Company’s transactions without adjustment, if any, required for income tax purposes for the period from November 7, 2012 to December 31, 2012. The net loss generated by the Company for the period January 1, 2012 to November 6, 2012 has been excluded from the computation of income taxes. | |||||||||
The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Consolidated Statements of Operations in the period that includes the enactment date. | |||||||||
The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”). Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty (50) percent likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. | |||||||||
The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary. | |||||||||
Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary. | |||||||||
The Company's tax returns are subject to examination by the federal and state tax authorities. | |||||||||
Uncertain Tax Positions | |||||||||
The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the reporting periods ended December 31, 2014 and 2013. | |||||||||
Related Parties | |||||||||
The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions. | |||||||||
Pursuant to Section 850-10-20 the related parties include a. affiliates of the Company; b. Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests. | |||||||||
The consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement. | |||||||||
Contingencies | |||||||||
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. | |||||||||
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed. | |||||||||
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, consolidated financial position, and consolidated results of operations or consolidated cash flows. | |||||||||
Subsequent Events | |||||||||
The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements are issued. | |||||||||
Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR. | |||||||||
Recently Issued Accounting Pronouncements | |||||||||
In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this Update change the requirements for reporting discontinued operations in Subtopic 205-20. | |||||||||
Under the new guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of or is classified as held for sale and “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.” The ASU states that a strategic shift could include a disposal of (i) a major geographical area of operations, (ii) a major line of business, (iii) a major equity method investment, or (iv) other major parts of an entity. Although “major” is not defined, the standard provides examples of when a disposal qualifies as a discontinued operation. | |||||||||
The ASU also requires additional disclosures about discontinued operations that will provide more information about the assets, liabilities, income and expenses of discontinued operations. In addition, the ASU requires disclosure of the pre-tax profit or loss attributable to a disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements. | |||||||||
The ASU is effective for public business entities for annual periods beginning on or after December 15, 2014, and interim periods within those years. | |||||||||
In May 2014, the FASB and International Accounting Standards Board issued a converged final standard on the recognition of revenue from contracts with customers. This updated guidance provides a framework for addressing revenue recognition issues and replaces almost all existing revenue recognition guidance in current U.S. generally accepted accounting principles. The core principle of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively, and improve guidance for multiple-element arrangements. This guidance is effective for interim and annual periods beginning after December 15, 2016. Management has not yet evaluated the future impact of this guidance on the Company’s financial position, results of operations or cash flows. | |||||||||
In September 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. This ASU describes how an entity should assess its ability to meet obligations and sets disclosure requirements for how this information should be disclosed in the financial statements. The standard provides accounting guidance that will be used with existing auditing standards. The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The adoption of this guidance will be examined for the year ended December 31, 2016, and if applicable at that time, will require management to make the appropriate disclosures. | |||||||||
Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or are not expected to be significant to the Company’s financial position, results of operations or cash flows. |
3_Furniture_and_Equipment
3. Furniture and Equipment | 12 Months Ended | ||||||||
Dec. 31, 2014 | |||||||||
Property, Plant and Equipment [Abstract] | |||||||||
3. Furniture and Equipment | Note 3 Furniture and Equipment | ||||||||
Property and equipment consisted of the following at December 31, 2014 and 2013: | |||||||||
2014 | 2013 | ||||||||
Office Equipment | $ | 5,221 | $ | 12,984 | |||||
Machinery and Equipment | 115,538 | — | |||||||
Furniture and Fixtures | 29,070 | 6,013 | |||||||
Total | 149,829 | 18,997 | |||||||
Less: Accumulated Depreciation | (17,221 | ) | (12,952 | ) | |||||
Property and Equipment – net | 132,609 | 6,046 | |||||||
4_Intangible_Assets
4. Intangible Assets | 12 Months Ended | ||||||||
Dec. 31, 2014 | |||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||
4. Intangible Assets | Note 4 Intangible Assets | ||||||||
Intangible assets -patents consisted of the following at December 31, 2014 and 2013: | |||||||||
2014 | 2013 | ||||||||
Patents | $ | 61,690 | $ | 36,950 | |||||
Less: Impairment Charges | — | — | |||||||
Less: Accumulated Amortization | (15,271 | ) | (12,253 | ) | |||||
Patents – net | $ | 46,419 | $ | 24,697 | |||||
At December 31, 2014, future amortization of intangible assets is as follows: | |||||||||
Year Ending December 31 | |||||||||
2015 | $ | 4,107 | |||||||
2016 | 4,111 | ||||||||
2017 | 4,107 | ||||||||
2018 | 4,107 | ||||||||
2019 | 4,107 | ||||||||
2020 and Thereafter | 25,880 | ||||||||
$ | 46,419 | ||||||||
Actual amortization expense in future periods could differ from these estimates as a result of future acquisitions, divestitures, impairments and other factors. |
5_GE_Trademark_License
5. GE Trademark License | 12 Months Ended | ||||||||
Dec. 31, 2014 | |||||||||
Notes to Financial Statements | |||||||||
5. GE Trademark License | Note 5 GE Trademark License | ||||||||
The Company entered into an amended agreement with General Electric regarding the trademarking of its products. The license is amortized through its expiration in November, 2018. | |||||||||
2014 | 2013 | ||||||||
GE Trademark License | $ | 12,000,000 | $ | — | |||||
Less: Impairment Charges | — | — | |||||||
Less: Accumulated Amortization | (2,434,783 | ) | — | ||||||
Patents – net | $ | 9,565,217 | $ | — | |||||
At December 31, 2014, future amortization of intangible assets is as follows: | |||||||||
Year Ending December 31 | |||||||||
2015 | $ | 2,441,472 | |||||||
2016 | 2,441,472 | ||||||||
2017 | 2,441,472 | ||||||||
2018 | 2,240,801 | ||||||||
$ | 9,565,217 | ||||||||
6_Debt
6. Debt | 12 Months Ended | ||||||||||||
Dec. 31, 2014 | |||||||||||||
Debt Disclosure [Abstract] | |||||||||||||
6. Debt | Note 6 Debt | ||||||||||||
(A) Summary of Debt Transactions | |||||||||||||
At December 31, 2014 and 2013, debt consists of the following: | |||||||||||||
2014 | 2013 | ||||||||||||
Notes payable | $ | 405,095 | $ | 503,203 | |||||||||
Notes payable - related party | — | 26,108 | |||||||||||
Convertible notes | 4,487,234 | 2,194,133 | |||||||||||
Convertible notes - related party | 26,999 | 50,000 | |||||||||||
Less: debt discount | (4,402,773 | ) | (1,925,191 | ) | |||||||||
Debt – net | 516,555 | 848,253 | |||||||||||
Amortization of debt discount | 1,827,534 | 92,304 | |||||||||||
Less: current portion - notes payable | (98,086 | ) | (98,086 | ) | |||||||||
Less: current portion convertible debt | (1,250,981 | ) | — | ||||||||||
Less: current portion - notes payable - related party | — | (26,108 | ) | ||||||||||
Long term debt – net | $ | 995,022 | $ | 816,362 | |||||||||
Notes Payable | |||||||||||||
Third Party | Related Party | Totals | |||||||||||
Balance: December 31, 2012 | $ | 739,534 | $ | 133,000 | $ | 872,534 | |||||||
Proceeds | 160,000 | 61,655 | 221,655 | ||||||||||
Repayments | (116,331 | ) | (35,547 | ) | (151,878 | ) | |||||||
Conversion of note payable to convertible debt | (180,000 | ) | (50,000 | ) | (230,000 | ) | |||||||
Debt forgiveness | (100,000 | ) | (83,000 | ) | (183,000 | ) | |||||||
Balance: December 31, 2013 | 503,203 | 26,108 | 529,311 | ||||||||||
Repayments | (98,108 | ) | (26,108 | ) | (124,216 | ) | |||||||
Balance: December 31, 2014 | $ | 405,095 | $ - | $ | 405,095 | ||||||||
Convertible Debt - Net | |||||||||||||
The Company has recorded derivative liabilities associated with these convertible debt instruments, as more fully discussed at Notes 7 and 12 (C). | |||||||||||||
Third Party | Related Party | Totals | |||||||||||
Balance; December 31, 2012 | $ | — | $ | — | $ | — | |||||||
Proceeds | 2,000,000 | — | 2,000,000 | ||||||||||
Repayments | — | — | — | ||||||||||
Conversion of note payable to convertible debt | 180,000 | 50,000 | 230,000 | ||||||||||
Conversion of accrued interest into convertible debt | 14,133 | — | 14,133 | ||||||||||
Less: gross debt discount recorded | (1,925,191 | ) | — | (1,925,191 | ) | ||||||||
Add: amortization of debt discount | 92,304 | — | 92,304 | ||||||||||
Balance; December 31, 2013 | 361,245 | 50,000 | 411,245 | ||||||||||
Proceeds | 2,270,100 | — | 2,270,100 | ||||||||||
Repayments | — | — | — | ||||||||||
Less: gross debt discount recorded | (2,203,354 | ) | (46,105 | ) | (2,249,459 | ) | |||||||
Add: Amortization of Debt Discount | 1,484,004 | 23,104 | 1,507,108 | ||||||||||
Balance; December 31, 2014 | $ | 1,911,995 | $ | 26,999 | $ | 1,938,994 | |||||||
In connection with the $2,000,000 convertible debt offering in November 2013, the Company issued 3,672,134 detachable warrants. The notes and warrants were treated as derivative liabilities. | |||||||||||||
In connection with the $2,270,100 convertible debt offering in May 2014, the Company issued 5,390,100 detachable warrants. The notes and warrants were treated as derivative liabilities. | |||||||||||||
On November 26, 2013, May 8, 2014 and June 25, 2014 we conducted closings of the offering of our 12% Secured Convertible Promissory Notes (the “12% Notes”) in the aggregate principal amount of $4,240,100 and/or our 15% Secured Convertible Promissory Notes in the aggregate principal amount of $30,000 (the “15% Notes”, and together with the 12% Notes, each a “Note” and collectively, the “Notes”), as applicable, with certain “accredited investors” (the “Investors”), as defined under Regulation D, Rule 501 of the Securities Act (collectively, the “Notes Offering”). The entire aggregate principal amount of the Notes of $4,270,100 was outstanding as of March 15, 2015, such amount being exclusive of securities converted into the Notes separate from the Notes Offering. Pursuant to the Notes Offering, the Company received $1,752,803, $1,400,000 and $800,500 in net proceeds on November 26, 2013, May 8, 2014 and June 25, 2014, respectively. | |||||||||||||
In addition to the terms customarily included in such instruments, the Notes began accruing interest on the date that each Investor submitted the principal balance of such Investor’s Note, with the interest thereon becoming due and payable on the one year anniversary of said date, and quarterly thereafter. Upon a default of the Notes, the interest rate will increase by 2%. The principal balance of each Note and all unpaid interest will become due and payable twenty-four (24) months after the date of issuance. The Notes may be prepaid with or without a penalty depending on the date of the prepayment. The principal and interest under the Notes are convertible into shares of our common stock at $0.25 per share and are secured by a first priority lien (subject only to an existing note with Signature Bank of Georgia on our intellectual property and all substitutes, replacements and proceeds of such intellectual property) pursuant to the terms of a Security Purchase Agreement, dated as of November 26, 2013, May 8, 2014 and June 25, 2014, as applicable, by and between us and each Investor (the “Security Agreement”). | |||||||||||||
Pursuant to the Notes Offering, each Investor also received five (5) year common stock warrants to purchase our common stock at $0.375 per share (each a “Warrant” and collectively, the “Warrants”). Investors of the 12% Notes received Warrants with 25% coverage based on a pre-determined valuation of the Company. Investors of the 15% Notes received Warrants with 15% coverage based on the pre-determined valuation of the Company. Investors with a principal investment amount equal to or greater than $250,000 received Warrants with a bonus 40% coverage (“Bonus Coverage”); however, if an Investor previously invested $250,000 or more in the Notes Offering, such Investor received Bonus Coverage if such Investor subsequently invested $100,000 or more in the Notes Offering. In addition to the terms customarily included in such instruments, the Warrants may be exercised into our common stock by the Investors by providing to the Company a notice of exercise, payment and surrender of the Warrant. | |||||||||||||
