Document_and_Entity_Informatio
Document and Entity Information (USD $) | 12 Months Ended | ||
Dec. 31, 2013 | Apr. 04, 2014 | Jul. 01, 2013 | |
Document And Entity Information | ' | ' | ' |
Entity Registrant Name | 'HealthWarehouse.com, Inc. | ' | ' |
Entity Central Index Key | '0000754813 | ' | ' |
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? | 'No | ' | ' |
Is Entity's Reporting Status Current | 'Yes | ' | ' |
Entity Filer Category | 'Smaller Reporting Company | ' | ' |
Entity Public Float | ' | ' | $22,694,000 |
Entity Common Stock, Shares Outstanding | ' | 26,550,380 | ' |
Document Fiscal Period Focus | 'FY | ' | ' |
Document Fiscal Year Focus | '2013 | ' | ' |
CONSOLIDATED_BALANCE_SHEETS
CONSOLIDATED BALANCE SHEETS (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Current assets: | ' | ' |
Cash | $67,744 | ' |
Restricted cash | ' | 850,002 |
Accounts receivable, net | 307,211 | 89,853 |
Inventories | 277,300 | 395,584 |
Prepaid expenses and other current assets | 59,143 | 52,292 |
Total current assets | 711,398 | 1,387,731 |
Property and equipment, net | 624,634 | 768,021 |
Web development costs, net | 83,780 | ' |
Total assets | 1,419,812 | 2,155,752 |
Current liabilities: | ' | ' |
Accounts payable - trade | 3,310,000 | 2,973,774 |
Accounts payable - related parties | 83,691 | 147,933 |
Accrued expenses and other current liabilities | 621,052 | 1,891,436 |
Deferred revenue | 95,792 | ' |
Current portion of equipment lease payable | 56,323 | 49,122 |
Convertible notes | ' | 1,000,000 |
Notes payable and other advances, net of debt discount of $44,363 as of December 31, 2012 | ' | 1,955,637 |
Note payable and other advances - related parties | 78,095 | 765,000 |
Redeemable preferred stock - Series C; par value $0.001 per share; 10,000 designated Series C: 10,000 issued and outstanding as of December 31, 2013 and December 31, 2012 (aggregate liquidation preference of $1,000,000) | 1,000,000 | 1,000,000 |
Total current liabilities | 5,244,953 | 9,782,902 |
Long term liabilities: | ' | ' |
Notes payable and other advances, net of debt discount of $269,998 as of December 31, 2013 | 430,002 | ' |
Long term portion of equipment lease payable | 109,964 | 166,286 |
Total long term liabilities | 539,966 | 166,286 |
Total liabilities | 5,784,919 | 9,949,188 |
Preferred stock - par value $0.001 per share; authorized 1,000,000 shares; issued and outstanding as of December 31, 2013 and December 31, 2012 as follows: | ' | ' |
Convertible preferred stock - Series A - 200,000 shares designated Series A; 44,443 shares available to be issued; no shares issued and outstanding | ' | ' |
Convertible preferred stock - Series B - 625,000 shares designated Series B; 422,315 and 394,685 shares issued and outstanding as of December 31, 2013 and December 31, 2012, respectively (aggregate liquidation preference of $4,270,257 and $3,990,877 as of December 31, 2013 and December 31, 2012, respectively) | 422 | 395 |
Common stock - par value $0.001 per share; authorized 50,000,000 shares; 27,708,303 and 13,030,397 shares issued and 26,529,091 and 11,851,185 shares outstanding as of December 31, 2013 and December 31, 2012, respectively | 27,708 | 13,031 |
Additional paid-in capital | 27,166,147 | 16,460,385 |
Employee advances | -9,001 | -18,858 |
Treasury stock, at cost, 1,179,212 shares as of December 31, 2013 and December 31, 2012 | -3,419,715 | -3,419,715 |
Accumulated deficit | -28,130,668 | -20,828,674 |
Total stockholders' deficiency | -4,365,107 | -7,793,436 |
Total liabilities and stockholders' deficiency | $1,419,812 | $2,155,752 |
CONSOLIDATED_BALANCE_SHEETS_Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Current liabilities: | ' | ' |
Current portion of notes payable and other advances, net of debt discount | ' | $44,363 |
Redeemable preferred stock Series C, par value | 0.001 | 0.001 |
Redeemable preferred stock Series C, shares designated | 10,000 | 10,000 |
Redeemable preferred stock Series C, shares issued | 10,000 | 10,000 |
Redeemable preferred stock Series C, shares outstanding | 10,000 | 10,000 |
Redeemable preferred stock Series C, aggregate liquidation preference | 1,000,000 | 1,000,000 |
Long term liabilities: | ' | ' |
Noncurrent portion of notes payable and other advances, net of debt discount | 269,998 | ' |
Stockholders' deficiency: | ' | ' |
Preferred stock, par value | $0.00 | $0.00 |
Preferred stock, authorized | 1,000,000 | 1,000,000 |
Preferred stock, shares issued | 1,000,000 | 1,000,000 |
Preferred stock, shares outstanding | 1,000,000 | 1,000,000 |
Series A Convertible preferred stock, shares designated | 200,000 | 200,000 |
Series A Convertible preferred stock, shares available to be issued | 44,443 | 44,443 |
Series A Convertible preferred stock, shares issued | 0 | 0 |
Series A Convertible preferred stock, shares outstanding | 0 | 0 |
Series B Convertible preferred stock, shares designated | 625,000 | 625,000 |
Series B Convertible preferred stock, shares issued | 422,315 | 394,685 |
Series B Convertible preferred stock, shares outstanding | 422,315 | 394,685 |
Series B Convertible preferred stock, aggregate liquidation preference | $4,270,257 | $3,990,877 |
Common stock, par value | $0.00 | $0.00 |
Common stock, authorized | 50,000,000 | 50,000,000 |
Common stock, shares issued | 27,708,303 | 13,030,397 |
Common stock, shares outstanding | 26,529,091 | 11,851,185 |
Treasury stock, shares | 1,179,212 | 1,179,212 |
CONSOLIDATED_STATEMENTS_OF_OPE
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Consolidated Statements Of Operations | ' | ' |
Net sales | $10,233,112 | $11,081,429 |
Cost of sales | 5,111,737 | 5,913,977 |
Gross profit | 5,121,375 | 5,167,452 |
Operating expenses: | ' | ' |
Selling, general and administrative expenses | 7,554,954 | 9,261,523 |
Impairment of intangible assets | ' | 396,298 |
Total Operating Expenses | 7,554,954 | 9,657,821 |
Loss from operations | -2,433,579 | -4,490,369 |
Other income (expense): | ' | ' |
Loss on extinguishment of debt | -2,792,900 | ' |
Interest income | ' | 6,103 |
Other income | ' | 5,372 |
Interest expense | -263,413 | -1,095,881 |
Total other expense | -3,056,313 | -1,084,406 |
Net loss | -5,489,892 | -5,574,775 |
Series B convertible contractual dividends | -279,380 | -261,084 |
Series B convertible deemed dividends | -1,532,722 | ' |
Series C redeemable deemed dividends | ' | -433,606 |
Net loss attributable to common stockholders | ($7,301,994) | ($6,269,465) |
Per share data: | ' | ' |
Net loss - basic and diluted | ($0.23) | ($0.51) |
Series B convertible contractual dividends | ($0.01) | ($0.02) |
Series B convertible deemed dividends | ($0.07) | ' |
Series C redeemable deemed dividends | ' | ($0.04) |
Net loss attributable to common stockholders - basic and diluted | ($0.31) | ($0.57) |
Weighted average number of common shares outstanding - basic and diluted | 23,401,575 | 11,003,595 |
Statement_CONSOLIDATED_STATEME
Statement - CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (USD $) | Convertible Series B Preferred Stock | Common Stock | Additional Paid-In Capital | Employee Advances | Treasury Stock | Accumulated Deficit | Total |
Beginning Balance, Amount at Dec. 31, 2011 | $369 | $11,284 | $15,110,343 | ' | ($3,419,715) | ($14,559,209) | ($2,856,928) |
Beginning Balance, Shares at Dec. 31, 2011 | 368,862 | 11,283,830 | ' | ' | 1,179,212 | ' | ' |
Stock-based compensation | ' | ' | 556,148 | ' | ' | ' | 556,148 |
Warrants issued to 2012 private placement investors | ' | ' | ' | ' | ' | ' | ' |
Issuance of Series B preferred stock as payment-in-kind for dividend, Amount | 26 | ' | 243,975 | ' | ' | ' | 244,001 |
Issuance of Series B preferred stock as payment-in-kind for dividend, Shares | 25,823 | ' | ' | ' | ' | ' | ' |
Cashless exercise of warrants into common stock, Amount | ' | 1,466 | -1,466 | ' | ' | ' | ' |
Cashless exercise of warrants into common stock, Shares | ' | 1,465,578 | ' | ' | ' | ' | ' |
Exercise of stock options into common stock, Amount | ' | 8 | 26,654 | ' | ' | ' | 26,662 |
Exercise of stock options into common stock, Shares | ' | 8,332 | ' | ' | ' | ' | ' |
Reclassification of employee advances partially collateralized by common stock (see note ) | ' | ' | ' | -156,468 | ' | ' | -156,468 |
Provision to establish reserve against employee advances | ' | ' | ' | 137,610 | ' | ' | 137,610 |
Contractual dividends on Series B convertible preferred stock | ' | ' | ' | ' | ' | -261,084 | -261,084 |
Deemed dividends on redeemable Series C preferred stock | ' | ' | ' | ' | ' | -433,606 | -433,606 |
Warrants issued as debt discount in connection with notes payable | ' | ' | ' | ' | ' | ' | ' |
Issuance of common stock and warrants for cash, Amount | ' | 117 | 524,887 | ' | ' | ' | 525,004 |
Issuance of common stock and warrants for cash, Shares | ' | 116,670 | ' | ' | ' | ' | ' |
Cashless exercise of stock options into common stock, Amount | ' | 156 | -156 | ' | ' | ' | ' |
Cashless exercise of stock options into common stock, Shares | ' | 155,987 | ' | ' | ' | ' | ' |
Imputed value of services contributed | ' | ' | ' | ' | ' | ' | ' |
Change in fair value of collateral securing employee advances | ' | ' | ' | ' | ' | ' | 137,610 |
Net loss | ' | ' | ' | ' | ' | -5,574,775 | -5,574,775 |
Ending Balance, Amount at Dec. 31, 2012 | 395 | 13,031 | 16,460,385 | -18,858 | -3,419,715 | -20,828,674 | -7,793,436 |
Ending Balance, Shares at Dec. 31, 2012 | 394,685 | 13,030,397 | ' | ' | 1,179,212 | ' | ' |
Stock-based compensation | ' | ' | 558,286 | ' | ' | ' | 558,286 |
Warrants issued to 2012 private placement investors | ' | ' | 487,200 | ' | ' | ' | 487,200 |
Issuance of Series B preferred stock as payment-in-kind for dividend, Amount | 27 | ' | 261,057 | ' | ' | ' | 261,084 |
Issuance of Series B preferred stock as payment-in-kind for dividend, Shares | 27,630 | ' | ' | ' | ' | ' | ' |
Cashless exercise of warrants into common stock, Amount | ' | 10,342 | -10,342 | ' | ' | ' | ' |
Cashless exercise of warrants into common stock, Shares | ' | 10,342,931 | ' | ' | ' | ' | ' |
Contractual dividends on Series B convertible preferred stock | ' | ' | ' | ' | ' | -279,380 | -279,380 |
Beneficial conversion feature and deemed dividend on Series B convertible preferred stock | ' | ' | 1,532,722 | ' | ' | -1,532,722 | ' |
Warrants issued as debt discount in connection with notes payable | ' | ' | 403,300 | ' | ' | ' | 403,300 |
Conversion of notes and accounts payable into common stock and warrants, Amount | ' | 833 | 3,625,067 | ' | ' | ' | 3,625,900 |
Conversion of notes and accounts payable into common stock and warrants, Shares | ' | 833,000 | ' | ' | ' | ' | ' |
Issuance of common stock and warrants for cash, Amount | ' | 3,502 | 3,498,473 | ' | ' | ' | 3,501,975 |
Issuance of common stock and warrants for cash, Shares | ' | 3,501,975 | ' | ' | ' | ' | ' |
Imputed value of services contributed | ' | ' | 350,000 | ' | ' | ' | 350,000 |
Change in fair value of collateral securing employee advances | ' | ' | ' | 9,857 | ' | ' | 9,857 |
Net loss | ' | ' | ' | ' | ' | -5,489,892 | -5,489,892 |
Ending Balance, Amount at Dec. 31, 2013 | $422 | $27,708 | $27,166,147 | ($9,001) | ($3,419,715) | ($28,130,668) | ($4,365,107) |
Ending Balance, Shares at Dec. 31, 2013 | 422,315 | 27,708,303 | ' | ' | 1,179,212 | ' | ' |
CONSOLIDATED_STATEMENTS_OF_CAS
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | 12 Months Ended | |||
Dec. 31, 2013 | Dec. 31, 2012 | |||
Cash flows from operating activities | ' | ' | ||
Net loss | ($5,489,892) | ($5,574,775) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ' | ' | ||
Provision for doubtful accounts | 44,535 | 24,236 | ||
Provision for employee advance reserve | 9,857 | 137,610 | ||
Depreciation and amortization | 158,029 | 353,045 | ||
Stock-based compensation | 558,286 | 556,148 | ||
Warrants issued to 2012 private placement investors | 487,200 | ' | ||
Loss on extinguishment of notes and accounts payable | 2,792,900 | ' | ||
Imputed value of services contributed | 350,000 | ' | ||
Amortization of debt discount | 177,665 | 807,766 | ||
Impairment of intangible assets | ' | 396,298 | ||
Changes in operating assets and liabilities: | ' | ' | ||
Accounts receivable | -261,894 | 106,537 | ||
Inventories - finished goods | 118,284 | 158,313 | ||
Prepaid expenses and other current assets | -6,851 | 4,688 | ||
Accounts payable - trade | 336,226 | 1,447,180 | ||
Accounts payable - related parties | 57,758 | 133,724 | ||
Accrued expenses and other current liabilities | -452,676 | 501,319 | ||
Deferred revenue | 95,792 | ' | ||
Net cash used in operating activities | -1,024,781 | -947,911 | ||
Cash flows from investing activities | ' | ' | ||
Change in restricted cash | 850,002 | -850,002 | ||
Changes in employee advances | ' | 139,739 | ||
Website development costs | -98,423 | ' | ||
Net cash provided by (used in) investing activities | 751,579 | -710,263 | ||
Cash flows from financing activities | ' | ' | ||
Principal payments on equipment leases payable | -49,122 | -54,722 | ||
Proceeds from exercise of common stock options | ' | 26,662 | ||
Proceeds from issuance of notes payable | 700,000 | ' | ||
Repayment of notes payable | -2,000,000 | ' | ||
Repayment of notes payable - related party | -4,000 | ' | ||
Repayment of convertible notes payable | -1,000,000 | ' | ||
Proceeds from the sale of common stock [1] | 2,651,973 | [1] | 525,004 | [1] |
Proceeds from offering prior to reaching minimum offering amount | ' | 850,002 | ||
Proceeds from notes payable and other advances - related parties | 56,000 | 605,000 | ||
Repayment of notes payable and other advances - related parties | -13,905 | -293,812 | ||
Net cash provided by financing activities | 340,946 | 1,658,134 | ||
Net increase in cash | 67,744 | -40 | ||
Cash - beginning of period | ' | 40 | ||
Cash - end of period | 67,744 | ' | ||
Interest | 433,792 | 37,017 | ||
Taxes | 924 | ' | ||
Non-cash investing and financing activities: | ' | ' | ||
Issuance of Series B preferred stock for settlement of accrued dividends | 261,084 | 244,001 | ||
Cashless exercise of warrants into common stock | 10,342 | 1,466 | ||
Cashless exercise of options into common stock | ' | 156 | ||
Warrants issued as debt discount in connection with notes payable | 403,300 | ' | ||
Accrual of contractual dividends on Series B convertible preferred stock | 279,380 | 261,084 | ||
Deemed dividends on Series B convertible preferred stock | 1,532,722 | ' | ||
Reclassification of accounts payable - trade to equipment lease payable | ' | 257,583 | ||
Deemed dividend - redeemable Series C preferred stock | ' | 433,606 | ||
Common stock and warrants issued in exchange of notes and accounts payable | 3,625,900 | ' | ||
Conversion of accounts payable to notes payable - related party | $40,000 | ' | ||
[1] | Amount for 2012 excludes $850,002 of cash received during 2012 but closed on during the year ending December 31, 2013 |
Organization_and_Basis_of_Pres
Organization and Basis of Presentation | 12 Months Ended |
Dec. 31, 2013 | |
Notes to Financial Statements | ' |
1. Organization and Basis of Presentation | ' |
HealthWarehouse.com, Inc., a Delaware company incorporated in 1998, (the “Company”) is a U.S. licensed virtual retail pharmacy (“VRP”) and healthcare e-commerce company that sells brand name and generic prescription drugs as well as over-the-counter (“OTC”) medical products. The Company’s objective is to be viewed by individual healthcare product consumers as a low-cost, reliable and hassle-free provider of prescription drugs and OTC medical products. The Company is presently licensed as a mail-order pharmacy for sales to 50 states in the United States and the District of Columbia. |
Going_Concern_and_Managements_
Going Concern and Management's Liquidity Plans | 12 Months Ended |
Dec. 31, 2013 | |
Notes to Financial Statements | ' |
2. Going Concern and Management's Liquidity Plans | ' |
Since inception, the Company has financed its operations primarily through debt and equity financings and advances from related parties. As of December 31, 2013, the Company had a working capital deficiency of $4,533,555 and an accumulated deficit of $28,130,668. During the years ended December 31, 2013 and 2012, the Company incurred net losses of $5,489,892 and $5,574,775, respectively and used cash in operating activities of $1,024,781 and $947,911, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. | |
Subsequent to December 31, 2013, the Company (a) raised an additional $100,000 in debt financing and (b) continues to incur net losses, use cash in operating activities and experience cash and working capital constraints. See Note 14. | |
On February 13, 2013, the Company received a Notice of Redemption related to its Series C Redeemable Preferred Stock aggregating $1,000,000 (see Note 9). As a result of receiving the Notice of Redemption, the Company must now apply all of its assets to redemption of the Series C Preferred Stock and to no other corporate purpose, except to the extent prohibited by Delaware law governing distributions to stockholders (the Company is not permitted to utilize toward the redemption those assets required to pay its debts as they come due and those assets required to continue as a going concern). | |
The Company recognizes it will need to raise additional capital in order to fund operations, meet its payment obligations and execute its business plan. There is no assurance that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to the Company and whether the Company will become profitable and generate positive operating cash flow. If the Company is unable to raise sufficient additional funds, it will have to develop and implement a plan to further extend payables, attempt to extend note repayments, attempt to negotiate the preferred stock redemption and reduce overhead until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful. If the Company is unable to obtain financing on a timely basis, the Company could be forced to sell its assets, discontinue its operation and /or seek reorganization under the U.S. bankruptcy code. | |
