Document_and_Entity_Informatio
Document and Entity Information | 3 Months Ended | |
Mar. 31, 2015 | 4-May-15 | |
Document And Entity Information | ||
Entity Registrant Name | TOMI Environmental Solutions, Inc. | |
Entity Central Index Key | 314227 | |
Document Type | 10-Q | |
Document Period End Date | 31-Mar-15 | |
Amendment Flag | FALSE | |
Current Fiscal Year End Date | -19 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | Yes | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 85,582,909 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2015 |
CONDENSED_CONSOLIDATED_BALANCE
CONDENSED CONSOLIDATED BALANCE SHEET (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Current Assets: | ||
Cash and Cash Equivalents | $173,996 | $160,560 |
Cash - Restricted (Note 6) | 716 | 105,776 |
Accounts Receivable, net | 611,837 | 441,153 |
Inventories (Note 3) | 911,905 | 772,833 |
Prepaid Expenses | 41,054 | 35,404 |
Other Assets | 36,613 | 36,644 |
Deferred Financing Costs - net (Note 6) | 115,175 | 199,625 |
Total Current Assets | 1,891,296 | 1,751,995 |
Property and Equipment - net (Note 4) | 265,076 | 288,159 |
Other Assets: | ||
Intangible Assets - net (Note 5) | 2,564,679 | 2,657,056 |
Security Deposits | 4,700 | 6,552 |
Total Other Assets | 2,569,379 | 2,663,608 |
Total Assets | 4,725,751 | 4,703,762 |
Current Liabilities: | ||
Accounts Payable and Accrued Expenses | 605,615 | 448,063 |
Accrued Interest on Convertible Notes (Note 6) | 84,567 | 211,417 |
Accrued Officers Compensation (Note 9) | 50,000 | 41,000 |
Common Stock to be Issued (Note 12) | 78,388 | 35,925 |
Customer Deposits | 19,619 | 19,716 |
Deferred Rent | 18,263 | 15,236 |
Derivative Liability (Note 7) | 4,402,031 | 1,728,883 |
Cumulative Convertible Series A Preferred Stock; par value $0.01, 1,000,000 shares authorized; 510,000 shares issued and outstanding at March 31, 2015 and December 31, 2014 | 2,041,315 | 1,077,967 |
Total Current Liabilities | 7,299,798 | 3,578,207 |
Total Liabilities | 7,299,798 | 3,578,207 |
Commitments and Contingencies | ||
Stockholders' Equity (Deficiency): | ||
Cumulative Convertible Series B Preferred Stock; $1,000 stated value; 7.5% Cumulative dividend; 4,000 shares authorized; none issued and outstanding at March 31, 2015 and December 31, 2014 | 5,100 | 5,100 |
Cumulative Convertible Series B Preferred Stock; $1,000 stated value; 7.5% Cumulative dividend; 4,000 shares authorized; none issued and outstanding at March 31, 2015 and December 31, 2014 | ||
Common stock; par value $0.01, 200,000,000 shares authorized; 85,526,522 and 83,646,275 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively. | 855,265 | 836,463 |
Additional Paid-in Capital | 19,835,048 | 19,281,647 |
Accumulated Deficit | -23,269,460 | -18,997,655 |
Total Stockholders' Equity (Deficiency) | -2,574,047 | 1,125,555 |
Total Liabilities and Stockholders' Equity (Deficiency) | $4,725,751 | $4,703,762 |
CONDENSED_CONSOLIDATED_BALANCE1
CONDENSED CONSOLIDATED BALANCE SHEET (Parenthetical) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Condensed Consolidated Balance Sheet Parenthetical | ||
Convertible Notes Payable, net of discount | $3,032,685 | $3,996,033 |
Stockholders' Equity ( Deficiency): | ||
Cumulative Convertible Preferred Stock Series A; Par Value | $0.01 | $0.01 |
Cumulative Convertible Preferred Stock Series A; Shares Authorized | 1,000,000 | 1,000,000 |
Cumulative Convertible Preferred Stock Series A; Issued Shares | 510,000 | 510,000 |
Cumulative Convertible Preferred Stock Series A; Stock Outstanding | 510,000 | 510,000 |
Cumulative Convertible Preferred Stock Series B; Stated value | $1,000 | $1,000 |
Cumulative Convertible Preferred Stock Series B; Cumulative dividend | 7.50% | 7.50% |
Cumulative Convertible Preferred Stock Series B; Shares Authorized | 4,000 | 4,000 |
Cumulative Convertible Preferred Stock Series B; Issued Shares | 0 | 0 |
Cumulative Convertible Preferred Stock Series B; Stock Outstanding | 0 | 0 |
Common Stock; Par Value | $0.01 | $0.01 |
Common Stock; Shares Authorized | 200,000,000 | 200,000,000 |
Common Stock; Stock Issued | 85,526,522 | 83,646,275 |
Common Stock; Stock Outstanding | 85,526,522 | 83,646,275 |
CONDENSED_CONSOLIDATED_STATEME
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Condensed Consolidated Statement Of Operations | ||
Sales, net | $676,386 | $273,029 |
Cost of Sales | 278,476 | 113,845 |
Gross Profit | 397,910 | 159,184 |
Costs and Expenses: | ||
Professional Fees | 107,032 | 113,830 |
Depreciation and Amortization | 125,253 | 111,906 |
Selling Expenses | 94,735 | 61,448 |
Research and Development | 22,190 | 31,292 |
Consulting fees | 76,309 | 58,403 |
Equity Compensation Expense (Note 8) | 125,087 | 1,142,349 |
General and Administrative | 271,314 | 201,645 |
Total Costs and Expenses | 821,919 | 1,720,873 |
Loss From Operations | -424,009 | -1,561,689 |
Other Income (Expense): | ||
Amortization of Deferred Financing Costs | -84,450 | -84,450 |