In connection with the Notes Offering, we entered into Registration Rights Agreements, each dated as of November 26, 2013, May 8, 2014 and June 25, 2014 and each by and between us and each of the Investors (collectively, the “Registration Rights Agreements”) whereby we agreed to prepare and file a registration statement with the SEC within sixty (60) days after execution of the applicable Registration Rights Agreement and to have the registration statement declared effective by the SEC within ninety (90) days thereafter (the “Registration Statement”). The Registration Statement covered shares of our common stock, including shares of our common stock underlying the Notes, Warrants and certain other options and warrants. | |||||||||||||
Because we were unable to file a Registration Statement pursuant to the terms of each Registration Rights Agreements dated as of November 26, 2013 or May 8, 2014, we were in default under such Registration Rights Agreements (the “Filing Default Damages”). Pursuant to the Registration Rights Agreement, the Filing Default Damages mandate that the Company shall pay to the Investors, for each thirty (30) day period of such failure and until the filing date of the Registration Statement and/or the common stock may be sold pursuant to Rule 144, an amount in cash, as partial liquidated damages and not as a penalty, equal to 2% percent of the aggregate gross proceeds paid by the Investors for the Notes. If the Company fails to pay any partial liquidated damages in full within five (5) days of the date payable, which is the Note maturity date, the Company shall pay interest thereon at a rate of 18% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the Investors, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. | |||||||||||||
In addition, because we were unable to have a Registration Statement declared effective pursuant to the terms of the Registration Rights Agreements dated as of November 26, 2013 or May 8, 2014, we were in default under such Registration Rights Agreements (the “Effectiveness Default Damages”). Pursuant to the Registration Rights Agreement, the Effectiveness Default Damages mandated that the interest rate due under the Note corresponding to such Registration Rights Agreement will increase 2% above the then effective interest rate of such Note, and shall continue to increase by 2% every 30 days until a registration statement is declared effective. | |||||||||||||
The Company’s Registration Statement was first filed on August 1, 2014, and was declared effective by the SEC on October 22, 2014. As of August 1, 2014, the date the Company first filed the Registration Statement and the date that the Filing Default Damages stopped accruing, the Filing Default Damages to be paid by the Company to the Investors were $271,733. As of October 22, 2014, the date the Registration Statement was declared effective, the interest rate due under the 12% Notes and 15% Notes dated as of November 26, 2013 was 24% and 27%, respectively, as a consequence of the Effectiveness Default Damages. | |||||||||||||
On December 11, 2014, the Company sent a letter to the Investors holding Notes dated November 26, 2013 (the “2013 Investors”) concerning the first interest payment that was scheduled to be paid pursuant to the Notes dated November 26, 2013 on the one year anniversary of the date that each 2013 Investor submitted payment for their Note (the “First Interest Payments”). The Company noted the significant progress it had made in 2014, and expressed its preference to conserve working capital to support operations and customer orders. The Company invited the 2013 Investors to convert the First Interest Payments into shares of the Company’s common stock to further this purpose. The Company also asked each 2013 Investor to execute an Agreement and Waiver (the “Agreement and Waiver”), which granted the Company a grace period, deferring the Company’s obligation to make payment of the First Interest Payment and interest that was due under the Note through November 26, 2014 (the “Interest Due”) until February 24, 2015 (the “Extension”), during which time such deferment would not be considered an Event of Default under the 2013 Investor’s Note. In connection with the Extension, subsequent quarterly payments of interest will be determined based on the issuance date of each Note (i.e., November 26, 2013) rather than the date that each 2013 Investor first submitted payment for their Note, the sole purpose and impact of this change being to reduce ongoing costs to administer the Notes. In return for granting the Extension, we offered to capitalize the Interest Due at a rate of 12% (the “Additional Interest”), which was convertible into shares of the Company’s common stock at the conversion price of $0.25 per share as of February 24, 2014, unless the 2013 Investor requested to receive the Additional Interest in cash 15 days prior to the end of the Extension. | |||||||||||||
(B) Terms of Debt | |||||||||||||
In 2013, the company issued $2,244,133 in convertible bonds with interest rates varying from 12% to 15%. These bonds mature in November 2015. | |||||||||||||
In 2014, the company issued $2,270,100 in convertible bonds. These bonds carry interest at 12% and mature in May and June 2016. | |||||||||||||
All convertible debt and related warrants issued with the convertible notes in 2014 and 2013 are convertible at $0.25 and $0.375 per share, respectively; however, given the existence of a “ratchet feature”, which allows for a lower offering price if the Company offers shares to the public at a lower price. | |||||||||||||
(C) Future Commitments | |||||||||||||
At December 31, 2014, the Company has outstanding debt of $4,919,328. | |||||||||||||
Future minimum repayment obligations are as follows: | |||||||||||||
Year Ended December 31 | |||||||||||||
2015 | $ | 2,342,219 | |||||||||||
2016 | 2,577,109 | ||||||||||||
Less: unamortized debt discount | (2,575,239 | ) | |||||||||||
Less: current maturities | (1,349,067 | ) | |||||||||||
Debt - long term | $ | 995,022 | |||||||||||
7_Derivative_Liabilities
7. Derivative Liabilities | 12 Months Ended | ||||||||
Dec. 31, 2014 | |||||||||
Notes to Financial Statements | |||||||||
7. Derivative Liabilities | Note 7 Derivative Liabilities | ||||||||
The Company identified conversion features embedded within convertible debt and warrants issued in 2013. The Company has determined that the features associated with the embedded conversion option, in the form a ratchet provision, should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions. | |||||||||
As a result of the application of ASC No. 815, the fair value of the ratchet feature related to convertible debt and warrants is summarized as follow: | |||||||||
2014 | 2013 | ||||||||
Fair value at the commitment date - convertible debt | $ | 4,892,234 | $ | 2,414,585 | |||||
Fair value at the commitment date - warrants | 677,214 | 682,809 | |||||||
Reclassification of derivative liabilities to additional paid in capital related to warrants exercised that ceased being a derivative liability | (214,769 | ) | (311,709 | ) | |||||
Fair value mark to market adjustment - stock options | (25,614 | ) | — | ||||||
Fair value mark to market adjustment - convertible debt | (668,189 | ) | (28,586 | ) | |||||
Fair value mark to market adjustment - warrants | (13,701 | ) | (5,595 | ) | |||||
Totals | $ | 4,647,175 | $ | 2,751,504 | |||||
The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of December 31, 2014: | |||||||||
Commitment Date | Remeasurement Date | ||||||||
Expected dividends | 0% | 0% | |||||||
Expected volatility | 150% | 150% | |||||||
Expected term | 2 - 5 years | 0.9 - 3.91 years | |||||||
Risk free interest rate | 0.29% - 1.68% | 0.67% - 1.65% | |||||||
8_Debt_Discount
8. Debt Discount | 12 Months Ended |
Dec. 31, 2014 | |
Notes to Financial Statements | |
8. Debt Discount | Note 8 Debt Discount |
The Company recorded the debt discount to the extent of the gross proceeds raised, and expensed immediately the remaining fair value of the derivative liability, as it exceeded the gross proceeds of the note. | |
The Company recorded a derivative expense of $568,485 in 2014 and $1,156,193 for 2013. | |
The Company recorded amortization of derivative discount of $1,507,107 in 2014 and $92,304 for 2013. These amounts are included in interest expense. |
9_Debt_Issue_Costs
9. Debt Issue Costs | 12 Months Ended | ||||
Dec. 31, 2014 | |||||
Notes to Financial Statements | |||||
9. Debt Issue Costs | Note 9 Debt Issue Costs | ||||
Debt issue costs are summarized as follows: | |||||
Debt issue costs - net - December 31,2012 | $ | — | |||
Debt issue costs | 247,197 | ||||
Accumulated amortization | (11,986 | ) | |||
Debt issue costs - net - December 31,2013 | 235,211 | ||||
Debt issue cost additions | 69,600 | ||||
Accumulated amortization | (154,851 | ) | |||
Debt issue costs - net - December 31,2014 | $ | 161,946 | |||
The Company incurred $142,865 and $11,986 in 2014 and 2013, respectively and recorded it as interest expense |
10_GE_Royalty_Obligation
10. GE Royalty Obligation | 12 Months Ended | |||||
Dec. 31, 2014 | ||||||
Notes to Financial Statements | ||||||
10. GE Royalty Obligation | Note 10 GE Royalty Obligation | |||||
In 2011, the Company executed a Trademark Licensing Agreement with General Electric (“GE”), which allows the Company the right to market certain ceiling light and fan fixtures displaying the GE brand. The GE trademark license agreement imposes certain manufacturing and quality control conditions that the Company must maintain in order to continue to use the GE brand. | ||||||
The license is non-transferable and cannot be sub licensed. Various termination clauses are applicable, however, none were applicable as of December 31, 2014 and 2013. | ||||||
In August, 2014, the Company entered into a second amendment pertaining to its royalty obligations. Under the terms of the agreement, the Company agreed to pay a total of at least $12,000,000 by November 2018 for the rights assigned in the original contract. In case of the Company does not pay GE a total of at least $12,000,000 in cumulative royalties over the Term, the difference between $12,000,000 and the amount of royalties paid to GE is owed in December, 2018. | ||||||
Payments are due quarterly based upon the prior quarters’ sales. | ||||||
The Trademark and License obligation will be paid from sales of GE branded product subject to the following repayment: | ||||||
Percentage of the Contract Year Net Sales owed to GE | ||||||
Net Sales in Contract Year | ||||||
$0 - $50,000,000 | 7% | |||||
$50,000,001 - $100,000,000 | 6% | |||||
$100,000,001+ | 5% | |||||
Since the Company does not have the ability to estimate the sales of GE branded product, the liability is classified as long-term. As sales are recognized, the Company will estimate the portion it expects to pay in the current year and classify as current. |
11_Income_Taxes
11. Income Taxes | 12 Months Ended | ||||||
Dec. 31, 2014 | |||||||
Income Tax Disclosure [Abstract] | |||||||
11. Income Taxes | Note 11 Income Taxes | ||||||
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due. Deferred taxes relate to differences between the basis of assets and liabilities for financial and income tax reporting which will be either taxable or deductible when the assets or liabilities are recovered or settled. | |||||||
At December 31, 2014, the Company has a net operating loss carry-forward of approximately $4,136,000 available to offset future taxable income expiring through 2034. Utilization of future net operating losses may be limited due to potential ownership changes under Section 382 of the Internal Revenue Code. | |||||||
The valuation allowance at December 31, 2013 was approximately $119,000. The net change in valuation allowance during the year ended December 31, 2014 was an increase of approximately $2,230,000. In assessing the realisability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of December 31, 2014. | |||||||
The effects of temporary differences that gave rise to significant portions of deferred tax assets at December 31, 2014 and 2013 are approximately as follows: | |||||||
Net operating loss carryforward | $ | (2,429,000 | ) | $ | (199,000 | ) | |
Gross Deferred Tax Assets | (2,429,000 | ) | (199,000 | ) | |||
Less Valuation Allowance | 2,429,000 | 199,000 | |||||
Total Deferred Tax Assets - Net | $ | — | $ | — | |||
There was no income tax expense for the years ended December 31, 2014 and 2013 due to the Company’s net losses | |||||||
The Company’s tax expense differs from the “expected” tax expense for the years ended December 31, 2014 and 2013, (computed by applying the Federal Corporate tax rate of 34% to loss before taxes and 6% for Georgia State Corporate Taxes, the blended rate used was 37.96%), are approximately as follows: | |||||||
Computed "expected" tax expense (benefit) - Federal | $ | (2,630,000 | ) | $ | (875,000 | ) | |
Computed "expected" tax expense (benefit) - State | (458,000 | ) | (102,000 | ) | |||
Derivative expense | 216,000 | 439,000 | |||||
Loss on debt extinguishment | — | 5,000 | |||||
Gain on debt forgiveness | — | 38,000 | |||||
Share based payments | — | 286,000 | |||||
Amortization of patent | 1,000 | 1,000 | |||||
Amortization of debt issue costs | 1,000 | 5,000 | |||||