Accordingly, the accompanying consolidated financial statements have been prepared in conformity with GAAP, which contemplates continuation of the Company as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the consolidated financial statements do not necessarily represent realizable or settlement values. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. |
Summary_of_Significant_Account
Summary of Significant Accounting Policies | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Notes to Financial Statements | ' | ||||||||
3. Summary of Significant Accounting Policies | ' | ||||||||
Principles of Consolidation | |||||||||
On June 4, 2013, the Company formed a wholly-owned subsidiary called Pagosa Health LLC (“Pagosa”) (see Note 14). The consolidated financial statements include the accounts of HealthWarehouse.com, Inc., Hwareh.com, Inc., Hocks.com, Inc., ION Holding NV, ION Belgium NV and Pagosa, its wholly-owned subsidiaries. ION Holding NV and ION Belgium NV are inactive subsidiaries. All material inter-company balances and transactions have been eliminated in consolidation. | |||||||||
Use of Estimates | |||||||||
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant estimates include reserves related to accounts receivable and inventory, the recoverability and useful lives of long-lived assets, the valuation allowance related to deferred tax assets, the valuation of equity instruments and debt discounts. | |||||||||
Cash | |||||||||
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. As of December 31, 2013 and 2012, the Company does not have any cash equivalents. As of December 31, 2012, accounts payable included approximately $106,000 of checks that had been issued but had not cleared the bank. | |||||||||
Restricted Cash | |||||||||
Restricted cash represents cash received from accredited investors in connection with an ongoing equity offering which was being held in a bank escrow account until the offerings’ minimum dollar threshold was met. | |||||||||
Allowance for Doubtful Accounts Receivable | |||||||||
Accounts receivable are shown net of an allowance for doubtful accounts of $250,828 and $106,292 as of December 31, 2013 and 2012, respectively. The Company’s management has established an allowance for doubtful accounts sufficient to cover probable and reasonably estimable losses. The nature of the business is that the majority of the payments are made before the product is sent. If the financial conditions of customers were to materially deteriorate or the nature of the business was to change from prepayment to post payment an increase in the allowance amount could be required. The allowance for doubtful accounts considers a number of factors, including collection experience, current economic trends, estimates of forecasted write-offs, aging of the accounts receivable, and other factors. | |||||||||
Inventories | |||||||||
Inventories consists of finished goods and is stated at the lower of cost (using the first-in, first-out method) or market. As part of the valuation process, inventory reserves are established to state excess and slow-moving inventory at their estimated net realizable value. The valuation process for excess or slow-moving inventory contains uncertainty because management must use judgment to estimate when the inventory will be sold and the quantities and prices at which the inventory will be sold in the normal course of business. Inventory reserves are periodically reviewed, reflecting current risks, trends and changes in industry conditions. When preparing these estimates, management considers historical results, inventory levels and current operating trends. In the event the estimates differ from actual results, inventory - related reserves may be adjusted and could materially impact the results of operations. | |||||||||
Property and Equipment | |||||||||
Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Expenditures for maintenance and repairs, which do not extend the economic useful life of the related assets, are charged to operations as incurred. Gains or losses on disposal of property and equipment are reflected in the statements of operations in the period of disposal. | |||||||||
Intangible Assets | |||||||||
Intangible assets are recorded at cost except for assets acquired using acquisition accounting, which are initially recorded at their estimated fair value. Intangible assets with definite lives are comprised of customer relationships. Amortization is computed on a straight-line basis over the estimated useful lives of the intangible assets. | |||||||||
Impairment of Long-Lived Assets | |||||||||
The Company reviews the carrying value of intangibles and other long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparing the carrying amount of the asset or asset group to the undiscounted cash flows that the asset or asset group is expected to generate. If the undiscounted cash flows of such assets are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair value. | |||||||||
During 2012, the operations within the Company’s Hocks division experienced a significant and sustained decline indicating that the carrying amount of the intangible assets recorded in connection with the acquisition of Hocks would not be recoverable. As a result, the Company recorded an impairment of $396,298 during the year ended December 31, 2012. | |||||||||
Website Development Costs | |||||||||
The Company applies the guidance enumerated in Accounting Standards Codification (“ASC”) 350-50, “Intangibles – Website Development Costs,” when capitalizing costs associated with the development of the Company’s website. During the year ended December 31, 2013, the Company capitalized $98,423 of website development costs. The Company is amortizing the website development costs on a three year straight-line basis and incurred amortization expense of $14,643. As of December 31, 2013, website development costs totaled $83,780. Estimated amortization expense related to website development costs is $32,810 in 2014 and 2015 and $18,160 in 2016. | |||||||||
Shipping and Handling Costs | |||||||||
The Company policy is to provide free standard shipping and handling for most orders shipped during the year. Shipping and handling costs incurred are recognized in selling, general and administrative expenses. Such amounts aggregated $775,083 and $1,178,471 for the years ended December 31, 2013 and 2012 respectively. | |||||||||
In certain circumstances shipping and handling costs are charged to the customer and recognized in revenues. The amounts recognized in revenues for the years ended December 31, 2013 and 2012 were $254,067 and $396,668, respectively. | |||||||||
Fair Value of Financial Instruments | |||||||||
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. These fair value measurements apply to all financial instruments that are measured and reported on a fair value basis. | |||||||||
Based on the observability of the inputs used in the valuation techniques, financial instruments are categorized according to the fair value hierarchy, which ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories: | |||||||||
Level 1 - Observable inputs such as quoted prices in active markets. | |||||||||
Level 2 - Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly. | |||||||||
Level 3 - Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. | |||||||||
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the assignment of an asset or liability within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. | |||||||||
The carrying value of items included in working capital approximates fair value because of the relatively short maturity of these instruments. The convertible debt and notes payable approximate fair value because the terms are substantially similar to comparable debt in the marketplace. | |||||||||
Income Taxes | |||||||||
Deferred tax assets and liabilities are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse. | |||||||||
GAAP prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. | |||||||||
Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s financial statements as of December 31, 2013 and 2012. The Company does not expect any significant changes in the unrecognized tax benefits within twelve months of the reporting date. | |||||||||
The Company classifies interest expense and any related penalties related to income tax uncertainties as a component of income tax expense. No interest or penalties have been recognized during the years ended December 31, 2013 and 2012. | |||||||||
Debt Discounts | |||||||||
The Company records, as a discount to notes and convertible notes, the relative fair value of warrants issued in connection with the issuances and the intrinsic value of any conversion options based upon the differences between the fair value of the underlying Common Stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized to interest expense using the interest method over the earlier of the term of the related debt or their earliest date of redemption. | |||||||||
Revenue Recognition | |||||||||
Revenues for the sales of products are recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed and determinable and collectability is reasonably assured. The Company defers revenue when cash has been received from the customer but delivery has not yet occurred. Such amounts are reflected as deferred revenues in the accompanying consolidated financial statements. | |||||||||
Advertising | |||||||||
The Company expenses all advertising costs as incurred. Advertising expense for the years ended December 31, 2013 and 2012 was $1,867 and $587,346, respectively. | |||||||||
Sales Taxes | |||||||||
The Company accounts for sales taxes imposed on its goods and services on a net basis in the statement of operations. | |||||||||
Net Loss Per Share of Common Stock | |||||||||
Basic net loss per share is computed by dividing net loss attributable to Common Stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per share reflects the potential dilution that could occur if securities or other instruments to issue Common Stock were exercised or converted into Common Stock. Potentially dilutive securities are excluded from the computation of diluted net loss per share if their inclusion would be anti-dilutive and consist of the following: | |||||||||
December 31, | |||||||||
2013 | 2012 | ||||||||
Options | 2,543,150 | 2,183,899 | |||||||
Warrants | 2,342,846 | 562,846 | |||||||
Series B Convertible Preferred Stock | 3,472,953 | 1,973,425 | |||||||
Convertible Promissory Notes | - | 613,265 | |||||||
Total potentially dilutive shares | 8,358,949 | 5,333,435 | |||||||
Stock-Based Compensation | |||||||||
Stock-based compensation expense for all stock-based payment awards is based on the estimated fair value of the award. For employees and directors, the award is measured on the grant date. For non-employees, the award is measured on the grant date and is then remeasured at each vesting date and financial reporting date. The Company recognizes the estimated fair value of the award as compensation cost over the requisite service period of the award, which is generally the option vesting term. The Company generally issues new shares of Common Stock to satisfy option and warrant exercises. | |||||||||
Preferred Stock | |||||||||
Preferred shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. The Company classifies conditionally redeemable preferred shares, which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control, as temporary equity. At all other times, the Company classifies its preferred shares in stockholders’ deficiency. | |||||||||
Convertible Instruments | |||||||||
GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional as that term is described under applicable GAAP. | |||||||||
When the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying Common Stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption. The Company also records, when necessary, deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying Common Stock at the commitment date of the transaction and the effective conversion price embedded in the preferred shares. | |||||||||
Common Stock Warrants and Other Derivative Financial Instruments | |||||||||
The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provide the Company with a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company's own stock. The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company’s control) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of its Common Stock purchase warrants and other free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required. | |||||||||
The Company evaluated its free standing warrants to purchase Common Stock to assess their proper classification in the balance sheet as of December 31, 2013 and 2012 using the applicable classification criteria enumerated under GAAP and determined that the Common Stock purchase warrants contain fixed settlement provisions. | |||||||||
Recently Issued Accounting Pronouncements | |||||||||
In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." This ASU addresses the requirements regarding the financial statement presentation of an unrecognized tax benefit within Accounting Standards Codification ("ASC") Topic 740 for the purpose of providing consistency between the financial reporting of U.S. GAAP entities. Generally, this ASU provides guidance for the preparation of financial statements and disclosures when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This ASU is effective for periods beginning after December 15, 2013 and is not expected to have any impact on the Company’s consolidated financial statements or disclosures. |
Property_and_Equipment
Property and Equipment | 12 Months Ended | |||||||||
Dec. 31, 2013 | ||||||||||
Notes to Financial Statements | ' | |||||||||
4. Property and Equipment | ' | |||||||||
Property and equipment consist of the following: | ||||||||||
December 31, | Estimated | |||||||||
2013 | 2012 | Useful Life | ||||||||
Computer Software | $ | 230,299 | $ | 230,299 | 5 years | |||||
Equipment | 544,108 | 544,108 | 15 years | |||||||
Office Furniture and Equipment | 95,754 | 95,754 | 7 years | |||||||
Computer Hardware | 27,746 | 27,746 | 5 years | |||||||
Leasehold Improvements | 303,318 | 303,318 | (a) | |||||||
Total | 1,201,225 | 1,201,225 | ||||||||
Less: accumulated depreciation | (576,591 | ) | (433,204 | ) | ||||||
Property and Equipment, Net | $ | 624,634 | $ | 768,021 | ||||||
(a) Lesser of useful life or initial term of lease | ||||||||||
Depreciation expense for the above assets for the years ended December 31, 2013 and 2012 was $143,387 and $146,801, respectively. |
Accrued_Expenses_and_Other_Cur
Accrued Expenses and Other Current Liabilities | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Notes to Financial Statements | ' | ||||||||
5. Accrued Expenses and Other Current Liabilities | ' | ||||||||
Accrued expenses and other current liabilities consisted of the following: | |||||||||
December 31, | |||||||||
2013 | 2012 | ||||||||
Deferred Rent | $ | 46,254 | $ | 39,100 | |||||
Advertising | 75,000 | 75,000 | |||||||
Salaries and Benefits | 132,048 | 166,118 | |||||||
Professional Fees | - | 81,872 | |||||||
Customer Payables | 39,618 | - | |||||||
Dividend Payable | 279,380 | 261,084 | |||||||
Accrued Interest | 45,616 | 410,101 | |||||||
Due to investors (1) | - | 850,002 | |||||||
Other | 3,137 | 8,159 | |||||||
Total | $ | 621,052 | $ | 1,891,436 | |||||
(1) - Proceeds received from investors in advance of equity offering closing. |
Convertible_Notes_Payable
Convertible Notes Payable | 12 Months Ended |
Dec. 31, 2013 | |
Notes to Financial Statements | ' |
6. Convertible Notes Payable | ' |
On December 31, 2012, the Company failed to make required payments aggregating $1,000,000 in principal and approximately $158,000 of accrued interest due on a certain convertible note agreement dated November 8, 2010. On February 1, 2013, the Company repaid the outstanding principal balance of $1,000,000 of the convertible notes plus outstanding accrued interest of $163,861. The convertible notes bore interest at a rate of 7% per annum compounded annually and were due on December 31, 2012. The Company recorded amortization of debt discount associated with convertible notes payable of $275,388 for the year ended December 31, 2012 using the effective interest method. As of December 31, 2012, the debt discount had been fully amortized. |
Notes_Payable
Notes Payable | 12 Months Ended |
Dec. 31, 2013 | |
Notes to Financial Statements | ' |
7. Notes Payable | ' |
On January 15, 2013, the Company failed to make required payments aggregating $2,000,000 in principal and approximately $193,000 of accrued interest due on certain note agreements dated September 2, 2011. Accordingly, the Company was in default of its obligations under the loan documents. On February 1, 2013, the Company repaid the notes with an outstanding principal balance of $2,000,000 plus outstanding accrued interest of $199,260. The Company recorded amortization of debt discount associated with the notes payable of $44,363 and $532,378 for the years ended December 31, 2013 and 2012, respectively, using the effective interest method. As of December 31, 2012, $44,363 of the debt discount associated with the notes was unamortized. | |
