Document_and_Entity_Informatio
Document and Entity Information (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Mar. 01, 2014 | |
Document And Entity Information | ' | ' |
Entity Registrant Name | 'TOMI Environmental Solutions, Inc. | ' |
Entity Central Index Key | '0000314227 | ' |
Document Type | '10-K | ' |
Document Period End Date | 31-Dec-13 | ' |
Amendment Flag | 'false | ' |
Current Fiscal Year End Date | '--12-31 | ' |
Is Entity a Well-known Seasoned Issuer? | 'No | ' |
Is Entity a Voluntary Filer? | 'Yes | ' |
Is Entity's Reporting Status Current? | 'Yes | ' |
Entity Filer Category | 'Smaller Reporting Company | ' |
Entity Common Stock, Shares Outstanding | ' | 80,201,519 |
Entity Public Float | $24,620,589 | ' |
Document Fiscal Period Focus | 'FY | ' |
Document Fiscal Year Focus | '2013 | ' |
CONSOLIDATED_BALANCE_SHEET
CONSOLIDATED BALANCE SHEET (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Current Assets: | ' | ' |
Cash and cash equivalents | $706,350 | $73,424 |
Cash - Restricted (Note 6) | 70,124 | ' |
Accounts Receivable | 805,809 | 215,657 |
Inventories (Note 2) | 407,549 | ' |
Prepaids Expenses | 7,980 | 5,400 |
Total Current Assets | 1,997,812 | 294,481 |
Property & Equipment - net (Note 3) | 164,068 | 47,906 |
Other Assets: | ' | ' |
Intangible Assets - net (Note 4) | 3,026,564 | ' |
Deferred Financing Costs - net (Note 6) | 542,116 | ' |
Security Deposits | 2,543 | 500 |
Total Other Assets | 3,571,223 | 500 |
TOTAL ASSETS | 5,733,103 | 342,887 |
Current Liabilities: | ' | ' |
Accounts Payable and Accrued Expenses | 383,349 | 225,487 |
Accrued Interest on Convertible Notes (Note 6) | 211,194 | ' |
Accrued Officers Compensation (Note 9) | 25,000 | 5,000 |
Common Stock to be Issued (Note 13) | 150,871 | ' |
Loan Payable - Officer | ' | 3,988 |
Customer Deposits | 14,105 | ' |
Derivative Liability (Note 7) | 7,665,502 | ' |
Total Current Liabilities | 8,450,021 | 234,475 |
Convertible Notes Payable, net of discount of $5,003,558 (Note 6) | 70,442 | ' |
Total Long-term Liabilities | 70,442 | ' |
Total Liabilities | 8,520,463 | 234,475 |
Commitments and Contingencies | ' | ' |
Stockholders' Equity ( Deficiency): | ' | ' |
Cumulative Convertible Series A Preferred Stock; par value $0.01, 1,000,000 shares authorized; 510,000 shares issued and outstanding at December 31, 2013 and 2012 | 5,100 | 5,100 |
Cumulative Convertible Series B Preferred Stock; $1,000 stated value; 7.5% Cumulative dividend; 4,000 shares authorized; none issued and outstanding at December 31, 2013 and 2012 | ' | ' |
Common stock; par value $0.01, 200,000,000 shares authorized; 79,867,217 and 75,455,585 shares issued and outstanding at December 31, 2013 and December 31, 2012, respectively. | 798,672 | 754,555 |
Additional Paid-in Capital | 15,674,958 | 12,956,535 |
Accumulated Deficit | -19,266,090 | -13,607,778 |
Total Stockholders' Equity (Deficiency) | -2,787,360 | 108,412 |
Total Liabilities and Stockholders' Equity (Deficiency) | $5,733,103 | $342,887 |
CONSOLIDATED_BALANCE_SHEET_Par
CONSOLIDATED BALANCE SHEET (Parenthetical) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Stockholders' Equity ( Deficiency): | ' | ' |
Cumulative Convertible Preferred Stock Series A, Par Value | $0.01 | $0.01 |
Cumulative Convertible Preferred Stock Series A, Shares Authorized | 1,000,000 | 1,000,000 |
Cumulative Convertible Preferred Stock Series A, Shares Issued | 510,000 | 510,000 |
Cumulative Convertible Preferred Stock Series A, Shares Outstanding | 510,000 | 510,000 |
Cumulative Convertible Preferred Stock Series B, Stated Value | $1,000 | $1,000 |
Cumulative Convertible Preferred Stock Series B, Shares Authorized | 4,000 | 4,000 |
Cumulative Convertible Preferred Stock Series B, Shares Issued | 0 | 0 |
Cumulative Convertible Preferred Stock Series B, Shares Outstanding | 0 | 0 |
Cumulative Convertible Preferred Stock Series B, Dividend Percentage | 7.50% | 7.50% |
Common Stock; Par Value | $0.01 | $0.01 |
Common Stock; Shares Authorized | 200,000,000 | 200,000,000 |
Common Stock; Stock Issued | 79,867,217 | 75,455,585 |
Common Stock; Stock Outstanding | 79,867,217 | 75,455,585 |
CONSOLIDATED_STATEMENT_OF_OPER
CONSOLIDATED STATEMENT OF OPERATIONS (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Consolidated Statement Of Operations | ' | ' |
Sales, net | $1,166,457 | $564,142 |
Cost of Sales | 480,678 | 342,130 |
Gross Profit | 685,779 | 222,012 |
Costs and Expenses: | ' | ' |
Professional Fees | 339,116 | 207,926 |
Depreciation and Amortization | 318,265 | 40,951 |
Selling Expenses | 195,954 | 106,097 |
Research and Development | 127,547 | 2,384 |
Impairment of Intangibles | ' | 69,439 |
Debt Extinguishment | ' | -43,900 |
Consulting fees (Note 9) | 643,827 | 19,536 |
General and Administrative | 509,243 | 1,270,389 |
Total Costs and Expenses | 2,133,952 | 1,672,822 |
Loss From Operations | -1,448,173 | -1,450,810 |
Other Income (Expenses): | ' | ' |
Amortization of Deferred Financing Costs | -234,370 | ' |
Amortization of Debt Discount | -70,442 | -173,398 |
Fair Value Adjustment of Derivative Liability | -349,410 | ' |
Financing Costs (Note 6) | -3,198,803 | -26,611 |
Interest Expense - Related Party | -161 | -72,000 |
Interest expense | -356,953 | -27,588 |
Total Other Income (Expense) | -4,210,139 | -299,597 |
Net loss | ($5,658,312) | ($1,750,407) |
Loss Per Common Share Basic and Diluted | ($0.07) | ($0.02) |
Basic and Diluted Weighted Average Common Shares Outstanding | 77,474,329 | 70,270,868 |
CONSOLIDATE_STATEMENTS_OF_STOC
CONSOLIDATE STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIENCY) (USD $) | Series A Preferred | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total |
Beginning Balance, Amount at Dec. 31, 2011 | $5,100 | $646,290 | ' | ' | ' |
Beginning Balance, Shares at Dec. 31, 2011 | 510,000 | 64,629,033 | 10,934,799 | -11,857,371 | -271,182 |
Common stock issued as consideration for accrued salaries of CEO, Shares | ' | 233,333 | ' | ' | ' |
Common stock issued as consideration for accrued salaries of CEO, Amount | ' | 2,333 | 32,667 | ' | 35,000 |
Common stock issued as consideration for loans payable to CEO, shares | ' | 960,000 | ' | ' | ' |
Common stock issued as consideration for loans payable to CEO, amount | ' | 9,600 | 134,400 | ' | 144,000 |
Common stock issued as finance charges on loans payable and accrued compensation to CEO, shares | ' | 596,667 | ' | ' | ' |
Common stock issued as finance charges on loans payable and accrued compensation to CEO, amount | ' | 5,967 | 83,533 | ' | 89,500 |
Common stock issued as consideration for payment of convertible debt, Shares | ' | 1,500,000 | ' | ' | ' |
Common stock issued as consideration for payment of convertible debt, Amount | ' | 15,000 | 60,000 | ' | 75,000 |
Common stock issued as consideration for legal fees - related party, shares | ' | 3,747 | ' | ' | ' |
Common stock issued as consideration for legal fees - related party, amount | ' | 374,750 | 13,691 | ' | 17,438 |
Sale of common stock, Shares | ' | 6,043,269 | ' | ' | ' |
Sale of common stock, Amount | ' | 60,433 | 384,567 | ' | 445,000 |
Issuance of stock options as consideration for director fees | ' | ' | 600 | ' | 600 |
Exercise of stock options as payment for legal services - related party, Shares | ' | 20,000 | ' | ' | ' |
Exercise of stock options as payment for legal services - related party, Amount | ' | 200 | 400 | ' | 600 |
Issuance of common stock for services, Shares | ' | 932,586 | ' | ' | ' |
Issuance of common stock for services, Amount | ' | 9,326 | 30,689 | ' | 40,015 |
Issuance of Common Stock as payment of accrued expenses, shares | ' | 100,000 | ' | ' | ' |
Issuance of Common Stock as payment of accrued expenses, amount | ' | 1,000 | 29,000 | ' | 30,000 |
Issuance of warrants as consideration for services, amount | ' | ' | 599,952 | ' | 599,952 |
Issuance of warrants as consideration for services - CEO | ' | ' | 524,957 | ' | 524,957 |
Discounts recorded in connection with the issuance of convertible note and warrants | ' | ' | 100,000 | ' | 100,000 |
Finance charges recognized in connection with the issuance of convertible note and warrants | ' | ' | 23,995 | ' | 23,995 |
Common Stock issued as payment of interest on convertible note, shares | ' | 65,947 | ' | ' | ' |
Common Stock issued as payment of interest on convertible note, amount | ' | 659 | 3,285 | ' | 3,944 |
Net loss | ' | ' | ' | -1,750,407 | -1,750,407 |
Ending Balance, Amount at Dec. 31, 2012 | 5,100 | 754,555 | 12,956,535 | -13,607,778 | 108,412 |
Ending Balance, Shares at Dec. 31, 2012 | 510,000 | 75,455,585 | ' | ' | ' |
Equity based compensation | ' | ' | 148,794 | ' | 148,794 |
Common stock issued for services provided , Shares | ' | 977,028 | ' | ' | ' |
Common stock issued for services provided, Amount | ' | 9,770 | 470,984 | ' | 480,754 |
Exercise of stock options as payment for legal services, Shares | ' | 20,000 | ' | ' | ' |
Exercise of stock options as payment for legal services, Amount | ' | 200 | -200 | ' | ' |
Private placements, net, Shares | ' | 3,414,604 | ' | ' | ' |
Private placements, net, Amount | ' | 34,147 | 976,953 | ' | 1,011,100 |
Warrants issued as part of debt private placement | ' | ' | 956,711 | ' | 956,711 |
Warrants issued as Deferred financing costs | ' | ' | 165,181 | ' | 165,181 |
Net loss | ' | ' | ' | -5,658,312 | -5,658,312 |
Ending Balance, Amount at Dec. 31, 2013 | $5,100 | $798,672 | $15,674,958 | ($19,266,090) | ($2,787,360) |
Ending Balance, Shares at Dec. 31, 2013 | 510,000 | 79,867,217 | ' | ' | ' |
CONSOLIDATED_STATEMENT_OF_CASH
CONSOLIDATED STATEMENT OF CASH FLOWS (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Cash Flow From Operating Activities: | ' | ' |
Net loss | ($5,658,312) | ($1,750,407) |
Adjustments to Reconcile Net loss to Net Cash Used In Operating Activities: | ' | ' |
Depreciation and amortization | 318,264 | 40,951 |
Amortization of Deferred Financing Costs | 234,371 | ' |
Amortization of debt discount | 70,442 | 173,398 |
Financing Costs | 3,198,804 | ' |
Fair Value Adjustment of Derivative Liability | 349,410 | ' |
Equity Based Compensation | 629,548 | ' |
Common stock and warrants issued as finance charges | ' | 99,939 |
Debt Extinguishment | ' | -43,900 |
Impairment of intangible assets | ' | 69,439 |
Common stock, warrants and options issued for services | ' | 1,201,064 |
Decrease (increase) in: | ' | ' |
Accounts Receivable | -590,152 | -215,657 |
Inventory | -407,549 | ' |
Prepaid Expenses | -2,580 | -450 |
Deposits | -2,043 | ' |
Other Receivables | ' | 10,569 |
Increase (Decrease in: | ' | ' |
Accounts Payable and Accrued Expenses | 157,861 | 8,859 |
Accrued Interest on Convertible Notes | 211,194 | ' |
Accrued Officers Compensation | 20,000 | 20,000 |
Common Stock to be Issued | 150,871 | ' |
Customer Deposits | 14,105 | ' |
Net Cash Used in Operating Activities | -1,305,766 | -386,195 |
Cash Flow From Investing Activities: | ' | ' |
Purchase of Property and Equipment | -172,691 | -48,435 |
Purchase of Intangibles | -3,288,300 | ' |
Net Cash Used in Investing Activities | -3,460,991 | -48,435 |
Cash Flow From Financing Activities: | ' | ' |
Proceeds from the Issuance of Convertible Notes | 5,074,000 | 100,000 |
Proceeds from Loan Payable - Related Party | ' | 66,520 |
Repayment of Loan Payable Officer | -3,988 | ' |
Repayment of Convertible Notes | ' | -100,000 |
Deferred Finance Costs | -611,306 | ' |
Proceeds From Issuance of Common Stock | 1,041,099 | 445,000 |
Payments of Accrued Finder's Fee | -30,000 | ' |
Funds in Bond Sinking Fund | -70,124 | ' |
Other | ' | -3,468 |
Net Cash Provided by Financing Activities | 5,399,681 | 508,054 |
Increase In Cash and Cash Equivalents | 632,926 | 73,424 |
Cash and Cash Equivalents - Beginning | 73,424 | ' |
Cash and Cash Equivalents - Ending | 706,350 | 73,424 |
Supplemental Cash Flow Information: | ' | ' |
Cash Paid For Interest | 145,920 | 7,370 |
Cash Paid For Income Taxes | 933 | ' |
Non-Cash Financing Activities: | ' | ' |
Discount on Convertible Debt | 5,074,000 | 100,000 |
Common Stock Issued for Convertible Debt | ' | 75,000 |
Common Stock Issued as Consideration for Accrued Expenses | ' | 3,000 |