Amortization of debt discount | — | 35,000 | |||||
Amortization of patent | 909,000 | 1,000 | ) | ||||
Change in value of derivative liability | (269,000 | ) | (13,000 | ) | |||
Change in valuation allowance | 2,230,000 | 181,000 | |||||
$ | — | $ | — | ||||
12_Stockholders_Deficit
12. Stockholders Deficit | 12 Months Ended | ||||||||||||||||||
Dec. 31, 2014 | |||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||
12. Stockholders Deficit | Note 12 Stockholders Deficit | ||||||||||||||||||
(A) Common Stock | |||||||||||||||||||
In 2014, the Company issued the following common stock: | |||||||||||||||||||
Transaction Type | Quantity | Valuation | Range of Value per Share | ||||||||||||||||
Common stock issued in exercise of options | 1,000,000 | $ | 1,000 | $ | — | ||||||||||||||
Common stock issued per mutual release and waiver (1) | 250,000 | 62,500 | — | ||||||||||||||||
1,250,000 | $ | 63,500 | $ | — | |||||||||||||||
The following is a more detailed description of the Company’s stock issuance from the table above: | |||||||||||||||||||
(1) Services Rendered - Related Party | |||||||||||||||||||
In November 2014, the Company issued 750,000 of restricted, nonvested shares to new Chief Executive Officer. The shares are to vest as follows: 250,000 in May 2015 and 500,000 shares in December 2015. The shares are valued at $0.25 per share. | |||||||||||||||||||
The Company’s former Chief Executive Officer received 1,250,000 restricted unvested shares in association with an employment contract. These restricted shares were to vest as follows: 500,000 on November 15, 2013 with the remaining 750,000 shares to vest evenly (250,000 shares each vesting period) on December 31, 2014, 2015 and 2016. The shares were valued based on recent third party cash offering of convertible debt containing an exercise price of $0.25/share. In November 2014, the agreement was terminated and the Company entered into a new Agreement and Mutual Release with that former CEO. As of that date (November 2014), 750,000 of the aforementioned 1,250,000 shares were fully vested. In accordance with this new Agreement, the company issued 250,000 shares that vested on December 31, 2014 and the executive retained 500,000 shares of the previous granted (fully vested) shares. The remaining 500,000 unvested shares were forfeited by the former CEO. | |||||||||||||||||||
In 2013, the Company issued the following common stock: | |||||||||||||||||||
Transaction Type | Quantity | Valuation | Range of Value per Share | ||||||||||||||||
Warrants exercised | (1 | ) | 1,400,000 | $ | 1,400 | $ | 0.001 | ||||||||||||
Services rendered - related party | (2 | ) | 500,000 | 125,000 | 0.25 | ||||||||||||||
Acquisition of 4.5% interest in subsidiary | (3 | ) | 1,467,000 | 366,750 | 0.25 | ||||||||||||||
$ | 3,367,000 | $ | 493,150 | $ | 0.001 | $ | 0.25 | ||||||||||||
The fair value of stock issued was based upon the following: | |||||||||||||||||||
• | Warrants were exercised for cash under the terms of the agreement at $0.001 per share. | ||||||||||||||||||
• | Services rendered – related party were based upon recent third party cash issuances of convertible debt with a conversion price of $0.25/share. This represented the best evidence of fair value. | ||||||||||||||||||
• | Acquisition of 4.5% ownership in Subsidiary is deemed a capital transaction since control of the Subsidiary was never lost. Valuation was based upon recent third party cash issuances of convertible debt with a conversion price of $0.25/share. This represented the best evidence of fair value. See #3 below for additional discussion. | ||||||||||||||||||
The following is a more detailed description of some of the Company’s stock issuances from the table above: | |||||||||||||||||||
(1) Warrants Exercised for Cash | |||||||||||||||||||
In connection with a warrant exercise, a third party paid cash to obtain these shares. | |||||||||||||||||||
(2) Services Rendered – Related Party | |||||||||||||||||||
The Company’s Chief Executive Officer received these shares as a sign on bonus. There are no future service requirements and there are no claw back or forfeiture rights associated with this stock grant. The shares are valued based on a recent third party cash offering of convertible debt containing an exercise price of $0.25/share. Also see Note 12 (B). | |||||||||||||||||||
(3) Acquisition of Subsidiary Ownership Interest | |||||||||||||||||||
In June 2013, the Company reacquired 4.5% ownership in its subsidiary, which it had previously sold in 2012. The transaction was accounted for as a capital transaction since the parent had control of the Subsidiary at all times. The purchase reflected 4.5% of the Subsidiary being reacquired, which increased the parent’s ownership from 94.35% to 98.8%. The transaction included the valuation of shares issued at $366,750, however, in connection with establishing the valuation adjustment of the noncontrolling interest reacquired, $19,538 represented the net increase to additional paid in capital and reduction of the noncontrolling interest. As a result of this transaction, the noncontrolling interest post repurchase is 1.2%. | |||||||||||||||||||
(B) Additional Paid in Capital and Other Equity Transactions | |||||||||||||||||||
The following transactions occurred during the year ended December 31, 2014: | |||||||||||||||||||
(1) Derivative Liability | |||||||||||||||||||
Reclassification of derivative liability associated with warrants of $214,769. | |||||||||||||||||||
(2) Services Rendered – Related Parties | |||||||||||||||||||
Common stock issued for services – related party of $76,312. | |||||||||||||||||||
The following transactions occurred during the year ended December 31, 2013: | |||||||||||||||||||
(1) Debt Forgiveness – Related Parties | |||||||||||||||||||
Certain existing note holders forgave $83,000. There was no gain or loss on the transaction, rather a charge to additional paid in capital due to being a related party transaction. | |||||||||||||||||||
(2) Modification of Debt (Extinguishment Accounting) | |||||||||||||||||||
A board member and third party agreed to convert an aggregate $244,133 of outstanding conventional debt and accrued interest into convertible debt, under the same terms as the $2,000,000 convertible debt offering occurring in November 2013. | |||||||||||||||||||
The exchange of an outstanding debt instrument for a new debt instrument with the same lender/creditor results in an extinguishment of the old debt instrument if the debt instruments have substantially different terms. Similarly, a modification of the terms of an outstanding debt instrument should be accounted for like, and reported in the same manner as, an extinguishment if the old and new debt instruments have substantially different terms. In addition, the new debt instrument is considered to be substantially different from the old if the modification or exchange eliminates or adds a substantive conversion option. | |||||||||||||||||||
As a result, the Company determined a loss on debt extinguishment of $16,009. Of the total loss, $12,731 was recorded to the statement of operations pertaining to a third party; the remaining $3,278 could not be recorded as a loss to the statement of operations due to being a related party transaction, rather, the Company accounted for this loss on extinguishment as a capital transaction and recorded this amount as additional paid in capital. | |||||||||||||||||||
(3) Payment of Corporate Expenses by Stockholders | |||||||||||||||||||
Existing stockholders transferred shares owned in the Company to pay corporate expenses. The services had a fair value of $562,500, based upon recent third party convertible debt (November 2013 offering) that was sold having a conversion price of $0.25/share. | |||||||||||||||||||
The following transactions occurred during the year ended December 31, 2012: | |||||||||||||||||||
Sale of Member Units | |||||||||||||||||||
Prior to converting to a C Corp (see Note 1), the Subsidiary sold member units for $774,000. The sale reflected 4.5% of the subsidiary being sold, which reduced the parent’s ownership from 98.8% to 94.35%. The transaction was accounted for as a capital transaction since the parent had control of the Subsidiary at all times. The sale resulted in an allocation to the noncontrolling interest valued at $5,193. | |||||||||||||||||||
(C) Stock Options | |||||||||||||||||||
On September 3, 2013, the Company issued 300,000 stock options, having a fair value of $66,785, which was expensed immediately since all stock options vested immediately. These options expire on September 2, 2018 (5 years). All options were granted to Board Directors for services rendered, and included as a component of general and administrative expense, as a result, these grants were considered related party transactions. Of the total options granted, 100,000 were cancelled in 2014 as a Board Director resigned. | |||||||||||||||||||
The Company applied fair value accounting for all share based payment awards. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes assumptions used in the year ended December 31, 2014 is as follows: | |||||||||||||||||||
Options Granted | 200,000 | ||||||||||||||||||
Grant Date | 3-Sep-13 | ||||||||||||||||||
Exercise Price | $ | 0.375 | |||||||||||||||||
Expected Dividends | 0% | ||||||||||||||||||
Expected Volatility | 150% | ||||||||||||||||||
Risk Free Interest Rate | 0.03% | ||||||||||||||||||
Expected Life of Options | 4 Years | ||||||||||||||||||
Expected Forfeitures | 0% | ||||||||||||||||||
Fair Value per Stock Option | $ | 0.2 | |||||||||||||||||
The following is a summary of the Company’s stock option activity: | |||||||||||||||||||
Weighted Average | Aggregate | ||||||||||||||||||
Weighted Average | Remaining Contractual Life | Intrinsic | |||||||||||||||||
Options | Exercise Price | (In Years) | Value | ||||||||||||||||
Balance - December 31, 2012 | — | — | — | — | |||||||||||||||
Granted | 300,000 | 0.375 | 5 | — | |||||||||||||||
Exercised | — | — | — | — | |||||||||||||||
Forfeited/Cancelled | — | — | — | — | |||||||||||||||
Balance - December 31, 2013 - outstanding | 300,000 | 0.375 | 4.67 | — | |||||||||||||||
Granted | — | — | — | ||||||||||||||||
Exercised | — | — | — | ||||||||||||||||
Granted | — | — | — | ||||||||||||||||
Forfeited/Cancelled | (100,000 | ) | |||||||||||||||||
Balance- December 31, 2014 | 200,000 | 0.375 | 3.67 | ||||||||||||||||
(D) Stock Warrants | |||||||||||||||||||
All warrants issued during 2014 and 2013 were accounted for as derivative liabilities as the warrants contained a ratchet feature. See Note 7. | |||||||||||||||||||
During 2013, the Company issued 6,738,884 warrants. Of the total warrants granted, 4,338,884 expire 5 years from issuance, while 2,400,000 were scheduled to expire on December 31, 2013. | |||||||||||||||||||
Of the total warrants granted during 2013, 6,614,801 were granted to third parties, while 124,083 were granted to related parties, consisting of the Company’s former Chief Executive Officer. | |||||||||||||||||||
During 2014, the Company issued 5,390,100 warrants. The warrants granted expire 5 years from issuance on various dates during 2019. | |||||||||||||||||||
During 2014, of the total warrants granted 4,740,100 granted to third parties, while 650,000 were granted to related parties, consisting of the Company’s former Chief Executive Officer. | |||||||||||||||||||
During 2013, the Company entered into convertible, secured note agreements. As part of these agreements, the Company issued warrants to purchase 3,672,134 shares of common stock. The warrants vest immediately and expire November 26, 2018, with an exercise price of $0.375. | |||||||||||||||||||
During 2013, the Company issued 3,066,750 warrants for services performed. The warrants vest immediately and expire on December 31, 2013 through November 25, 2018, with exercise prices ranging from $0.001 - $0.375. | |||||||||||||||||||
During 2014, the Company entered into convertible, secured note agreements. As part of these agreements, the Company issued warrants to purchase 5,390,100 shares of common stock. The warrants vest immediately and expire on various dates in 2019, with an exercise price of $0.375. | |||||||||||||||||||
The Black-Scholes assumptions used in the computation of derivative expense for year ended December 31, 2014 is as follows: | |||||||||||||||||||
2014 | 2013 | ||||||||||||||||||
Stock price | $ | 0.25 | $ | 0.25 | |||||||||||||||
Exercise price | $ | 0.38 | $ | 0.38 | |||||||||||||||
Expected dividends | 0% | 0% | |||||||||||||||||
Expected volatility | 150% | 150% | |||||||||||||||||
Risk free interest rate | 1.65% | 1.68% | |||||||||||||||||
Expected term | 3.68 years | 5 years | |||||||||||||||||
A summary of warrant activity for the Company for the year ended December 31, 2014 is as follows: | |||||||||||||||||||
Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in Years) | |||||||||||||||||
Balance: December 31, 2012 | — | $ | — | ||||||||||||||||
Granted | 6,738,884 | 0.242 | 5 | ||||||||||||||||
Exercised | (1,400,000 | ) | — | ||||||||||||||||
Cancelled/Forfeited | (1,000,000 | ) | — | ||||||||||||||||
Balance: December 31, 2013 | 4,338,884 | 0.242 | 4.9 | ||||||||||||||||
Granted | 5,390,100 | 0.375 | 5 | ||||||||||||||||
Exercised | |||||||||||||||||||
Cancelled/Forfeited | — | — | |||||||||||||||||