On March 28, 2013, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with a lender (the "Lender"). Under the terms of the Loan Agreement, the Company borrowed $500,000 from the Lender (the “Loan”). The Loan is evidenced by a promissory note (the “March Note”). On October 15, 2013, the Company received an additional $100,000 from the Lender and executed an Amended and Restated Promissory Note (the “September Note”) with a face value of $600,000, effective September 30, 2013, which supersedes the March Note. The September note bears interest on the unpaid principal balance of the September Note until the full amount of principal has been paid at a floating rate equal to the Prime Rate plus four and one-quarter percent (4.25%) per annum (as of December 31, 2013, the Prime Rate was 3.25% per annum). Under the terms of the Loan Agreement, the Company has agreed to make monthly payments of accrued interest on the first day of every month, beginning on May 1, 2013. The principal amount and all unpaid accrued interest on the September Note is payable on March 1, 2015, or earlier in the event of default or a sale or liquidation of the Company. The Loan may be prepaid in whole or in part at any time by the Company without penalty. See Note 14 for subsequent events. | |
The Company granted the Lender a first, priority security interest in all of the Company’s assets, in order to secure the Company’s obligation to repay the Loan. The Loan Agreement contains customary negative covenants restricting the Company’s ability to take certain actions without the Lender’s consent, including incurring additional indebtedness, transferring or encumbering assets, paying dividends or making certain other payments, and acquiring other businesses. Upon the occurrence of an event of default, the Lender has the right to impose interest at a rate equal to five percent (5.0%) per annum above the otherwise applicable interest rate (the “Default Rate”). The repayment of the Loan may be accelerated prior to the maturity date upon certain specified events of default, including failure to pay, bankruptcy, breach of covenant, and breach of representations and warranties. | |
The September Note contains financial covenants which require the Company to meet certain minimum targets for earnings before interest, taxes and non-cash expenses, including depreciation, amortization and stock-based compensation (“EBITDAS”) for the calendar quarters and years ended between December 31, 2013 and 2014, inclusive. In addition, the September Note extended the deadline for providing the March 31, 2013 and June 30, 2013 quarterly financial statements and financial covenant certifications from 45 days after quarter end to October 31, 2013. The remainder of the material September Note terms are unchanged from the March Note, including the March 1, 2015 maturity date. On March 30, 2014, the Lender executed documents waiving violations of certain historical EBITDAS debt covenants as of December 31, 2013. On November 25, 2013, the Lender executed a document waiving the Company’s non-compliance with the deadline to deliver September 30, 2013 financial statements. In addition, the Lender did not exercise the Default Rate provision. | |
In consideration of the Loan and entering into the March Note, the Company granted the Lender a five-year warrant to purchase 750,000 shares of Common Stock at an exercise price of $0.35 per share. The warrant contains customary anti-dilution provisions. The warrant had a relative fair value of $315,300 which was setup as debt discount and is being amortized using the effective interest method over the term of the Loan. The Company amortized $121,200 of the debt discount as interest expense during the year ended December 31, 2013 and $194,100 remained unamortized as of December 31, 2013. Including the value of the warrant, the March Note had an effective interest rate of 40% per annum. | |
In consideration of the Lender providing additional funds and entering into the September Note, the Company granted the Lender a five-year warrant to purchase 150,000 shares of Common Stock at an exercise price of $0.35 per share. The warrant contains customary anti-dilution provisions. The warrant had a relative fair value of $51,200 which was set up as debt discount and will be amortized using the effective interest method over the term of the September Note. The Company amortized $9,035 of the debt discount as interest expense during the year ended December 31, 2013 and $42,165 remained unamortized as of December 31, 2013. Including the value of warrants issued in connection with the March Note and September Note, the September Note had an effective interest rate of 41% per annum. | |
On March 13, 2013, the Company converted an advance from a related party of $40,000 to a notes payable with a maturity date of December 31, 2013. The principal balance of the note is due at maturity, with no interest. The Company is in discussions with the related party to extend the maturity date. Imputed interest expense on this note was de minimis. | |
On August 15, 2013, a related party advanced $56,000 to the Company. Subsequently, $7,000 of that advance was repaid to the related party and the Company issued a promissory note for the principal balance of $49,000 (the “Original Note”). The Original Note bears interest at a rate of 10% per annum. The Original Note had a maturity date of November 7, 2013. Through November 21, 2013, the Company repaid $6,905 of the principal of the Original Note and a replacement note was issued for the remaining principal balance of $42,095 (the “Replacement Note”). The Replacement Note waives any existing default under the Original Note and has a maturity date of May 31, 2014. All other terms of the Replacement Note and Original Note are the same. Interest expense on this note was $1,366 during the year ended December 31, 2013. | |
On October 30, 2013, the Company issued a note payable with a principal amount of $100,000 to a lender. The note bears interest on the unpaid principal balance until the full amount of principal has been paid at a floating rate equal to the Prime Rate plus four and one-quarter percent (4.25%) per annum (as of December 31, 2013, the Prime Rate was 3.25% per annum). Under the terms of the note, the Company has agreed to make monthly payments of accrued interest on the first day of every month, beginning on December 1, 2013. The principal amount and all unpaid accrued interest is payable on November 1, 2015 but the Company’s obligations are unsecured and are subordinate to its obligations pursuant to the September Note described above. The Loan may be prepaid in whole or in part at any time by the Company without penalty. In consideration of the note payable, the Company issued to the lender a five-year warrant to purchase 150,000 shares of Common Stock at an exercise price of $0.35 per share. The warrant contains customary anti-dilution provisions. The warrant had a relative fair value of $36,800 that the Company has set up as debt discount which will be amortized using the effective interest method over the term of the October Note. The Company amortized $3,067 of the debt discount as interest expense during the year ended December 31, 2013 and $33,733 remained unamortized as of December 31, 2013. Including the value of the warrant, the note had an effective interest rate of 26% per annum | |
The Company recorded amortization of debt discount associated with notes payable of $177,665 and $807,766 for the years ended December 31, 2013 and 2012, respectively, using the effective interest method. | |
See Note 9 – Stockholders’ Deficiency – Common Stock for details regarding the conversion of outstanding notes payable – related parties into Common Stock and warrants. |
Equipment_Lease_Payable
Equipment Lease Payable | 12 Months Ended | ||||
Dec. 31, 2013 | |||||
Notes to Financial Statements | ' | ||||
8. Equipment Lease Payable | ' | ||||
In January 2012, the Company renegotiated the terms of a payable relating to certain equipment into a lease agreement for the same equipment. The lease term is five years with a principal amount of $257,583 and an effective interest rate of 14.7% per annum. | |||||
Future minimum lease payments, by year and in the aggregate, under equipment leases, which includes capital leases, as of December 31, 2013, are as follows: | |||||
For year ending December 31, | Lease payments | ||||
2014 | $ | 76,728 | |||
2015 | 75,807 | ||||
2016 | 48,695 | ||||
Total | $ | 201,230 | |||
Less: amount representing interest | (34,943 | ) | |||
Present value of future lease payments | $ | 166,287 | |||
Less: Current portion | (56,323 | ) | |||
Long term portion | $ | 109,964 | |||
As of December 31, 2013, the equipment has a gross and net book value of $305,641 and $261,097, respectively. Depreciation of assets held under capital leases in the amount of $20,376 is included in depreciation expense for both years ended December 31, 2013 and 2012. |
Stockholders_Deficiency
Stockholders' Deficiency | 12 Months Ended | ||||||||||||||||||||||
Dec. 31, 2013 | |||||||||||||||||||||||
Notes to Financial Statements | ' | ||||||||||||||||||||||
9. Stockholders' Deficiency | ' | ||||||||||||||||||||||
The Company is authorized to issue up to 50,000,000 shares of Common Stock with a par value of $0.001 per share and 1,000,000 shares of preferred stock with a par value of $0.001 per share. | |||||||||||||||||||||||
Common Stock | |||||||||||||||||||||||
During the year ended December 31, 2012, the Company sold an aggregate of 116,670 shares of its Common Stock to investors, for aggregate net proceeds of $525,004. | |||||||||||||||||||||||
During the year ended December 31, 2013, pursuant to a private placement offering of units that commenced on October 4, 2012 (the “Private Placement”), the Company received an aggregate of $3,501,975 of proceeds related to the sale of 3,501,975 units at a price of $1.00 per unit. The aggregate amount includes $500,000, which was received from an officer, and $850,002, which was received during the fourth quarter of 2012 and classified as restricted cash as of December 31, 2012. Each unit consists of (i) one share of the Company’s Common Stock and (ii) a five-year warrant to purchase three shares of the Company’s Common Stock at an exercise price of $0.25 per share, such that warrants to purchase an aggregate of 10,505,925 shares of Common Stock were issued. Substantially all of the proceeds from the sale of the units were used by the Company to satisfy all of its obligations under the convertible notes and notes (see Notes 6 and 7). In connection with the Private Placement, an officer has entered into repurchase agreements with certain purchasers of units, pursuant to which he has agreed to repurchase, subject to certain conditions, one-half of these holder’s units at a purchase price of $1.00 per unit if the closing price of the Common Stock is less than $0.25 on five consecutive trading days at any time within one year of February 1, 2013. Cape Bear, which holds a substantial equity position in the Company, also entered into repurchase agreements with certain purchasers, other than the officer, that are substantially similar to the officer’s agreements, except that Cape Bear’s obligations are secured by a lien over certain real estate. | |||||||||||||||||||||||
On March 13, 2013, the Company exchanged $761,000 of notes payable and other advances – related parties and $72,000 of accounts payable to two related parties into an aggregate of 833,000 units at a price of $1.00 per unit. Each unit consists of (i) one share of the Company’s Common Stock, and (ii) a five-year warrant to purchase two and three-quarters shares of the Company’s Common Stock at an exercise price of $0.25 per share (such that warrants to purchase an aggregate of 2,290,750 shares of Common Stock were issued). The $3,625,900 aggregate fair value of the securities issued ($2,639,700 related to the warrants and $986,200 related to the Common Stock) was credited to equity at conversion. The Company recorded a $2,792,900 extinguishment loss which represents the incremental fair value of the securities issued as compared to the carrying value of the liabilities. | |||||||||||||||||||||||
Preferred Stock | |||||||||||||||||||||||
Series A Preferred Stock | |||||||||||||||||||||||
The Company has designated 200,000 of the 1,000,000 authorized shares of preferred stock as Series A Convertible Preferred Stock (“Series A Preferred Stock”). The Series A Preferred Stock is non-voting, has a liquidation preference equal to its purchase price, and does not pay dividends. The holders can call for the conversion of the Series A Preferred Stock at any time and are entitled to half a share of the Company’s Common Stock for each share of Series A Preferred Stock converted. As of December 31, 2013, 44,443 shares of Series A Preferred Stock are available to be issued. There is no Series A Preferred Stock outstanding as of December 31, 2013 or 2012. | |||||||||||||||||||||||
Series B Preferred Stock | |||||||||||||||||||||||
The Company has designated 625,000 of the 1,000,000 authorized shares of preferred stock as Series B Convertible Preferred Stock (“Series B Preferred Stock”). The Series B Preferred Stock has voting rights equal to one vote for each common share equivalent, has a liquidation preference equal to its purchase price, and receives preferred dividends equal to 7% of all outstanding shares in either cash or payment-in-kind. The holders can call for the conversion of the Series B Preferred Stock at any time and are entitled to five shares of the Company’s Common Stock for each share of Series B Preferred Stock converted. In addition, the Series B Preferred Stock is subject to weighted average anti-dilution protection whereby if shares of Common Stock are sold below the current conversion price, the conversion price is reduced pursuant to a pre-defined formula. As of December 31, 2013 and 2012, Series B holders were entitled to convert into 8.22 and 5.00 shares, respectively, of the Company’s Common Stock for each share of Series B Preferred Stock due to the anti-dilution provision. The anti-dilution provision represents a contingent beneficial conversion feature. As of December 31, 2013, an incremental 1,359,854 shares of Common Stock are issuable at conversion of the Series B Convertible Preferred Stock as compared to the original terms. Using the commitment date Common Stock price in effect, the commitment date value of the incremental shares is $3,432,272. However, recognition of beneficial conversion features is limited to the aggregate gross proceeds allocated to the preferred stock of $3,199,689 (422,315 shares of Series B Convertible Preferred Stock times $9.45 per share less the proceeds allocated to the warrants of $791,188) less the $1,666,967 beneficial conversion feature already recognized on the original 365,265 shares of Series B Preferred Stock (prior to the issuance of additional shares as payment-in-kind in lieu of cash dividends). Due to these limitations, a beneficial conversion feature of $1,532,722 was recorded for the year ended December 31, 2013. | |||||||||||||||||||||||
As of December 31, 2013 and 2012, the Company had accrued contractual dividends of $279,380 and $261,084, respectively, related to the Series B Preferred Stock. On January 1, 2014, 2013 and 2012, the Company issued 29,564, 27,630 and 25,823 shares of Series B convertible preferred stock valued at $279,380, $261,084 and $244,001, respectively, representing approximately $0.66 in value per share of Series B Preferred Stock outstanding on each date, to the Series B convertible preferred stock owners as payment in kind for dividends. | |||||||||||||||||||||||
Series C Preferred Stock | |||||||||||||||||||||||
On October 17, 2011, the Company filed a Certificate of Designation of Preferences, Rights and Limitations with the Secretary of State of the State of Delaware fixing the rights, preferences and restrictions of a newly formed class of Series C Preferred Stock. The Certificate of Designation designates 10,000 shares of the Company's preferred stock as Series C Preferred Stock to be issued at an original issue price of $100 per share. The Series C Preferred Stock has voting rights equal to one vote for each share held, has a liquidation preference equal to its purchase price, and has certain redemption rights available at the option of the holder. The holder can make a mandatory redemption request at any time on or after the earliest of (i) January 15, 2013, (ii) any date prior to January 15, 2013 on which the Convertible Notes are declared by the holders thereof to be, or automatically become, due and payable on an event of default, acceleration event or otherwise, (iii) immediately prior to an Asset Transfer or Acquisition, or (iv) the date on which the Convertible Notes are no longer outstanding. The Series C Preferred Stock is non- convertible and does not pay dividends. | |||||||||||||||||||||||
On October 17, 2011, the Company received net cash proceeds of $1,000,000 for the sale of 10,000 shares of Series C Preferred Stock to a greater than 10% stockholder of the Company (the “Series C Holder”). Since certain of the Company’s preferred shares contain redemption rights which are not solely within the Company’s control, these issuances of preferred stock were initially presented as temporary equity. In connection with the issuance, the investor received five-year immediately exercisable warrants to purchase 270,000 shares of the Company’s Common Stock at an exercise price of $2.90 per share and which had a relative fair value of $526,522 on the date of grant. The $526,522 relative fair value was recorded as a discount against the Series C Preferred Stock and was initially amortized as deemed dividends over the period through January 15, 2013. | |||||||||||||||||||||||