Common Stock Warrants Issued as Deferred Finance Costs | 165,181 | ' |
Payment of accrued expenses by former director applied against accrued expenses | ' | 27,000 |
Issuance of common stock as consideration for payment of loans payable to related party | ' | 144,000 |
Common stock issued as consideration for accrued compensation to related party | ' | 35,000 |
Establishment of derivative liability | $7,316,092 | ' |
1_DESCRIPTION_OF_BUSINESS
1. DESCRIPTION OF BUSINESS | 12 Months Ended |
Dec. 31, 2013 | |
Notes to Financial Statements | ' |
NOTE 1. DESCRIPTION OF BUSINESS | ' |
TOMI Environmental Solutions, Inc. is a global decontamination and infectious disease control company, providing green energy-efficient environmental solutions for indoor and outdoor surface decontamination through sales, services and licensing of our SteraMistTM Binary Ionization Technology® (“BIT™”) hydrogen peroxide mist and fogs. |
2_SUMMARY_OF_SIGNIFICANT_ACCOU
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended | |
Dec. 31, 2013 | ||
Notes to Financial Statements | ' | |
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ' | |
Principles of Consolidation | ||
The accompanying consolidated financial statements include the accounts of TOMI Environmental Solutions, Inc. (a Florida Corporation) (TOMI-Florida), and its wholly-owned subsidiary, TOMI Environmental Solutions, Inc. (a Nevada Corporation) (TOMI-Nevada). The Company’s 55% owned subsidiary, TOMI Environmental-China (TOMI-China), has been dormant since its formation in April 2011. All significant intercompany accounts and transactions have been eliminated in consolidation. | ||
Use of Estimates | ||
The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the accompanying unaudited condensed consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, including those related to the accounts receivable, fair values of financial instruments, intangible assets, useful lives of intangible assets and property and equipment, fair values of stock-based awards, income taxes, and contingent liabilities, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of our assets and liabilities. | ||
Reclassification of Accounts | ||
Certain reclassifications have been made to prior-year comparative financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or financial position. | ||
Fair Value Measurements | ||
The authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv)willing to transact. The guidance describes a fair value hierarchy based on the levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following: | ||
Level 1: | Quoted prices in active markets for identical assets or liabilities. | |
Level 2: | Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by observable market data or substantially the full term of the assets or liabilities. | |
Level 3: | Unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities. | |
The Company’s financial instruments include cash and equivalents, accounts receivable, accounts payable and accrued expenses and loans payable. All these items were determined to be Level 1 fair value measurements. | ||
The carrying amounts of cash and equivalents, accounts receivable, accounts payable and accrued expenses, and loans payable approximated fair value because of the short maturity of these instruments. The recorded value of long-term convertible debt approximates its fair value as the terms and rates approximate market rates (See also Note 7) | ||
Cash and Cash Equivalents | ||
For purposes of the statement of cash flows, cash and cash equivalents includes cash on hand held at financial institutions and other liquid investments with original maturities of three months or less. | ||
Inventories | ||
Inventories are valued at the lower of cost or market using the first-in, first-out (”FIFO”) method. Inventories consist primarily of finished goods and demo equipment. | ||
Property and Equipment | ||
We account for property and equipment at cost less accumulated depreciation. We compute depreciation using the straight-line method over the estimated useful lives of the assets, generally three to five years. Depreciation for equipment, furniture and fixtures and vehicles commences once placed in service for its intended use. | ||
Deferred Financing Costs | ||
The Company follows authoritative guidance for accounting for financing costs as it relates to convertible debt issuance cost. These costs are deferred and amortized over the term of the debt period or until redemption of the convertible debentures. Amortization of deferred financing costs amounted to approximately $234,000 for the year ended December 31, 2013. | ||
Income taxes | ||
Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. The measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits, which are, on a more likely than not basis, not expected to be realized; in accordance with ASC guidance for income taxes. Net deferred tax benefits related to the U.S. operations have been fully reserved at December 31, 2013 and 2012. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted. | ||
Loss Per Share | ||
Basic loss per share is computed by dividing the Company’s net loss by the weighted average number of common shares outstanding during the period presented. Diluted loss per share is based on the treasury stock method and includes the effect from potential issuance of common stock such as shares issuable pursuant to the exercise of warrants and conversions of debentures. | ||
Potentially dilutive securities as of December 31, 2013, consisted of 17,496,552 common shares from convertible debentures, 19,325,800 common shares from outstanding warrants (including 7,611,000 warrants issued in conjunction with the above convertible notes), 60,000 common shares from options and 510,000 common shares from convertible Series A preferred stock. Diluted and basic weighted average shares are the same, as potentially dilutive shares are anti-dilutive. | ||
Potentially dilutive securities as of December 31, 2012, consisted of 10,050,000 common shares from outstanding warrants, 60,000 common shares from options and 510,000 common shares from convertible Series A preferred stock. Diluted and basic weighted average shares are the same, as potentially dilutive shares are anti-dilutive. | ||
Revenue Recognition | ||
For revenue from services and product sales, the Company recognized revenue in accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition” (SAB No. 104), which superseded Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (SAB No. 101). SAB No. 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) service has been rendered or delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgment regarding the fixed nature of the selling prices of the services rendered or products delivered and the collectability of those amounts. Provisions for discounts to customers, and allowance, and other adjustments will be provided for in the same period the related sales are recorded. | ||
Stock-Based Compensation | ||
We account for stock-based compensation in accordance with Financial Accounting Standards Board (“FASB”), ASC 718, Compensation- “Stock Compensation.” Under the provisions of FASB ASC 718, stock-based compensation cost is estimated at the grant date based on the award’s fair value and is recognized as expense over the requisite service period. The Company currently has one active stock-based compensation plan, TOMI Environmental Solutions, Inc. Stock Option and Restricted Stock Plan (the “Plan”). The Plan calls for the Company, through a committee of its Board of Directors, to issue up to 2,500,000 shares of restricted common stock or stock options. The Company generally issues grants to its employees, consultants, and board members. Stock options are granted with an exercise price equal to the closing price of its common stock on the date of the grant with a term no greater than 10 years. Generally, stock options vest over two to four years. Incentive stock options granted to shareholders who own 10% or more of the Company’s outstanding equity securities are granted at an exercise price that may not be less than 110% of the closing price of the Company’s common stock on the date of grant and have a term no greater than five years. On the date of a grant, the Company determines the fair value of the stock option award and recognizes compensation expense over the requisite service period, which is generally the vesting period of the award. The fair value of the stock option award is calculated using the Black-Scholes option-pricing model. As of December 31, 2013, the Company had 848,315 shares available to be issued under the Plan. | ||
Concentrations of Credit Risk | ||
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents. The Company maintains cash balances at financial institutions which exceed the current Federal Deposit Insurance Corporation (“FDIC”) limit of $250,000 at times during the year. | ||
The Company had sales to one international customer representing 40% of total sales in 2013. The Company also procured approximately 85% of its inventory value as of December 31, 2013 from one major supplier. | ||
Long-Lived Assets Including Acquired Intangible Assets | ||
The Company assesses long-lived assets for potential impairments at the end of each year, or during the year if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset. In evaluating long-lived assets for impairment, the Company measures recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If the Company’s long-lived assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value. The Company bases its calculations of the estimated fair value of its long-lived assets on the income approach. For the income approach, The Company uses an internally developed discounted cash flow model that include, among others, the following assumptions: projections of revenues and expenses and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. We base these assumptions on our historical data and experience, industry projections, micro and macro general economic condition projections, and our expectations. | ||
We have had no long-lived assetl impairment charges for the year ended December 31, 2013. The Company’s most recent detailed test disclosed an estimated fair value of its patents and trademarks that exceeded its’ respective carrying amount based on our model and assumptions. | ||
Advertising and Promotional Expenses | ||
The Company expenses advertising costs in the period in which they are incurred. For the year ended December 31, 2013 and 2012, advertising and promotional expenses were approximately $6,000 and $0, respectively. | ||
Recent Accounting Pronouncements | ||
In July 2012, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”). ASU 2012-02 gives entities an option to first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset impaired. If based on its qualitative assessment an entity concludes that it is more likely than not that the fair value of an indefinite lived intangible asset is less than its carrying amount, quantitative impairment testing is required. However, if an entity concludes otherwise, quantitative impairment testing is not required. ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. ASU 2012-02 is not expected to have a material impact on the Company’s financial position or results of operations. | ||
In 2012 and 2013, the FASB issued Accounting Standards Updates (“ASU”) 2013-01 through 2013-11. In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU 2013-02 supersedes and replaces the presentation requirements for amounts reclassified out of Accumulated Other Comprehensive Income in ASU's 2011-05 and 2011-12. This ASU requires an entity to report the effect of significant reclassifications out of Accumulated Other Comprehensive Income on the respective line items in Net Income if the amount being reclassified is required under U.S. Generally Accepted Accounting Principles ("GAAP") to be reclassified in its entirety to Net Income. For other amounts that are not required under GAAP to be reclassified in their entirety to Net Income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. Public companies are required to comply with the requirements of AUS 2013-02 for all reporting periods (interim and annual) beginning after December 15, 2012. The adoption of ASU 2013-02 did not have a significant impact on the financial statements. | ||