Balance: December 31, 2014 | 9,728,984 | $ | 0.375 | 4.2 | |||||||||||||||
In April 2014, the Company received $1,000 in connection with a warrant exercise of 1,000,000 warrants that had been assigned from one investor (originally held 2,400,000 and exercised 1,400,000 in 2013). There was no additional compensation expense recorded on this transaction. |
13_Commitments
13. Commitments | 12 Months Ended | ||||||||||||||
Dec. 31, 2014 | |||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||
13. Commitments | Note 13 Commitments | ||||||||||||||
(A) Operating Lease | |||||||||||||||
In October, 2014, the Company executed a 53 month lease for a new corporate headquarters with a base rent of $97,266 escalating annually through 2019. The Company paid a security deposit of $1,914. | |||||||||||||||
In January 2014, the Company executed a 39 month lease for a corporate headquarters. The Company paid a security deposit of $27,020. | |||||||||||||||
In October, 2014, the Company entered into a sublease agreement to sublease its previous office space through March, 2017. In connection with the sublease, the Company collected $34,981 as a security deposit. | |||||||||||||||
The minimum rent obligations are approximately as follows: | |||||||||||||||
Minimum | Sublease | Net | |||||||||||||
Year | Obligation | Rentals | Obligation | ||||||||||||
2015 | $ | 97,901 | $ | 84,165 | $ | 13,736 | |||||||||
2016 | 109,720 | 86,688 | 23,032 | ||||||||||||
2017 | 46,568 | 22,263 | 24,305 | ||||||||||||
2018 | 25,154 | — | 25,154 | ||||||||||||
2019 | 8,614 | — | 8,614 | ||||||||||||
Total | $ | 287,957 | $ | 193,116 | $ | 94,841 | |||||||||
(B) Employment Agreement – Chief Executive Officer | |||||||||||||||
In November 2014, the Company entered into an employment agreement with its new Chief Executive Officer. In addition to salary, the agreement provided for the issuance of 750,000 restricted shares to him, vesting as follows: 250,000 after the first 6 months of employment and 500,000 additional shares at December 31, 2015. Under terms of the agreement the executive would receive additional compensation in the form of stock options to purchase shares of Company stock equal to one half of one percent (.005) of quarterly net income. The strike price of the options will be established at the time of the grant. The options will vest in twelve months and expire after sixty months. In addition to the stock options compensation, the executive has performance incentives tied to revenue and profits. As there were no revenues or profit for years ending December 31, 2014 or 2013, no additional options were issued or profit sharing compensation was provided to the Chief Executive Officer. | |||||||||||||||
On November 15, 2013, the Company executed an employment agreement with the then Chief Executive Officer. The term commenced January 1, 2014 and was to expire on December 31, 2018. That agreement was cancelled upon the Company executing a Mutual Release and Waiver agreement (Termination Agreement) with the CEO dated November, 2014. The Termination Agreement allowed for immediate vesting of 750,000 shares of the original 1,250,000 unvested shares previously granted to the CEO. In addition the company agreed to pay the executive .5% (.005) of sales associated with one selected customer occurring for up to 36 months. As there were no sales or profit for year ending for year ending 2014 or 2013, no additional compensation was provided to this previous CEO. | |||||||||||||||
(C) Consulting Agreement | |||||||||||||||
On December 1, 2013, the Company executed a 3 year consulting agreement with a Non-Executive Director, having the following terms: | |||||||||||||||
• | Annual salary of a minimum $150,000; and | ||||||||||||||
• | Cash, stock or 5 year stock options (cashless exercise option by holder) equal to 0.5% of Company’s annual gross revenue (sales less returns and discounts). |
14_Going_Concern
14. Going Concern | 12 Months Ended |
Dec. 31, 2014 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
14. Going Concern | Note 14 Going Concern |
As reflected in the accompanying financial statements, the Company had net losses of $6,804,749 and $2,607,768 for year ending December 31, 2014 and 2013, respectively and net cash used in operations of $1,800,231 and $685,729 for the year ended December 31, 2014 and 2013, respectively. The Company had a working capital deficit of $5,850,064 and $1,810,104 at December 31, 2014 and 2013 respectively; accumulated deficit of $15,324,264 and $5,850,064 at December 31, 2014 and 2013, respectively. These factors raise substantial doubt about the Company's ability to continue as a going concern. | |
Management believes that the Company’s ability to continue as a going concern will be dependent on its ability successfully implement its plans, which includes the ability to generate sufficient funds from its operations. The Company’s ability to achieve these objectives cannot be determined at this time. In the event the Company does not achieve these objectives, it will be necessary to raise additional capital through debt and/or equity markets or from other traditional financing sources, including convertible debt and/or other term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. There is no guarantee that the Company will be successful in raising additional capital. If the Company is unable to raise additional capital and/or generate significant sales growth in the near term there is a risk that the Company could default on debt maturing during 2015 and/or 2016, and could be required to significantly reduce the scope of its operations if no other means of financing operations are available. |
15_Subsequent_Events
15. Subsequent Events | 12 Months Ended |
Dec. 31, 2014 | |
Subsequent Events [Abstract] | |
15. Subsequent Events | Note 15 Subsequent Events |
On January 23, 2015, the Company sent a letter agreement to the Investors holding Notes dated November 26, 2013 and May 8, 2014, which constituted all Investors with Filing Default Damages or Effectiveness Default Damages due to them pursuant to the Registration Rights Agreements dated as of November 26, 2013 or June 30, 2014 (the “Agreement to Convert”). The Company invited the Investors, as applicable, to elect to convert the Interest Due and/or the Filing Default Damages and Effectiveness Default Damages into shares of the Company’s common stock at a price of $0.25 per share, and asked each Investor, as applicable, to make such election by acknowledging and returning the letter agreement to the Company. | |
As of March 24, 2015, twenty-five 2013 Investors returned a signed Agreement and Waiver to the Company, resulting in Additional Interest of $6,532, three 2013 Investors refused to sign the Agreement and Waiver, and three 2013 Investors did not respond to the Company’s letter. One 2013 Investor elected to receive the Additional Interest in cash, and the remaining 2013 Investors who signed the Agreement and Waiver received a total of 25,753 shares of the Company’s common stock in exchange for Additional Interest totaling $6,435. | |
As of March 24, 2015, out of thirty-four Investors who received an Agreement to Convert, 20 Investors elected to convert the Interest Due, the Filing Default Damages and the Effectiveness Default Damages into shares of the Company’s common stock, six Investors elected to receive cash rather than convert, and 8 Investors did not respond to the Company’s invitation. As a consequence, the Company will issue 1,575,490 shares of its common stock to accepting Investors in exchange for Interest Due, Filing Default Damages and Effectiveness Default Damages totaling $393,872. | |
In total, the Company will issue 1,601,243 shares of its common stock to Investors in exchange for Additional Interest, Interest Due, Filing Default Damages and Effectiveness Default Damages totaling $400,310. |
2_Summary_of_Significant_Accou1
2. Summary of Significant Accounting Policies (Policies) | 12 Months Ended | ||||||||||||
Dec. 31, 2014 | |||||||||||||
Accounting Policies [Abstract] | |||||||||||||
Basis of Presentation | Basis of Presentation | ||||||||||||
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) under the accrual basis of accounting. | |||||||||||||
Use of Estimates | Use of Estimates | ||||||||||||
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. | |||||||||||||
Such estimates and assumptions impact both assets and liabilities, including but not limited to: net realizable value of accounts receivable and inventory, estimated useful lives and potential impairment of property and equipment, the valuation of intangible assets, estimate of fair value of share based payments and derivative liabilities, estimates of fair value of warrants issued and recorded as debt discount, estimates of tax liabilities and estimates of the probability and potential magnitude of contingent liabilities. | |||||||||||||
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future non-conforming events. Accordingly, actual results could differ significantly from estimates. | |||||||||||||
Risks and Uncertainties | Risks and Uncertainties | ||||||||||||
The Company’s operations are subject to risk and uncertainties including financial, operational, regulatory and other risks including the potential risk of business failure. | |||||||||||||
The Company has experienced, and in the future expects to continue to experience, variability in its sales and earnings. The factors expected to contribute to this variability include, among others, (i) the uncertainty associated with the commercialization and ultimate success of the product, (ii) competition inherent at large national retail chains where product is expected to be sold (iii) general economic conditions and (iv) the related volatility of prices pertaining to the cost of sales. | |||||||||||||
Principles of Consolidation | Principles of Consolidation | ||||||||||||
The consolidated financial statements include the accounts of Safety Quick Lighting & Fans Corp and its subsidiary, SQL Lighting & Fans LLC. All inter-company accounts and transactions have been eliminated in consolidation. | |||||||||||||
Non-Controlling Interest | Non-Controlling Interest | ||||||||||||
In May 2012, in connection with the sale of the Company’s member units in the Subsidiary, the Company’s ownership percentage decreased from 98.8% to 94.35%. The Company then reacquired these member units in June 2013 increasing the ownership percentage from 94.35% back to 98.8%. During 2014, there was no activity in the subsidiary. Its pro rata share of the 2014 loss from operations is recognized in the financial statements. | |||||||||||||
Cash and Cash Equivalents | Cash and Cash Equivalents | ||||||||||||
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less. The Company had $1,201,813 and $ -0- in money market as of December 31, 2014 and 2013, respectively. | |||||||||||||
Accounts Receivable and Allowance for Doubtful Accounts | Accounts Receivable and Allowance for Doubtful Accounts | ||||||||||||
Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. | |||||||||||||
The Company recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. | |||||||||||||
As of December 31, 2014, 2013 and 2012, the company had no accounts receivable. | |||||||||||||
The net balance of accounts receivable for years ending December 2014 and 2013 were as follows | |||||||||||||
2014 | 2013 | 2012 | |||||||||||
Accounts Receivable | $ | — | $ | — | $ | 22,047 | |||||||
Allowance for Doubtful Accounts | — | — | (22,047 | ) | |||||||||
Net Accounts Receivable | $ | — | $ | — | $ | — | |||||||
For the years ended 2014 and 2013, the Company recorded bad debt expense of $0 and $0, respectively. | |||||||||||||
Inventory | Inventory | ||||||||||||
Inventory will consist of finished goods purchased, which are valued at the lower of cost or market value, with cost being determined on the first-in, first-out method. The Company will periodically review historical sales activity to determine potentially obsolete items and also evaluates the impact of any anticipated changes in future demand. | |||||||||||||
At December 31, 2014 and 2013, the Company had no inventory, and accordingly, no allowance for damaged, obsolete or unsaleable inventory. | |||||||||||||
Valuation of Long-Lived Assets and Identifiable Intangible Assets | Valuation of Long-Lived Assets and Identifiable Intangible Assets | ||||||||||||
The Company reviews for impairment of long-lived assets and certain identifiable intangible assets whenever events or changes in circumstances indicate that the carrying amount of any asset may not be recoverable. In the event of impairment, the asset is written down to its fair market value. The company determined no impairment adjustment was necessary during years 2014 and 2013. | |||||||||||||
Property and Equipment | Property and Equipment | ||||||||||||
Property and equipment is stated at cost, less accumulated depreciation and is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. | |||||||||||||
Depreciation of property and equipment is provided utilizing the straight-line method over the estimated useful lives, ranging from 5-7 years of the respective assets. Expenditures for maintenance and repairs are charged to expense as incurred. | |||||||||||||
Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations. | |||||||||||||