On October 31, 2012, the Company entered into a letter agreement (the “Series C Letter”) with the Series C Holder relating to its Series C Preferred Stock. Pursuant to the Series C Letter, the Series C Holder agreed to exchange (the “Exchange”) all its shares of Series C Preferred Stock for Common Stock of the Company if (i) the Company receives at least $4 million in proceeds from qualifying private placements of Common Stock (as defined) on or prior to December 31, 2012 (the “Private Placements”) and (ii) all the Company’s Convertible Notes due December 31, 2012 and all the Company’s Notes due January 15, 2013 cease to be outstanding, and would not be replaced with other debt securities, other than debt securities issued to lenders approved by the Series C Holder. If the Exchange had occurred, for each share of Series C Preferred exchanged, the Series C Holder would have received a number of shares of Common Stock equal to $100 divided by the weighted average price of the shares of Common Stock sold in the Private Placements. However, the Company failed to raise the funds required in the Series C Letter. | |||||||||||||||||||||||
On February 13, 2013, the Company received a Notice of Redemption of Series C Preferred Stock. As a result of the Convertible Notes coming due and not being paid on December 31, 2012, the Company accelerated the accretion rate of the deemed dividend on the Redeemable Preferred Stock – Series C and reclassified the Redeemable Preferred Stock – Series C from temporary equity to current liabilities. The Company recorded Series C deemed dividends of $433,606 during the year ended December 31, 2012. As of December 31, 2012, the discount associated with the Series C Preferred Stock was fully amortized. | |||||||||||||||||||||||
Incentive Compensation / Stock Option Plans | |||||||||||||||||||||||
The 2009 Incentive Compensation Plan (the “2009 Plan”) was approved on May 15, 2009 and June 4, 2009, and the increase in the total number of shares of Common Stock issuable pursuant to the 2009 Plan to 2,881,425 was approved on October 4, 2010 and September 20, 2011 by the Board of Directors and Stockholders, respectively. | |||||||||||||||||||||||
The 2009 Plan imposes individual limitations on the amount of certain awards. Under these limitations during any fiscal year of the Company, the number of options, stock appreciation rights, shares of restricted stock, shares of deferred stock, performance shares and other stock based-awards granted to any one participant under the 2009 Plan may not exceed 250,000 shares, subject to adjustment in certain circumstances. The maximum amount that may be paid out as performance units in any 12-month performance period is an aggregate value of $2,000,000, and the maximum amount that may be paid out as performance units in any performance period greater than 12 months is an aggregate value of $4,000,000. The maximum term of each option or stock appreciation right, the times at which each option or stock appreciation right will be exercisable, and provisions requiring forfeiture of unexercised options or stock appreciation rights at or following termination of employment generally are fixed by the board of directors or committee of the Company’s board of directors designated to administer the 2009 Plan (the “Committee”), except that no option or stock appreciation right may have a term exceeding ten years. The exercise price per share subject to an option and the grant price of a stock appreciation rights are determined by the Committee, but in the case of an incentive stock option (ISO) must not be less than the fair market value of a share of Common Stock on the date of grant. | |||||||||||||||||||||||
Stock Options | |||||||||||||||||||||||
Grants | |||||||||||||||||||||||
During the year ended December 31, 2013, the Company granted options to purchase an aggregate of 935,500 shares of Common Stock to certain employees and directors. These options vest over a one year or three year period, have a term of 10 years, and contain an exercise price between $.30 and $1.60 per share. The options were granted under a previously approved plan and had an aggregate grant date fair value of $624,645. | |||||||||||||||||||||||
During the year ended December 31, 2012, the Company granted options to purchase an aggregate of 416,000 shares of Common Stock to certain employees and directors. These options vest over a three year period, have a term of 10 years, and contain an exercise price between $4.95 and $6.99 per share. The options were granted under a previously approved plan and had an aggregate grant date fair value of $1,674,903. | |||||||||||||||||||||||
On March 30, 2012, the Company granted four Directors options to purchase an aggregate of 60,000 shares of Common Stock under the 2009 Plan with an exercise price of $6.99 per share for an aggregate grant date value of $315,926. The options vest over a three year period and have a term of ten years. | |||||||||||||||||||||||
On March 30, 2012, the Company granted options to employees to purchase an aggregate of 30,000 shares of Common Stock under the 2009 Plan with an exercise price of $6.99. The options have an aggregate grant date value of $157,963, vest over a three year period and have a term of ten years. | |||||||||||||||||||||||
On October 15, 2012, the Company granted employees options to purchase an aggregate of 76,000 shares of Common Stock under the 2009 Plan at an exercise price of $4.95 per share for an aggregate grant date value of $279,991. The options vest over a three year period and have a term of ten years. | |||||||||||||||||||||||
On October 15, 2012, the Company granted an option to an officer of the Company to purchase 250,000 shares of Common Stock under the 2009 Plan at an exercise price of $4.95 per share for an aggregate grant date value of $921,023. The options vest over a three year period and have a term of ten years. | |||||||||||||||||||||||
On February 15, 2013, the Company granted options to employees to purchase an aggregate of 330,500 shares of Common Stock under the 2009 Plan at an exercise price of $1.60 per share for an aggregate grant date value of $395,041. The options vest over a three year period and have a term of ten years. | |||||||||||||||||||||||
On June 19, 2013, the Company granted an option to a director to purchase 100,000 shares of Common Stock under the 2009 Plan at an exercise price of $1.45 per share for a grant date value of $109,600. The option vests over a three year period and has a term of ten years. | |||||||||||||||||||||||
On October 30, 2013, the Company granted options to directors to purchase 405,000 shares of Common Stock under the 2009 Plan at an exercise price of $0.30 per share for a grant date value of $89,220. The options vest over a one year period and has a term of ten years. | |||||||||||||||||||||||
On December 23, 2013, the Company granted options to employees to purchase an aggregate of 100,000 shares of Common Stock under the 2009 Plan at an exercise price of $0.53 per share for an aggregate grant date value of $30,783. The options vest over a three year period and have a term of ten years. | |||||||||||||||||||||||
Exercises | |||||||||||||||||||||||
On January 6, 2012, a former officer was issued 92,858 shares of Common Stock pursuant to a cashless exercise of a stock option to purchase 105,450 shares of Common Stock with an exercise price of $.80 per share. | |||||||||||||||||||||||
On May 4, 2012, the Company received $26,662 in proceeds from the exercise of options to purchase 4.166 shares of Common Stock at $2.80 per share and 4,166 shares of Common Stock at $3.60 per share. | |||||||||||||||||||||||
On November 12, 2012, a former officer was issued 63,129 shares of Common Stock pursuant to a cashless exercise of a stock option to purchase 17,575 shares of Common Stock (14,676 net shares) at an exercise price of $0.80 per share and a stock option to purchase 100,000 shares of Common Stock (48,453 net shares) at an exercise price of $2.50 per share. | |||||||||||||||||||||||
There were no options exercised during the year ended December 31, 2013. | |||||||||||||||||||||||
The aggregate intrinsic value of options exercised was $0 and $932,795 for the years ended December 31, 2013 and 2012, respectively. | |||||||||||||||||||||||
Valuation and Amortization | |||||||||||||||||||||||
Option valuation models require the input of highly subjective assumptions. The fair value of the stock-based payment awards is estimated utilizing the Black-Scholes option model. The volatility component of this calculation is derived from the historical trading prices of the Company’s own Common Stock. The Company accounts for the expected life of options in accordance with the “simplified” method which enables the use of the simplified method for “plain vanilla” share options as defined in Staff Accounting Bulletin No. 107. The risk-free interest rate was determined from the implied yields of U.S. Treasury zero-coupon bonds with a remaining life consistent with the expected term of the options. | |||||||||||||||||||||||
In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the number of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what the Company has recorded in the current period. The Company estimated forfeitures related to option grants at a weighted average annual rate of 4% and 5% per year for options granted during the years ended December 31, 2013 and 2012, respectively. | |||||||||||||||||||||||
In applying the Black-Scholes option pricing model to stock options granted, the Company used the following weighted average assumptions: | |||||||||||||||||||||||
For The Twelve Months Ended | |||||||||||||||||||||||
December 31, | |||||||||||||||||||||||
2013 | 2012 | ||||||||||||||||||||||
Risk free interest rate | 1.13% to 2.03% | .88% to 1.33% | |||||||||||||||||||||
Dividend yield | 0.00% | 0.00% | |||||||||||||||||||||
Expected volatility | 162.0% to 175.0% | 163.7% to 172.2% | |||||||||||||||||||||
Expected life in years | 5.5 to 6.0 | 6 | |||||||||||||||||||||
The weighted average fair value of the stock options granted during the years ended December 31, 2013 and 2012 was $0.91 and $5.39 per share, respectively. | |||||||||||||||||||||||
Stock-based compensation expense related to stock options was recorded in the consolidated statements of operations as a component of selling, general and administrative expenses and totaled $558,286 and $556,148 for the years ended December 31, 2013 and 2012, respectively. | |||||||||||||||||||||||
As of December 31, 2013, stock-based compensation expense related to stock options of $1,693,482 remains unamortized, including $801,913 which is being amortized over the weighted average remaining period of 1.7 years. The remaining $891,569 is related to a performance based option where vesting is currently deemed to be improbable and no amount is being amortized. | |||||||||||||||||||||||
Summary | |||||||||||||||||||||||
A summary of the stock option activity during the years ended December 31, 2013 and 2012 is presented below: | |||||||||||||||||||||||
Weighted | |||||||||||||||||||||||
Weighted | Average | ||||||||||||||||||||||
Average | Remaining | ||||||||||||||||||||||
Number of | Exercise | Life | Intrinsic | ||||||||||||||||||||
Options | Price | In Years | Value | ||||||||||||||||||||
Outstanding, January 1, 2012 | 2,165,925 | $ | 2.89 | ||||||||||||||||||||
Granted | 416,000 | 5.39 | |||||||||||||||||||||
Exercised | (231,357 | ) | 1.62 | ||||||||||||||||||||
Forfeited | (166,669 | ) | 4.03 | ||||||||||||||||||||
Outstanding, January 1, 2013 | 2,183,899 | $ | 3.42 | ||||||||||||||||||||
Granted | 935,500 | 0.91 | |||||||||||||||||||||
Exercised | - | - | |||||||||||||||||||||
Forfeited | (576,249 | ) | 3.96 | ||||||||||||||||||||
Outstanding, December 31, 2013 | 2,543,150 | $ | 2.37 | 6.0 | $ | - | |||||||||||||||||
Exercisable, December 31, 2013 | 1,235,650 | $ | 2.73 | 3.8 | $ | - | |||||||||||||||||
The following table presents information related to stock options at December 31, 2013: | |||||||||||||||||||||||
Options Outstanding | Options Exercisable | ||||||||||||||||||||||
Weighted | Weighted | Weighted | |||||||||||||||||||||
Range of | Average | Outstanding | Average | Average | Exercisable | ||||||||||||||||||
Exercise | Exercise | Number of | Exercise | Remaining Life | Number of | ||||||||||||||||||
Price | Price | Options | Price | In Years | Options | ||||||||||||||||||
$ | 0.30 - $2.20 | $ | 1.11 | 1,354,400 | $ | 0.57 | 0.6 | 485,900 | |||||||||||||||
$ | 2.21 - $3.80 | 3.23 | 757,750 | 2.95 | 4 | 507,750 | |||||||||||||||||
$ | 3.81 - $6.99 | 4.79 | 431,000 | 4.59 | 7.8 | 242,000 | |||||||||||||||||
$ | 2.37 | 2,543,150 | $ | 2.73 | 3.8 | 1,235,650 | |||||||||||||||||
Warrants | |||||||||||||||||||||||
Valuation | |||||||||||||||||||||||
In applying the Black-Scholes option pricing model to stock warrants granted, the Company used the following weighted average assumptions: | |||||||||||||||||||||||
2013 | 2012 | ||||||||||||||||||||||
Risk free interest rate | .74% to 1.39% | 0.67% | |||||||||||||||||||||
Dividend yield | 0.00% | 0.00% | |||||||||||||||||||||
Expected volatility | 146.0% to 166.7% | 163.70% | |||||||||||||||||||||
Expected life in years | 5 | 10 | |||||||||||||||||||||
Grants | |||||||||||||||||||||||
On October 15, 2012, the Company granted a consultant a ten-year warrant to purchase 30,000 shares of Common Stock at an exercise price of $4.95 per share. The warrant had a grant date value of $115,049 which will be recognized over the three year vesting period. | |||||||||||||||||||||||
On February 15, 2013, the Company granted vested five-year warrants to purchase an aggregate of 408,345 shares of Common Stock at an exercise price of $1.00 per share to investors who purchased shares in private placements at $4.50 per share during 2012. The warrants had an issuance date fair value of $487,200 which was expensed immediately. | |||||||||||||||||||||||
See Note 7 – Notes Payable for details regarding warrants granted in connection with the issuances of notes payable. | |||||||||||||||||||||||
See Note 9 – Stockholders’ Deficiency – Common Stock for details regarding warrants granted in connection with the Private Placement and the conversion of related party notes payable, other advances and accounts payable into equity. | |||||||||||||||||||||||
The weighted average fair value of the stock warrants granted during the years ended December 31, 2013 and 2012, respectively, was $1.34 and $3.83 per share. | |||||||||||||||||||||||
Exercise | |||||||||||||||||||||||
During the year ended December 31, 2012, the Company issued an aggregate of 1,465,578 shares of Common Stock to three holders of warrants who elected to exercise 2,353,744 warrants on a “cashless” basis under the terms of the warrants. The warrants had exercise prices of $1.60 per share (471,628 net shares), $3.00 per share (701,388 net shares) and $2.90 per share (292,562 net shares). | |||||||||||||||||||||||
During the year ended December 31, 2013, the Company issued an aggregate of 10,342,931 shares of Common Stock to several holders of warrants who elected to exercise warrants to purchase 12,505,023 shares of Common Stock on a "cashless" basis under the terms of the warrants. The warrants had exercise prices of $0.25 per share (11,346,675 gross shares), $0.35 per share (750,000 gross shares), and $1.00 per share (408,348 gross shares). | |||||||||||||||||||||||
The aggregate intrinsic value of the warrants exercised was $16,983,736 and $10,316,439 for the years ended December 31, 2013 and 2012, respectively. | |||||||||||||||||||||||
Stock-based compensation expense related to the mark-to-market adjustment for consultant warrants for the year ended December 31, 2013 was recorded in the consolidated statements of operations as a component of selling, general and administrative expenses and totaled $(17,718). During the years ended December 31, 2013 and 2012, the Company recorded stock-based compensation expense of $490,420 and $4,794, respectively, related to warrants As of December 31, 2013, stock-based compensation expense related to warrants of $583,481 remains unamortized, including $1,864 which is being amortized over the weighted average remaining period of 0.5 years. The remaining $576,840 is related to a performance based warrant where vesting is currently deemed to be improbable and no amount is being amortized. | |||||||||||||||||||||||
A summary of the stock warrant activity during the years ended December 31, 2013 and 2012, respectively, is presented below: | |||||||||||||||||||||||
Weighted | Average | ||||||||||||||||||||||
Average | Remaining | ||||||||||||||||||||||
Number of | Exercise | Life | Intrinsic | ||||||||||||||||||||
Warrants | Price | In Years | Value | ||||||||||||||||||||
Outstanding, January 1, 2012 | 2,916,590 | $ | 2.53 | ||||||||||||||||||||
Granted | 30,000 | $ | 2.9 | ||||||||||||||||||||
Exercised | (2,353,744 | ) | $ | 1.6 | |||||||||||||||||||
Forfeited | - | $ | - | ||||||||||||||||||||
Outstanding, January 1, 2013 | 592,846 | $ | 3.01 | ||||||||||||||||||||
Granted | 14,255,023 | $ | 0.28 | ||||||||||||||||||||
Exercised | (12,505,023 | ) | $ | 0.28 | |||||||||||||||||||
Forfeited | - | - | |||||||||||||||||||||
Outstanding, December 31, 2013 | 2,342,846 | $ | 0.94 | 3.9 | $ | 37,918 | |||||||||||||||||
Exercisable, December 31, 2013 | 2,072,846 | $ | 0.66 | 4.0 | $ | 37,918 | |||||||||||||||||
The following table presents information related to stock warrants at December 31, 2013: | |||||||||||||||||||||||
Warrants Outstanding | Warrants Exercisable | ||||||||||||||||||||||
Weighted | Weighted | Weighted | |||||||||||||||||||||
Range of | Average | Outstanding | Average | Average | Exercisable | ||||||||||||||||||
Exercise | Exercise | Number of | Exercise | Remaining Life | Number of | ||||||||||||||||||
Price | Price | Warrants | Price | In Years | Warrants | ||||||||||||||||||