3_PROPERTY_AND_EQUIPMENT
3. PROPERTY AND EQUIPMENT | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Notes to Financial Statements | ' | ||||||||
NOTE 3. PROPERTY AND EQUIPMENT | ' | ||||||||
Property and equipment consists of the following: | |||||||||
December 31, | December 31, | ||||||||
2013 | 2012 | ||||||||
Furniture and fixture | $ | 22,390 | $ | 42,026 | |||||
Equipment | 217,672 | 128,207 | |||||||
Vehicles | 44,344 | 88,687 | |||||||
284,406 | 258,920 | ||||||||
Less: Accumulated depreciation | 120,338 | 211,014 | |||||||
$ | 164,068 | $ | 47,906 | ||||||
Depreciation was $56,529 and $29,842 for the years ended December 31, 2013 and 2012, respectively. |
4_INTANGIBLE_ASSETS_AND_ASSET_
4. INTANGIBLE ASSETS AND ASSET ACQUISITION | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Notes to Financial Statements | ' | ||||||||
NOTE 4. INTANGIBLE ASSETS AND ASSET ACQUISITION | ' | ||||||||
On April 15, 2013 the Company completed the acquisition of binary ionization technology and related patents and other assets consisting of personal property and inventory related to implementation of the Binary Ionization Technology related to these patents from L-3 Applied Technologies, Inc. ("L-3"). All of these assets are pledged as collateral for the convertible notes issued as described below in Note 6. | |||||||||
The purchase price allocation was obtained from an independent valuation firm The following sets forth the components of the final purchase price allocation: | |||||||||
Purchase Price | |||||||||
Cash payment | $ | 3,500,000 | |||||||
Warranty expense | 10,000 | ||||||||
Total purchase price | $ | 3,510,000 | |||||||
Assets Purchased | |||||||||
Inventory | $ | 71,700 | |||||||
Fixed assets | 150,000 | ||||||||
Patents | 2,848,300 | ||||||||
Trademarks | 440,000 | ||||||||
Total Assets Acquired | $ | 3,510,000 | |||||||
The intangible assets purchased consist of Patents and Trademarks. The patents are being amortized over the estimated remaining lives of the related patents, which is 7.7 years. The trademarks have an indefinite life. Amortization expense was $261,736 and $0 for the years ended December 31, 2013 and 2012. | |||||||||
Definite life intangible assets consist of the following: | |||||||||
December 31, | December 31, | ||||||||
2013 | 2012 | ||||||||
Intellectual property and patents and trademarks | $ | 2,959,400 | $ | 111,100 | |||||
Less: Accumulated Amortization and Impairment Loss | 372,836 | 111,100 | |||||||
Intangible Assets, net | $ | 2,586,564 | $ | - | |||||
The Company’s definite life intangible assets at December 31, 2012 were being amortized over their estimated useful lives of ten years. At December 31, 2012, the Company determined that the fair value of the intangible assets was impaired. Accordingly, an impairment charge of $69,439 was recorded during the year ended December 31, 2012 on the Company’s definite-life intangibles, reducing the carrying value of these intangible assets to $0. Amortization expense was $11,110 for the year ended December 31, 2012. | |||||||||
Indefinite life intangible assets consist of the following: | |||||||||
December 31, | December 31, | ||||||||
2013 | 2012 | ||||||||
Trademarks | $ | 440,000 | $ | - | |||||
Total Trademarks | $ | 440,000 | $ | - | |||||
5_LOANS_PAYABLE_RELATED_PARTY
5. LOANS PAYABLE - RELATED PARTY | 12 Months Ended |
Dec. 31, 2013 | |
Notes to Financial Statements | ' |
NOTE 5. LOANS PAYABLE - RELATED PARTY | ' |
Loans payable to the Company’s Chief Executive Officer as of December 31, 2012, bear interest at 5% per annum and are payable on demand. |
6_CONVERTIBLE_DEBT
6. CONVERTIBLE DEBT | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Notes to Financial Statements | ' | ||||||||
NOTE 6. CONVERTIBLE DEBT | ' | ||||||||
On February 20, 2012, we sold a $100,000 convertible promissory note bearing interest at 10% per annum and maturing on December 31, 2015. The promissory note is convertible at any time and the conversion price is initially $0.05 per share. After August 30, 2012, the conversion price will, at the end of each month, adjust to the lower of the current conversion price or 110% of that month's volume weighted average price as reported by Bloomberg, subject to being no lower than $0.005 per share. The purchaser of the promissory note also received 600,000 warrants to acquire common shares. The warrants expire on December 31, 2017, have an initial exercise price of $0.05 per share and can adjust lower in the same manner as the accompanying convertible note, thereby becoming a derivative instrument at that time. | |||||||||
These warrants and promissory note were valued at $123,995 using the Black-Scholes pricing model with the following assumptions: expected volatility: 309%; expected dividend: $0; expected term: 5.87 years; and risk-free rate: 0.25%. | |||||||||
The Company recorded a deferred debt discount in the amount of $100,000 and a finance charge of $23,995. The deferred debt discount was recorded as a reduction of the carrying amount of the convertible debt and an addition to paid-in capital. The finance charges were recognized in the current period. Amortization of the debt discount was $9,290 for the six months ended June 30, 2012. In July 2012 the note was repaid in cash. In connection with this repayment, the Company recognized amortization of debt discount of $90,709 and issued 65,947 shares of common stock valued at $3,944 as additional finance charges. | |||||||||
In November 2012, the Company initiated a Private Placement offering a maximum of 240 Units of the Company’s securities at a price of $25,000 per Unit or $6,000,000. The initial closing of the offering occurred in April 2013 as the bulk of the net proceeds of the offering were to be allocated for the asset purchase from L-3 Applied Technologies, Inc., which agreement was not finalized until April 2013. Each Unit consists of $25,000 par amount of a 10% Senior Secured Callable Convertible Promissory Note due and payable on July 31, 2015 and 37,500 warrants each of which allows the investor to purchase one share of common stock and expires on July 31, 2018. Interest is payable on the Notes at a rate of 10% per annum, and payable on July 31st and January 31st. The Notes are secured by the Company's intellectual property such as the Patents, trademarks, royalties, receivables of the Company and all equipment except for the new equipment acquired with the proceeds from any future financing that is initially secured by this new equipment. The Notes call for the establishment of a sinking fund. Within 45 days of each calendar quarter 15% of the Company’s reported revenue will be deposited into the Company’s escrowed sinking fund account. | |||||||||
As of December 31, 2013 the Company sold 202.96 Units for gross proceeds of $5,074,000 and issued 7,611,000 warrants in connection with the Units. Net proceeds amounted to $4,462,693 after expenses of offering totaling $611,307. In addition, the placement agent received 1,014,800 warrants valued at $165,181. | |||||||||
The convertible notes are convertible into shares of our common stock at an initial conversion price of $0.29 (which conversion price is subject to adjustment upon the occurrence of events specified in the Convertible Notes, including stock dividends, stock splits, certain fundamental corporate transactions, and certain issuances of common stock by the Company). | |||||||||
The Warrants are exercisable into shares of Common Stock (the "Warrant Shares") at an initial exercise price of $0.30 (which may be subject to certain adjustments as set forth in the Warrants). | |||||||||
The Company evaluated the warrants under ASC 815-40-15 due to the exercise price being adjustable upon certain events occurring. The company determined that the warrants are considered indexed to the Company’s own stock and thus meet the scope exception under FASB ASC 815-10-15-74 and are therefore not considered a derivative. The estimated fair value of the warrants, which contain reset provisions, were calculated using the Monte Carlo valuation model. The Company recorded the warrant’s relative fair value of $956,711 as an increase to additional paid in capital and a discount against the related debt. | |||||||||
The Convertible Notes contain a provision whereby the conversion price is adjustable upon the occurrence of certain events, including the issuance of common stock or common stock equivalents at a price which is lower than the current conversion price. Under FASB ASC 815-40-15-5, the embedded conversion feature is not considered indexed to the Company’s own stock and, therefore, does not meet the scope exception in FASB ASC 815-10-15 and thus needs to be accounted for as a derivative liability. The fair value of the embedded conversion feature was estimated at $7,316,092 and recorded as a derivative liability, resulting in an additional discount of $4,117,288 to the convertible notes and a finance charge of $3,198,804 included in the statement of operations. The fair value of the embedded conversion feature is estimated at the end of each quarterly reporting period using the Monte Carlo model. | |||||||||
The debt discount is being amortized over the life of the convertible note using the effective interest method. | |||||||||
Inherent in the Monte Carlo Valuation model are assumptions related to expected volatility, remaining life, risk-free rate and expected dividend yield. For the Convertible Notes and Warrants using a Monte Carlo model, we estimate the probability and timing of potential future financing and fundamental transactions as applicable. The assumptions used by the Company are summarized below: | |||||||||
Convertible Notes | |||||||||
31-Dec-13 | Inception | ||||||||
Closing stock price | $ | 0.42 | $ | 0.13-0.55 | |||||
Conversion price | $ | 0.29 | $ | 0.29 | |||||
Expected volatility | 175 | % | 185%-190 | % | |||||
Remaining term (years) | 1.58 | 2.30-2.07 | |||||||
Risk-free rate | 0.28 | % | 0.25%-0.43 | % | |||||
Expected dividend yield | 0 | % | 0 | % | |||||
Warrants | |||||||||
31-Dec-13 | Inception | ||||||||
Closing stock price | $ | 0.42 | $ | 0.13-0.55 | |||||
Exercise price | $ | 0.3 | $ | 0.3 | |||||
Expected volatility | 230 | % | 250 | % | |||||
Remaining term (years) | 4.58 | 5.30-5.09 | |||||||
Risk-free rate | 1.54 | % | 0.76%-1.61 | % | |||||
Expected dividend yield | 0 | % | 0 | % | |||||
Convertible notes consist of the following at December 31, 2013 and December 31, 2012: | |||||||||
31-Dec-13 | 31-Dec-12 | ||||||||
Convertible notes | $ | 5,074,000 | $ | - | |||||
Initial discount on convertible notes | (5,074,000 | ) | - | ||||||
Accumulated amortization of discount | 70,442 | - | |||||||
Total convertible notes | $ | 70,442 | $ | - |
7_FAIR_VALUE
7. FAIR VALUE | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Notes to Financial Statements | ' | ||||||||
NOTE 7. FAIR VALUE | ' | ||||||||
In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures”, the following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2013 and December 31, 2012: | |||||||||
December 31, 2013: | Level 3 | Total | |||||||
Derivative Instruments | $ | 7,665,502 | $ | 7,665,502 | |||||
December 31, 2012: | Level 3 | Total | |||||||
Derivative Instruments | $ | - | $ | - | |||||
Level 3 financial instruments consist of certain embedded conversion features. The fair value of these embedded conversion features that have exercise reset features are estimated using a Monte Carlo valuation model. The Company adopted the disclosure requirements of ASU 2011-04, “Fair Value Measurements,” during the quarter ended March 31, 2012. The unobservable input used by the Company was the estimation of the likelihood of a reset occurring on the embedded conversion feature of the Convertible Notes. These estimates of the likelihood of completing an equity raise that would meet the criteria to trigger the reset provisions are based on numerous factors, including the remaining term of the financial instruments and the Company’s overall financial condition. | |||||||||