Amortization of Debt Discounts | -963,348 | -74,968 |
Fair Value Adjustment of Derivative Liability | -2,673,148 | 1,751,305 |
Interest expense | -126,850 | -127,406 |
Total Other Income (Expense) | -3,847,796 | 1,464,481 |
Net Loss | ($4,271,805) | ($97,208) |
Loss Per Common Share | ||
Basic and Diluted | ($0.05) | $0 |
Basic and Diluted Weighted Average Common Shares Outstanding | 84,043,034 | 80,147,114 |
CONDENSED_CONSOLIDATED_STATEME1
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (USD $) | Series A Preferred Stock [Member] | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total |
Beginning Balance, Amount at Dec. 31, 2014 | $5,100 | $836,462 | $19,281,647 | ($18,997,655) | $1,125,555 |
Beginning Balance, Shares at Dec. 31, 2014 | 510,000 | 83,646,275 | |||
Warrants and options issued for services | 97,301 | 97,301 | |||
Common stock issued for services provided , Shares | 100,000 | ||||
Common stock issued for services provided, Amount | 1,000 | 24,000 | 25,000 | ||
Common stock issued for executive compensation, Shares | 20,245 | ||||
Common stock issued for executive compensation, Amount | 203 | 5,798 | 6,001 | ||
Proceeds from issuance of common stock and warrants, net of finder's fee, Shares | 1,760,002 | ||||
Proceeds from issuance of common stock and warrants, net of finder's fee, Amount | 17,600 | 441,614 | 459,214 | ||
Value of common stock to be issued as finder's fee | -15,312 | -15,312 | |||
Net loss | -4,271,805 | -4,271,805 | |||
Ending Balance, Amount at Mar. 31, 2015 | $5,100 | $855,265 | $19,835,048 | ($23,269,460) | ($2,574,047) |
Ending Balance, Shares at Mar. 31, 2015 | 510,000 | 85,526,522 |
CONDENSED_CONSOLIDATED_STATEME2
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Cash Flow From Operating Activities: | ||
Net Loss | ($4,271,805) | ($97,208) |
Adjustments to Reconcile Net loss to Net Cash Used In Operating Activities: | ||
Depreciation and Amortization | 125,253 | 111,906 |
Amortization of Deferred Financing Costs | 84,450 | 84,450 |
Amortization of Debt Discount | 963,348 | 74,968 |
Fair Value Adjustment of Derivative Liability | 2,673,148 | -1,751,305 |
Equity Based Compensation | 97,301 | 1,142,349 |
Value of Equity Issued for Services | 31,001 | 165,872 |
Reserve for Bad Debts | 482 | |
Decrease (increase) in: | ||
Accounts Receivable | -171,166 | 320,266 |
Inventory | -139,072 | -113,897 |
Prepaid Expenses | -5,650 | -4,738 |
Other Assets | 31 | |
Deposits | 1,853 | -14,404 |
Increase (Decrease) in: | ||
Accounts Payable and Accrued Expenses | 157,552 | -73,805 |
Accrued Interest | -126,850 | -126,628 |
Accrued Officers Compensation | 9,000 | 2,000 |
Common Stock to be Issued | 27,151 | -101,615 |
Deferred Rent | 3,027 | |
Customer Deposits | -97 | -4,340 |
Net Cash Used in Operating Activities | -541,044 | -386,129 |
Cash Flow From Investing Activities: | ||
Purchase of Property and Equipment | -9,793 | -8,618 |
Net Cash Used in Investing Activities | -9,793 | -8,618 |
Cash Flow From Financing Activities: | ||
Proceeds From Issuance of Common Stock and Warrants | 510,213 | |
(Increase) Decrease in Bond Sinking Fund | 105,060 | -28,846 |
Payment of Finder's Fee | -51,000 | |
Net Cash Provided (used) by Financing Activities | 564,273 | -28,846 |
Increase (Decrease) In Cash and Cash Equivalents | 13,435 | -423,593 |
Cash and Cash Equivalents - Beginning | 160,560 | 706,351 |
Cash and Cash Equivalents - Ending | 173,996 | 282,758 |
Supplemental Cash Flow Information: | ||
Cash Paid For Interest | 253,700 | 254,033 |
Cash Paid For Income Taxes | 1,426 | |
Non-Cash Investing and Finance Activities: | ||
Reclassification of demoequipment from inventory to property and equipment | 118,408 | |
Common Stock Finder's Fee Accrual | $15,312 |
1_DESCRIPTION_OF_BUSINESS
1. DESCRIPTION OF BUSINESS | 3 Months Ended |
Mar. 31, 2015 | |
Notes to Financial Statements | |
NOTE 1. DESCRIPTION OF BUSINESS | TOMI Environmental Solutions, Inc. is a global decontamination and infectious disease control company, providing environmental solutions for indoor and outdoor surface decontamination through the sale of equipment, services and licensing of our SteraMistTM Binary Ionization Technology® (“BIT™”) hydrogen peroxide based mist and fogs. |
2_SUMMARY_OF_SIGNIFICANT_ACCOU
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 3 Months Ended | |
Mar. 31, 2015 | ||
Notes to Financial Statements | ||
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Going Concern | |
The Company incurred net losses of approximately $4,272,000 and $97,000 for the three months ended March 31, 2015 and 2014, respectively. In addition, the Company had a working capital deficiency of approximately $5,409,000 and stockholders’ deficit of $2,574,000 at March 31, 2015. Cash and cash equivalents was approximately $174,000 as of March 31, 2015. In addition, the Company has not been able to generate positive cash from operations for the three months ended March 31, 2015 and 2014. These factors raise substantial doubt about the Company's ability to continue as a going concern. | ||