$ | 0.25 - $0.35 | $ | 0.24 | 1,750,000 | $ | 0.24 | 4.2 | 1,750,000 | |||||||||||||||
$ | 0.36 - $3.00 | 2.91 | 562,846 | 2.91 | 2.7 | 312,846 | |||||||||||||||||
$ | 3.01 - $4.95 | 4.95 | 30,000 | 4.95 | 3.8 | 10,000 | |||||||||||||||||
$ | 0.25 - $4.95 | $ | 0.94 | 2,342,846 | $ | 0.66 | 4 | 2,072,846 | |||||||||||||||
Services Contributed | |||||||||||||||||||||||
Effective January 1, 2013, an executive officer of the Company waived payment for services contributed during 2013. As a result, the Company imputed the value of the services contributed and recorded salary expense $350,000 for year ended December 31, 2013, respectively, with a corresponding credit to stockholders’ deficiency. |
Commitments_and_Contingent_Lia
Commitments and Contingent Liabilities | 12 Months Ended | ||||
Dec. 31, 2013 | |||||
Notes to Financial Statements | ' | ||||
10. Commitments and Contingent Liabilities | ' | ||||
Operating Leases | |||||
On June 15, 2011, the Company entered into a lease agreement for approximately 28,000 square feet of office and storage space with an entity effective July 1, 2011. On August 29, 2011, the Company amended the agreement to expand to approximately 62,600 square feet of office and storage space effective November 1, 2011. The amended monthly lease rate of $9,224 is in effect from January 2012 through December 2013. The monthly lease rate increases to $10,671 for years 2014 and 2015 and to $11,975 in year 2016. The Company accounts for rent expense using the straight line method of accounting, deferring the difference between actual rent due and the straight line amount. The lease expires on January 1, 2017. Deferred rent payable of $46,254 and $39,100 as of December 31, 2013 and 2012, respectively, has been included in accrued expenses and other current liabilities on the consolidated balance sheets. | |||||
The Company’s leasehold interest in its office and warehouse space was subject to a mechanic’s lien in favor of the contractor that assisted with the construction of the facility. The amount the Company owed to the contractor was in dispute. On June 14, 2012, the Company reached a written settlement and agreed to pay the contractor the total amount of $189,000 in three equal installments. The final installment was made by the Company on November 2, 2012. The Company received a general release and release of mechanic’s lien from the contractor. | |||||
On March 13, 2013, the Company gave notice of early termination for a lease agreement for a corporate apartment dated May 31, 2011. Accordingly, the lease expired on March 31, 2013. The Company did not incur any penalties related to the early termination of the lease agreement. | |||||
On June 7, 2013, Pagosa signed a three year lease for $1,000 per month to house an office, pharmacy as well as inventory and is located in Lawrenceburg, IN. On July 8, 2013, the parties agreed to extend the lease for two additional years, such that the new termination date is now June 7, 2018. See Note 14 - Subsequent Events. | |||||
On October 10, 2013, the Company entered into a sublease agreement for 15,000 square feet of warehouse space at the Company’s corporate headquarters in Florence, Kentucky. The initial term of the sublease expires on January 31, 2014 with rent of $4,688 per month. After the expiration of the initial term, the tenant may extend the term of the sublease agreement on a month to month basis. The tenant elected to have the sublease terminate on the expiration date. | |||||
Future minimum payments, by year and in the aggregate, under operating leases as of December 31, 2013 are as follows: | |||||
For years ending December 31, | Amount | ||||
2014 | $ | 140,052 | |||
2015 | 140,052 | ||||
2016 | 155,700 | ||||
2017 | 17,000 | ||||
Total future minimum lease payments | $ | 452,804 | |||
During the years ended December 31, 2013 and 2012, the Company recorded aggregate rent expense of $174,661 and $195,116, respectively. | |||||
Litigation | |||||
In the ordinary course of business, we may become subject to lawsuits and other claims and proceedings that might arise from litigation matters or regulatory audits. Such matters are subject to uncertainty and outcomes are often not predictable with assurance. Our management does not presently expect that any such matters will have a material adverse effect on the Company’s consolidated financial condition or consolidated results of operations. We are not currently involved in any pending or threatened material litigation or other material legal proceedings nor have we been made aware of any penalties from regulatory audits, except as described below. | |||||
On February 9, 2012, two of our former stockholders, Rock Castle Holdings, LLC and Jason Smith (collectively “Plaintiffs”), filed suit against us in the Hamilton County, Ohio Court of Common Pleas, alleging that we had breached the terms of certain incentive options we granted to the Plaintiffs in connection with our now-terminated oral consulting arrangements with the Plaintiffs, by among other things, refusing Plaintiffs’ purported exercise of options to purchase 233,332 shares of our Common Stock at an exercise price of $2.00 per share in December 2011. Plaintiffs have requested that, among other things, the court require us to permit the exercise of the 233,332 options. Plaintiffs have also provided an expert report indicating damages of $2.086 million. Also named as defendants were two individuals, Michael Peppel and Gary Singer, whom Plaintiffs claim acted as agents for us in connection with our purchase of shares of our Common Stock from Plaintiffs in September 2011. On July 19, 2012, the Company and Mr. Peppel filed an answer and counterclaim for breach of contract, alleging that Plaintiffs breached consulting agreements with the Company and undertook a series of actions that damaged and hurt the Company. On July 24, 2012, the Company filed a complaint against Dennis Smith for breach of contract in the Hamilton County, Ohio Court of Common Pleas, which action was consolidated with the earlier case. Plaintiffs filed an answer in response to the counterclaim, and Dennis Smith filed an answer in response to the Company’s complaint. On April 26, 2013, Plaintiffs dismissed Mr. Singer from the lawsuit. On March 24, 2014, all parties filed motions for summary judgment: (i) the Company and Mr. Peppel moved for summary judgment on all claims asserted by Plaintiffs, (ii) Dennis B. Smith and Counterclaim Defendants and Plaintiffs moved for summary judgment on the Company’s claims for breach of contract, and (iii) Plaintiffs moved for partial summary judgment on their claim for declaratory relief that the Company breached the terms of a stock option agreement. Trial of the case is currently scheduled for April 22, 2014. We deny all of the Plaintiffs’ claims and intend to contest this matter vigorously. | |||||
On October 9, 2012, American Express Travel Related Services Company, Inc. brought legal action against the Company in the Boone County, Kentucky Circuit Court. The action seeks to recover the unpaid balance on a credit card account in the amount of $87,029, plus interest and costs. The litigation was resolved on July 10, 2013 by a negotiated settlement. Such amount has been accrued in the accompanying consolidated balance sheet as of December 31, 2013. | |||||
On March 20, 2013, a complaint was filed in the Delaware Court of Chancery by two of our shareholders, HWH Lending, LLC and Milfam I L.P., seeking to compel the holding of an annual meeting of stockholders for the election of directors under Delaware law. We filed an answer to the complaint on April 12, 2013. On May 13, 2013, we publicly announced that the Board of Directors had set the date for our next annual meeting of stockholders as August 15, 2013 at 11:00 a.m. Eastern time. In lieu of further litigation, on July 18, 2013, the parties submitted to the court a proposed order, subsequently entered by the Court, confirming August 15, 2013 as the annual meeting date and establishing certain procedures related to the annual meeting. In accordance with the Court order, our annual meeting of stockholders was held on August 15, 2013 at which time Lalit Dhadphale, Youssef Bennani, Joseph Savarino, and Ambassador Ned Siegel each received a plurality of the total votes cast at the annual meeting and each was elected as a director by our stockholders. On September 24, 2013, this action was dismissed without prejudice by a joint stipulation of dismissal. | |||||
On April 23, 2013, our Board of Directors formed an Independent Committee, chaired by Youssef Bennani, a director and Chairman of our Audit Committee, with the exclusive power and plenary authority to investigate, review, and evaluate claims and demands made in certain letters we have received. Since March 1, 2013, we have received three letters from stockholders alleging certain breaches of fiduciary duties by our directors and demanding that we commence investigations of the alleged conduct. On March 1, 2013, we received a letter on behalf of the holders of our Series B Preferred Stock (“Preferred Holders”) alleging that a convicted felon appears to be a consultant to us, owes us money, and exercises control over us. On March 8, 2013, we received a letter on behalf of stockholder Wayne Corona alleging that two directors, Matthew Stecker and John Backus, breached their fiduciary duties and demanding that we investigate legal claims against those directors. The letter alleges that the director designee of the holders of our Series B Preferred Stock and the director designee of New Atlantic Ventures Fund III, L.P. (“NAV”) acted in concert to attempt to scuttle our recent financing plan. The letter also alleged that the director designee of the Preferred Holders and the director designee of NAV sought to prevent us from paying back our lenders in 2010 and 2011. On March 18, 2013, we received a letter on behalf of the two directors denying the allegations and stating there was no proper basis for launching an investigation. On March 27, 2013, a letter on behalf of Messrs. Backus and Stecker, in their capacities as directors and stockholders, demanded that we (i) investigate alleged breaches of confidentiality and fiduciary duties by our President and CEO and two other directors in connection with the purported stockholder demand letter of Mr. Corona dated March 8, 2013, and (ii) assert related claims against those individuals. The letter also asserted that the director constituting the Independent Committee, Youssef Bennani, is subject to alleged conflicts of interest that disqualify him from serving on any proposed Independent Committee to evaluate the pending stockholder demands. The Independent Committee retained the independent law firm of Morrison & Foerster LLP to conduct the investigation and advise the Independent Committee. On November 23, 2013, the Independent Committee presented its findings and conclusions to the Board of Directors, which has resolved to take action consistent with those findings and conclusions. As a threshold matter, counsel for the Committee and the Committee itself determined that Mr. Bennani was independent and could carry out his duties and fairly evaluate the allegations in the letters. The Independent Committee concluded that it would not be in the best interests of us and our shareholders to pursue litigation stemming from the claims and assertions in the letters. The Independent Committee’s conclusion was based on its analysis of the letters, available evidence, legal principles and practical considerations including its potential indemnification obligations. Among the Independent Committee’s findings were: (1) the investigation demanded in the Preferred Holders’ letter had already been completed and adequately resolved by the Board; (2) there was not significant evidence supporting allegations in the Corona letter that then-directors Backus and Stecker breached their fiduciary duties to us in that they “attempted to scuttle our refinancing plan or used their positions on the Board for the benefit and advantage” of particular constituencies; and (3) no evidence supported the allegation that confidential information from the Board of Directors was purposefully leaked to Mr. Corona. Our Board of Directors concurred in the Independent Committee’s findings and conclusions. | |||||
On May 7, 2013, a putative stockholder derivative action was filed in the Court of Chancery of the State of Delaware against certain directors and our chief executive officer and against us, as a nominal defendant. The complaint alleges claims for breach of fiduciary duty, entrenchment and corporate waste arising out of the alleged failure to conduct annual meetings, SEC filing obligations, advances to a former employee and a $500,000 secured loan to us which the entire board of directors approved. The derivative complaint seeks unspecified compensatory damages and other relief. Mangement believes that the allegations stated in the complaint are without merit and we intend to defend ourselves vigorously against the allegations. The individual director defendants filed a motion to dismiss the complaint on July 22, 2013 and filed an opening brief in support of the motion to dismiss on August 2, 2013. We joined in the motion to dismiss. Plaintiff’s brief in opposition to the motion to dismiss was due on September 16, 2013. Instead of filing a brief in opposition to the motion to dismiss, on September 16, 2013, plaintiff filed an amended complaint against the same defendants alleging two claims for breach of fiduciary duty and corporate waste and deleting the claim for entrenchment. The claims in the amended complaint arise out of allegations regarding a failure to conduct stockholder annual meetings, a failure to comply with SEC filing obligations, a lack of internal controls and unauthorized advances to a former employee and a $500,000 secured loan approved by our entire board. We and the individual defendants continue to believe the allegations are without merit and intend to vigorously defend ourselves against the allegations. On October 3, 2013, the individual director defendants moved to dismiss the amended complaint, and we joined in the motion to dismiss. Under a briefing schedule approved by the court, defendants’ opening brief in support of the motion to dismiss the amended complaint was filed on November 4, 2013 and we joined in arguments A and B of defendants’ opening brief on the basis of plaintiff’s failure to comply with Court of Chancery Rule 23.1 and demand futility. Instead of filing an answering brief, plaintiff proposed a stipulated dismissal. On January 8, 2014, in a stipulation and order of dismissal, the action was dismissed with prejudice to plaintiff, with each party bearing its own attorneys’ fees and costs. | |||||
On May 15, 2013, a former consultant filed suit in Boone County, Kentucky Circuit Court alleging breach of contract and unjust enrichment for unpaid consulting fees and expenses of approximately $55,000. We filed an answer to the complaint on July 22, 2013 and intend to vigorously defend ourselves against the allegations. | |||||
On October 11, 2013, two of our former directors sent a letter demanding repayment of legal fees and expenses ($80,766 of previously incurred expenses plus future expenses) pursuant to certain Company indemnification and advancement provisions. On November 13, 2013, following the receipt of the Special Committee report, we agreed to indemnify the two former directors for their reasonable legal fees and expenses up to $85,000 less any amount paid to the directors under our directors’ and officers’ insurance policy. On November 14, 2013, the former directors filed a verified complaint and a motion for expedited proceedings for advancement in the Delaware Court of Chancery. In a stipulation and order dated December 23, 2013, these proceedings were concluded, and the Company agreed to pay the former directors’ reasonable attorneys’ fees and expenses, which included (i) $87,500 in connection with certain claims and demands and (ii) $27,500 incurred in the Delaware action. Such amounts have been repaid in full as of the date of this report. | |||||
Settlement Agreement | |||||
On February 22, 2013, the Company entered into a settlement agreement with a counterparty for amounts owed related to the return of expired goods and inventory and the Company wrote down the accounts receivable to the settlement amount as of December 31, 2012. On February 28, 2013, the Company received $50,000 in connection with the agreement in complete satisfaction of all outstanding and past due accounts receivable from the counterparty, such that there was no balance due to the Company as of December 31, 2013. |
Concentrations
Concentrations | 12 Months Ended |
Dec. 31, 2013 | |
Notes to Financial Statements | ' |
11. Concentrations | ' |
The Company maintains deposits in financial institutions which are insured by the Federal Deposit Insurance Corporation (“FDIC”). At various times, the Company has deposits in these financial institutions in excess of the amount insured by the FDIC. | |
During the year ended December 31, 2013, two vendors represented 61% and 14% of total inventory purchases. During the year ended December 31, 2012, two vendors represented 28% and 24% of total inventory purchases, respectively. | |
As of December 31, 2013, there were no accounts receivable concentrations. As of December 31, 2012, two companies represented approximately 18% and 14% of accounts receivable. |
Related_Party_Transactions
Related Party Transactions | 12 Months Ended |
Dec. 31, 2013 | |
Notes to Financial Statements | ' |
12. Related Party Transactions | ' |