Intangible Asset - Patent | Intangible Asset - Patent | ||||||||||||
The Company developed a patent for an installation device used in light fixtures and ceiling fans. Costs incurred for submitting the applications to the United States Patent and Trademark Office for these patents have been capitalized. Patent costs are being amortized using the straight-line method over the related 15 year lives. The Company begins amortizing patent costs once a filing receipt is received stating the patent serial number and filing date from the Patent Office. | |||||||||||||
The Company incurs certain legal and related costs in connection with patent applications. The Company capitalizes such costs to be amortized over the expected life of the patent to the extent that an economic benefit is anticipated from the resulting patent or alternative future use is available to the Company. The Company also capitalizes legal costs incurred in the defense of the Company’s patents when it is believed that the future economic benefit of the patent will be maintained or increased and a successful defense is probable. Capitalized patent defense costs are amortized over the remaining expected life of the related patent. The Company’s assessment of future economic benefit or a successful defense of its patents involves considerable management judgment, and an unfavorable outcome of litigation could result in a material impairment charge up to the carrying value of these assets. | |||||||||||||
GE Trademark Licensing Agreement | GE Trademark Licensing Agreement | ||||||||||||
The Company entered into an agreement with General Electric on June, 2011 allowing the company to utilize the “GE trademark” on products which meet the stringent manufacturing and quality requirements of General Electric. As described further in note 5 to these financial statements, the Company and General Electric amended that agreement in August 2014. As a result of that amendment, the Company is required to pay a minimum Trademark Licensing Fee (Royalty Obligation) to General Electric of $12,000,000. The repayment schedule is based on a percent of sales, with any unpaid balance due in December, 2018. Under SFAS 142 “Accounting for Certain Intangible Assets” the company has recorded the value of the GE Licensing Agreement and will amortize it over the life of the agreement which is 60 months. | |||||||||||||
Fair Value of Financial Instruments | Fair Value of Financial Instruments | ||||||||||||
The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. | |||||||||||||
The following are the hierarchical levels of inputs to measure fair value: | |||||||||||||
• | Level 1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities. | ||||||||||||
• | Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means. | ||||||||||||
• | Level 3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available. | ||||||||||||
The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses, certain notes payable and notes payable – related party, approximate their fair values because of the short maturity of these instruments. | |||||||||||||
The Company accounts for its derivative liabilities, at fair value, on a recurring basis under level 3. See Note 6. | |||||||||||||
Embedded Conversion Features | Embedded Conversion Features | ||||||||||||
The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature. | |||||||||||||
Derivative Financial Instruments | Derivative Financial Instruments | ||||||||||||
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of it financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. | |||||||||||||
For option-based simple derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. | |||||||||||||
Beneficial Conversion Feature | Beneficial Conversion Feature | ||||||||||||
For conventional convertible debt where the rate of conversion is below market value, the Company records a "beneficial conversion feature" ("BCF") and related debt discount. | |||||||||||||
When the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument (offset to additional paid in capital) and amortized to interest expense over the life of the debt. | |||||||||||||
Debt Issue Costs and Debt Discount | Debt Issue Costs and Debt Discount | ||||||||||||
The Company may record debt issue costs and/or debt discounts in connection with raising funds through the issuance of debt. These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed. | |||||||||||||
Original Issue Discount | Original Issue Discount | ||||||||||||
For certain convertible debt issued, the Company may provide the debt holder with an original issue discount. The original issue discount would be recorded to debt discount, reducing the face amount of the note and is amortized to interest expense over the life of the debt. | |||||||||||||
Extinguishments of Liabilities | Extinguishments of Liabilities | ||||||||||||
The Company accounts for extinguishments of liabilities in accordance with ASC 860-10 (formerly SFAS 140) “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”. When the conditions are met for extinguishment accounting, the liabilities are derecognized and the gain or loss on the sale is recognized. | |||||||||||||
Stock-Based Compensation - Employees | Stock-Based Compensation - Employees | ||||||||||||
The Company accounts for its stock based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. | |||||||||||||
The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur. | |||||||||||||
If the Company is a newly formed corporation or shares of the Company are thinly traded, the use of share prices established in the Company’s most recent private placement memorandum (based on sales to third parties) (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market. | |||||||||||||
The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows: | |||||||||||||
• | Expected term of share options and similar instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and employees’ expected exercise and post-vesting employment termination behavior into the fair value (or calculated value) of the instruments. Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected term =(vesting term + original contractual term) / 2), if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. | ||||||||||||
• | Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market. | ||||||||||||
• | Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments. | ||||||||||||
• | Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments. | ||||||||||||
Generally, all forms of share-based payments, including stock option grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest. | |||||||||||||
The expense resulting from share-based payments is recorded in general and administrative expense in the statements of operations. | |||||||||||||
Stock-Based Compensation - Non Employees | Stock-Based Compensation – Non Employees | ||||||||||||
Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services | |||||||||||||
The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”). | |||||||||||||
Pursuant to ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur. If the Company is a newly formed corporation or shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market. | |||||||||||||
The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows: | |||||||||||||
• Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. | |||||||||||||
• | Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market. | ||||||||||||
• | Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments. | ||||||||||||
• | Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments. | ||||||||||||
Pursuant to ASC paragraph 505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the measurement date for transactions that are within the scope of this Subtopic. | |||||||||||||
Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a share option and similar instrument that the counterparty has the right to exercise expires unexercised. | |||||||||||||
Pursuant to ASC paragraph 505-50-30-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should be recorded. | |||||||||||||
Revenue Recognition | Revenue Recognition | ||||||||||||
The Company derives revenues from the sale of a patented device. | |||||||||||||
Revenue is recorded when all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) asset is transferred to the customer without further obligation, (3) the sales price to the customer is fixed or determinable, and (4) collectability is reasonably assured. | |||||||||||||
Cost of Sales | Cost of Sales | ||||||||||||
Cost of sales represents costs directly related to the production and third party manufacturing of the Company’s products. | |||||||||||||
Product sold is typically shipped directly to the customer from the third party manufacturer; costs associated with shipping and handling is shown as a component of cost of sales. | |||||||||||||
Earnings (Loss) Per Share | Earnings (Loss) Per Share | ||||||||||||
Basic net earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. | |||||||||||||
The Company uses the “treasury stock” method to determine whether there is a dilutive effect of outstanding convertible debt, option and warrant contracts. For the years ended December 31, 2014 and 2013 the Company reflected net loss and a dilutive net loss, and the effect of considering any common stock equivalents would have been anti-dilutive for the period. Therefore, separate computation of diluted earnings (loss) per share is not presented for the years ended December 31, 2014 and 2013. | |||||||||||||
The Company has the following common stock equivalents at December 31, 2014 and 2013: | |||||||||||||
2014 | 2013 | 2012 | |||||||||||
Convertible Debt (Exercise price - $0.25/share) | 18,056,932 | 8,976,532 | — | ||||||||||
Stock Warrants (Exercise price - $0.001 - $0.375/share) | 9,728,984 | 4,338,884 | — | ||||||||||
Stock Options (Exercise price - $0.375/share) | 200,000 | 300,000 | — | ||||||||||
Unvested Restricted Stock - Chief Executive Officer | 750,000 | 750,000 | — | ||||||||||
Total | 28,735,916 | 14,365,416 | — | ||||||||||
On June 1, 2013, the Company executed a 3,113.3:1 forward stock split. All share and per share amounts have been retroactively restated to the earliest period presented. | |||||||||||||
Income Tax Provision | Income Tax Provision | ||||||||||||
From the inception of SQL-LLC, and through November 6, 2012, the Company was taxed as a pass-through entity (LLC) under the Internal Revenue Code and was not subject to federal and state income taxes; accordingly, no provision had been made. | |||||||||||||
The financial statements reflect the Company’s transactions without adjustment, if any, required for income tax purposes for the period from November 7, 2012 to December 31, 2012. The net loss generated by the Company for the period January 1, 2012 to November 6, 2012 has been excluded from the computation of income taxes. | |||||||||||||
The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Consolidated Statements of Operations in the period that includes the enactment date. | |||||||||||||
The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”). Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty (50) percent likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. | |||||||||||||
The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary. | |||||||||||||
Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary. | |||||||||||||
The Company's tax returns are subject to examination by the federal and state tax authorities. | |||||||||||||
Uncertain Tax Positions | Uncertain Tax Positions | ||||||||||||
The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the reporting periods ended December 31, 2014 and 2013. | |||||||||||||
Related Parties | Related Parties | ||||||||||||
The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions. | |||||||||||||
Pursuant to Section 850-10-20 the related parties include a. affiliates of the Company; b. Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests. | |||||||||||||
The consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement. | |||||||||||||
Contingencies | Contingencies | ||||||||||||
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. | |||||||||||||
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed. | |||||||||||||
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, consolidated financial position, and consolidated results of operations or consolidated cash flows. | |||||||||||||
Subsequent Events | Subsequent Events | ||||||||||||
The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements are issued. | |||||||||||||
Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR. | |||||||||||||
Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements | ||||||||||||
In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this Update change the requirements for reporting discontinued operations in Subtopic 205-20. | |||||||||||||
Under the new guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of or is classified as held for sale and “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.” The ASU states that a strategic shift could include a disposal of (i) a major geographical area of operations, (ii) a major line of business, (iii) a major equity method investment, or (iv) other major parts of an entity. Although “major” is not defined, the standard provides examples of when a disposal qualifies as a discontinued operation. | |||||||||||||