Should the Company seek additional funds from external sources such as debt or additional equity financings or other potential sources, there can be no assurance that such funds will be available on terms acceptable to the Company or that they will not have a significant dilutive effect on the Company's existing stockholders. The inability to generate cash flow from operations or to raise sufficient capital from external sources would force the Company to substantially curtail or cease operations and would, therefore, have a material adverse effect on its business. | ||
During the three months ended March 31, 2015 the Company raised gross proceeds of $510,213 through the sale of 1,760,002 shares of common stock and equity units (see note 8 for additional details). | ||
Accordingly, the Company's existence is dependent on management's ability to develop profitable operations and resolve its liquidity problems. The accompanying consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern. | ||
The Company plans on funding operations and liquidity needs from the sales of its products and services, licensing arrangements, debt financing and/or sales of its common stock and notes convertible into common stock. There can be no assurance that additional funds required for continued operations during the next year or thereafter will be generated from our operations. | ||
Basis of Presentation | ||
The interim unaudited condensed consolidated financial statements included herein, presented in accordance with generally accepted accounting principles utilized in the United States of America (“GAAP”), and stated in U.S. dollars, have been prepared by the Company, without an audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. | ||
These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2014 and notes thereto which are included in the Form 10-K previously filed with the SEC on March 25, 2015. The Company follows the same accounting policies in the preparation of interim reports. | ||
Principles of Consolidation | ||
The accompanying consolidated financial statements include the accounts of TOMI Environmental Solutions, Inc. (a Florida Corporation) (TOMI-Florida), and its wholly-owned subsidiary, TOMI Environmental Solutions, Inc. (a Nevada Corporation) (TOMI-Nevada). The Company’s 55% owned subsidiary, TOMI Environmental-China (TOMI-China), has been dormant since its formation in April 2011. All significant intercompany accounts and transactions have been eliminated in consolidation. | ||
Use of Estimates | ||
The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the accompanying consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, including those related to the accounts receivable, fair values of financial instruments, intangible assets, useful lives of intangible assets and property and equipment, fair values of stock-based awards, income taxes, and contingent liabilities, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of our assets and liabilities. | ||
Reclassification of Accounts | ||
Certain reclassifications have been made to prior-year comparative financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or financial position. | ||
Fair Value Measurements | ||
The authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance describes a fair value hierarchy based on the levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following: | ||
Level 1: | Quoted prices in active markets for identical assets or liabilities. | |
Level 2: | Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by observable market data or substantially the full term of the assets or liabilities. | |
Level 3: | Unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities. | |
The Company’s financial instruments include cash and equivalents, accounts receivable, accounts payable and accrued expenses. All these items were determined to be Level 1 fair value measurements. | ||
The carrying amounts of cash and equivalents, accounts receivable, accounts payable and accrued expenses, approximated fair value because of the short maturity of these instruments. The recorded value of convertible debt approximates its fair value as the terms and rates approximate market rates (See also Note 6) | ||
Cash and Cash Equivalents | ||
For purposes of the statement of cash flows, cash and cash equivalents includes cash on hand held at financial institutions and other liquid investments with original maturities of three months or less. | ||
Inventories | ||
Inventories are valued at the lower of cost or market using the first-in, first-out (”FIFO”) method. Inventories consist primarily of raw materials and finished goods. | ||
Property and Equipment | ||