Beginning July 1, 2013, a director is to be paid $3,000 per month and is entitled to expense reimbursements as compensation for serving on the Company’s Board committees. The director served on an Independent Committee (See Footnote 10 – Litigation) starting in July 2013 and concluding in November 2013. As a result, the director earned $12,000 during the year ended December 31, 2013. During 2012, the director provided general, financial and business consulting services. As a result, the director earned $93,800 related to these services during the year ended December 31, 2012. During the years ended December 31, 2013 and 2012, the director was paid $0 and $93,800, respectively. | |
Between June 2009 and April 2012, an employee who is the son of the managing member of a limited liability company that beneficially owns approximately 12% of the Company’s Common Stock received advances from the Company in various forms. As of December 31, 2012, the balance of these advances totaled $391,469 including interest, and the outstanding balance of these advances was $156,469. The Company also provided fulfillment services at no charge to a business partly owned by a member of his household. The Company’s Board of Directors determined that not all of these advances were approved in accordance with the Company’s policy on related party transactions, documented appropriately or recorded correctly in the Company’s accounting system. As a result, the Company was not able to monitor the outstanding amount of these advances on a continuous basis. In April 2012, this employee voluntarily resigned from the Company. Principal repayments towards the outstanding advances aggregating $235,000 have been made through December 31, 2013. The individual agreed to repay the remaining balance with interest based on prime rate on the first business day of the calendar quarter. Previously included in accounts receivable, the amount has been reclassified under Stockholders’ Deficiency as the Company has determined to exercise its rights through a pledge agreement for 42,860 shares as collateral. At December 31, 2013 and 2012, the Company estimated the value of the collateral at $9,001 and $18,858, respectively. | |
From March 2011 to April 2013, a wife of a director served as the agent for the Company's D&O insurance. During years ended December 31, 2013 and 2012, the Company recorded insurance premium expense of $24,329 and $47,930, respectively. | |
See Note 8 – Stockholders’ Deficiency – Common Stock for details regarding the exchange of Common Stock and warrants in satisfaction of related party notes payable, advances and accounts payable. |
Income_Taxes
Income Taxes | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Notes to Financial Statements | ' | ||||||||
13. Income Taxes | ' | ||||||||
As of December 31, 2013 and 2012, the Company had approximately $13,770,000 and $12,600,000, respectively, of federal net operating loss carryforwards (“NOL’s”) that may be available to offset future taxable income. The federal net operating loss carryforwards, if not utilized, will expire from 2027 to 2033. As of December 31, 2013 and 2012, the Company had approximately $3,585,000 and $3,000,000 of state net operating loss carryforwards available to offset future taxable income. The state NOLs, if not utilized, will expire beginning in 2031. | |||||||||
The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions and is subject to examination by the various taxing authorities. The Company’s federal, state and local income tax returns beginning in 2010 remain subject to examination. | |||||||||
In accordance with Section 382 of the Internal Revenue code, the usage of the Company’s net operating loss carryforwards could be limited in the event of a change in ownership. Based upon a study that analyzed the Company’s stock ownership, a change of ownership was deemed to have occurred in 2011. This change of ownership created an annual limitation of approximately $1,000,000 on the usage of the Company’s losses which are available through 2031. No study has been conducted in 2013 or 2012. | |||||||||
The income tax provision (benefit) for the years ended December 31, 2013 and 2012 was as follows: | |||||||||
For The Years Ended | |||||||||
December 31, | |||||||||
2013 | 2012 | ||||||||
Federal: | |||||||||
Current | $ | - | $ | - | |||||
Deferred | (625,702 | ) | (1,299,493 | ) | |||||
State and local: | |||||||||
Current | - | - | |||||||
Deferred | (36,806 | ) | (191,102 | ) | |||||
(662,508 | ) | (1,490,595 | ) | ||||||
Change in valuation allowance | 662,508 | 1,490,595 | |||||||
Income tax provision (benefit) | $ | - | $ | - | |||||
The effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2013 and 2012 are as follows: | |||||||||
December 31, | |||||||||
2013 | 2012 | ||||||||
Deferred tax assets: | |||||||||
Net operating loss carryforwards | $ | 4,966,018 | $ | 4,465,161 | |||||
Stock-based compensation | 466,078 | 258,742 | |||||||
Inventory reserves | 10,949 | 54,000 | |||||||
Allowance for bad debt | 89,899 | 87,405 | |||||||
Charitable contribution carryforwards | 5,630 | 5,630 | |||||||
Accruals | 27,352 | 24,775 | |||||||
Total deferred tax assets | 5,565,926 | 4,895,713 | |||||||
Valuation allowance | (5,539,178 | ) | (4,876,670 | ) | |||||
Deferred tax assets, net of valuation allowance | 26,748 | 19,043 | |||||||
Deferred tax liabilities: | |||||||||
Property and equipment | (26,748 | ) | (19,043 | ) | |||||
Net deferred tax assets | $ | - | $ | - | |||||
Change in valuation allowance | $ | 662,508 | $ | 1,490,595 | |||||
The Company assesses the likelihood that deferred tax assets will be realized. To the extent that realization is not likely, a valuation allowance is established. Based upon the history of losses, management believes that it is more likely than not that future benefits of deferred tax assets will not be realized. | |||||||||
For the years ended December 31, 2013 and 2012, the expected tax expense (benefit) based on the statutory rate is reconciled with the actual tax expense (benefit) as follows: | |||||||||
For The Years Ended | |||||||||
December 31, | |||||||||
2013 | 2012 | ||||||||
US federal statutory rate | (34.0 | %) | (34.0 | %) | |||||
State tax rate, net of federal benefit | (2.0 | %) | (2.0 | %) | |||||
Permanent differences | |||||||||
- Stock based compensation | 3.2 | % | 2.9 | % | |||||
- Write-off and amortization of intangible asset | 0 | % | 3.9 | % | |||||
- Debt extinquishment | 18.3 | % | 0 | % | |||||
- Other | 2.5 | % | 2.4 | % | |||||
Change in valuation allowance | 12 | % | 26.8 | % | |||||
Income tax provision (benefit) | 0 | % | 0 | % |
Subsequent_Events
Subsequent Events | 12 Months Ended |
Dec. 31, 2013 | |
Notes to Financial Statements | ' |
14. Subsequent Events | ' |
The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements, except as disclosed. | |
Pagosa Health division | |
On January 14, 2014, we closed Pagosa Health, our closed door pharmacy located in Lawrenceburg, Indiana and decided to focus on our core consumer prescription business. Pagosa Health had a de minimis contribution to the Company’s operations. All inventory and personnel were consolidated into our Kentucky facility. We are currently in discussions with the Landlord regarding termination of the lease related to the building. The impact of the lease termination was de minimus to the consolidated financial statements as of December 31, 2013. See Note 10. | |
Employee Stock Compensation | |
On January 15, 2014, the Company issued 21,289 shares of Common Stock to an employee in accordance with an employment agreement. The fair market value of the shares was $10,645 based on the closing price on the date of issuance. | |
Notes Payable | |
On March 28, 2014, the Company received an additional $100,000 from a lender, which brought the face value of the March 2014 Note to $700,000 pursuant to an Amended and Restated Promissory Note (the “March 2014 Note”), effective March 28, 2014, which supersedes the September Note and March Note with the same Lender. The March 2014 Note contains financial covenants which require the Company to meet certain minimum targets for earnings before interest, taxes and non-cash expenses, including depreciation, amortization and stock-based compensation (“EBITDAS”) for the calendar quarters and years ended between March 31, 2014 and December 31, 2014. The remainder of the material March 2014 Note terms are unchanged from the September Note, including the March 1, 2015 maturity date. In consideration of the Lender providing additional funds and entering into the September Note, the Company granted the Lender a five-year warrant to purchase 150,000 shares of Common Stock at an exercise price of $0.35 per share. The warrant contains customary anti-dilution provisions. The warrant had a relative fair value of $23,600 which was set up as debt discount and will be amortized using the effective interest method over the term of the March 2014 Note. Including the value of warrants issued in connection with the March Note and September Note, the September Note had an effective interest rate of 36% per annum. On March 25, 2014, the lender executed a document waiving the Company’s non-compliance with the EBITDAS financial covenant as of December 31, 2013. |
Summary_of_Significant_Account1
Summary of Significant Accounting Policies (Policies) | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Summary Of Significant Accounting Policies Policies | ' | ||||||||
Principles of Consolidation | ' | ||||||||
On June 4, 2013, the Company formed a wholly-owned subsidiary called Pagosa Health LLC (“Pagosa”) (see Note 14). The consolidated financial statements include the accounts of HealthWarehouse.com, Inc., Hwareh.com, Inc., Hocks.com, Inc., ION Holding NV, ION Belgium NV and Pagosa, its wholly-owned subsidiaries. ION Holding NV and ION Belgium NV are inactive subsidiaries. All material inter-company balances and transactions have been eliminated in consolidation. | |||||||||
Use of Estimates | ' | ||||||||
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant estimates include reserves related to accounts receivable and inventory, the recoverability and useful lives of long-lived assets, the valuation allowance related to deferred tax assets, the valuation of equity instruments and debt discounts. | |||||||||
Cash | ' | ||||||||
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. As of December 31, 2013 and 2012, the Company does not have any cash equivalents. As of December 31, 2012, accounts payable included approximately $106,000 of checks that had been issued but had not cleared the bank. | |||||||||
Restricted Cash | ' | ||||||||
Restricted cash represents cash received from accredited investors in connection with an ongoing equity offering which was being held in a bank escrow account until the offerings’ minimum dollar threshold was met. | |||||||||
Allowance for Doubtful Accounts Receivable | ' | ||||||||
Accounts receivable are shown net of an allowance for doubtful accounts of $250,828 and $106,292 as of December 31, 2013 and 2012, respectively. The Company’s management has established an allowance for doubtful accounts sufficient to cover probable and reasonably estimable losses. The nature of the business is that the majority of the payments are made before the product is sent. If the financial conditions of customers were to materially deteriorate or the nature of the business was to change from prepayment to post payment an increase in the allowance amount could be required. The allowance for doubtful accounts considers a number of factors, including collection experience, current economic trends, estimates of forecasted write-offs, aging of the accounts receivable, and other factors. | |||||||||
Inventories | ' | ||||||||
Inventories consists of finished goods and is stated at the lower of cost (using the first-in, first-out method) or market. As part of the valuation process, inventory reserves are established to state excess and slow-moving inventory at their estimated net realizable value. The valuation process for excess or slow-moving inventory contains uncertainty because management must use judgment to estimate when the inventory will be sold and the quantities and prices at which the inventory will be sold in the normal course of business. Inventory reserves are periodically reviewed, reflecting current risks, trends and changes in industry conditions. When preparing these estimates, management considers historical results, inventory levels and current operating trends. In the event the estimates differ from actual results, inventory-related reserves may be adjusted and could materially impact the results of operations. | |||||||||
Property and Equipment | ' | ||||||||
Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Expenditures for maintenance and repairs, which do not extend the economic useful life of the related assets, are charged to operations as incurred. Gains or losses on disposal of property and equipment are reflected in the statements of operations in the period of disposal. | |||||||||
Intangible Assets | ' | ||||||||
Intangible assets are recorded at cost except for assets acquired using acquisition accounting, which are initially recorded at their estimated fair value. Intangible assets with definite lives are comprised of customer relationships. Amortization is computed on a straight-line basis over the estimated useful lives of the intangible assets. | |||||||||
Impairment of Long-Lived Assets | ' | ||||||||
The Company reviews the carrying value of intangibles and other long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparing the carrying amount of the asset or asset group to the undiscounted cash flows that the asset or asset group is expected to generate. If the undiscounted cash flows of such assets are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair value. | |||||||||
During 2012, the operations within the Company’s Hocks division experienced a significant and sustained decline indicating that the carrying amount of the intangible assets recorded in connection with the acquisition of Hocks would not be recoverable. As a result, the Company recorded an impairment of $396,298 during the year ended December 31, 2012. | |||||||||
Website Development Costs | ' | ||||||||
The Company applies the guidance enumerated in Accounting Standards Codification (“ASC”) 350-50, “Intangibles – Website Development Costs,” when capitalizing costs associated with the development of the Company’s website. During the year ended December 31, 2013, the Company capitalized $98,423 of website development costs. The Company is amortizing the website development costs on a three year straight-line basis and incurred amortization expense of $14,643. As of December 31, 2013, website development costs totaled $83,780. Estimated amortization expense related to website development costs is $32,810 in 2014 and 2015 and $18,160 in 2016. | |||||||||
Shipping and Handling Costs | ' | ||||||||
The Company policy is to provide free standard shipping and handling for most orders shipped during the year. Shipping and handling costs incurred are recognized in selling, general and administrative expenses. Such amounts aggregated $775,083 and $1,178,471 for the years ended December 31, 2013 and 2012 respectively. | |||||||||
In certain circumstances shipping and handling costs are charged to the customer and recognized in revenues. The amounts recognized in revenues for the years ended December 31, 2013 and 2012 were $254,067 and $396,668, respectively. | |||||||||
Fair Value of Financial Instruments | ' | ||||||||
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. These fair value measurements apply to all financial instruments that are measured and reported on a fair value basis. | |||||||||
Based on the observability of the inputs used in the valuation techniques, financial instruments are categorized according to the fair value hierarchy, which ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories: | |||||||||
Level 1 - Observable inputs such as quoted prices in active markets. | |||||||||
Level 2 - Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly. | |||||||||
Level 3 - Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. | |||||||||
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the assignment of an asset or liability within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. | |||||||||
The carrying value of items included in working capital approximates fair value because of the relatively short maturity of these instruments. The convertible debt and notes payable approximate fair value because the terms are substantially similar to comparable debt in the marketplace. | |||||||||
Income Taxes | ' | ||||||||
Deferred tax assets and liabilities are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse. | |||||||||
GAAP prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. | |||||||||
Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s financial statements as of December 31, 2013 and 2012. The Company does not expect any significant changes in the unrecognized tax benefits within twelve months of the reporting date. | |||||||||
The Company classifies interest expense and any related penalties related to income tax uncertainties as a component of income tax expense. No interest or penalties have been recognized during the years ended December 31, 2013 and 2012. | |||||||||
Debt Discounts | ' | ||||||||
The Company records, as a discount to notes and convertible notes, the relative fair value of warrants issued in connection with the issuances and the intrinsic value of any conversion options based upon the differences between the fair value of the underlying Common Stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized to interest expense using the interest method over the earlier of the term of the related debt or their earliest date of redemption. | |||||||||