The ASU also requires additional disclosures about discontinued operations that will provide more information about the assets, liabilities, income and expenses of discontinued operations. In addition, the ASU requires disclosure of the pre-tax profit or loss attributable to a disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements. | |||||||||||||
The ASU is effective for public business entities for annual periods beginning on or after December 15, 2014, and interim periods within those years. | |||||||||||||
In May 2014, the FASB and International Accounting Standards Board issued a converged final standard on the recognition of revenue from contracts with customers. This updated guidance provides a framework for addressing revenue recognition issues and replaces almost all existing revenue recognition guidance in current U.S. generally accepted accounting principles. The core principle of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively, and improve guidance for multiple-element arrangements. This guidance is effective for interim and annual periods beginning after December 15, 2016. Management has not yet evaluated the future impact of this guidance on the Company’s financial position, results of operations or cash flows. | |||||||||||||
In September 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. This ASU describes how an entity should assess its ability to meet obligations and sets disclosure requirements for how this information should be disclosed in the financial statements. The standard provides accounting guidance that will be used with existing auditing standards. The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The adoption of this guidance will be examined for the year ended December 31, 2016, and if applicable at that time, will require management to make the appropriate disclosures. | |||||||||||||
Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or are not expected to be significant to the Company’s financial position, results of operations or cash flows. |
2_Summary_of_Significant_Accou2
2. Summary of Significant Accounting Policies (Tables) | 12 Months Ended | ||||||||||||
Dec. 31, 2014 | |||||||||||||
Accounting Policies [Abstract] | |||||||||||||
Accounts Receivable and Allowance for Doubtful Accounts | 2014 | 2013 | 2012 | ||||||||||
Accounts Receivable | $ | — | $ | — | $ | 22,047 | |||||||
Allowance for Doubtful Accounts | — | — | (22,047 | ) | |||||||||
Net Accounts Receivable | $ | — | $ | — | $ | — | |||||||
Earnings (Loss) Per Share | 2014 | 2013 | 2012 | ||||||||||
Convertible Debt (Exercise price - $0.25/share) | 18,056,932 | 8,976,532 | — | ||||||||||
Stock Warrants (Exercise price - $0.001 - $0.375/share) | 9,728,984 | 4,338,884 | — | ||||||||||
Stock Options (Exercise price - $0.375/share) | 200,000 | 300,000 | — | ||||||||||
Unvested Restricted Stock - Chief Executive Officer | 750,000 | 750,000 | — | ||||||||||
Total | 28,735,916 | 14,365,416 | — |
3_Furniture_and_Equipment_Tabl
3. Furniture and Equipment (Tables) | 12 Months Ended | ||||||||
Dec. 31, 2014 | |||||||||
Property, Plant and Equipment [Abstract] | |||||||||
Furniture and Equipment | 2014 | 2013 | |||||||
Office Equipment | $ | 5,221 | $ | 12,984 | |||||
Machinery and Equipment | 115,538 | — | |||||||
Furniture and Fixtures | 29,070 | 6,013 | |||||||
Total | 149,829 | 18,997 | |||||||
Less: Accumulated Depreciation | (17,221 | ) | (12,952 | ) | |||||
Property and Equipment – net | 132,609 | 6,046 |
4_Intangible_Assets_Tables
4. Intangible Assets (Tables) | 12 Months Ended | ||||||||
Dec. 31, 2014 | |||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||
Intangible Assets | 2014 | 2013 | |||||||
Patents | $ | 61,690 | $ | 36,950 | |||||
Less: Impairment Charges | — | — | |||||||
Less: Accumulated Amortization | (15,271 | ) | (12,253 | ) | |||||
Patents – net | $ | 46,419 | $ | 24,697 | |||||
Intangible Assets - Future Amortization | Year Ending December 31 | ||||||||
2015 | $ | 4,107 | |||||||
2016 | 4,111 | ||||||||
2017 | 4,107 | ||||||||
2018 | 4,107 | ||||||||
2019 | 4,107 | ||||||||
2020 and Thereafter | 25,880 | ||||||||
$ | 46,419 |
5_GE_Trademark_License_Tables
5. GE Trademark License (Tables) | 12 Months Ended | ||||||||
Dec. 31, 2014 | |||||||||
Notes to Financial Statements | |||||||||
GE Trademark License | 2014 | 2013 | |||||||
GE Trademark License | $ | 12,000,000 | $ | — | |||||
Less: Impairment Charges | — | — | |||||||
Less: Accumulated Amortization | (2,434,783 | ) | — | ||||||
Patents – net | $ | 9,565,217 | $ | — | |||||
GE Trademark License - Future Amortization | Year Ending December 31 | ||||||||
2015 | $ | 2,441,472 | |||||||
2016 | 2,441,472 | ||||||||
2017 | 2,441,472 | ||||||||
2018 | 2,240,801 | ||||||||
$ | 9,565,217 |
6_Debt_Tables
6. Debt (Tables) | 12 Months Ended | ||||||||||||
Dec. 31, 2014 | |||||||||||||
Debt Disclosure [Abstract] | |||||||||||||
Summary of Debt Transactions | 2014 | 2013 | |||||||||||
Notes payable | $ | 405,095 | $ | 503,203 | |||||||||
Notes payable - related party | — | 26,108 | |||||||||||
Convertible notes | 4,487,234 | 2,194,133 | |||||||||||
Convertible notes - related party | 26,999 | 50,000 | |||||||||||
Less: debt discount | (4,402,773 | ) | (1,925,191 | ) | |||||||||
Debt – net | 516,555 | 848,253 | |||||||||||
Amortization of debt discount | 1,827,534 | 92,304 | |||||||||||
Less: current portion - notes payable | (98,086 | ) | (98,086 | ) | |||||||||
Less: current portion convertible debt | (1,250,981 | ) | — | ||||||||||
Less: current portion - notes payable - related party | — | (26,108 | ) | ||||||||||
Long term debt – net | $ | 995,022 | $ | 816,362 | |||||||||
Notes Payable | Third Party | Related Party | Totals | ||||||||||
Balance December 31, 2012 | $ | 739,534 | $ | 133,000 | $ | 872,534 | |||||||
Proceeds | 160,000 | 61,655 | 221,655 | ||||||||||
Repayments | (116,331 | ) | (35,547 | ) | (151,878 | ) | |||||||
Conversion of note payable to convertible debt | (180,000 | ) | (50,000 | ) | (230,000 | ) | |||||||
Debt forgiveness | (100,000 | ) | (83,000 | ) | (183,000 | ) | |||||||
Balance December 31, 2013 | 503,203 | 26,108 | 529,311 | ||||||||||
Repayments | (98,108 | ) | (26,108 | ) | (124,216 | ) | |||||||
Balance December 31, 2014 | $ | 405,095 | $ - | $ | 405,095 | ||||||||
Convertible Debt - Net | Third Party | Related Party | Totals | ||||||||||
Balance December 31, 2012 | $ | — | $ | — | $ | — | |||||||
Proceeds | 2,000,000 | — | 2,000,000 | ||||||||||
Repayments | — | — | — | ||||||||||
Conversion of note payable to convertible debt | 180,000 | 50,000 | 230,000 | ||||||||||
Conversion of accrued interest into convertible debt | 14,133 | — | 14,133 | ||||||||||
Less: gross debt discount recorded | (1,925,191 | ) | — | (1,925,191 | ) | ||||||||
Add: amortization of debt discount | 92,304 | — | 92,304 | ||||||||||
Balance December 31, 2013 | 361,245 | 50,000 | 411,245 | ||||||||||
Proceeds | 2,270,100 | — | 2,270,100 | ||||||||||
Repayments | — | — | — | ||||||||||
Less: gross debt discount recorded | (2,203,354 | ) | (46,105 | ) | (2,249,459 | ) | |||||||
Add: Amortization of Debt Discount | 1,484,004 | 23,104 | 1,507,108 | ||||||||||
Balance December 31, 2014 | $ | 1,911,995 | $ | 26,999 | $ | 1,938,994 | |||||||
Future Commitments | Year Ended December 31 | ||||||||||||
2015 | $ | 2,342,219 | |||||||||||
2016 | 2,577,109 | ||||||||||||
Less: unamortized debt discount | (2,575,239 | ) | |||||||||||
Less: current maturities | (1,349,067 | ) | |||||||||||
Debt - long term | $ | 995,022 |
7_Derivative_Liabilities_Table
7. Derivative Liabilities (Tables) | 12 Months Ended | ||||||||
Dec. 31, 2014 | |||||||||
Notes to Financial Statements | |||||||||
Derivative Liabilities - Fair Value | 2014 | 2013 | |||||||
Fair value at the commitment date - convertible debt | $ | 4,892,234 | $ | 2,414,585 | |||||
Fair value at the commitment date - warrants | 677,214 | 682,809 | |||||||
Reclassification of derivative liabilities to additional paid in capital related to warrants exercised that ceased being a derivative liability | (214,769 | ) | (311,709 | ) | |||||
Fair value mark to market adjustment - stock options | (25,614 | ) | — | ||||||
Fair value mark to market adjustment - convertible debt | (668,189 | ) | (28,586 | ) | |||||
Fair value mark to market adjustment - warrants | (13,701 | ) | (5,595 | ) | |||||
Totals | $ | 4,647,175 | $ | 2,751,504 | |||||
Derivative Liabilities - Assumptions Used | Commitment Date | Remeasurement Date | |||||||
Expected dividends | 0% | 0% | |||||||
Expected volatility | 150% | 150% | |||||||
Expected term | 2 - 5 years | 0.9 - 3.91 years | |||||||
Risk free interest rate | 0.29% - 1.68% | 0.67% - 1.65% |
9_Debt_Issue_Costs_Tables
9. Debt Issue Costs (Tables) | 12 Months Ended | ||||
Dec. 31, 2014 | |||||
Notes to Financial Statements | |||||
Debt Issue Costs | Debt issue costs - net - December 31,2012 | $ | — | ||
Debt issue costs | 247,197 | ||||
Accumulated amortization | (11,986 | ) | |||
Debt issue costs - net - December 31,2013 | 235,211 | ||||
Debt issue cost additions | 69,600 | ||||
Accumulated amortization | (154,851 | ) | |||
Debt issue costs - net - December 31,2014 | $ | 161,946 |
10_GE_Royalty_Obligation_Table
10. GE Royalty Obligation (Tables) | 12 Months Ended | |||||
Dec. 31, 2014 | ||||||
Notes to Financial Statements | ||||||
GE Royalty Obligation | Percentage of the Contract Year Net Sales owed to GE | |||||
Net Sales in Contract Year | ||||||
$0 - $50,000,000 | 7% | |||||
$50,000,001 - $100,000,000 | 6% | |||||
$100,000,001+ | 5% |
11_Income_Taxes_Tables
11. Income Taxes (Tables) | 12 Months Ended | ||||||
Dec. 31, 2014 | |||||||
Income Tax Disclosure [Abstract] | |||||||
Deferred Tax Assets | Net operating loss carryforward | $ | (2,429,000 | ) | $ | (199,000 | ) |
Gross Deferred Tax Assets | (2,429,000 | ) | (199,000 | ) | |||
Less Valuation Allowance | 2,429,000 | 199,000 | |||||
Total Deferred Tax Assets - Net | $ | — | $ | — | |||
Income Tax Rate Reconciliation | Computed "expected" tax expense (benefit) - Federal | $ | (2,630,000 | ) | $ | (875,000 | ) |
Computed "expected" tax expense (benefit) - State | (458,00 | ) | (102,000 | ) | |||
Derivative expense | 216,000 | 439,000 | |||||
Loss on debt extinguishment | — | 5,000 | |||||
Gain on debt forgiveness | — | 38,000 | |||||
Share based payments | — | 286,000 | |||||
Amortization of patent | 1,000 | 1,000 | |||||
Amortization of debt issue costs | 1,000 | 5,000 | |||||
Amortization of debt discount | — | 35,000 | |||||
Amortization of patent | 909,000 | 1,000 | ) | ||||
Change in value of derivative liability | (269,000 | ) | (13,000 | ) | |||
Change in valuation allowance | 2,230,000 | 181,000 | |||||
$ | — | $ | — |
12_Stockholders_Deficit_Tables
12. Stockholders Deficit (Tables) | 12 Months Ended | ||||||||||||||||||
Dec. 31, 2014 | |||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||
Common Stock | Transaction Type | Quantity | Valuation | Range of Value per Share | |||||||||||||||
Common stock issued in exercise of options | 1,000,000 | $ | 1,000 | $ | — | ||||||||||||||
Common stock issued per mutual release and waiver (1) | 250,000 | 62,500 | — | ||||||||||||||||
1,250,000 | $ | 63,500 | $ | — | |||||||||||||||
The following is a more detailed description of the Company’s stock issuance from the table above: | |||||||||||||||||||
(1) Services Rendered - Related Party | |||||||||||||||||||
In November 2014, the Company issued 750,000 of restricted, nonvested shares to new Chief Executive Officer. The shares are to vest as follows: 250,000 in May 2015 and 500,000 shares in December 2015. The shares are valued at $0.25 per share. | |||||||||||||||||||
The Company’s former Chief Executive Officer received 1,250,000 restricted unvested shares in association with an employment contract. These restricted shares were to vest as follows: 500,000 on November 15, 2013 with the remaining 750,000 shares to vest evenly (250,000 shares each vesting period) on December 31, 2014, 2015 and 2016. The shares were valued based on recent third party cash offering of convertible debt containing an exercise price of $0.25/share. In November 2014, the agreement was terminated and the Company entered into a new Agreement and Mutual Release with that former CEO. As of that date (November 2014), 750,000 of the aforementioned 1,250,000 shares were fully vested. In accordance with this new Agreement, the company issued 250,000 shares that vested on December 31, 2014 and the executive retained 500,000 shares of the previous granted (fully vested) shares. The remaining 500,000 unvested shares were forfeited by the former CEO. | |||||||||||||||||||
In 2013, the Company issued the following common stock: | |||||||||||||||||||
Transaction Type | Quantity | Valuation | Range of Value per Share | ||||||||||||||||
Warrants exercised | (1 | ) | 1,400,000 | $ | 1,400 | $ | 0.001 | ||||||||||||
Services rendered - related party | (2 | ) | 500,000 | 125,000 | 0.25 | ||||||||||||||
Acquisition of 4.5% interest in subsidiary | (3 | ) | 1,467,000 | 366,750 | 0.25 | ||||||||||||||
3,367,000 | $ | 493,150 | $ | 0.001 | $ | 0.25 | |||||||||||||
Stock Options - Assumptions | Options Granted | 200,000 | |||||||||||||||||
Grant Date | 3-Sep-13 | ||||||||||||||||||
Exercise Price | $ | 0.375 | |||||||||||||||||
Expected Dividends | 0% | ||||||||||||||||||
Expected Volatility | 150% | ||||||||||||||||||