We account for property and equipment at cost less accumulated depreciation. We compute depreciation using the straight-line method over the estimated useful lives of the assets, generally three to five years. Depreciation for equipment, furniture and fixtures and vehicles commences once placed in service for its intended use. Leasehold improvements are amortized using the straight-line method over the lives of the respective leases or service lives of the improvements, whichever is shorter. | ||
Deferred Financing Costs | ||
The Company follows authoritative guidance for accounting for financing costs as it relates to convertible debt issuance cost. These costs are deferred and amortized over the term of the debt period or until redemption of the convertible debentures. Amortization of deferred financing costs amounted to approximately $84,000 and $84,000 for the three months ended March 31, 2015 and 2014, respectively. | ||
Income taxes | ||
Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. The measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits, which are, on a more likely than not basis, not expected to be realized; in accordance with ASC guidance for income taxes. Net deferred tax benefits have been fully reserved at March 31, 2015 and December 31, 2014. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted. | ||
Loss Per Share | ||
Basic loss per share is computed by dividing the Company’s net loss by the weighted average number of common shares outstanding during the period presented. Diluted loss per share is based on the treasury stock method and includes the effect from potential issuance of common stock such as shares issuable pursuant to the exercise of warrants and conversions of debentures. | ||
Potentially dilutive securities as of March 31, 2015, consisted of 17,496,552 common shares from convertible debentures, 32,451,413 common shares from outstanding warrants (including 7,611,000 warrants issued in conjunction with the above convertible notes), 100,000 common shares from options and 510,000 common shares from convertible Series A preferred stock. Diluted and basic weighted average shares are the same, as potentially dilutive shares are anti-dilutive. | ||
Potentially dilutive securities as of March 31, 2014, consisted of 17,496,552 common shares from convertible debentures, 28,625,800 common shares from outstanding warrants, 80,000 common shares from options and 510,000 common shares from convertible Series A preferred stock. Diluted and basic weighted average shares are the same, as potentially dilutive shares are anti-dilutive. | ||
Revenue Recognition | ||
For revenue from services and product sales, the Company recognized revenue in accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition” (SAB No. 104), which superseded Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (SAB No. 101). SAB No. 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) service has been rendered or delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgment regarding the fixed nature of the selling prices of the services rendered or products delivered and the collectability of those amounts. Provisions for discounts to customers, and allowance, and other adjustments will be provided for in the same period the related sales are recorded. | ||
Stock-Based Compensation | ||
The Company accounts for stock-based compensation in accordance with Financial Accounting Standards Board (“FASB”), ASC 718, Compensation- “Stock Compensation.” Under the provisions of FASB ASC 718, stock-based compensation cost is estimated at the grant date based on the award’s fair value and is recognized as expense over the requisite service period. The Company currently has one active stock-based compensation plan, TOMI Environmental Solutions, Inc. Stock Option and Restricted Stock Plan (the “Plan”). The Plan calls for the Company, through a committee of its Board of Directors, to issue up to 2,500,000 shares of restricted common stock or stock options. The Company generally issues grants to its employees, consultants, and board members. Stock options are granted with an exercise price equal to the closing price of its common stock on the date of the grant with a term no greater than 10 years. Generally, stock options vest over two to four years. Incentive stock options granted to shareholders who own 10% or more of the Company’s outstanding equity securities are granted at an exercise price that may not be less than 110% of the closing price of the Company’s common stock on the date of grant and have a term no greater than five years. On the date of a grant, the Company determines the fair value of the stock option award and recognizes compensation expense over the requisite service period, which is generally the vesting period of the award. The fair value of the stock option award is calculated using the Black-Scholes option-pricing model. As of March 31, 2015, the Company had 712,291 shares available to be issued under the Plan. | ||