Revenue Recognition | ' | ||||||||
Revenues for the sales of products are recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed and determinable and collectability is reasonably assured. The Company defers revenue when cash has been received from the customer but delivery has not yet occurred. Such amounts are reflected as deferred revenues in the accompanying consolidated financial statements. | |||||||||
Advertising | ' | ||||||||
The Company expenses all advertising costs as incurred. Advertising expense for the years ended December 31, 2013 and 2012 was $1,867 and $587,346, respectively. | |||||||||
Sales Taxes | ' | ||||||||
The Company accounts for sales taxes imposed on its goods and services on a net basis in the statement of operations. | |||||||||
Net Loss Per Share of Common Stock | ' | ||||||||
Basic net loss per share is computed by dividing net loss attributable to Common Stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per share reflects the potential dilution that could occur if securities or other instruments to issue Common Stock were exercised or converted into Common Stock. Potentially dilutive securities are excluded from the computation of diluted net loss per share if their inclusion would be anti-dilutive and consist of the following: | |||||||||
December 31, | |||||||||
2013 | 2012 | ||||||||
Options | 2,543,150 | 2,183,899 | |||||||
Warrants | 2,342,846 | 562,846 | |||||||
Series B Convertible Preferred Stock | 3,472,953 | 1,973,425 | |||||||
Convertible Promissory Notes | - | 613,265 | |||||||
Total potentially dilutive shares | 8,358,949 | 5,333,435 | |||||||
Stock-Based Compensation | ' | ||||||||
Stock-based compensation expense for all stock-based payment awards is based on the estimated fair value of the award. For employees and directors, the award is measured on the grant date. For non-employees, the award is measured on the grant date and is then remeasured at each vesting date and financial reporting date. The Company recognizes the estimated fair value of the award as compensation cost over the requisite service period of the award, which is generally the option vesting term. The Company generally issues new shares of Common Stock to satisfy option and warrant exercises. | |||||||||
Preferred Stock | ' | ||||||||
Preferred shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. The Company classifies conditionally redeemable preferred shares, which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control, as temporary equity. At all other times, the Company classifies its preferred shares in stockholders’ deficiency. | |||||||||
Convertible Instruments | ' | ||||||||
GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional as that term is described under applicable GAAP. | |||||||||
When the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying Common Stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption. The Company also records, when necessary, deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying Common Stock at the commitment date of the transaction and the effective conversion price embedded in the preferred shares. | |||||||||
Common Stock Warrants and Other Derivative Financial Instruments | ' | ||||||||
The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provide the Company with a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company's own stock. The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company’s control) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of its Common Stock purchase warrants and other free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required. | |||||||||
The Company evaluated its free standing warrants to purchase Common Stock to assess their proper classification in the balance sheet as of December 31, 2013 and 2012 using the applicable classification criteria enumerated under GAAP and determined that the Common Stock purchase warrants contain fixed settlement provisions. | |||||||||
Recently Issued Accounting Pronouncements | ' | ||||||||
In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." This ASU addresses the requirements regarding the financial statement presentation of an unrecognized tax benefit within Accounting Standards Codification ("ASC") Topic 740 for the purpose of providing consistency between the financial reporting of U.S. GAAP entities. Generally, this ASU provides guidance for the preparation of financial statements and disclosures when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This ASU is effective for periods beginning after December 15, 2013 and is not expected to have any impact on the Company’s consolidated financial statements or disclosures. |
Summary_of_Significant_Account2
Summary of Significant Accounting Policies (Tables) | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Summary Of Significant Accounting Policies Tables | ' | ||||||||
Schedule of Potentially Dilutive Securities | ' | ||||||||
Potentially dilutive securities are excluded from the computation of diluted net loss per share if their inclusion would be anti-dilutive and consist of the following: | |||||||||
December 31, | |||||||||
2013 | 2012 | ||||||||
Options | 2,543,150 | 2,183,899 | |||||||
Warrants | 2,342,846 | 562,846 | |||||||
Series B Convertible Preferred Stock | 3,472,953 | 1,973,425 | |||||||
Convertible Promissory Notes | - | 613,265 | |||||||
Total potentially dilutive shares | 8,358,949 | 5,333,435 |
Property_and_Equipment_Tables
Property and Equipment (Tables) | 12 Months Ended | |||||||||
Dec. 31, 2013 | ||||||||||
Property And Equipment Tables | ' | |||||||||
Summary of property and equipment | ' | |||||||||
Property and equipment consist of the following: | ||||||||||
December 31, | Estimated | |||||||||
2013 | 2012 | Useful Life | ||||||||
Computer Software | $ | 230,299 | $ | 230,299 | 5 years | |||||
Equipment | 544,108 | 544,108 | 15 years | |||||||
Office Furniture and Equipment | 95,754 | 95,754 | 7 years | |||||||
Computer Hardware | 27,746 | 27,746 | 5 years | |||||||
Leasehold Improvements | 303,318 | 303,318 | (a) | |||||||
Total | 1,201,225 | 1,201,225 | ||||||||
Less: accumulated depreciation | (576,591 | ) | (433,204 | ) | ||||||
Property and Equipment, Net | $ | 624,634 | $ | 768,021 | ||||||
(a) Lesser of useful life or initial term of lease |
Accrued_Expenses_and_Other_Cur1
Accrued Expenses and Other Current Liabilities (Tables) | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Accrued Expenses And Other Current Liabilities Tables | ' | ||||||||
Accrued expenses and other current liabilities | ' | ||||||||
Accrued expenses and other current liabilities consisted of the following: | |||||||||
December 31, | |||||||||
2013 | 2012 | ||||||||
Deferred Rent | $ | 46,254 | $ | 39,100 | |||||
Advertising | 75,000 | 75,000 | |||||||
Salaries and Benefits | 132,048 | 166,118 | |||||||
Professional Fees | - | 81,872 | |||||||
Customer Payables | 39,618 | - | |||||||
Dividend Payable | 279,380 | 261,084 | |||||||
Accrued Interest | 45,616 | 410,101 | |||||||
Due to investors (1) | - | 850,002 | |||||||
Other | 3,137 | 8,159 | |||||||
Total | $ | 621,052 | $ | 1,891,436 | |||||
(1) - Proceeds received from investors in advance of equity offering closing. |
Equipment_Lease_Payable_Tables
Equipment Lease Payable (Tables) | 12 Months Ended | ||||
Dec. 31, 2013 | |||||
Equipment Lease Payable Tables | ' | ||||
Summary of future minimum lease payments | ' | ||||
Future minimum lease payments, by year and in the aggregate, under equipment leases, which includes capital leases, as of December 31, 2013, are as follows: | |||||
For year ending December 31, | Lease payments | ||||
2014 | $ | 76,728 | |||
2015 | 75,807 | ||||
2016 | 48,695 | ||||
Total | $ | 201,230 | |||
Less: amount representing interest | (34,943 | ) | |||
Present value of future lease payments | $ | 166,287 | |||
Less: Current portion | (56,323 | ) | |||
Long term portion | $ | 109,964 |
Stockholders_Deficiency_Tables
Stockholders' Deficiency (Tables) | 12 Months Ended | ||||||||||||||||||||||
Dec. 31, 2013 | |||||||||||||||||||||||
Stockholders Deficiency Tables | ' | ||||||||||||||||||||||
Schedule of Stock Options Granted | ' | ||||||||||||||||||||||
In applying the Black-Scholes option pricing model to stock options granted, the Company used the following weighted average assumptions: | |||||||||||||||||||||||
For The Twelve Months Ended | |||||||||||||||||||||||
December 31, | |||||||||||||||||||||||
2013 | 2012 | ||||||||||||||||||||||
Risk free interest rate | 1.13% to 2.03% | .88% to 1.33% | |||||||||||||||||||||
Dividend yield | 0.00% | 0.00% | |||||||||||||||||||||
Expected volatility | 162.0% to 175.0% | 163.7% to 172.2% | |||||||||||||||||||||
Expected life in years | 5.5 to 6.0 | 6 | |||||||||||||||||||||
Summary of Stock Option Activity | ' | ||||||||||||||||||||||
A summary of the stock option activity during the years ended December 31, 2013 and 2012 is presented below: | |||||||||||||||||||||||
Weighted | |||||||||||||||||||||||
Weighted | Average | ||||||||||||||||||||||
Average | Remaining | ||||||||||||||||||||||
Number of | Exercise | Life | Intrinsic | ||||||||||||||||||||
Options | Price | In Years | Value | ||||||||||||||||||||
Outstanding, January 1, 2012 | 2,165,925 | $ | 2.89 | ||||||||||||||||||||
Granted | 416,000 | 5.39 | |||||||||||||||||||||
Exercised | (231,357 | ) | 1.62 | ||||||||||||||||||||
Forfeited | (166,669 | ) | 4.03 | ||||||||||||||||||||
Outstanding, January 1, 2013 | 2,183,899 | $ | 3.42 | ||||||||||||||||||||
Granted | 935,500 | 0.91 | |||||||||||||||||||||
Exercised | - | - | |||||||||||||||||||||
Forfeited | (576,249 | ) | 3.96 | ||||||||||||||||||||
Outstanding, December 31, 2013 | 2,543,150 | $ | 2.37 | 6.0 | $ | - | |||||||||||||||||
Exercisable, December 31, 2013 | 1,235,650 | $ | 2.73 | 3.8 | $ | - | |||||||||||||||||
Summary of Stock Option Outstanding and Exercisable | ' | ||||||||||||||||||||||
The following table presents information related to stock options at December 31, 2013: | |||||||||||||||||||||||
Options Outstanding | Options Exercisable | ||||||||||||||||||||||
Weighted | Weighted | Weighted | |||||||||||||||||||||
Range of | Average | Outstanding | Average | Average | Exercisable | ||||||||||||||||||
Exercise | Exercise | Number of | Exercise | Remaining Life | Number of | ||||||||||||||||||
Price | Price | Options | Price | In Years | Options | ||||||||||||||||||
$ | 0.30 - $2.20 | $ | 1.11 | 1,354,400 | $ | 0.57 | 0.6 | 485,900 | |||||||||||||||
$ | 2.21 - $3.80 | 3.23 | 757,750 | 2.95 | 4 | 507,750 | |||||||||||||||||
$ | 3.81 - $6.99 | 4.79 | 431,000 | 4.59 | 7.8 | 242,000 | |||||||||||||||||
$ | 2.37 | 2,543,150 | $ | 2.73 | 3.8 | 1,235,650 | |||||||||||||||||
Schedule of Stock Warrants Granted | ' | ||||||||||||||||||||||
In applying the Black-Scholes option pricing model to stock warrants granted, the Company used the following weighted average assumptions: | |||||||||||||||||||||||
2013 | 2012 | ||||||||||||||||||||||
Risk free interest rate | .74% to 1.39% | 0.67% | |||||||||||||||||||||
Dividend yield | 0.00% | 0.00% | |||||||||||||||||||||
Expected volatility | 146.0% to 166.7% | 163.70% | |||||||||||||||||||||
Expected life in years | 5 | 10 | |||||||||||||||||||||
Summary of Stock Warrant Activity | ' | ||||||||||||||||||||||
A summary of the stock warrant activity during the years ended December 31, 2013 and 2012, respectively, is presented below: | |||||||||||||||||||||||
Weighted | Average | ||||||||||||||||||||||
Average | Remaining | ||||||||||||||||||||||
Number of | Exercise | Life | Intrinsic | ||||||||||||||||||||
Warrants | Price | In Years | Value | ||||||||||||||||||||
Outstanding, January 1, 2012 | 2,916,590 | $ | 2.53 | ||||||||||||||||||||
Granted | 30,000 | $ | 2.9 | ||||||||||||||||||||
Exercised | (2,353,744 | ) | $ | 1.6 | |||||||||||||||||||
Forfeited | - | $ | - | ||||||||||||||||||||
Outstanding, January 1, 2013 | 592,846 | $ | 3.01 | ||||||||||||||||||||
Granted | 14,255,023 | $ | 0.28 | ||||||||||||||||||||
Exercised | (12,505,023 | ) | $ | 0.28 | |||||||||||||||||||
Forfeited | - | - | |||||||||||||||||||||
Outstanding, December 31, 2013 | 2,342,846 | $ | 0.94 | 3.9 | $ | 37,918 | |||||||||||||||||
Exercisable, December 31, 2013 | 2,072,846 | $ | 0.66 | 4.0 | $ | 37,918 | |||||||||||||||||
Summary of Stock Warrants Outstanding and Exercisable | ' | ||||||||||||||||||||||
The following table presents information related to stock warrants at December 31, 2013: | |||||||||||||||||||||||
Warrants Outstanding | Warrants Exercisable | ||||||||||||||||||||||
Weighted | Weighted | Weighted | |||||||||||||||||||||
Range of | Average | Outstanding | Average | Average | Exercisable | ||||||||||||||||||
Exercise | Exercise | Number of | Exercise | Remaining Life | Number of | ||||||||||||||||||
Price | Price | Warrants | Price | In Years | Warrants | ||||||||||||||||||
$ | 0.25 - $0.35 | $ | 0.24 | 1,750,000 | $ | 0.24 | 4.2 | 1,750,000 | |||||||||||||||
$ | 0.36 - $3.00 | 2.91 | 562,846 | 2.91 | 2.7 | 312,846 | |||||||||||||||||
$ | 3.01 - $4.95 | 4.95 | 30,000 | 4.95 | 3.8 | 10,000 | |||||||||||||||||
$ | 0.25 - $4.95 | $ | 0.94 | 2,342,846 | $ | 0.66 | 4 | 2,072,846 |
Commitments_and_Contingent_Lia1
Commitments and Contingent Liabilities (Tables) | 12 Months Ended | ||||
Dec. 31, 2013 | |||||
Commitments And Contingent Liabilities Tables | ' | ||||
Summary of future minimum payments under operating leases | ' | ||||
Future minimum payments, by year and in the aggregate, under operating leases as of December 31, 2013 are as follows: | |||||
For years ending December 31, | Amount | ||||
2014 | $ | 140,052 | |||
2015 | 140,052 | ||||
2016 | 155,700 | ||||
2017 | 17,000 | ||||
Total future minimum lease payments | $ | 452,804 | |||
Income_Taxes_Tables
Income Taxes (Tables) | 12 Months Ended | ||||||||
Dec. 31, 2013 | |||||||||
Income Taxes Tables | ' | ||||||||
Summary of income tax provision (benefit) | ' | ||||||||
The income tax provision (benefit) for the years ended December 31, 2013 and 2012 was as follows: | |||||||||
For The Years Ended | |||||||||
December 31, | |||||||||
2013 | 2012 | ||||||||
Federal: | |||||||||
Current | $ | - | $ | - | |||||
Deferred | (625,702 | ) | (1,299,493 | ) | |||||
State and local: | |||||||||
Current | - | - | |||||||
Deferred | (36,806 | ) | (191,102 | ) | |||||
(662,508 | ) | (1,490,595 | ) | ||||||
Change in valuation allowance | 662,508 | 1,490,595 | |||||||
Income tax provision (benefit) | $ | - | $ | - | |||||
Summary of significant portions of the deferred tax assets and liabilities | ' | ||||||||
The effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2013 and 2012 are as follows: | |||||||||
December 31, | |||||||||
2013 | 2012 | ||||||||
Deferred tax assets: | |||||||||
Net operating loss carryforwards | $ | 4,966,018 | $ | 4,465,161 | |||||
Stock-based compensation | 466,078 | 258,742 | |||||||
Inventory reserves | 10,949 | 54,000 | |||||||
Allowance for bad debt | 89,899 | 87,405 | |||||||
Charitable contribution carryforwards | 5,630 | 5,630 | |||||||
Accruals | 27,352 | 24,775 | |||||||
Total deferred tax assets | 5,565,926 | 4,895,713 | |||||||
Valuation allowance | (5,539,178 | ) | (4,876,670 | ) | |||||
Deferred tax assets, net of valuation allowance | 26,748 | 19,043 | |||||||
Deferred tax liabilities: | |||||||||
Property and equipment | (26,748 | ) | (19,043 | ) | |||||
Net deferred tax assets | $ | - | $ | - | |||||
Change in valuation allowance | $ | 662,508 | $ | 1,490,595 | |||||
Summary of tax expense (benefit) based on the statutory rate | ' | ||||||||
For the years ended December 31, 2013 and 2012, the expected tax expense (benefit) based on the statutory rate is reconciled with the actual tax expense (benefit) as follows: | |||||||||
For The Years Ended | |||||||||
December 31, | |||||||||
2013 | 2012 | ||||||||
US federal statutory rate | (34.0 | %) | (34.0 | %) | |||||
State tax rate, net of federal benefit | (2.0 | %) | (2.0 | %) | |||||
Permanent differences | |||||||||
- Stock based compensation | 3.2 | % | 2.9 | % | |||||
- Write-off and amortization of intangible asset | 0 | % | 3.9 | % | |||||
- Debt extinquishment | 18.3 | % | 0 | % | |||||
- Other | 2.5 | % | 2.4 | % | |||||
Change in valuation allowance | 12 | % | 26.8 | % | |||||
Income tax provision (benefit) | 0 | % | 0 | % | |||||
Going_Concern_and_Managements_1
Going Concern and Management's Liquidity Plans (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Going Concern And Managements Liquidity Plans Details Narrative | ' | ' |
Working Capital Deficiency | $4,533,555 | ' |
Accumulated deficit | 28,130,668 | 20,828,674 |
Net Losses | 5,489,892 | 5,574,775 |
Net Cash Used in Operating Activities | 1,024,781 | 947,911 |
Debt financing | $100,000 | ' |
Summary_of_Significant_Account3
Summary of Significant Accounting Policies (Details) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Summary Of Significant Accounting Policies Details | ' | ' |
Options | $2,543,150 | $2,183,899 |
Warrants | 2,342,846 | 562,846 |
Series B Convertible Preferred Stock | 3,472,953 | 1,973,425 |
Convertible Promissory Notes | ' | 613,265 |
Total potentially dilutive shares | $8,358,949 | $5,333,435 |
Summary_of_Significant_Account4
Summary of Significant Accounting Policies (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Summary Of Significant Accounting Policies Details Narrative | ' | ' |
Cash equivalents | $0 | $0 |
Accounts payable not cleared the bank | ' | 106,000 |
Allowance for doubtful accounts | 250,828 | 106,292 |
Impairment of Long-Lived Assets | ' | 396,298 |
Website development costs | 98,423 | ' |
Amortization expense | 14,643 | ' |
Website development costs | 83,780 | ' |
Shipping and handling costs | 775,083 | 1,178,471 |
Amounts recognized in revenues | 254,067 | 396,668 |
Interest or penalties | 0 | 0 |