Risk Free Interest Rate | 0.03% | ||||||||||||||||||
Expected Life of Options | 4 Years | ||||||||||||||||||
Expected Forfeitures | 0% | ||||||||||||||||||
Fair Value per Stock Option | $ | 0.2 | |||||||||||||||||
Stock Option Activity | Weighted Average | Aggregate | |||||||||||||||||
Weighted Average | Remaining Contractual Life | Intrinsic | |||||||||||||||||
Options | Exercise Price | (In Years) | Value | ||||||||||||||||
Balance - December 31, 2012 | — | — | — | — | |||||||||||||||
Granted | 300,000 | 0.375 | 5 | — | |||||||||||||||
Exercised | — | — | — | — | |||||||||||||||
Forfeited/Cancelled | — | — | — | — | |||||||||||||||
Balance - December 31, 2013 - outstanding | 300,000 | 0.375 | 4.67 | — | |||||||||||||||
Granted | — | — | — | ||||||||||||||||
Exercised | — | — | — | ||||||||||||||||
Granted | — | — | — | ||||||||||||||||
Forfeited/Cancelled | (100,000 | ) | |||||||||||||||||
Balance- December 31, 2014 | 200,000 | 0.375 | 3.67 | ||||||||||||||||
(D) Stock Warrants | |||||||||||||||||||
All warrants issued during 2014 and 2013 were accounted for as derivative liabilities as the warrants contained a ratchet feature. See Note 7. | |||||||||||||||||||
During 2013, the Company issued 6,738,884 warrants. Of the total warrants granted, 4,338,884 expire 5 years from issuance, while 2,400,000 expired on December 31, 2013. | |||||||||||||||||||
Of the total warrants granted during 2013, 6,614,801 were granted to third parties, while 124,083 were granted to related parties, consisting of the Company’s former Chief Executive Officer. | |||||||||||||||||||
During 2014, the Company issued 5,390,100 warrants. The warrants granted expire 5 years from issuance on various dates during 2019. | |||||||||||||||||||
During 2014, of the total warrants granted 4,740,100 granted to third parties, while 650,000 were granted to related parties, consisting of the Company’s former Chief Executive Officer. | |||||||||||||||||||
During 2013, the Company entered into convertible, secured note agreements. As part of these agreements, the Company issued warrants to purchase 3,672,134 shares of common stock. The warrants vest immediately and expire November 26, 2018, with an exercise price of $0.375. | |||||||||||||||||||
During 2013, the Company issued 3,066,750 warrants for services performed. The warrants vest immediately and expire on December 31, 2013 through November 25, 2018, with exercise prices ranging from $0.001 - $0.375. | |||||||||||||||||||
During 2014, the Company entered into convertible, secured note agreements. As part of these agreements, the Company issued warrants to purchase 5,390,100 shares of common stock. The warrants vest immediately and expire on various dates in 2019, with an exercise price of $0.375. | |||||||||||||||||||
The Black-Scholes assumptions used in the computation of derivative expense for year ended December 31, 2014 is as follows: | |||||||||||||||||||
2014 | 2013 | ||||||||||||||||||
Stock price | $ | 0.25 | $ | 0.25 | |||||||||||||||
Exercise price | $ | 0.38 | $ | 0.38 | |||||||||||||||
Expected dividends | 0% | 0% | |||||||||||||||||
Expected volatility | 150% | 150% | |||||||||||||||||
Risk free interest rate | 1.65% | 1.68% | |||||||||||||||||
Expected term | 3.68 years | 5 years | |||||||||||||||||
Summary of Warrant Activity | Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in Years) | ||||||||||||||||
Balance, December 31, 2012 | — | $ | — | ||||||||||||||||
Granted | 6,738,884 | 0.242 | 5 | ||||||||||||||||
Exercised | (1,400,000 | ) | — | ||||||||||||||||
Cancelled/Forfeited | (1,000,000 | ) | — | ||||||||||||||||
Balance, December 31, 2013 | 4,338,884 | 0.242 | 4.9 | ||||||||||||||||
Granted | 5,390,100 | 0.375 | 5 | ||||||||||||||||
Exercised | |||||||||||||||||||
Cancelled/Forfeited | — | — | |||||||||||||||||
Balance, December 31, 2014 | 9,728,984 | $ | 0.375 | 4.2 |
13_Commitments_Tables
13. Commitments (Tables) | 12 Months Ended | ||||||||||||||
Dec. 31, 2014 | |||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||
Minimum Rent Obligations | Minimum | Sublease | Net | ||||||||||||
Year | Obligation | Rentals | Obligation | ||||||||||||
2015 | $ | 97,901 | $ | 84,165 | $ | 13,736 | |||||||||
2016 | 109,720 | 86,688 | 23,032 | ||||||||||||
2017 | 46,568 | 22,263 | 24,305 | ||||||||||||
2018 | 25,154 | — | 25,154 | ||||||||||||
2019 | 8,614 | — | 8,614 | ||||||||||||
Total | $ | 287,957 | $ | 193,116 | $ | 94,841 |
1_Organization_and_Nature_of_O1
1. Organization and Nature of Operations (Details Narrative) | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | Dec. 31, 2011 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||
Ownership Percentage of Subsidiary | 98.80% | 98.80% | 94.35% | 98.80% |
2_Summary_of_Significant_Accou3
2. Summary of Significant Accounting Policies - Accounts Receivable and Allowance for Doubtful Accounts (Details) (USD $) | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 |
Accounting Policies [Abstract] | |||
Accounts Receivable | $22,047 | ||
Allowance for Doubtful Accounts | -22,047 | ||
Net Accounts Receivable |
2_Summary_of_Significant_Accou4
2. Summary of Significant Accounting Policies - Earnings (Loss) Per Share (Details) | 12 Months Ended | ||
Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | |
Common Stock Equivalents | 28,735,916 | 14,365,416 | |
Convertible Debt [Member] | |||
Common Stock Equivalents | 18,056,932 | 8,976,532 | |
Warrant [Member] | |||
Common Stock Equivalents | 9,728,984 | 4,338,884 | |
Equity Option [Member] | |||
Common Stock Equivalents | 200,000 | 300,000 | |
Restricted Stock [Member] | |||
Common Stock Equivalents | 750,000 | 750,000 |
2_Summary_of_Significant_Accou5
2. Summary of Significant Accounting Policies (Details Narrative) (USD $) | 12 Months Ended | |||
Dec. 31, 2013 | Dec. 31, 2014 | Dec. 31, 2012 | Dec. 31, 2011 | |
Accounting Policies [Abstract] | ||||
Ownership Percentage of Subsidiary | 98.80% | 98.80% | 94.35% | 98.80% |
Cash and Cash Equivalents | $1,132,974 | $1,241,487 | ||
Bad Debt Expense | 0 | 0 | ||
GE Royalty Obligation | $12,000,000 | |||
Forward Stock Split | 3,113.30 |
3_Furniture_and_Equipment_Furn
3. Furniture and Equipment - Furniture and Equipment (Details) (USD $) | Dec. 31, 2014 | Dec. 31, 2013 |
Property and Equipment - gross | $149,829 | $18,997 |
Less: Accumulated Depreciation | -17,221 | -12,952 |
Property and Equipment - net | 132,609 | 6,046 |
Office Equipment | ||
Property and Equipment - gross | 5,221 | 12,984 |
Machinery and Equipment | ||
Property and Equipment - gross | 115,538 | |
Furniture and Fixtures | ||
Property and Equipment - gross | $29,070 | $6,013 |
4_Intangible_Assets_Intangible
4. Intangible Assets - Intangible Assets (Details) (USD $) | Dec. 31, 2014 | Dec. 31, 2013 |
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Patents | $61,690 | $36,950 |
Less: Impairment Charges | ||
Less: Accumulated Amortization | -15,271 | -12,253 |
Patents - net | $46,419 | $24,697 |
4_Intangible_Assets_Intangible1
4. Intangible Assets - Intangible Assets - Future Amortization (Details) (USD $) | Dec. 31, 2014 |
Goodwill and Intangible Assets Disclosure [Abstract] | |
2015 | $4,107 |
2016 | 4,111 |
2017 | 4,107 |
2018 | 4,107 |
2019 | 4,107 |
2020 and Thereafter | $25,880 |
5_GE_Trademark_License_GE_Trad
5. GE Trademark License - GE Trademark License (Details) (USD $) | Dec. 31, 2014 | Dec. 31, 2013 |
GE Trademark License | $61,690 | $36,950 |
Less: Impairment Charges | ||
Less: Accumulated Amortization | -15,271 | -12,253 |
Patents - net | 46,419 | 24,697 |
GE Trademark | ||
GE Trademark License | 12,000,000 | |
Less: Impairment Charges | ||
Less: Accumulated Amortization | -2,434,783 | |
Patents - net | $9,565,217 |
5_GE_Trademark_License_GE_Trad1
5. GE Trademark License - GE Trademark License - Future Amortization (Details) (USD $) | Dec. 31, 2014 |
2015 | $4,107 |
2016 | 4,111 |
2017 | 4,107 |
2018 | 4,107 |
2019 and Thereafter | 25,880 |
GE Trademark | |
2015 | 2,441,472 |
2016 | 2,441,472 |
2017 | 2,441,472 |
2018 | 2,240,801 |
2019 and Thereafter | $9,565,217 |
6_Debt_Summary_of_Debt_Transac
6. Debt - Summary of Debt Transactions (Details) (USD $) | 12 Months Ended | ||
Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | |
Debt Disclosure [Abstract] | |||
Notes payable | $405,095 | $503,203 | $872,534 |
Notes payable - related party | 26,108 | ||
Convertible notes | 4,487,234 | 2,194,133 | |
Convertible notes - related party | 26,999 | 50,000 | |
Less: debt discount | -4,402,773 | -1,925,191 | |
Debt - net | 516,555 | 848,253 | |
Amortization of debt discount | 1,827,534 | 92,304 | |
Less: current portion - notes payable | -98,086 | -98,086 | |
Less: current portion convertible debt | 688,013 | 361,245 | |
Less: current portion - notes payable - related party | -26,108 | ||
Long term debt - net | $995,022 | $816,362 |
6_Debt_Notes_Payable_Details
6. Debt - Notes Payable (Details) (USD $) | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Beginning Balance, Notes Payable | $503,203 | $872,534 |
Proceeds | 221,655 | |
Repayments | -124,216 | -151,878 |
Conversion of note payable to convertible debt | -230,000 | |
Debt forgiveness | 83,000 | |
Ending Balance, Notes Payable | 405,095 | 503,203 |
Third Party | ||
Beginning Balance, Notes Payable | 503,203 | 739,534 |
Proceeds | 160,000 | |
Repayments | -98,108 | -116,331 |
Conversion of note payable to convertible debt | -180,000 | |
Debt forgiveness | -100,000 | |
Ending Balance, Notes Payable | 405,095 | 503,203 |
Related Party | ||
Beginning Balance, Notes Payable | 26,108 | 133,000 |
Proceeds | 61,655 | |
Repayments | -26,108 | -35,547 |
Conversion of note payable to convertible debt | -50,000 | |
Debt forgiveness | -83,000 | |
Ending Balance, Notes Payable | $26,108 |
6_Debt_Convertible_Debt_Net_De
6. Debt - Convertible Debt - Net (Details) (USD $) | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Beginning Balance, Convertible Debt | $411,245 | |
Proceeds | 2,270,100 | 2,000,000 |
Repayments | ||
Conversion of note payable to convertible debt | 230,000 | |
Conversion of accrued interest into convertible debt | 14,133 | |
Less: gross debt discount recorded | -2,249,459 | -1,925,191 |
Add: amortization of debt discount | 1,507,108 | 92,304 |
Ending Balance, Convertible Debt | 1,938,994 | 411,245 |
Third Party | ||
Beginning Balance, Convertible Debt | 361,245 | |
Proceeds | 2,270,100 | 2,000,000 |
Repayments | ||
Conversion of note payable to convertible debt | 180,000 | |
Conversion of accrued interest into convertible debt | 14,133 | |
Less: gross debt discount recorded | -2,203,354 | -1,925,191 |
Add: amortization of debt discount | 1,484,004 | 92,304 |
Ending Balance, Convertible Debt | 1,911,995 | 361,245 |
Related Party | ||
Beginning Balance, Convertible Debt | 50,000 | |
Proceeds | ||
Repayments | ||
Conversion of note payable to convertible debt | 50,000 | |
Conversion of accrued interest into convertible debt | ||
Less: gross debt discount recorded | -46,105 | |
Add: amortization of debt discount | 23,104 | |
Ending Balance, Convertible Debt | $26,999 | $50,000 |
6_Debt_Future_Commitments_Deta
6. Debt - Future Commitments (Details) (USD $) | Dec. 31, 2014 | Dec. 31, 2013 |
Debt Disclosure [Abstract] | ||
2015 | $2,342,219 | |
2016 | 2,577,109 | |
Less: unamortized debt discount | -2,575,239 | |
Less: current maturities | -1,349,067 | |
Debt - long term | $995,022 | $816,362 |
6_Debt_Details_Narrative
6. Debt (Details Narrative) (USD $) | 1 Months Ended | 12 Months Ended | |||
Jun. 30, 2014 | 31-May-14 | Nov. 30, 2013 | Dec. 31, 2014 | Dec. 31, 2013 | |
Debt Disclosure [Abstract] | |||||
Convertible Debt Offering | $2,270,100 | $2,000,000 | |||
Warrants Issued | 5,390,100 | 3,672,134 | 5,390,100 | 6,738,884 | |
Notes Offering, Principal Amount | 4,270,100 | ||||
Notes Offering, Net Proceeds | 800,500 | 1,400,000 | 1,752,803 | ||
Warrant Purchase Price | $0.38 | $0.25 | $0.38 | ||
Notes Offering, Disclosure | Pursuant to the Notes Offering, each Investor also received five (5) year common stock warrants to purchase our common stock at $0.375 per share (each a “Warrant” and collectively, the “Warrants”). Investors of the 12% Notes received Warrants with 25% coverage based on a pre-determined valuation of the Company. Investors of the 15% Notes received Warrants with 15% coverage based on the pre-determined valuation of the Company. Investors with a principal investment amount equal to or greater than $250,000 received Warrants with a bonus 40% coverage (“Bonus Coverage”); however, if an Investor previously invested $250,000 or more in the Notes Offering, such Investor received Bonus Coverage if such Investor subsequently invested $100,000 or more in the Notes Offering. In addition to the terms customarily included in such instruments, the Warrants may be exercised by the Investors by providing to the Company a notice of exercise, payment and surrender of the Warrant. | ||||
In connection with the Notes Offering, we entered into Registration Rights Agreements, each dated as of November 26, 2013, May 8, 2014 and June 25, 2014 and each by and between us and each of the Investors (collectively, the “Registration Rights Agreements”) whereby we agreed to prepare and file a registration statement with the SEC within sixty (60) days after execution of the applicable Registration Rights Agreement and to have the registration statement declared effective by the SEC within ninety (90) days thereafter. | |||||