The following table summarizes the changes in fair value of the Company’s Level 3 financial instruments for the period ended December 31, 2013. | |||||||||
31-Dec-13 | |||||||||
Beginning Balance | $ | - | |||||||
Initial recognition - Derivative liability of embedded conversion feature of the Convertible Notes | 7,316,092 | ||||||||
Change in fair value | 349,410 | ||||||||
Ending Balance | $ | 7,665,502 | |||||||
Changes in the unobservable input values would likely cause material changes in the fair value of the Company’s Level 3 financial instruments. The significant unobservable input used in the fair value measurement is the estimation of the likelihood of the occurrence of a change to the conversion price based on the contractual terms of the financial instruments. A significant increase (decrease) in this likelihood would result in a higher (lower) fair value measurement. |
8_SHAREHOLDERS_EQUITY_DEFICIEN
8. SHAREHOLDERS' EQUITY (DEFICIENCY) | 12 Months Ended | ||||||||||||||||||
Dec. 31, 2013 | |||||||||||||||||||
Notes to Financial Statements | ' | ||||||||||||||||||
NOTE 8. SHAREHOLDERS' EQUITY (DEFICIENCY) | ' | ||||||||||||||||||
The Company’s Board of Directors may, without further action by the Company’s stockholders, from time to time, direct the issuance of any authorized but unissued or unreserved shares of preferred stock in series and at the time of issuance, determine the rights, preferences and limitations of each series. The holders of such preferred stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up of the Company before any payment is made to the holders of our common stock. Furthermore, the Board of Directors could issue preferred stock with voting and other rights that could adversely affect the voting power of the holders of our common stock. | |||||||||||||||||||
Convertible Series A Preferred Stock | |||||||||||||||||||
The Company has authorized 1,000,000 shares of Convertible Series A Preferred Stock, $0.01 par value. At December 31, 2013 and 2012, there were 510,000 shares issued and outstanding, respectively. The Convertible Series A Preferred Stock is convertible at the rate of one share of common stock for one share of Convertible Series A Preferred Stock. | |||||||||||||||||||
Convertible Series B Preferred Stock | |||||||||||||||||||
The Company has authorized 4,000 shares of Convertible Series B Preferred Stock, $1,000 stated value, 7.5% Cumulative dividend. At December 31, 2013 and 2012, there were no shares issued and outstanding, respectively. | |||||||||||||||||||
Common Stock | |||||||||||||||||||
During the years ended December 31, 2013, the Company issued 977,028 shares of common stock valued at $480,754 for services rendered and issued an aggregate of 3,414,604 shares of common stock for gross proceeds of $1,011,100. | |||||||||||||||||||
During the year ended December 31, 2012, the Company issued an aggregate of 6,043,269 shares of common stock for gross proceeds of $445,000. | |||||||||||||||||||
During the year ended December 31, 2012, the Company issued 374,750 shares of common stock valued at $17,438 to Harold Paul as payment for legal services rendered and 500,000 shares of common stock valued at $15,000 to another attorney as payment for legal services rendered. During the year ended December 31, 2012, the Company issued 432,586 shares of common stock valued at $25,015 to outside consultants and vendors as payment for professional and other services rendered. | |||||||||||||||||||
During the year ended December 31, 2012, the Company issued 100,000 shares of common stock valued at $30,000 to a former director in connection with payment of accrued liabilities. | |||||||||||||||||||
In October 2012, the Company issued 1,440,000 shares of common stock valued at $216,000 to the Company's CEO as consideration for payment of loans payable to the CEO in the amount of $144,000. In connection with this transaction, the Company recognized finance charges of $72,000. At December 31, 2012 the balance owed was $3,988. | |||||||||||||||||||
In October 2012, the Company issued 350,000 shares of common stock valued at $52,500 to the Company's CEO as consideration for payment of accrued compensation in the amount of $35,000. In connection with this transaction, the Company recognized compensation expense of $17,500. | |||||||||||||||||||
During the year ended December 31, 2012 the Company issued 1,500,000 shares of common stock upon conversion of $75,000 principal convertible debentures (see Note 5). The Company also issued 65,947 shares of common stock as payment of interest. | |||||||||||||||||||
Stock Options | |||||||||||||||||||
The Company issued 20,000 options valued at $3,000 to a director in January 2013. The options have an exercise price of $0.15 per share. The options expire in January 2023. The options were valued using the Black-Scholes model using the following assumptions: volatility: 343%; dividend yield: 0%; zero coupon rate: 0.25%; and a life of 10 years. The following table summarizes stock options outstanding as of December 31, 2013: | |||||||||||||||||||
31-Dec-13 | |||||||||||||||||||
Number of Options | Weighted Average Exercise Price | ||||||||||||||||||
Outstanding, January 1, 2013 | 60,000 | $ | 1.42 | ||||||||||||||||
Granted | 20,000 | 0.15 | |||||||||||||||||
Exercised | (20,000 | ) | 0.15 | ||||||||||||||||
Outstanding, December 31, 2013 | 60,000 | $ | 1.42 | ||||||||||||||||
Options outstanding and exercisable by price range as of December 31, 2013 were as follows: | |||||||||||||||||||
Average | |||||||||||||||||||
Weighted | Exercisable Options | ||||||||||||||||||
Remaining | Weighted | ||||||||||||||||||
Outstanding Options | Contractual | Average | |||||||||||||||||
Range | Number | Life in Years | Number | Exercise Price | |||||||||||||||
$ | 0.05 | 20,000 | 7.02 | 20,000 | $ | 0.05 | |||||||||||||
$ | 2.1 | 40,000 | 6.01 | 40,000 | $ | 2.1 | |||||||||||||
Stock Warrants | |||||||||||||||||||
On October 15, 2012 the Company issued 3,500,000 common stock purchase warrants to the Company's CEO for services. The warrants have an exercise price of $.15 per share and have a 5 year term. They were valued at $524,957 using the Black Scholes model using the following assumptions: volatility - 352%; divided yield - 0%; discount rate - .26% and a life of 5 years. In connection with the issuance of these warrants, the Company recorded compensation expense of $524,957 in the year ended December 31, 2012. | |||||||||||||||||||
On October 15, 2012 the Company issued 4,000,000 common stock purchase warrants to two consultants for services. The warrants have an exercise price of $.15 per share and have a 5 year term. They were valued at $599,952 using the Black Scholes model using the following assumptions: volatility - 352%; divided yield - 0%; discount rate - .26% and a life of 5 years. In connection with the issuance of these warrants, the Company recorded compensation expense of $599,952 in the year ended December 31, 2012. | |||||||||||||||||||
The Company issued 250,000 warrants valued at $37,495 to a consultant in January 2013. The warrants have an exercise price of $0.15 and expire in January 2018. The warrants were valued using the Black-Scholes model with the following assumptions: volatility: 343%; dividend yield: 0%; zero coupon rate: 0.25%; and a life of 5 years. | |||||||||||||||||||
During the year ended December 31, 2013, the Company issued 7,611,000 warrants in connection with convertible debt units and 1,014,800 warrants to the placement agent (see Note 6). These warrants have an initial exercise price of $0.30 per share and expire July 31, 2018. | |||||||||||||||||||
In June 2013, the Company issued 100,000 warrants with an exercise price of $.261 per share to a consultant for services. The warrants were valued at $54,767 using the Black-Scholes model with the following assumptions: volatility, 245%; dividend yield, 0%; zero coupon rate, 0.25%; and a life of 5 years. | |||||||||||||||||||
On September 26, 2013, the Company’s Chief Financial Officer, Christopher Chipman, was granted 300,000 warrants. The warrants have a term of five years and vest 100,000 upon the grant date, 100,000 on September 26, 2014 and 100,000 on September 26, 2015. The exercise price of the warrant is $0.77 per share based on the volume weighted average price of the Company’s common stock for the five days prior to the grant date. If employment is terminated, the terms of any then outstanding warrant held by the holder shall extend for a period ending on the earlier of the date on which such warrant would otherwise expire or three months after such termination of employment and the warrant shall be exercisable to the extent it was exercisable as of the date of termination of employment. Any unvested warrants shall be deemed null and void. The Company utilized the Black-Scholes method to fair value the 300,000 warrants received by this individual totaling $200,476 with the following assumptions: volatility, 179%; expected dividend yield, 0%; risk free interest rate, 1.43%; and a life of 5 years.. For the year ended December 31, 2013, the Company recorded $83,531 in stock based compensation expense on the vested portion of these warrants. The grant date fair value of each warrant was $0.67. | |||||||||||||||||||
The following table summarizes the outstanding common stock warrants as of December 31, 2013: | |||||||||||||||||||
31-Dec-13 | |||||||||||||||||||
Weighted Average | |||||||||||||||||||
Number of Warrants | Exercise Price | ||||||||||||||||||
Outstanding, January 1, 2013 | 10,050,000 | $ | 0.12 | ||||||||||||||||
Granted | 9,275,800 | 0.31 | |||||||||||||||||
Exercised | - | - | |||||||||||||||||
Outstanding, December 31, 2013 | 19,325,800 | $ | 0.21 | ||||||||||||||||
Warrants outstanding and exercisable by price range as of December 31, 2013 were as follows: | |||||||||||||||||||
Average | |||||||||||||||||||
Weighted | Exercisable Warrants | ||||||||||||||||||
Remaining | Weighted | ||||||||||||||||||
Outstanding Warrants | Contractual | Average | |||||||||||||||||
Range | Number | Life in Years | Number | Exercise Price | |||||||||||||||
$ | 0.01 | 1,575,000 | 3.53 | 1,575,000 | $ | 0.01 | |||||||||||||
$ | 0.05 | 975,000 | 3.62 | 975,000 | $ | 0.05 | |||||||||||||
$ | 0.15 | 7,750,000 | 3.8 | 7,750,000 | $ | 0.15 | |||||||||||||
$ | 0.261 | 100,000 | 4.49 | 100,000 | $ | 0.261 | |||||||||||||
$ | 0.3 | 8,625,800 | 4.58 | 8,625,800 | $ | 0.3 | |||||||||||||
$ | 0.77 | 300,000 | 4.74 | 100,000 | $ | 0.77 | |||||||||||||
Unvested warrants outstanding as of December 31, 2013 were as follows: | |||||||||||||||||||
Average | |||||||||||||||||||
Unvested Warrants | Weighted | ||||||||||||||||||
Weighted | Remaining | ||||||||||||||||||
Average | Number | Contractual | |||||||||||||||||
Exercise Price | Life in Years | ||||||||||||||||||
$ | 0.77 | 200,000 | 4.74 | ||||||||||||||||
9_RELATED_PARTY_TRANSACTIONS
9. RELATED PARTY TRANSACTIONS | 12 Months Ended |
Dec. 31, 2013 | |
Notes to Financial Statements | ' |
NOTE 9. RELATED PARTY TRANSACTIONS | ' |
Employment Agreement | |
In February 2011, the Company entered into a new employment agreement with its CEO that provides for a base salary of $20,000, subject to CPI adjustments, incentive performance bonuses equal to 12% of the Company’s annual GAAP earnings for the years 2011 through 2015 and discretionary bonuses, as well as expense reimbursements and certain employee benefits. The agreement terminates December 31, 2015. | |
As of December 31, 2013 and 2012, the Company has accrued $25,000 and $5,000 respectively, for unpaid wages under the employment agreement. | |
In October 2012, the Company issued 1,440,000 shares of common stock valued at $216,000 to the Company’s CEO as consideration for payment of loans payable to the CEO in the amount of $144,000. In connection with this transaction, the Company recognized finance charges of $72,000. | |