On February 11, 2014, the Company’s Board of Directors adopted the 2014 Stock Option Plan (the “Plan”), subject to shareholder approval, intended to attract and retain individuals of experience and ability, to provide incentive to our employees, consultants, and non-employee directors, to encourage employee and director proprietary interests in us, and to encourage employees to remain in our employ. Each of the named executive officers is eligible for annual equity awards, which are granted pursuant to the Plan. The Plan authorizes the grant of non-qualified and incentive stock options, stock appreciation rights and restricted stock awards (each, an “Award”). A maximum of 5,000,000 shares of common stock are reserved for potential issuance pursuant to Awards under the Plan. As of March 31, 2015, no shares have been issued under the 2014 Stock Option Plan. | ||
Concentrations of Credit Risk | ||
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents. The Company maintains cash balances at financial institutions which exceed the current Federal Deposit Insurance Corporation (“FDIC”) limit of $250,000 at times during the year. | ||
Long-Lived Assets Including Acquired Intangible Assets | ||
The Company assesses long-lived assets for potential impairments at the end of each year, or during the year if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset. In evaluating long-lived assets for impairment, the Company measures recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If the Company’s long-lived assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value. The Company bases its calculations of the estimated fair value of its long-lived assets on the income approach. For the income approach, The Company uses an internally developed discounted cash flow model that include, among others, the following assumptions: projections of revenues and expenses and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. We base these assumptions on our historical data and experience, industry projections, micro and macro general economic condition projections, and our expectations. | ||
We have had no long-lived asset impairment charges for three months ended March 31, 2015 and 2014. The Company’s most recent detailed test disclosed an estimated fair value of its patents and trademarks that exceeded its’ respective carrying amount based on our model and assumptions. | ||
Advertising and Promotional Expenses | ||
The Company expenses advertising costs in the period in which they are incurred. For the three months ended March 31, 2015 and 2014, advertising and promotional expenses were approximately $3,000 and $3,000, respectively. | ||
Recent Accounting Pronouncements | ||
In May of 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09) “Revenue from Contracts with Customers.” ASU 2014-09 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605)”, and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflect the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. We are currently in the process of evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements. |
3_INVENTORIES
3. INVENTORIES | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Inventory Disclosure [Abstract] | |||||||||
NOTE 3: INVENTORIES | Inventories consist of the following: | ||||||||
March 31, | December 31, | ||||||||
2015 (Unaudited) | 2014 | ||||||||
Raw materials | $ | 105,120 | $ | 159,807 | |||||
Finished goods | 806,785 | 613,026 | |||||||
Inventory, end of period | $ | 911,905 | $ | 772,833 |
4_PROPERTY_AND_EQUIPMENT
4. PROPERTY AND EQUIPMENT | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Notes to Financial Statements | |||||||||
NOTE 4. PROPERTY AND EQUIPMENT | Property and equipment consists of the following: | ||||||||
March 31, | December 31, | ||||||||
2015 (Unaudited) | 2014 | ||||||||
Furniture and fixture | $ | 71,647 | $ | 69,555 | |||||
Equipment | 382,321 | 374,620 | |||||||
Vehicles | 44,344 | 44,344 | |||||||
Software | 12,167 | 12,167 | |||||||
Leasehold Improvements | 8,630 | 8,630 | |||||||
519,109 | 509,316 | ||||||||
Less: Accumulated depreciation | 254,033 | 221,157 | |||||||
$ | 265,076 | $ | 288,159 | ||||||
Depreciation was $32,876 and $19,529 for the three months ended March 31, 2015 and 2014, respectively. |
5_INTANGIBLE_ASSETS_AND_ASSET_
5. INTANGIBLE ASSETS AND ASSET ACQUISITION | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Notes to Financial Statements | |||||||||
NOTE 5. INTANGIBLE ASSETS AND ASSET ACQUISITION | Intangible assets consist of Patents and Trademarks related to our Binary Ionization Technology. All of these assets are pledged as collateral for the convertible notes issued as described below in Note 6. The patents are being amortized over the estimated remaining lives of the related patents. The trademarks have an indefinite life. Amortization expense was $92,377 and $92,377 for the three months ended March 31, 2015 and 2014. | ||||||||
Definite life intangible assets consist of the following: | |||||||||
March 31, | December 31, | ||||||||
2015 (Unaudited) | 2014 | ||||||||