Convertible Bonds Issued | 2,270,100 | 2,244,133 | |||
Convertible Bonds Interest Rates | 12.00% | 12.00% | |||
Outstanding Debt | $4,919,328 |
7_Derivative_Liabilities_Deriv
7. Derivative Liabilities - Derivative Liabilities - Fair Value (Details) (USD $) | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Notes to Financial Statements | ||
Fair value at the commitment date - convertible debt | $4,892,234 | $2,414,585 |
Fair value at the commitment date - warrants | 677,214 | 682,809 |
Reclassification of derivative liabilities to additional paid in capital related to warrants exercised that ceased being a derivative liability | -214,769 | -311,709 |
Fair value mark to market adjustment - stock options | -25,614 | |
Fair value mark to market adjustment - convertible debt | -668,189 | -28,586 |
Fair value mark to market adjustment - warrants | -13,701 | -5,595 |
Totals | $4,647,175 | $2,751,504 |
7_Derivative_Liabilities_Deriv1
7. Derivative Liabilities - Derivative Liabilities - Assumptions Used (Details) | 12 Months Ended |
Dec. 31, 2014 | |
Commitment Date | Minimum | |
Expected dividends | 0.00% |
Expected volatility | 150.00% |
Expected term | 2 years |
Risk free interest rate | 0.29% |
Commitment Date | Maximum | |
Expected term | 5 years |
Risk free interest rate | 1.68% |
Remeasurement Date | Minimum | |
Expected dividends | 0.00% |
Expected volatility | 150.00% |
Expected term | 10 months |
Risk free interest rate | 0.67% |
Remeasurement Date | Maximum | |
Expected term | 3 years 10 months |
Risk free interest rate | 1.65% |
8_Debt_Discount_Details_Narrat
8. Debt Discount (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Notes to Financial Statements | ||
Derivative Expense | ($568,485) | ($1,156,262) |
Amortization of Derivative Discount | $1,507,107 | $92,304 |
9_Debt_Issue_Costs_Debt_Issue_
9. Debt Issue Costs - Debt Issue Costs (Details) (USD $) | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Notes to Financial Statements | ||
Debt issue costs, Beginning | $235,211 | |
Debt issue costs | 69,600 | 247,197 |
Amortization expense | -154,851 | -11,986 |
Debt issue costs, Ending | $161,946 | $235,211 |
9_Debt_Issue_Costs_Details_Nar
9. Debt Issue Costs (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Interest Expense | ($2,139,485) | ($171,590) |
Debt [Member] | ||
Interest Expense | $142,865 | $11,986 |
10_GE_Royalty_Obligation_GE_Ro
10. GE Royalty Obligation - GE Royalty Obligation (Details) (USD $) | 12 Months Ended |
Dec. 31, 2014 | |
Tier 1 | Minimum | |
Net Sales in Contract Year | $0 |
Percentage of the Contract Year Net Sales owed to GE | 7.00% |
Tier 1 | Maximum | |
Net Sales in Contract Year | 50,000,000 |
Tier 2 | Minimum | |
Net Sales in Contract Year | 50,000,001 |
Percentage of the Contract Year Net Sales owed to GE | 6.00% |
Tier 2 | Maximum | |
Net Sales in Contract Year | 100,000,000 |
Tier 3 | Minimum | |
Net Sales in Contract Year | $100,000,001 |
Percentage of the Contract Year Net Sales owed to GE | 5.00% |
10_GE_Royalty_Obligation_Detai
10. GE Royalty Obligation (Details Narrative) (USD $) | Dec. 31, 2014 | Dec. 31, 2013 |
Notes to Financial Statements | ||
GE Royalty Obligation | $12,000,000 |
11_Income_Taxes_Deferred_Tax_A
11. Income Taxes - Deferred Tax Assets (Details) (USD $) | Dec. 31, 2014 | Dec. 31, 2013 |
Income Tax Disclosure [Abstract] | ||
Net operating loss carryforward | ($2,429,000) | ($199,000) |
Gross Deferred Tax Assets | -2,429,000 | -199,000 |
Less Valuation Allowance | 2,429,000 | 199,000 |
Total Deferred Tax Assets - Net |
11_Income_Taxes_Income_Tax_Rat
11. Income Taxes - Income Tax Rate Reconciliation (Details) (USD $) | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Income Tax Disclosure [Abstract] | ||
Computed ""expected"" tax expense (benefit) - Federal | ($2,630,000) | ($875,000) |
Computed ""expected"" tax expense (benefit) - State | -458,000 | -102,000 |
Derivative expense | 216,000 | 439,000 |
Loss on debt extinguishment | 5,000 | |
Gain on debt forgiveness | 38,000 | |
Share based payments | 286,000 | |
Amortization of patent | 1,000 | 1,000 |
Amortization of debt issue costs | 1,000 | 5,000 |
Amortization of debt discount | 35,000 | |
Amortization of patent | 909,000 | 1,000 |
Change in value of derivative liability | -269,000 | -13,000 |
Change in valuation allowance | $2,230,000 | $181,000 |
11_Income_Taxes_Details_Narrat
11. Income Taxes (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Income Tax Disclosure [Abstract] | ||
Net Operating Loss Carry-forward | $4,136,000 | |
Valuation Allowance | 119,000 | |
Change in Valuation Allowance | $2,230,000 | $181,000 |
12_Stockholders_Deficit_Common
12. Stockholders Deficit - Common Stock (Details) (USD $) | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Common Stock Issued Per Mutual Release and Waiver | ||
Quantity | 250,000 | |
Valuation | $62,500 | |
Range of Value per Share | ||
Stock Issuance Description | In November 2014, the Company issued 750,000 of restricted, nonvested shares to new Chief Executive Officer. The shares are to vest as follows: 250,000 in May 2015 and 500,000 shares in December 2015. The shares are valued at $0.25 per share. | |
The Company’s former Chief Executive Officer received 1,250,000 restricted unvested shares in association with an employment contract. These restricted shares were to vest as follows: 500,000 on November 15, 2013 with the remaining 750,000 shares to vest evenly (250,000 shares each vesting period) on December 31, 2014, 2015 and 2016. The shares were valued based on recent third party cash offering of convertible debt containing an exercise price of $0.25/share. In November 2014, the agreement was terminated and the Company entered into a new Agreement and Mutual Release with that former CEO. As of that date (November 2014), 750,000 of the aforementioned 1,250,000 shares were fully vested. In accordance with this new Agreement, the company issued 250,000 shares that vested on December 31, 2014 and the executive retained 500,000 shares of the previous granted (fully vested) shares. The remaining 500,000 unvested shares were forfeited by the former CEO. | ||
Common Stock Issued in Exercise of Options [Member] | ||
Quantity | 1,000,000 | |
Valuation | 1,000 | |
Range of Value per Share | ||
Warrants Exercised | ||
Quantity | 1,400,000 | |
Valuation | 1,400 | |
Range of Value per Share | $0.00 | |
Stock Issuance Description | In connection with a warrant exercise, a third party paid cash to obtain these shares. | |
Services Rendered - Related Party | ||
Quantity | 500,000 | |
Valuation | 125,000 | |
Range of Value per Share | $0.25 | |
Stock Issuance Description | The Company’s Chief Executive Officer received these shares as a sign on bonus. There are no future service requirements and there are no claw back or forfeiture rights associated with this stock grant. The shares are valued based on a recent third party cash offering of convertible debt containing an exercise price of $0.25/share. Also see Note 12 (B). | |
Acquisition of Interest In Subsidiary | ||
Quantity | 1,467,000 | |
Valuation | $366,750 | |
Range of Value per Share | $0.25 | |
Stock Issuance Description | In June 2013, the Company reacquired 4.5% ownership in its subsidiary, which it had previously sold in 2012. The transaction was accounted for as a capital transaction since the parent had control of the Subsidiary at all times. The purchase reflected 4.5% of the Subsidiary being reacquired, which increased the parent’s ownership from 94.35% to 98.8%. The transaction included the valuation of shares issued at $366,750, however, in connection with establishing the valuation adjustment of the noncontrolling interest reacquired, $19,538 represented the net increase to additional paid in capital and reduction of the noncontrolling interest. As a result of this transaction, the noncontrolling interest post repurchase is 1.2%. |
12_Stockholders_Deficit_Stock_
12. Stockholders Deficit - Stock Options - Assumptions (Details) (USD $) | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Options Granted | 300,000 | |
Expected Life of Options | 5 years | |
Equity Option [Member] | ||
Options Granted | 200,000 | |
Grant Date | 3-Sep-13 | |
Exercise Price | 0.375 | |
Expected Dividends | 0.00% | |
Expected Volatility | 150.00% | |
Risk Free Interest Rate | 0.03% | |
Expected Life of Options | 4 years | |
Expected Forfeitures | 0 | |
Fair Value per Stock Option | 0.2 | |
Warrant [Member] | ||
Exercise Price | 0.38 | 0.38 |
Expected Dividends | 0.00% | 0.00% |
Expected Volatility | 150.00% | 150.00% |
Risk Free Interest Rate | 1.65% | 1.68% |
Expected Life of Options | 3 years 9 months | 5 years |
Fair Value per Stock Option | 0.25 | 0.25 |
12_Stockholders_Deficit_Stock_1
12. Stockholders Deficit - Stock Option Activity (Details) (USD $) | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Equity [Abstract] | ||
Beginning Balance, Options | 300,000 | |
Beginning Balance, Weighted Average Exercise Price | $0.38 | |
Beginning Balance, Weighted Average Remaining Contractual Life (In Years) | 4 years 8 months | |
Options Granted | 300,000 | |
Options Granted, Weighted Average Exercise Price | $0.38 | |
Options Granted, Weighted Average Remaining Contract (In Years) | 5 years | |
Options Exercised | ||
Options Forfeited/Cancelled | -100,000 | |
Options Forfeited/Cancelled, Exercise Price | ||
Ending Balance, Options Outstanding | 200,000 | 300,000 |
Ending Balance, Weighted Average Exercise Price, Options Outstanding | $0.38 | $0.38 |
12_Stockholders_Deficit_Summar
12. Stockholders Deficit - Summary of Warrant Activity (Details) (USD $) | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Equity [Abstract] | ||
Beginning Balance, Warrants | 4,338,884 | |
Warrants Granted | 5,390,100 | 6,738,884 |
Warrants Granted, Weighted Average Exercise Price | $0.38 | $0.24 |
Warrants Granted, Weighted Average Remaining Contractual Life (in Years) | 5 years | 5 years |
Warrants Exercised | -1,400,000 | |
Warrants Exercised, Weighted Average Exercise Price | ||
Warrants Cancelled/Forfeited | -1,000,000 | |
Warrants Cancelled/Forfeited, Weighted Average Exercise Price | ||
Ending Balance, Warrants Outstanding | 9,728,984 | 4,338,884 |
Ending Balance, Warrants, Weighted Average Exercise Price | $0.38 | $0.24 |
Ending Balance, Warrants, Weighted Average Remaining Contractual Life (in Years) | 4 years 3 months | 4 years 10 months |
12_Stockholders_Deficit_Detail
12. Stockholders Deficit (Details Narrative) (USD $) | 1 Months Ended | 12 Months Ended | |||
31-May-14 | Nov. 30, 2013 | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | |
Derivative Liability | $214,769 | ||||
Stock options issued for services - related parties | 76,312 | 125,000 | |||
Debt Forgiveness | 83,000 | ||||
Debt Converted, Value | 244,133 | ||||
Loss on Debt Extinguishment | -3,278 | ||||
Sale of Member Units, Value | 774,000 | ||||
Allocation to Noncontrolling Interest | -35,442 | -35,440 | 5,193 | ||
Options Cancelled | 100,000 | ||||
Warrants Issued | 5,390,100 | 3,672,134 | 5,390,100 | 6,738,884 | |
Expired Warrants | 2,400,000 | ||||
Warrants, Exercise Price | $0.38 | $0.38 | |||
Stock Issued for Services, Shares | 3,066,750 | ||||
Warrant Consideration Recieved | 1,000 | ||||
Warrants Exercised | $1,000,000 | $1,400,000 | |||
Third Party | |||||
Warrants Issued | 4,740,100 | 6,614,801 | |||
Related Party | |||||
Warrants Issued | 650,000 | 124,083 |
13_Commitments_Minimum_Rent_Ob
13. Commitments - Minimum Rent Obligations (Details) (USD $) | Dec. 31, 2014 |
2015 | $13,736 |
2016 | 23,032 |
2017 | 24,305 |
2018 | 25,154 |
2019 | 8,614 |
Total | 94,841 |
Minimum Obligation | |
2015 | 97,901 |
2016 | 109,720 |
2017 | 46,568 |
2018 | 25,154 |
2019 | 8,614 |
Total | 287,957 |
Sublease Rentals | |
2015 | 84,165 |
2016 | 86,688 |
2017 | 22,263 |
2018 | |
2019 | |
Total | $193,116 |
13_Commitments_Details_Narrati
13. Commitments (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Royalty Information | The term shall carry a royalty minimum of $12,000,000. If licensee does not pay GE a cumulative royalty of $12,000,000 over the term of the agreement, the difference between $12,000,000 and all prior payments would be due on December 31, 2018. | |
Corporate Office 1 | ||
Security Deposit Paid | $27,020 | |
Security Deposit Collected | 35,981 | |
Corporate Office 2 | ||
Security Deposit Paid | 1,914 | |
Base Rent | 97,266 | |
Chief Executive Officer [Member] | ||
Shares Granted | 750,000 | 1,250,000 |
Shares Granted, Value | 312,500 | |
Annual Salary | 150,000 | |
Office [Member] | ||
Shares Granted | 250,000 | |
Monthly Consulting Fee | $6,500 |
14_Going_Concern_Details_Narra
14. Going Concern (Details Narrative) (USD $) | 12 Months Ended | |||
Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | Dec. 31, 2011 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||
Net Loss | ($6,804,749) | ($2,607,768) | ($870,320) | |
Net Cash Used in Operations | 1,800,231 | 685,729 | ||
Working Capital Deficit | -5,850,064 | -1,810,104 | ||
Total Stockholders' deficit | -8,873,179 | -2,360,512 | -899,860 | -806,925 |
Accumulated Deficit | ($15,324,264) | ($8,519,517) |
15_Subsequent_Events_Details_N
15. Subsequent Events (Details Narrative) (Subsequent Event [Member], USD $) | 12 Months Ended |
Dec. 31, 2014 | |
Subsequent Event [Member] | |
Additional Interest Expense | $400,310 |
Shares Issued in Exchange for Additional Interest | 1,601,243 |