In October 2012, the Company issued 350,000 shares of common stock valued at $52,500 to the Company’s CEO as consideration for payment of accrued compensation in the amount of $35,000. In connection with this transaction, the Company recognized compensation expense of $17,500. | |
On October 15, 2012 the Company issued 3,500,000 common stock purchase warrants to the Company’s CEO for services. The warrants have an exercise price of $.15 per share and have a 5 year term. They were valued at $524,957 using the Black Scholes model using the following assumptions: volatility – 352%; divided yield – 0%; discount rate - .26% and a life of 5 years. In connection with the issuance of these warrants, the Company recorded compensation expense of $524,957 in the year ended December 31, 2012. | |
Support and Service Agreement | |
Effective April 1, 2013 the Company entered into a Support and Service Agreement (“the Agreement”) with Rolyn Companies, Inc. (“Rolyn”) under the terms of which Rolyn will provide labor and services support. The Agreement calls for payment to Rolyn of 76,666 shares of the Company’s common stock per month as well as payment of out of pocket expenses. Either party can terminate the Agreement within 30 days written notice. The Company has recorded $332,000 support and service expense for the year ended December 31, 2013 and a related liability $128,800 has been recorded as common stock to be issued based on the fair value of the Company’s common stock. Certain officers of Rolyn were appointed officers of the Company in June and July 2013. | |
The Company had sales to Rolyn amounting to $34,000 during the year ended December 31, 2013. In addition, the Company was charged for services provided by Rolyn for the year ended December 31, 2013 as a subcontractor in relation to the bio-mass reduction in Panama for $168,000. | |
Engagement Agreement | |
On September 26, 2013, the Company entered into an engagement agreement with Christopher M. Chipman. Pursuant to the engagement agreement, Mr. Chipman serves as our Chief Financial Officer and receives a base annual fee of at least $60,000. As part of Mr. Chipman’s engagement, 300,000 warrants were issued with a term of five years vesting 100,000 upon the grant date, 100,000 on September 26, 2014 and 100,000 on September 26, 2015. The exercise price of the warrant is $0.77 per share based on the volume weighted average price of the Company’s common stock for the five days prior to the grant date. |
10_COMMITMENTS_AND_CONTINGENCI
10. COMMITMENTS AND CONTINGENCIES | 12 Months Ended |
Dec. 31, 2013 | |
Notes to Financial Statements | ' |
NOTE 10. COMMITMENTS AND CONTINGENCIES | ' |
The Company also leases 1,611 square feet of office/warehouse space in San Diego, CA for research and development purposes. The lease payments amount to approximately $24,500 annually with expiration on May 31, 2014. | |
On January 2, 2013, the Company entered into an Environmental Advisory Services Agreement (“the EAS Agreement”). The EAS Agreement calls for an initial retainer payment of $15,000 cash and the issuance of 250,000 warrants. The Company valued the warrants at $37,495 using the Black Scholes model (see Note 8) and recorded the amount within professional fees for the year ended December 31, 2013. Additional payments of $12,500 and 250,000 warrants and 500,000 warrants are due upon the achievement of certain milestones, none of which have been met at December 31, 2013. The EAS Agreement also provides for reimbursement of travel and other expenses. |
11_INCOME_TAXES
11. INCOME TAXES | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Notes to Financial Statements | ' | ||||||||
Note 11. INCOME TAXES | ' | ||||||||
The Company’s income tax expense consisted of: | |||||||||
December 31, | December 31, | ||||||||
2013 | 2012 | ||||||||
Current: | |||||||||
United States | $ | - | $ | - | |||||
Foreign | - | - | |||||||
- | - | ||||||||
Deferred: | |||||||||
United States | - | - | |||||||
Foreign | - | - | |||||||
- | - | ||||||||
Total | $ | - | $ | - | |||||
The Company’s net income (loss) before income tax consisted of: | |||||||||
December 31, | December 31, | ||||||||
2013 | 2012 | ||||||||
United States | $ | (5,658,312 | ) | $ | (1,750,407 | ) | |||
Foreign | - | - | |||||||
Total | $ | (5,658,312 | ) | $ | (1,750,407 | ) | |||
The Company’s income tax expense differed from the amounts computed by applying the United States statutory corporate income tax rate for the following reasons: | |||||||||
December 31, | December 31, | ||||||||
2013 | 2012 | ||||||||
Loss before income tax | $ | (5,658,312 | ) | $ | (1,750,407 | ) | |||
US statutory corporate income tax rate | 34 | % | 34 | % | |||||
Income tax expense computed at US statutory corporate income tax rate | (1,923,826 | ) | (595,138 | ) | |||||
Reconciling items: | |||||||||
Change in valuation allowance on deferred tax assets | 429,008 | 166,000 | |||||||
Finance charges related to convertible notes | 1,087,593 | 9,048 | |||||||
Amortized debt discount | 269,787 | - | |||||||
Change in fair value of derivative liability | 118,799 | - | |||||||
Other | 18,639 | 420,090 | |||||||
Income tax expense | $ | - | $ | - | |||||
Components of the Company’s deferred income tax assets (liabilities) are as follows: | |||||||||
December 31, | December 31, | ||||||||
2013 | 2012 | ||||||||
Net deferred income tax assets (liabilities), non-current: | |||||||||
Net operating losses | $ | 2,187,000 | $ | 1,428,000 | |||||
Valuation allowances | (2,187,000 | ) | (1,428,000 | ) | |||||
$ | - | $ | - | ||||||
Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. The measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits, which are, on a more likely than not basis, not expected to be realized; in accordance with ASC guidance for income taxes. Net deferred tax benefits related to the U.S. operations have been fully reserved at December 31, 2013 and 2012. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted. | |||||||||
For income tax purposes in the United States, the Company had available net operating loss carryforwards ("NOL") as of December 31, 2013 and 2012 of approximately $5,462,000 and $3,672,000, respectively to reduce future federal taxable income. If any of the NOL's are not utilized, they will expire at various dates through 2033. There may be certain limitations as to the future annual use of the NOLs due to certain changes in the Company's ownership. | |||||||||
12_DEBT_EXTINGUISHMENT
12. DEBT EXTINGUISHMENT | 12 Months Ended |
Dec. 31, 2013 | |
Notes to Financial Statements | ' |
Note 12. DEBT EXTINGUISHMENT | ' |
During the year ended December 31, 2012 a vendor of the Company forgave indebtedness in the amount of $43,900 in exchange for certain of the Company’s test equipment that had no carrying value on the Company’s books. |
13_COMMON_STOCK_TO_BE_ISSUED
13. COMMON STOCK TO BE ISSUED | 12 Months Ended |
Dec. 31, 2013 | |
Notes to Financial Statements | ' |
13. COMMON STOCK TO BE ISSUED | ' |
As of December 31, 2013, the Company was obligated to issue 322,845 shares of common stock valued at approximately $151,000 primarily to certain vendors and consultants. |
14_SUBSEQUENT_EVENTS
14. SUBSEQUENT EVENTS | 12 Months Ended |
Dec. 31, 2013 | |
Notes to Financial Statements | ' |
NOTE 14. SUBSEQUENT EVENTS | ' |
The Company has evaluated subsequent events through the date the financial statements were issued and up to the time of filing of the financial statements with the Securities and Exchange Commission. | |
In January 2014, as per the Company’s directors’ compensation plan adopted on September 18, 2009, the Company granted 20,000 stock options to a director. The options have an exercise price of $0.44 per share and expire January 1, 2024. | |
On February 11, 2014, the Company’s Board of Directors adopted the 2014 Stock Option Plan (the “Plan”), subject to shareholder approval, intended to attract and retain individuals of experience and ability, to provide incentive to our employees, consultants, and non-employee directors, to encourage employee and director proprietary interests in us, and to encourage employees to remain in our employ. Each of the named executive officers is eligible for annual equity awards, which are granted pursuant to the Plan. The Plan authorizes the grant of non-qualified and incentive stock options, stock appreciation rights and restricted stock awards (each, an “Award”). A maximum of 5,000,000 shares of common stock are reserved for potential issuance pursuant to Awards under the Plan. | |
On February 11, 2014, the Company’s Board of Directors approved the issuance of 78,125 shares of common stock valued at $25,000 to the Company's CEO as consideration for payment of accrued compensation in the amount of $25,000. | |
On February 11, 2014, the Company entered into an amended employment agreement with its CEO as well as new employment agreements with its President and COO that provide each with a base salary of $36,000 per year. The agreements provide for an increase in the base salary to $120,000 if annual gross revenue exceeds five million and $175,000 if annual gross revenue were to exceed ten million on a calendar year basis. Any bonuses awarded will be based upon the Company’s performance and be made at the discretion of the Board of Directors. The CEO, President and COO will also have the right to receive expense reimbursements and certain employee benefits. The terms of the employment agreements will be three years terminating on December 31, 2016. The CEO’s base salary will no longer be subject to CPI adjustments and the incentive performance bonus equal to 12% of the Company’s annual GAAP earnings for the years 2011 through 2015 was removed. | |
On February 11, 2014, as part of the employment agreements entered into with its three executive officers, the Board of Directors approved the grant of 3,000,000 stock warrants to each of them as executive compensation. The warrants have a term of five years and vest as follows: 1,000,000 warrants will vest upon issuance; 1,000,000 warrants will vest as of February 11, 2015, and 1,000,000 warrants will vest as of February 11, 2016. The exercise price of the warrants is $0.30 per share based on the closing price of the Company’s common stock on the grant date of $0.32. If employment is terminated, the terms of any then outstanding warrant held by the holder shall extend for a period ending on the earlier of the date on which such warrant would otherwise expire or three months after such termination of employment and the warrant shall be exercisable to the extent it was exercisable as of the date of termination of employment. Any unvested warrants shall immediately vest on termination. The Company utilized the Black-Scholes method to fair value the 3,000,000 warrants received by these individuals totaling approximately $952,000 with the following assumptions: volatility, 233%; expected dividend yield, 0%; risk free interest rate, 1.54%; and a life of 5 years. The grant date fair value of each warrant was $0.32. | |
On February 11, 2014, the Company’s Board of Directors approved the granting of 300,000 stock warrants to its CFO as incentive compensation. The warrants have a term of five years and vest as follows: 100,000 warrants will vest upon issuance; 100,000 warrants will vest as of February 11, 2015, and 100,000 warrants will vest as of February 11, 2016. The exercise price of the warrants is $0.30 per share based on the closing price of the Company’s common stock on the grant date of $0.32. If employment is terminated, the terms of any then outstanding warrant held by the holder shall extend for a period ending on the earlier of the date on which such warrant would otherwise expire or three months after such termination of employment and the warrant shall be exercisable to the extent it was exercisable as of the date of termination of employment. Any unvested warrants shall immediately vest on termination. The Company utilized the Black-Scholes method to fair value the 300,000 warrants received by these individuals totaling approximately $95,000 with the following assumptions: volatility, 233%; expected dividend yield, 0%; risk free interest rate, 1.54%; and a life of 5 years. The grant date fair value of each warrant was $0.32. | |