Intellectual property and patents | $ | 2,848,300 | $ | 2,848,300 | |||||
Less: Accumulated Amortization | 723,621 | 631,244 | |||||||
Intangible Assets, net | $ | 2,124,679 | $ | 2,217,056 | |||||
Indefinite life intangible assets consist of the following: | |||||||||
March 31, | December 31, | ||||||||
2015 (Unaudited) | 2014 | ||||||||
Trademarks | $ | 440,000 | $ | 440,000 | |||||
March 31, | December 31, | ||||||||
2015 (Unaudited) | 2014 | ||||||||
Total Intangible Assets | $ | 2,564,679 | $ | 2,657,056 | |||||
Approximate amortization over the next five years is as follows: | |||||||||
Year Ending December 31, | Amount | ||||||||
2015 | $ | 274,000 | |||||||
2016 | 370,000 | ||||||||
2017 | 370,000 | ||||||||
2018 | 370,000 | ||||||||
2019 | 370,000 | ||||||||
Thereafter | 370,000 | ||||||||
$ | 2,124,000 |
6_CONVERTIBLE_DEBT
6. CONVERTIBLE DEBT | 3 Months Ended | ||||||||||||
Mar. 31, 2015 | |||||||||||||
Notes to Financial Statements | |||||||||||||
NOTE 6. CONVERTIBLE DEBT | In November 2012, the Company initiated a Private Placement offering a maximum of 240 Units of the Company’s securities at a price of $25,000 per Unit or $6,000,000. The initial closing of the offering occurred in April 2013 as the bulk of the net proceeds of the offering were to be allocated for the asset purchase from L-3 Applied Technologies, Inc., which agreement was not finalized until April 2013. Each Unit consists of $25,000 par amount of a 10% Senior Secured Callable Convertible Promissory Note due and payable on July 31, 2015 and 37,500 warrants each of which allows the investor to purchase one share of common stock and expires on July 31, 2018. Interest is payable on the Notes at a rate of 10% per annum, and payable on July 31st and January 31st. The Notes are secured by the Company's intellectual property such as the Patents, royalties, receivables of the Company and all equipment except for the new equipment acquired with the proceeds from any future financing that is initially secured by this new equipment. The Notes call for the establishment of a sinking fund. Within 45 days of each calendar quarter 15% of the Company’s reported revenue will be deposited into the Company’s escrowed sinking fund account. Subsequent to March 31, 2015, the Company deposited approximately $102,000 or 15% of the first quarter revenue into the sinking fund account. | ||||||||||||
The Company sold 202.96 Units for gross proceeds of $5,074,000 and issued 7,611,000 warrants in connection with the Units. Net proceeds amounted to $4,462,693 after expenses of offering totaling $611,307. In addition, the placement agent received 1,014,800 warrants valued at $165,180. | |||||||||||||
The convertible notes are convertible, at the option of the note holder, into shares of our common stock at an initial conversion price of $.29 (which conversion price is subject to adjustment upon the occurrence of events specified in the Convertible Notes, including stock dividends, stock splits, certain fundamental corporate transactions, and certain issuances of common stock by the Company). | |||||||||||||
The Warrants are exercisable into shares of Common Stock (the "Warrant Shares") at an initial exercise price of $0.30 (which may be subject to certain adjustments as set forth in the Warrants). | |||||||||||||
The Company evaluated the warrants under ASC 815-40-15 due to the exercise price being adjustable upon certain events occurring. The company determined that the warrants are considered indexed to the Company’s own stock and thus meet the scope exception under FASB ASC 815-10-15-74 and are therefore not considered a derivative. The estimated fair value of the warrants, which contain reset provisions, were calculated using the Monte Carlo valuation model. The Company recorded the warrant’s relative fair value of $956,712 as an increase to additional paid in capital and a discount against the related debt. | |||||||||||||
The Convertible Notes contain a provision whereby the conversion price is adjustable upon the occurrence of certain events, including the issuance of common stock or common stock equivalents at a price which is lower than the current conversion price. Under FASB ASC 815-40-15-5, the embedded conversion feature is not considered indexed to the Company’s own stock and, therefore, does not meet the scope exception in FASB ASC 815-10-15 and thus needs to be accounted for as a derivative liability. The initial fair value of the embedded conversion feature was estimated at $7,316,092 and recorded as a derivative liability, resulting in an additional discount of $4,117,288 to the convertible notes and a finance charge of $3,198,804 included in the statement of operations for the year ended December 31, 2013. The fair value of the embedded conversion feature is estimated at the end of each quarterly reporting period using the Monte Carlo model. | |||||||||||||