Advertising expense | $1,867 | $587,346 |
Property_and_Equipment_Details
Property and Equipment (Details) (USD $) | 12 Months Ended | ||
Dec. 31, 2013 | Dec. 31, 2012 | ||
Property and Equipment, Gross | $1,201,225 | $1,201,225 | |
Less: accumulated depreciation | -576,591 | -433,204 | |
Property and Equipment, Net | 624,634 | 768,021 | |
Computer Software [Member] | ' | ' | |
Estimates Useful Life | '5 years | ' | |
Property and Equipment, Gross | 230,299 | 230,299 | |
Equipment [Member] | ' | ' | |
Estimates Useful Life | '15 years | ' | |
Property and Equipment, Gross | 544,108 | 544,108 | |
Office Furniture and Equipment [Member] | ' | ' | |
Estimates Useful Life | '7 years | ' | |
Property and Equipment, Gross | 95,754 | 95,754 | |
Computer Hardware [Member] | ' | ' | |
Estimates Useful Life | '5 years | ' | |
Property and Equipment, Gross | 27,746 | 27,746 | |
Leasehold Improvements [Member] | ' | ' | |
Estimates Useful Life | '0 years | [1] | ' |
Property and Equipment, Gross | $303,318 | $303,318 | |
[1] | Lesser of useful life or initial term of lease |
Property_and_Equipment_Details1
Property and Equipment (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Property And Equipment Details Narrative | ' | ' |
Depreciation expense | $143,387 | $146,801 |
Accrued_Expenses_and_Other_Cur2
Accrued Expenses and Other Current Liabilities (Details) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 | ||
Accrued Expenses And Other Current Liabilities Details | ' | ' | ||
Deferred rent | $46,254 | $39,100 | ||
Advertising | 75,000 | 75,000 | ||
Salaries and benefits | 132,048 | 166,118 | ||
Professional fees | ' | 81,872 | ||
Customer payables | 39,618 | ' | ||
Dividends payable | 279,380 | 261,084 | ||
Accrued interest | 45,616 | 410,101 | ||
Due to investors (1) | ' | [1] | 850,002 | [1] |
Other | 3,137 | 8,159 | ||
Total | $621,052 | $1,891,436 | ||
[1] | Proceeds received from investors in advance of equity offering closing. |
Convertible_Notes_Payable_Deta
Convertible Notes Payable (Details Narrative) (USD $) | Dec. 31, 2012 |
Convertible Notes Payable Details Narrative | ' |
Amortization of debt discount associated with convertible notes payable | $275,388 |
Notes_Payable_Details_Narrativ
Notes Payable (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Debt discount unamortized | $194,100 | $44,363 |
Notes payable | 44,363 | 532,378 |
Prime Rate of interest bearing note | 3.25% | ' |
Amortization of the debt discount as interest expense | 121,200 | ' |
Interest expense | 1,366 | ' |
Amortization of debt discount associated with notes payable | 177,665 | 807,766 |
Lender [Member] | ' | ' |
Debt discount unamortized | 42,165 | ' |
Amortization of the debt discount as interest expense | 9,035 | ' |
Warrant Related Note [Member] | ' | ' |
Debt discount unamortized | 33,733 | ' |
Amortization of the debt discount as interest expense | $3,067 | ' |
Equipment_Lease_Payable_Detail
Equipment Lease Payable (Details) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Equipment Lease Payable Details | ' | ' |
2014 | $76,728 | ' |
2015 | 75,807 | ' |
2016 | 48,695 | ' |
Total | 201,230 | ' |
Less: amount representing interest | -34,943 | ' |
Present value of future lease payments | 166,287 | ' |
Less: Current portion | -56,323 | -49,122 |
Long term portion | $109,964 | $166,286 |
Equipment_Lease_Payable_Detail1
Equipment Lease Payable (Details Narrative) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Equipment Lease Payable Details Narrative | ' | ' |
Gross Book value of equiment | $305,641 | ' |
Net Book value of equiment | 261,097 | ' |
Depreciation of assets held under capital leases | $20,376 | $20,376 |
Stockholders_Deficiency_Detail
Stockholders' Deficiency (Details) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Dividend yield | 0.00% | 0.00% |
Expected life in years | ' | '6 years |
Minimum [Member] | ' | ' |
Risk free interest rate | 1.13% | 0.88% |
Expected volatility | 162.00% | 163.70% |
Expected life in years | '5 years 6 months | ' |
Maximum [Member] | ' | ' |
Risk free interest rate | 2.03% | 1.33% |
Expected volatility | 175.00% | 172.20% |
Expected life in years | '6 years | ' |
Stockholders_Deficiency_Detail1
Stockholders' Deficiency (Details 1) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Number of options, outstanding | ' | ' |
Outstanding, beginning of period (in shares) | 2,183,899 | 2,165,925 |
Granted | 935,500 | 416,000 |
Exercised | ' | -231,357 |
Forfeited | -576,249 | -166,669 |
Outstanding, end of period (in shares) | 2,543,150 | 2,183,899 |
Exercisable, December 31, 2013 | 1,235,650 | ' |
Options, weighted average exercise price | ' | ' |
Outstanding, beginning of period (in dollars per share) | $3.42 | $2.89 |
Granted | $0.91 | $5.39 |
Exercised | ' | $1.62 |
Forfeited | $3.96 | $4.03 |
Outstanding, end of period (in dollars per share) | $2.37 | $3.42 |
Exercisable, December 31, 2013 | $2.73 | ' |
Weighted Average Remaining Life In Years | ' | ' |
Weighted Average Remaining Life (in years) Outstanding | '6 years | ' |
Weighted Average Remaining Life (in years) Exercisable | '3 years 9 months 18 days | ' |
Aggregate Intrinsic Value | ' | ' |
Aggregate Intrinsic Value Outstanding | ' | ' |
Aggregate Intrinsic Value Exercisable | ' | ' |
Stockholders_Deficiency_Detail2
Stockholders' Deficiency (Details 2) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 | Dec. 31, 2011 |
Weighted Average Exercise Price Outstanding | $2.37 | $3.42 | $2.89 |
Number Outstanding | 2,543,150 | 2,183,899 | 2,165,925 |
Weighted Average Exercise Price Exercisable | $2.73 | ' | ' |
Weighted Average Remaining Years of Contractual Life | '3 years 9 months 18 days | ' | ' |
Number Exercisable | 1,235,650 | ' | ' |
$0.30 - $2.20 | ' | ' | ' |
Weighted Average Exercise Price Outstanding | $1.11 | ' | ' |
Number Outstanding | 1,354,400 | ' | ' |
Weighted Average Exercise Price Exercisable | $0.57 | ' | ' |
Weighted Average Remaining Years of Contractual Life | '7 months 6 days | ' | ' |
Number Exercisable | 485,900 | ' | ' |
$2.21 - $3.80 | ' | ' | ' |
Weighted Average Exercise Price Outstanding | $3.23 | ' | ' |
Number Outstanding | 757,750 | ' | ' |
Weighted Average Exercise Price Exercisable | $2.95 | ' | ' |
Weighted Average Remaining Years of Contractual Life | '4 years | ' | ' |
Number Exercisable | 507,750 | ' | ' |
$3.81 - $6.99 | ' | ' | ' |
Weighted Average Exercise Price Outstanding | $4.79 | ' | ' |
Number Outstanding | 431,000 | ' | ' |
Weighted Average Exercise Price Exercisable | $4.59 | ' | ' |
Weighted Average Remaining Years of Contractual Life | '7 years 9 months 18 days | ' | ' |
Number Exercisable | 242,000 | ' | ' |
Stockholders_Deficiency_Detail3
Stockholders' Deficiency (Details 3) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Dividend yield | 0.00% | 0.00% |
Expected life in years | ' | '6 years |
Warrant [Member] | ' | ' |
Risk free interest rate | ' | 0.67% |
Dividend yield | 0.00% | 0.00% |
Expected volatility | ' | 163.70% |
Expected life in years | '5 years | '10 years |
Minimum [Member] | ' | ' |
Risk free interest rate | 1.13% | 0.88% |
Expected volatility | 162.00% | 163.70% |
Expected life in years | '5 years 6 months | ' |
Minimum [Member] | Warrant [Member] | ' | ' |
Risk free interest rate | 0.74% | ' |
Expected volatility | 146.00% | ' |
Maximum [Member] | ' | ' |
Risk free interest rate | 2.03% | 1.33% |
Expected volatility | 175.00% | 172.20% |
Expected life in years | '6 years | ' |
Maximum [Member] | Warrant [Member] | ' | ' |
Risk free interest rate | 1.39% | ' |
Expected volatility | 166.70% | ' |
Stockholders_Deficiency_Detail4
Stockholders' Deficiency (Details 4) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Number of warrants, outstanding | ' | ' |
Outstanding, beginning of period (in shares) | 2,183,899 | 2,165,925 |
Granted | 935,500 | 416,000 |
Exercised | ' | -231,357 |
Forfeited | -576,249 | -166,669 |
Outstanding, end of period (in shares) | 2,543,150 | 2,183,899 |
Exercisable, December 31, 2013 | 1,235,650 | ' |
Weighted average exercise price | ' | ' |
Outstanding, beginning of period (in dollars per share) | $3.42 | $2.89 |
Granted | $0.91 | $5.39 |
Exercised | ' | $1.62 |
Forfeited | $3.96 | $4.03 |
Outstanding, end of period (in dollars per share) | $2.37 | $3.42 |
Exercisable, December 31, 2013 | $2.73 | ' |
Weighted Average Remaining Life In Years | ' | ' |
Weighted Average Remaining Life (in years) Outstanding | '6 years | ' |
Weighted Average Remaining Life (in years) Exercisable | '3 years 9 months 18 days | ' |
Aggregate Intrinsic Value | ' | ' |
Aggregate Intrinsic Value Outstanding | ' | ' |
Aggregate Intrinsic Value Exercisable | ' | ' |
Warrant [Member] | ' | ' |
Number of warrants, outstanding | ' | ' |
Outstanding, beginning of period (in shares) | 592,846 | 2,916,590 |
Granted | 14,255,023 | 30,000 |
Exercised | -12,505,023 | -2,353,744 |
Forfeited | ' | ' |
Outstanding, end of period (in shares) | 2,342,846 | 592,846 |
Exercisable, December 31, 2013 | 2,072,846 | ' |
Weighted average exercise price | ' | ' |
Outstanding, beginning of period (in dollars per share) | $3.01 | $2.53 |
Granted | $0.28 | $2.90 |
Exercised | $0.28 | $1.60 |
Forfeited | ' | ' |
Outstanding, end of period (in dollars per share) | $0.94 | $3.01 |
Exercisable, December 31, 2013 | $0.66 | ' |
Weighted Average Remaining Life In Years | ' | ' |
Weighted Average Remaining Life (in years) Outstanding | '3 years 10 months 24 days | ' |
Weighted Average Remaining Life (in years) Exercisable | '4 years | ' |
Aggregate Intrinsic Value | ' | ' |
Aggregate Intrinsic Value Outstanding | 37,918 | ' |
Aggregate Intrinsic Value Exercisable | $37,918 | ' |
Stockholders_Deficiency_Detail5
Stockholders' Deficiency (Details 5) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 | Dec. 31, 2011 |
Weighted Average Exercise Price Outstanding | $2.37 | $3.42 | $2.89 |
Number Outstanding | 2,543,150 | 2,183,899 | 2,165,925 |
Weighted Average Exercise Price Exercisable | $2.73 | ' | ' |
Weighted Average Remaining Years of Contractual Life | '3 years 9 months 18 days | ' | ' |
Number Exercisable | 1,235,650 | ' | ' |
Warrant [Member] | ' | ' | ' |
Weighted Average Exercise Price Outstanding | $0.94 | $3.01 | $2.53 |
Number Outstanding | 2,342,846 | 592,846 | 2,916,590 |
Number Exercisable | 2,072,846 | ' | ' |
$0.25 - $0.35 | Warrant [Member] | ' | ' | ' |
Weighted Average Exercise Price Outstanding | $0.24 | ' | ' |
Number Outstanding | 1,750,000 | ' | ' |
Weighted Average Exercise Price Exercisable | $0.24 | ' | ' |
Weighted Average Remaining Years of Contractual Life | '4 years 2 months 12 days | ' | ' |
Number Exercisable | 1,750,000 | ' | ' |
$0.36 - $3.00 | Warrant [Member] | ' | ' | ' |
Weighted Average Exercise Price Outstanding | $2.91 | ' | ' |
Number Outstanding | 562,846 | ' | ' |
Weighted Average Exercise Price Exercisable | $2.91 | ' | ' |
Weighted Average Remaining Years of Contractual Life | '2 years 8 months 12 days | ' | ' |
Number Exercisable | 312,846 | ' | ' |
$3.01 - $4.95 | Warrant [Member] | ' | ' | ' |
Weighted Average Exercise Price Outstanding | $4.95 | ' | ' |
Number Outstanding | 30,000 | ' | ' |
Weighted Average Exercise Price Exercisable | $4.95 | ' | ' |
Weighted Average Remaining Years of Contractual Life | '3 years 9 months 18 days | ' | ' |
Number Exercisable | 10,000 | ' | ' |
$0.25 - $0.495 | Warrant [Member] | ' | ' | ' |
Weighted Average Exercise Price Outstanding | $0.94 | ' | ' |
Number Outstanding | 2,342,846 | ' | ' |
Weighted Average Exercise Price Exercisable | $0.66 | ' | ' |
Weighted Average Remaining Years of Contractual Life | '4 years | ' | ' |
Number Exercisable | 2,072,846 | ' | ' |
Stockholders_Deficiency_Detail6
Stockholders' Deficiency (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Common Stock to investors, shares | ' | 116,670 |
Common Stock to investors, net proceeds | ' | $525,004 |
Proceeds related to private placement offering, value | 3,501,975 | ' |
Proceeds related to private placement offering, units | 3,501,975 | ' |
Proceeds related to private placement offering, per unit | $1 | ' |
Amount received from officer | ' | 500,000 |
Amount classified as restricted cash | ' | 850,002 |
Granted options to purchase Common Stock | ' | 416,000 |
Aggregate intrinsic value of exercised | 0 | 932,795 |
Weighted average annual rate of option grants | 4.00% | 5.00% |
Weighted average fair value of the stock granted | $0.91 | $5.39 |
Stock-based compensation expense related to stock options/ warrants | 558,286 | 556,148 |
Stock-based compensation expense related to stock options/ warrants, unamortized | 1,693,482 | ' |
Stock-based compensation expense related to stock options/ warrants, amortized | 801,913 | ' |
Weighted average remaining period | '1 year 8 months 12 days | ' |
Common Stock to three holders of warrants | ' | 1,465,578 |
Common Stock to three holders of warrants, exercised | ' | 2,353,744 |
Common Stock to several holders of warrants | 10,342,931 | ' |
Common Stock to several holders of warrants, exercised | 12,505,023 | ' |
Stock-based compensation expense related for consultant warrants | -17,718 | ' |
Imputed the value of the services contributed | 350,000 | ' |
Recorded salary expense | 350,000 | ' |
Warrant [Member] | ' | ' |
Aggregate intrinsic value of exercised | 16,983,736 | 10,316,439 |
Weighted average fair value of the stock granted | $1.34 | $3.83 |
Stock-based compensation expense related to stock options/ warrants | 490,420 | 4,794 |
Stock-based compensation expense related to stock options/ warrants, unamortized | 583,481 | ' |
Stock-based compensation expense related to stock options/ warrants, amortized | 1,864 | ' |
Weighted average remaining period | '6 months | ' |
Series B Preferred Stock [Member] | ' | ' |
Share issued upon conversion | 8.22 | 5 |
Beneficial Conversion Feature Related to Incremental Shares | 1,359,854 | ' |
Beneficial Conversion Feature Related to Incremental Value | 1,532,722 | ' |
Accrued contractual dividends | 279,380 | 261,084 |
Series A Preferred Stock [Member] | ' | ' |
Series A Preferred Stock are available to be issued | 44,443 | ' |
Series C Preferred Stock [Member] | ' | ' |
Deemed dividends | ' | $433,606 |
Commitments_and_Contingent_Lia2
Commitments and Contingent Liabilities (Details 1) (USD $) | Dec. 31, 2013 |
Commitments And Contingent Liabilities Details 1 | ' |
Future minimum payments under operating lease, 2014 | $140,052 |
Future minimum payments under operating lease, 2015 | 140,052 |
Future minimum payments under operating lease, 2016 | 155,700 |
Future minimum payments under operating lease, 2017 | 17,000 |
Total future minimum lease payments | $452,804 |
Commitments_and_Contingent_Lia3
Commitments and Contingent Liabilities (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Commitments And Contingent Liabilities Details Narrative | ' | ' |
Deferred rent payable | $46,254 | $39,100 |
Rent Expense | $174,661 | $195,116 |
Concentrations_Details_Narrati
Concentrations (Details Narrative) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Vendor 1 [Member] | ' | ' |
Concentration Percentage | 61.00% | 28.00% |
Vendor 2 [Member] | ' | ' |
Concentration Percentage | 14.00% | 24.00% |
Company 1 [Member] | ' | ' |
Concentration Percentage | ' | 18.00% |
Company 2 [Member] | ' | ' |
Concentration Percentage | ' | 14.00% |
Related_Party_Transactions_Det
Related Party Transactions (Details Narrative) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Related Party Transactions Details Narrative | ' | ' |
Director earned | $12,000 | $93,800 |
Payment to director | 0 | 93,800 |
Advances including interest | ' | 391,469 |
Outstanding balance of Advances including interest | ' | 156,469 |
Principal repayments towards the outstanding advances | 235,000 | ' |
Estimated the value of collateral | 9,001 | 18,858 |
Recorded insurance premium expense | $24,329 | $47,930 |
Income_Taxes_Details
Income Taxes (Details) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Federal: | ' | ' |
Current | ' | ' |
Deferred | -625,702 | -1,299,493 |
State and local: | ' | ' |
Current | ' | ' |
Deferred | -36,806 | -191,102 |
Income tax total | -662,508 | -1,490,595 |
Change in valuation allowance | 662,508 | 1,490,595 |
Income tax provision (benefit) | ' | ' |
Income_Taxes_Details_1
Income Taxes (Details 1) (USD $) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Deferred tax assets: | ' | ' |
Net operating loss carryforwards | $4,966,018 | $4,465,161 |
Stock-based compensation | 466,078 | 258,742 |
Inventory reserves | 10,949 | 54,000 |
Allowance for bad debt | 89,899 | 87,405 |
Charitable contribution carryforwards | 5,630 | 5,630 |
Accruals | 27,352 | 24,775 |
Total deferred tax assets | 5,565,926 | 4,895,713 |
Valuation allowance | -5,539,178 | -4,876,670 |
Deferred tax assets, net of valuation allowance | 26,748 | 19,043 |
Deferred tax liabilities: | ' | ' |
Property and equipment | -26,748 | -19,043 |
Net deferred tax assets | ' | ' |
Change in valuation allowance | $662,508 | $1,490,595 |
Income_Taxes_Details_2
Income Taxes (Details 2) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 31, 2012 | |
Income Taxes Details 2 | ' | ' |
US federal statutory rate | -34.00% | -34.00% |
State tax rate, net of federal benefit | -2.00% | -2.00% |
Permanent differences | ' | ' |
Stock based compensation | 3.20% | 2.90% |
Write-off and amortization of intangible asset | 0.00% | 3.90% |
Debt extinquishment | 18.30% | 0.00% |
Other | 2.50% | 2.40% |
Change in valuation allowance | 12.00% | 26.80% |
Income tax provision (benefit) | 0.00% | 0.00% |
Income_Taxes_Details_Narrative
Income Taxes (Details Narrative) (USD $) | Dec. 31, 2013 | Dec. 31, 2012 |
Income Taxes Details Narrative | ' | ' |
Federal net operating loss carry forwards | $13,770,000 | $12,600,000 |
Net operating loss carryforward | $3,585,000 | $3,000,000 |