Also, on February 11, 2014, the Company’s Board of Directors approved an increase to its Chief Financial Officer’s base annual fee to at least $120,000. |
2_SUMMARY_OF_SIGNIFICANT_ACCOU1
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended | |
Dec. 31, 2013 | ||
Summary Of Significant Accounting Policies Policies | ' | |
Principles of Consolidation | ' | |
The accompanying consolidated financial statements include the accounts of TOMI Environmental Solutions, Inc. (a Florida Corporation) (TOMI-Florida), and its wholly-owned subsidiary, TOMI Environmental Solutions, Inc. (a Nevada Corporation) (TOMI-Nevada). The Company’s 55% owned subsidiary, TOMI Environmental-China (TOMI-China), has been dormant since its formation in April 2011. All significant intercompany accounts and transactions have been eliminated in consolidation. | ||
Use of Estimates | ' | |
The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the accompanying unaudited condensed consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, including those related to the accounts receivable, fair values of financial instruments, intangible assets, useful lives of intangible assets and property and equipment, fair values of stock-based awards, income taxes, and contingent liabilities, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of our assets and liabilities. | ||
Reclassification of Accounts | ' | |
Certain reclassifications have been made to prior-year comparative financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or financial position. | ||
Fair Value Measurements | ' | |
The authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv)willing to transact. The guidance describes a fair value hierarchy based on the levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following: | ||
Level 1: | Quoted prices in active markets for identical assets or liabilities. | |
Level 2: | Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by observable market data or substantially the full term of the assets or liabilities. | |
Level 3: | Unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities. | |
The Company’s financial instruments include cash and equivalents, accounts receivable, accounts payable and accrued expenses and loans payable. All these items were determined to be Level 1 fair value measurements. | ||
The carrying amounts of cash and equivalents, accounts receivable, accounts payable and accrued expenses, and loans payable approximated fair value because of the short maturity of these instruments. The recorded value of long-term convertible debt approximates its fair value as the terms and rates approximate market rates (See also Note 7) | ||
Cash and cash equivalents | ' | |
For purposes of the statement of cash flows, cash and cash equivalents includes cash on hand held at financial institutions and other liquid investments with original maturities of three months or less. | ||
Inventories | ' | |
Inventories are valued at the lower of cost or market using the first-in, first-out (”FIFO”) method. Inventories consist primarily of finished goods and demo equipment. | ||
Property and Equipment | ' | |
We account for property and equipment at cost less accumulated depreciation. We compute depreciation using the straight-line method over the estimated useful lives of the assets, generally three to five years. Depreciation for equipment, furniture and fixtures and vehicles commences once placed in service for its intended use. | ||
Deferred Financing Costs | ' | |
The Company follows authoritative guidance for accounting for financing costs as it relates to convertible debt issuance cost. These costs are deferred and amortized over the term of the debt period or until redemption of the convertible debentures. Amortization of deferred financing costs amounted to approximately $234,000 for the year ended December 31, 2013. | ||
Income taxes | ' | |
Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. The measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits, which are, on a more likely than not basis, not expected to be realized; in accordance with ASC guidance for income taxes. Net deferred tax benefits related to the U.S. operations have been fully reserved at December 31, 2013 and 2012. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted. | ||
Loss Per Share | ' | |
Basic loss per share is computed by dividing the Company’s net loss by the weighted average number of common shares outstanding during the period presented. Diluted loss per share is based on the treasury stock method and includes the effect from potential issuance of common stock such as shares issuable pursuant to the exercise of warrants and conversions of debentures. | ||
Potentially dilutive securities as of December 31, 2013, consisted of 17,496,552 common shares from convertible debentures, 19,325,800 common shares from outstanding warrants (including 7,611,000 warrants issued in conjunction with the above convertible notes), 60,000 common shares from options and 510,000 common shares from convertible Series A preferred stock. Diluted and basic weighted average shares are the same, as potentially dilutive shares are anti-dilutive. | ||
Potentially dilutive securities as of December 31, 2012, consisted of 10,050,000 common shares from outstanding warrants, 60,000 common shares from options and 510,000 common shares from convertible Series A preferred stock. Diluted and basic weighted average shares are the same, as potentially dilutive shares are anti-dilutive. | ||
Revenue Recognition | ' | |
For revenue from services and product sales, the Company recognized revenue in accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition” (SAB No. 104), which superseded Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (SAB No. 101). SAB No. 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) service has been rendered or delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgment regarding the fixed nature of the selling prices of the services rendered or products delivered and the collectability of those amounts. Provisions for discounts to customers, and allowance, and other adjustments will be provided for in the same period the related sales are recorded. | ||
Stock-Based Compensation | ' | |
We account for stock-based compensation in accordance with Financial Accounting Standards Board (“FASB”), ASC 718, Compensation- “Stock Compensation.” Under the provisions of FASB ASC 718, stock-based compensation cost is estimated at the grant date based on the award’s fair value and is recognized as expense over the requisite service period. The Company currently has one active stock-based compensation plan, TOMI Environmental Solutions, Inc. Stock Option and Restricted Stock Plan (the “Plan”). The Plan calls for the Company, through a committee of its Board of Directors, to issue up to 2,500,000 shares of restricted common stock or stock options. The Company generally issues grants to its employees, consultants, and board members. Stock options are granted with an exercise price equal to the closing price of its common stock on the date of the grant with a term no greater than 10 years. Generally, stock options vest over two to four years. Incentive stock options granted to shareholders who own 10% or more of the Company’s outstanding equity securities are granted at an exercise price that may not be less than 110% of the closing price of the Company’s common stock on the date of grant and have a term no greater than five years. On the date of a grant, the Company determines the fair value of the stock option award and recognizes compensation expense over the requisite service period, which is generally the vesting period of the award. The fair value of the stock option award is calculated using the Black-Scholes option-pricing model. As of December 31, 2013, the Company had 848,315 shares available to be issued under the Plan. | ||
Concentrations of Credit Risk | ' | |
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents. The Company maintains cash balances at financial institutions which exceed the current Federal Deposit Insurance Corporation (“FDIC”) limit of $250,000 at times during the year. | ||
The Company had sales to one international customer representing 40% of total sales in 2013. The Company also procured approximately 85% of its inventory value as of December 31, 2013 from one major supplier. | ||
Long-Lived Assets Including Acquired Intangible Assets | ' | |
The Company assesses long-lived assets for potential impairments at the end of each year, or during the year if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset. In evaluating long-lived assets for impairment, the Company measures recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If the Company’s long-lived assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value. The Company bases its calculations of the estimated fair value of its long-lived assets on the income approach. For the income approach, The Company uses an internally developed discounted cash flow model that include, among others, the following assumptions: projections of revenues and expenses and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. We base these assumptions on our historical data and experience, industry projections, micro and macro general economic condition projections, and our expectations. | ||
We have had no long-lived assetl impairment charges for the year ended December 31, 2013. The Company’s most recent detailed test disclosed an estimated fair value of its patents and trademarks that exceeded its’ respective carrying amount based on our model and assumptions. | ||
Advertising and Promotional Expenses | ' | |
The Company expenses advertising costs in the period in which they are incurred. For the year ended December 31, 2013 and 2012, advertising and promotional expenses were approximately $6,000 and $0, respectively. | ||
Recent Accounting Pronouncements | ' | |
In July 2012, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”). ASU 2012-02 gives entities an option to first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset impaired. If based on its qualitative assessment an entity concludes that it is more likely than not that the fair value of an indefinite lived intangible asset is less than its carrying amount, quantitative impairment testing is required. However, if an entity concludes otherwise, quantitative impairment testing is not required. ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. ASU 2012-02 is not expected to have a material impact on the Company’s financial position or results of operations. | ||
In 2012 and 2013, the FASB issued Accounting Standards Updates (“ASU”) 2013-01 through 2013-11. In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU 2013-02 supersedes and replaces the presentation requirements for amounts reclassified out of Accumulated Other Comprehensive Income in ASU's 2011-05 and 2011-12. This ASU requires an entity to report the effect of significant reclassifications out of Accumulated Other Comprehensive Income on the respective line items in Net Income if the amount being reclassified is required under U.S. Generally Accepted Accounting Principles ("GAAP") to be reclassified in its entirety to Net Income. For other amounts that are not required under GAAP to be reclassified in their entirety to Net Income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. Public companies are required to comply with the requirements of AUS 2013-02 for all reporting periods (interim and annual) beginning after December 15, 2012. The adoption of ASU 2013-02 did not have a significant impact on the financial statements. |
3_PROPERTY_AND_EQUIPMENT_Table
3. PROPERTY AND EQUIPMENT (Tables) | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Property And Equipment Tables | ' | ||||||||
PROPERTY AND EQUIPMENT | ' | ||||||||
Property and equipment consists of the following: | |||||||||
December 31, | December 31, | ||||||||
2013 | 2012 | ||||||||
Furniture and fixture | $ | 22,390 | $ | 42,026 | |||||