The debt discount is being amortized over the life of the convertible note using the effective interest method. | |||||||||||||
Inherent in the Monte Carlo Valuation model are assumptions related to expected volatility, remaining life, risk-free rate and expected dividend yield. For the Convertible Notes using a Monte Carlo model, we estimate the probability and timing of potential future financing and fundamental transactions as applicable. The assumptions used by the Company are summarized below: | |||||||||||||
Convertible Notes | |||||||||||||
March 31, | December 31, | ||||||||||||
2015 (Unaudited) | 2014 | Inception | |||||||||||
Closing stock price | $ | 0.5 | $ | 0.27 | 0.13-0.55 | ||||||||
Conversion price | $ | 0.29 | $ | 0.29 | 0.29 | ||||||||
Expected volatility | 134 | % | 114 | % | 185%-190 | % | |||||||
Remaining term (years) | 0.33 | 0.58 | 2.30-2.07 | ||||||||||
Risk-free rate | 0.04 | % | 0.13 | % | .25%-.43 | % | |||||||
Expected dividend yield | 0 | % | 0 | % | 0 | % | |||||||
Warrant | |||||||||||||
Inception | |||||||||||||
Closing stock price | 0.13-0.55 | ||||||||||||
Conversion price | 0.3 | ||||||||||||
Expected volatility | 250 | % | |||||||||||
Remaining term (years) | 5.30-5.09 | ||||||||||||
Risk-free rate | .76% - (1.61 | %) | |||||||||||
Expected dividend yield | 0 | % | |||||||||||
Convertible notes consist of the following at March 31, 2015 and December 31, 2014: | |||||||||||||
March 31, | December 31, | ||||||||||||
2015 (Unaudited) | 2014 | ||||||||||||
Convertible notes | $ | 5,074,000 | $ | 5,074,000 | |||||||||
Less: Debt discount | 3,032,685 | 3,996,033 | |||||||||||
Convertible notes, net | $ | 2,041,315 | $ | 1,077,967 |
7_FAIR_VALUE
7. FAIR VALUE | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Notes to Financial Statements | |||||||||
NOTE 7. FAIR VALUE | In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures”, the following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2015 and December 31, 2014: | ||||||||
March 31, 2015: | Level 3 | Total | |||||||
Derivative Instruments | $ | 4,402,031 | $ | 4,402,031 | |||||
December 31, 2014: | Level 3 | Total | |||||||
Derivative Instruments | $ | 1,728,883 | $ | 1,728,883 | |||||
Level 3 financial instruments consist of certain embedded conversion features. The fair value of these embedded conversion features that have exercise reset features are estimated using a Monte Carlo valuation model. The Company adopted the disclosure requirements of ASU 2011-04, “Fair Value Measurements.” (See note 6) The unobservable input used by the Company was the estimation of the likelihood of a reset occurring on the embedded conversion feature of the Convertible Notes. These estimates of the likelihood of completing an equity raise that would meet the criteria to trigger the reset provisions are based on numerous factors, including the remaining term of the financial instruments and the Company’s overall financial condition. | |||||||||
The following table summarizes the changes in fair value of the Company’s Level 3 financial instruments for the period ended March 31, 2015 and December 31, 2014. | |||||||||
March 31, | December 31, | ||||||||
2015 (Unaudited) | 2014 | ||||||||
Beginning Balance | $ | 1,728,883 | $ | 7,665,502 | |||||
Change in fair value | 2,673,148 | (5,936,619 | ) | ||||||
Ending Balance | $ | 4,402,031 | $ | 1,728,883 | |||||
Changes in the unobservable input values would likely cause material changes in the fair value of the Company’s Level 3 financial instruments. The significant unobservable input used in the fair value measurement is the estimation of the likelihood of the occurrence of a change to the conversion price based on the contractual terms of the financial instruments. A significant increase (decrease) in this likelihood would result in a higher (lower) fair value measurement. |
8_STOCKHOLDERS_EQUITY_DEFICIEN
8. STOCKHOLDERS' EQUITY (DEFICIENCY) | 3 Months Ended | ||||||||||||||||||
Mar. 31, 2015 | |||||||||||||||||||
Notes to Financial Statements | |||||||||||||||||||
NOTE 8. STOCKHOLDERS' EQUITY (DEFICIENCY) | The Company’s Board of Directors may, without further action by the Company’s stockholders, from time to time, direct the issuance of any authorized but unissued or unreserved shares of preferred stock in series and at the time of issuance, determine the rights, preferences and limitations of each series. The holders of such preferred stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up of the Company before any payment is made to the holders of our common stock. Furthermore, the Board of Directors could issue preferred stock with voting and other rights that could adversely affect the voting power of the holders of our common stock. | ||||||||||||||||||
Convertible Series A Preferred Stock | |||||||||||||||||||
The Company has authorized 1,000,000 shares of Convertible Series A Preferred Stock, $0.01 par value. At March 31, 2015 and December 31, 2014, there were 510,000 shares issued and outstanding, respectively. The Convertible Series A Preferred Stock is convertible at the rate of one share of common stock for one share of Convertible Series A Preferred Stock. | |||||||||||||||||||