Equipment | 217,672 | 128,207 | |||||||
Vehicles | 44,344 | 88,687 | |||||||
284,406 | 258,920 | ||||||||
Less: Accumulated depreciation | 120,338 | 211,014 | |||||||
$ | 164,068 | $ | 47,906 |
4_INTANGIBLE_ASSETS_AND_ASSET_1
4. INTANGIBLE ASSETS AND ASSET ACQUISITION (Tables) | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Intangible Assets And Asset Acquisition Tables | ' | ||||||||
Final purchase price | ' | ||||||||
The purchase price allocation was obtained from an independent valuation firm The following sets forth the components of the final purchase price allocation: | |||||||||
Purchase Price | |||||||||
Cash payment | $ | 3,500,000 | |||||||
Warranty expense | 10,000 | ||||||||
Total purchase price | $ | 3,510,000 | |||||||
Assets Purchased | |||||||||
Inventory | $ | 71,700 | |||||||
Fixed assets | 150,000 | ||||||||
Patents | 2,848,300 | ||||||||
Trademarks | 440,000 | ||||||||
Total Assets Acquired | $ | 3,510,000 | |||||||
Definite life intangible assets | ' | ||||||||
Definite life intangible assets consist of the following: | |||||||||
December 31, | December 31, | ||||||||
2013 | 2012 | ||||||||
Intellectual property and patents and trademarks | $ | 2,959,400 | $ | 111,100 | |||||
Less: Accumulated Amortization and Impairment Loss | 372,836 | 111,100 | |||||||
Intangible Assets, net | $ | 2,586,564 | $ | - | |||||
Indefinite life intangible assets | ' | ||||||||
Indefinite life intangible assets consist of the following: | |||||||||
December 31, | December 31, | ||||||||
2013 | 2012 | ||||||||
Trademarks | $ | 440,000 | $ | - | |||||
Total Trademarks | $ | 440,000 | $ | - |
6_CONVERTIBLE_DEBT_Tables
6. CONVERTIBLE DEBT (Tables) | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Convertible Debt Tables | ' | ||||||||
Convertible Notes and Warrants potential future financing and fundamental transactions | ' | ||||||||
Convertible Notes | |||||||||
31-Dec-13 | Inception | ||||||||
Closing stock price | $ | 0.42 | $ | 0.13-0.55 | |||||
Conversion price | $ | 0.29 | $ | 0.29 | |||||
Expected volatility | 175 | % | 185%-190 | % | |||||
Remaining term (years) | 1.58 | 2.30-2.07 | |||||||
Risk-free rate | 0.28 | % | 0.25%-0.43 | % | |||||
Expected dividend yield | 0 | % | 0 | % | |||||
Warrants | |||||||||
31-Dec-13 | Inception | ||||||||
Closing stock price | $ | 0.42 | $ | 0.13-0.55 | |||||
Exercise price | $ | 0.3 | $ | 0.3 | |||||
Expected volatility | 230 | % | 250 | % | |||||
Remaining term (years) | 4.58 | 5.30-5.09 | |||||||
Risk-free rate | 1.54 | % | 0.76%-1.61 | % | |||||
Expected dividend yield | 0 | % | 0 | % | |||||
Convertible notes | ' | ||||||||
Convertible notes consist of the following at December 31, 2013 and December 31, 2012: | |||||||||
31-Dec-13 | 31-Dec-12 | ||||||||
Convertible notes | $ | 5,074,000 | $ | - | |||||
Initial discount on convertible notes | (5,074,000 | ) | - | ||||||
Accumulated amortization of discount | 70,442 | - | |||||||
Total convertible notes | $ | 70,442 | $ | - |
7_FAIR_VALUE_Tables
7. FAIR VALUE (Tables) | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Fair Value Tables | ' | ||||||||
Fair Value Measurements and Disclosures | ' | ||||||||
In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures”, the following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2013 and December 31, 2012: | |||||||||
December 31, 2013: | Level 3 | Total | |||||||
Derivative Instruments | $ | 7,665,502 | $ | 7,665,502 | |||||
December 31, 2012: | Level 3 | Total | |||||||
Derivative Instruments | $ | - | $ | - | |||||
Financial instruments | ' | ||||||||
The following table summarizes the changes in fair value of the Company’s Level 3 financial instruments for the period ended December 31, 2013. | |||||||||
31-Dec-13 | |||||||||
Beginning Balance | $ | - | |||||||
Initial recognition - Derivative liability of embedded conversion feature of the Convertible Notes | 7,316,092 | ||||||||
Change in fair value | 349,410 | ||||||||
Ending Balance | $ | 7,665,502 |
8_SHAREHOLDERS_EQUITY_DEFICIEN1
8. SHAREHOLDERS' EQUITY (DEFICIENCY) (Tables) | 12 Months Ended | ||||||||||||||||||
Dec. 31, 2013 | |||||||||||||||||||
Options [Member] | ' | ||||||||||||||||||
Summary of stock options outstanding | ' | ||||||||||||||||||
The following table summarizes stock options outstanding as of December 31, 2013: | |||||||||||||||||||
31-Dec-13 | |||||||||||||||||||
Number of Options | Weighted Average Exercise Price | ||||||||||||||||||
Outstanding, January 1, 2013 | 60,000 | $ | 1.42 | ||||||||||||||||
Granted | 20,000 | 0.15 | |||||||||||||||||
Exercised | (20,000 | ) | 0.15 | ||||||||||||||||
Outstanding, December 31, 2013 | 60,000 | $ | 1.42 | ||||||||||||||||
Options outstanding and exercisable by price range | ' | ||||||||||||||||||
Options outstanding and exercisable by price range as of December 31, 2013 were as follows: | |||||||||||||||||||
Average | |||||||||||||||||||
Weighted | Exercisable Options | ||||||||||||||||||
Remaining | Weighted | ||||||||||||||||||
Outstanding Options | Contractual | Average | |||||||||||||||||
Range | Number | Life in Years | Number | Exercise Price | |||||||||||||||
$ | 0.05 | 20,000 | 7.02 | 20,000 | $ | 0.05 | |||||||||||||
$ | 2.1 | 40,000 | 6.01 | 40,000 | $ | 2.1 | |||||||||||||
Warrant [Member] | ' | ||||||||||||||||||
Summary of outstanding common stock warrants | ' | ||||||||||||||||||
The following table summarizes the outstanding common stock warrants as of December 31, 2013: | |||||||||||||||||||
31-Dec-13 | |||||||||||||||||||
Weighted Average | |||||||||||||||||||
Number of Warrants | Exercise Price | ||||||||||||||||||
Outstanding, January 1, 2013 | 10,050,000 | $ | 0.12 | ||||||||||||||||
Granted | 9,275,800 | 0.31 | |||||||||||||||||
Exercised | - | - | |||||||||||||||||
Outstanding, December 31, 2013 | 19,325,800 | $ | 0.21 | ||||||||||||||||
Warrants outstanding and exercisable by price range | ' | ||||||||||||||||||
Warrants outstanding and exercisable by price range as of December 31, 2013 were as follows: | |||||||||||||||||||
Average | |||||||||||||||||||
Weighted | Exercisable Warrants | ||||||||||||||||||
Remaining | Weighted | ||||||||||||||||||
Outstanding Warrants | Contractual | Average | |||||||||||||||||
Range | Number | Life in Years | Number | Exercise Price | |||||||||||||||
$ | 0.01 | 1,575,000 | 3.53 | 1,575,000 | $ | 0.01 | |||||||||||||
$ | 0.05 | 975,000 | 3.62 | 975,000 | $ | 0.05 | |||||||||||||
$ | 0.15 | 7,750,000 | 3.8 | 7,750,000 | $ | 0.15 | |||||||||||||
$ | 0.261 | 100,000 | 4.49 | 100,000 | $ | 0.261 | |||||||||||||
$ | 0.3 | 8,625,800 | 4.58 | 8,625,800 | $ | 0.3 | |||||||||||||
$ | 0.77 | 300,000 | 4.74 | 100,000 | $ | 0.77 | |||||||||||||
Unvested warrants outstanding | ' | ||||||||||||||||||
Unvested warrants outstanding as of December 31, 2013 were as follows: | |||||||||||||||||||
Average | |||||||||||||||||||
Unvested Warrants | Weighted | ||||||||||||||||||
Weighted | Remaining | ||||||||||||||||||
Average | Number | Contractual | |||||||||||||||||
Exercise Price | Life in Years | ||||||||||||||||||
$ | 0.77 | 200,000 | 4.74 |
11_INCOME_TAXES_Tables
11. INCOME TAXES (Tables) | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Income Taxes Tables | ' | ||||||||
Schedule of income tax expense | ' | ||||||||
The Company’s income tax expense consisted of: | |||||||||
December 31, | December 31, | ||||||||
2013 | 2012 | ||||||||
Current: | |||||||||
United States | $ | - | $ | - | |||||
Foreign | - | - | |||||||
- | - | ||||||||
Deferred: | |||||||||
United States | - | - | |||||||
Foreign | - | - | |||||||
- | - | ||||||||
Total | $ | - | $ | - | |||||
Summary of company's net income (loss) before income tax | ' | ||||||||
The Company’s net income (loss) before income tax consisted of: | |||||||||
December 31, | December 31, | ||||||||
2013 | 2012 | ||||||||
United States | $ | (5,658,312 | ) | $ | (1,750,407 | ) | |||
Foreign | - | - | |||||||
Total | $ | (5,658,312 | ) | $ | (1,750,407 | ) | |||
Schedule of Effective Income Tax Rate Reconciliation | ' | ||||||||
The Company’s income tax expense differed from the amounts computed by applying the United States statutory corporate income tax rate for the following reasons: | |||||||||
December 31, | December 31, | ||||||||
2013 | 2012 | ||||||||
Loss before income tax | $ | (5,658,312 | ) | $ | (1,750,407 | ) | |||
US statutory corporate income tax rate | 34 | % | 34 | % | |||||
Income tax expense computed at US statutory corporate income tax rate | (1,923,826 | ) | (595,138 | ) | |||||
Reconciling items: | |||||||||
Change in valuation allowance on deferred tax assets | 429,008 | 166,000 | |||||||
Finance charges related to convertible notes | 1,087,593 | 9,048 | |||||||
Amortized debt discount | 269,787 | - | |||||||
Change in fair value of derivative liability | 118,799 | - | |||||||
Other | 18,639 | 420,090 | |||||||
Income tax expense | $ | - | $ | - | |||||
Summary of deferred income tax assets (liabilities) | ' | ||||||||
Components of the Company’s deferred income tax assets (liabilities) are as follows: | |||||||||
December 31, | December 31, | ||||||||
2013 | 2012 | ||||||||
Net deferred income tax assets (liabilities), non-current: | |||||||||
Net operating losses | $ | 2,187,000 | $ | 1,428,000 | |||||
Valuation allowances | (2,187,000 | ) | (1,428,000 | ) | |||||
$ | - | $ | - |
2_SUMMARY_OF_SIGNIFICANT_ACCOU2
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Summary Of Significant Accounting Policies Details Narrative | ' | ' |
Advertising and promotional expenses | $6,000 | $0 |
Amortization of deferred financing cost | $234,000 | ' |
Potentially dilutive securities, convertible debentures | 17,496,552 | ' |
Potentially dilutive securities, outstanding warrants | 19,325,800 | 10,050,000 |
Potentially dilutive securities, outstanding options | 60,000 | 60,000 |
Potentially dilutive securities, convertible Series A preferred stock | 510,000 | 510,000 |
Common shares available to be issued under the "Plan" | 848,315 | ' |
3_PROPERTY_AND_EQUIPMENT_Detai
3. PROPERTY AND EQUIPMENT (Details) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Property And Equipment Details | ' | ' |
Furniture and fixtures | $22,390 | $42,026 |
Equipment | 217,672 | 128,207 |
Vehicles | 44,344 | 88,687 |
Property and Equipment Gross | 284,406 | 258,920 |
Less: Accumulated depreciation | 120,338 | 211,014 |
Property and Equipment Net | $164,068 | $47,906 |
3_PROPERTY_AND_EQUIPMENT_Detai1
3. PROPERTY AND EQUIPMENT (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Property And Equipment Details Narrative | ' | ' |
Depreciation | $56,529 | $29,842 |
4_INTANGIBLE_ASSETS_AND_ASSET_2
4. INTANGIBLE ASSETS AND ASSET ACQUISITION (Details) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
INTANGIBLE ASSETS | ' | ' |
Cash payment | $3,500,000 | ' |
Warranty expense | 10,000 | ' |
Total purchase price | 3,510,000 | ' |
Assets Purchased | ' | ' |
Inventory | 71,700 | ' |
Fixed assets | 150,000 | ' |
Patents | 2,848,300 | ' |
Trademarks | 440,000 | ' |
Total Assets Acquired | $3,510,000 | ' |
4_INTANGIBLE_ASSETS_AND_ASSET_3
4. INTANGIBLE ASSETS AND ASSET ACQUISITION (Details 1) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Intangible Assets And Asset Acquisition Details 1 | ' | ' |
Intellectual property and trademarks | $2,959,400 | $111,100 |
Less: Accumulated Amortization and Impairment Loss | 372,836 | 111,100 |
Intangible Assets, net | $2,586,564 | ' |
4_INTANGIBLE_ASSETS_AND_ASSET_4
4. INTANGIBLE ASSETS AND ASSET ACQUISITION (Details 2) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Intangible Assets And Asset Acquisition Details 2 | ' | ' |
Trademarks | $440,000 | ' |
Total Trademarks | $440,000 | ' |
4_INTANGIBLE_ASSETS_AND_ASSET_5
4. INTANGIBLE ASSETS AND ASSET ACQUISITION (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
INTANGIBLE ASSETS | ' | ' |
Estimated useful lives of intangible assets | '7 years 8 months 12 days | '10 years |
Amortization expense related to trademarks | $261,736 | $0 |
Amortization expense | ' | 11,110 |
Impairment charge | ' | 69,439 |
Reduced carrying value of intangible assets | ' | $0 |
5_LOANS_PAYABLE_RELATED_PARTY_
5. LOANS PAYABLE - RELATED PARTY (Details Narrative) | Dec. 31, 2012 |
Loans Payable - Related Party Details Narrative | ' |
Interest rate on loans payable to CEO | 5.00% |
6_CONVERTIBLE_DEBT_Details
6. CONVERTIBLE DEBT (Details) (USD $) | Dec. 31, 2013 | Apr. 12, 2013 |
Convertible Notes [Member] | ' | ' |
Closing stock price, min | $0.42 | $0.13 |
Closing price, max | ' | $0.55 |
Conversion price | $0.29 | $0.29 |
Expected volatility, min | 175.00% | 185.00% |
Expected volatility, max | ' | 190.00% |
Remaining term (years), min | '1 year 6 months 29 days | '2 years 3 months 18 days |
Remaining term (years), max | ' | '2 years 25 days |
Risk-free rate min | 0.28% | 0.25% |
Risk-free rate max | ' | 0.43% |
Expected dividend yield | 0.00% | 0.00% |
Warrant 1 [Member] | ' | ' |
Closing stock price, min | $0.42 | $0.13 |
Closing price, max | ' | $0.55 |
Exercise price | $0.30 | $0.30 |
Expected volatility, min | 230.00% | 250.00% |
Remaining term (years), min | '4 years 6 months 29 days | '5 years 3 months 18 days |
Remaining term (years), max | ' | '5 years 1 month 24 days |
Risk-free rate min | 1.54% | 0.76% |
Risk-free rate max | ' | 1.61% |
Expected dividend yield | 0.00% | 0.00% |
6_CONVERTIBLE_DEBT_Details_1
6. CONVERTIBLE DEBT (Details 1) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Convertible Debt Details 1 | ' | ' |
Convertible notes | $5,074,000 | ' |
Initial discount on convertible notes | -5,074,000 | ' |
Accumulated amortization of discount | 70,442 | ' |
Total convertible notes | $70,442 | ' |
6_CONVERTIBLE_DEBT_Details_Nar
6. CONVERTIBLE DEBT (Details Narrative) (USD $) | 12 Months Ended |
Dec. 31, 2013 | |
Convertible Debt Details Narrative | ' |
Warrants issued | 7,611,000 |
Proceeds with convertible debt | $5,074,000 |
Net proceeds amount of convertible debt | 4,462,693 |
Total offering expenses | 611,307 |
Agent received warrants | 1,014,800 |
Agent received warrants value | $165,181 |
7_FAIR_VALUE_Details
7. FAIR VALUE (Details) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Derivative Instruments | $7,665,502 | ' |
Level 3 | ' | ' |
Derivative Instruments | $7,665,502 | ' |
7_FAIR_VALUE_Details_1
7. FAIR VALUE (Details 1) (USD $) | Dec. 31, 2013 |
Fair Value Details 1 | ' |
Beginning Balance | ' |
Initial recognition - Derivative liability of embedded conversion feature of the Convertible Notes | 7,316,092 |
Change in fair value | 349,410 |
Ending Balance | $7,665,502 |
8_SHAREHOLDERS_EQUITY_DEFICIEN2
8. SHAREHOLDERS' EQUITY (DEFICIENCY) (Details) (USD $) | 12 Months Ended |
Dec. 31, 2013 | |
Number of Options | ' |
Outstanding option, Beginning balance | 60,000 |
Granted, Options | 20,000 |
Exercised, Options | -20,000 |
Outstanding option, Ending balance | 60,000 |
Weighted Average Exercise Price | ' |
Outstanding Weighted Average Exercise Price, Beginning balance | $1.42 |
Granted, Weighted Average Exercise Price | $0.15 |
Exercised, Weighted Average Exercise Price | $0.15 |
Outstanding Weighted Average Exercise Price, Ending balance | $1.42 |
8_SHAREHOLDERS_EQUITY_DEFICIEN3
8. SHAREHOLDERS' EQUITY (DEFICIENCY) (Details 1) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Schedule of Trading Securities and Other Trading Assets [Line Items] | ' | ' |
Outstanding option, Number | 60,000 | 60,000 |
0.05 Range [Member] | ' | ' |
Schedule of Trading Securities and Other Trading Assets [Line Items] | ' | ' |
Outstanding option, Number | 20,000 | ' |
Average Weighted Remaining Contractual Life in Years, option | '7 years 14 days | ' |
Exercisable Options, Number | 20,000 | ' |
Weighted Average Exercise Price, Exercisable Options | 0.05 | ' |
2.10 Range [Member] | ' | ' |
Schedule of Trading Securities and Other Trading Assets [Line Items] | ' | ' |
Outstanding option, Number | 40,000 | ' |
Average Weighted Remaining Contractual Life in Years, option | '6 years 4 days | ' |
Exercisable Options, Number | 40,000 | ' |
Weighted Average Exercise Price, Exercisable Options | 2.1 | ' |
8_SHAREHOLDERS_EQUITY_DEFICIEN4
8. SHAREHOLDERS' EQUITY (DEFICIENCY) (Details 2) (Warrant [Member]) | 12 Months Ended |
Dec. 31, 2013 | |
Warrant [Member] | ' |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ' |
Outstanding Warrants, Beginning Balance | 10,050,000 |
Granted, Warrants | 9,275,800 |
Exercised, Warrants | ' |
Outstanding Warrants, Ending Balance | 19,325,800 |
Outstanding Weighted Average Exercise Price, Beginning balance | 0.12 |
Granted, Weighted Average Exercise Price | 0.31 |
Exercised, Weighted Average Exercise Price | ' |
Outstanding Weighted Average Exercise Price, Ending balance | 0.21 |
8_SHAREHOLDERS_EQUITY_DEFICIEN5
8. SHAREHOLDERS' EQUITY (DEFICIENCY) (Details 3) (USD $) | Dec. 31, 2013 |
0.01 Range [Member] | ' |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ' |
Outstanding warrants, Number | 1,575,000 |
Average Weighted Remaining Contractual Life in Years, Warrant | '3 years 6 months 11 days |
Exercisable Warrants, Number | 1,575,000 |
Weighted Average Exercise Price, Exercisable Warrants | $0.01 |
0.05 Range [Member] | ' |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ' |
Outstanding warrants, Number | 975,000 |
Average Weighted Remaining Contractual Life in Years, Warrant | '3 years 7 months 13 days |
Exercisable Warrants, Number | 975,000 |
Weighted Average Exercise Price, Exercisable Warrants | $0.05 |
0.15 Range [Member] | ' |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ' |
Outstanding warrants, Number | 7,750,000 |
Average Weighted Remaining Contractual Life in Years, Warrant | '3 years 9 months 18 days |
Exercisable Warrants, Number | 7,750,000 |
Weighted Average Exercise Price, Exercisable Warrants | $0.15 |
0.261 Range [Member] | ' |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ' |
Outstanding warrants, Number | 100,000 |
Average Weighted Remaining Contractual Life in Years, Warrant | '4 years 5 months 27 days |
Exercisable Warrants, Number | 100,000 |
Weighted Average Exercise Price, Exercisable Warrants | $0.26 |
0.30 Range [Member] | ' |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ' |
Outstanding warrants, Number | 8,625,800 |
Average Weighted Remaining Contractual Life in Years, Warrant | '4 years 6 months 29 days |
Exercisable Warrants, Number | 8,625,800 |
Weighted Average Exercise Price, Exercisable Warrants | $0.30 |
0.77 Range [Member] | ' |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ' |
Outstanding warrants, Number | 300,000 |
Average Weighted Remaining Contractual Life in Years, Warrant | '4 years 8 months 27 days |
Exercisable Warrants, Number | 100,000 |
Weighted Average Exercise Price, Exercisable Warrants | $0.77 |
8_SHAREHOLDERS_EQUITY_DEFICIEN6
8. SHAREHOLDERS' EQUITY (DEFICIENCY) (Details 4) (Unvested Warrants [Member], USD $) | Dec. 31, 2013 |
Unvested Warrants [Member] | ' |
Average Weighted Remaining Contractual Life in Years, Unvested Warrants | '4 years 8 months 27 days |
Unvested Warrants, Number | 200,000 |
Weighted Average Exercise Price, Unvested Warrants | $0.77 |
8_SHAREHOLDERS_EQUITY_DEFICIEN7
8. SHAREHOLDERS' EQUITY (DEFICIENCY) (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Shareholders Equity Deficiency Details Narrative | ' | ' |
Convertible Preferred Stock, Shares Authorized | 1,000,000 | 1,000,000 |
Convertible Preferred Stock, Stock Issued | 510,000 | 510,000 |
Convertible Preferred Stock, Stock Outstanding | 510,000 | 510,000 |
Convertible Preferred Stock, Par Value | $0.01 | $0.01 |
Convertible Preferred Stock Series B, Stated Value | $1,000 | $1,000 |
Convertible Preferred Stock Series B, Shares Authorized | 4,000 | 4,000 |
Convertible Preferred Stock Series B, Shares Issued | 0 | 0 |
Convertible Preferred Stock Series B, Shares Outstanding | 0 | 0 |
Convertible Preferred Stock, Dividend Percentage | 7.50% | 7.50% |
Warrants issued | 7,611,000 | ' |
Warrants to agent | 1,014,800 | ' |
Exercise price | $0.30 | ' |
Common Stock Issuance for Services, Amount | $480,754 | ' |
Common Stock Issuance for Services, Shares | 977,028 | ' |
Common stock sold | 3,414,604 | 6,043,269 |
Common stock sold, amount | 1,011,100 | 445,000 |
Common stock issued for legal services to Harold Paul, Shares | ' | 374,750 |
Common stock issued for legal services to Harold Paul, Amount | ' | 17,438 |
Common stock issued for legal servicces to another attorney, Shares | ' | 500,000 |
Common stock issued for legal servicces to another attorney, Amount | ' | 15,000 |
Common stock issued for professional and other services, Shares | ' | 432,586 |
Common stock issued for professional and other services, Amount | ' | 25,015 |
Common stock issued to former director, Shares | ' | 100,000 |
Common stock issued to former director, Amount | ' | 30,000 |
Amount owed, outstandig | ' | 3,988 |
Common stock issued on conversion of convertible debenture, Shares | ' | 1,500,000 |
Common stock issued on conversion of convertible debenture, Amount | ' | 75,000 |
Stock based compensation expense on vested portion of warrants | 83,531 | ' |
Compensation expense related to warrants issued to CEO | ' | 524,957 |
Compensation expense related to warrants issued to consultants | ' | $599,952 |
9_RELATED_PARTY_TRANSACTIONS_D
9. RELATED PARTY TRANSACTIONS (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Related Party Transactions Details Narrative | ' | ' |
Accrued unpaid wages | $25,000 | $5,000 |
Support and service expense | 332,000 | ' |
Amount of sales to Rolyn | 34,000 | ' |
Compensation expense related to warrants issued to CEO | ' | 524,957 |
Amount charged for services provided by Rolyn | $168,000 | ' |
10_COMMITMENTS_AND_CONTINGENCI1
10. COMMITMENTS AND CONTINGENCIES (Details Narrative) (USD $) | 12 Months Ended |
Dec. 31, 2013 | |
Commitments And Contingencies Details Narrative | ' |
Warrants issued for agreement, value | $250,000 |
Warrants issued for agreement, amount | 37,495 |
Additional payments to be paid, amount | $12,500 |
Additional warrants to be issued | 250,000 |
Other additional warrants to be issued | 500,000 |
11_INCOME_TAXES_Details
11. INCOME TAXES (Details) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Current: | ' | ' |
United States | ' | ' |
Foreign | ' | ' |
Current income tax (expense) | ' | ' |
Deferred: | ' | ' |
United States | ' | ' |
Foreign | ' | ' |
Deferred income tax (expense) | ' | ' |
Total | ' | ' |
11_INCOME_TAXES_Details_1
11. INCOME TAXES (Details 1 ) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Income Taxes Details 1 | ' | ' |
United States | ($5,658,312) | ($1,750,407) |
Foreign | ' | ' |
Total | ($5,658,312) | ($1,750,407) |
11_INCOME_TAXES_Details_2
11. INCOME TAXES (Details 2 ) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Income Taxes Details 2 | ' | ' |
Loss before income tax | ($5,658,312) | ($1,750,407) |
US statutory corporate income tax rate | 34.00% | 34.00% |
Income tax expense computed at US statutory corporate income tax rate | -1,923,826 | -595,138 |
Reconciling items: | ' | ' |
Change in valuation allowance on deferred tax assets | 429,008 | 166,000 |
Finance charges related to convertible notes | 1,087,593 | 9,048 |
Amortized debt discount | 269,787 | ' |
Change in fair value of derivative liability | 118,799 | ' |
Other | 18,639 | 420,090 |
Income tax expense | ' | ' |
11_INCOME_TAXES_Details_3
11. INCOME TAXES (Details 3 ) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Net deferred income tax assets (liabilities), non-current: | ' | ' |
Net operating losses | $2,187,000 | $1,428,000 |
Valuation allowances | -2,187,000 | -1,428,000 |
Deferred income tax assets (liabilities), net | ' | ' |
11_INCOME_TAXES_Details_Narrat
11. INCOME TAXES (Details Narrative) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Income Taxes Details Narrative | ' | ' |
Net operating loss carryforwards | $5,462,000 | $3,672,000 |
12_DEBT_EXTINGUISHMENT_Details
12. DEBT EXTINGUISHMENT (Details Narrative) (USD $) | 3 Months Ended |
Dec. 31, 2012 | |
Debt Extinguishment Details Narrative | ' |
Amount of indebtedness forgiven by vendor | $43,900 |
13_COMMON_STOCK_TO_BE_ISSUED_D
13. COMMON STOCK TO BE ISSUED (Details Narrative) (USD $) | Dec. 31, 2013 |
Common Stock To Be Issued Details Narrative | ' |
Common stock shares issued | 322,845 |
Common stock value | $151,000 |