Convertible Series B Preferred Stock | |||||||||||||||||||
The Company has authorized 4,000 shares of Convertible Series B Preferred Stock, $1,000 stated value, 7.5% Cumulative dividend. At March 31, 2015 and December 31, 2014, there were no shares issued and outstanding, respectively. | |||||||||||||||||||
Common Stock | |||||||||||||||||||
During the three months ended March 31, 2014, the Company issued 19,758 shares of common stock valued at approximately $9,000 for professional services rendered. In addition, the Company issued 6,420 shares of common stock valued at $3,000 to Harold Paul, Director, as payment for legal services rendered. The Company also issued 230,000 shares to the Rolyn Companies, Inc. (“Rolyn”) for labor and services support. | |||||||||||||||||||
During the three months ended March 31, 2014, the Company issued 78,125 shares as consideration for payment of accrued compensation to the CEO amounting to $25,000. | |||||||||||||||||||
During the three months ended March 31, 2015, the Company issued 100,000 shares of common stock valued at approximately $25,000 for professional services rendered (Note 11). | |||||||||||||||||||
During the three Months ended March 31, 2015, the Company issued 20,245 shares of common stock valued at $6,000 to Nick Jennings, CFO, as part of his annual compensation from the Company. | |||||||||||||||||||
During the three months ended March 31, 2015, the Company sold, through its confidential private offering, 1,500,002 equity units. Each unit consisted of 1 share of common stock and 2.5 warrants. The warrants have an exercise price of $.29 per share and a term of seven years. Gross proceeds to the Company amounted to $434,826. In connection with the sale, the Company incurred a cash finder’s fee in the amount of $43,500 in addition to a finder’s fee to be paid in common stock of 45,000 shares valued at $13,050. | |||||||||||||||||||
During the three months ended March 31, 2015, the Company directly sold, 260,000 equity units. Each unit consisted of 1 share of common stock and 2.5 warrants. The warrants have an exercise price of $.29 per share and a term of seven years. Gross proceeds to the Company amounted to $75,387. In connection with the sale, the Company incurred a cash finder’s fee in the amount of $7,500 in addition to a finder’s fee to be paid in common stock of 7,800 shares valued at $2,262. | |||||||||||||||||||
Stock Options | |||||||||||||||||||
The Company issued 20,000 options valued at $8,723 to a director in January 2014. The options have an exercise price of $0.44 per share. The options expire in January 2024. The options were valued using the Black-Scholes model using the following assumptions: volatility: 233%; dividend yield: 0%; zero coupon rate: 1.72%; and a life of 10 years. | |||||||||||||||||||
The Company issued 40,000 options valued at $10,798 to two directors in January 2015. The options have an exercise price of $0.27 per share. The options expire in January 2025. The options were valued using the Black-Scholes model using the following assumptions: volatility: 237%; dividend yield: 0%; zero coupon rate: 1.61%; and a life of 10 years. | |||||||||||||||||||
The following table summarizes stock options outstanding as of March 31, 2015 and December 31, 2014: | |||||||||||||||||||
March 31, 2015 (Unaudited) | 31-Dec-14 | ||||||||||||||||||
Number of Options | Weighted Average Exercise Price | Number of Options | Weighted Average Exercise Price | ||||||||||||||||
Outstanding, beginning of period | 60,000 | $ | 1.42 | 60,000 | $ | 1.42 | |||||||||||||
Granted | 40,000 | 0.27 | 20,000 | 0.44 | |||||||||||||||
Exercised | - | - | (20,000 | ) | 0.44 | ||||||||||||||
Outstanding, end of period | 100,000 | $ | 0.96 | 60,000 | $ | 1.42 | |||||||||||||
Options outstanding and exercisable by price range as of March 31, 2015 were as follows: | |||||||||||||||||||
Outstanding Options | Average | Exercisable Options | |||||||||||||||||
Weighted | |||||||||||||||||||
Range | Number | Remaining | Number | Weighted | |||||||||||||||
Contractual | Average | ||||||||||||||||||
Life in Years | Exercise Price | ||||||||||||||||||
$ | 2.1 | 40,000 | 4.76 | 40,000 | $ | 2.1 | |||||||||||||
$ | 0.05 | 20,000 | 5.77 | 20,000 | $ | 0.05 | |||||||||||||
$ | 0.27 | 40,000 | 9.77 | 40,000 | $ | 0.27 | |||||||||||||
100,000 | 100,000 | ||||||||||||||||||
Stock Warrants | |||||||||||||||||||
On February 11, 2014, as part of the employment agreements entered into with its three executive officers (CEO, President and COO), the Board of Directors approved the grant of 3,000,000 stock warrants to each of them as executive compensation. The warrants have a term of five years and vest as follows: 1,000,000 warrants will vest upon issuance; 1,000,000 warrants will vest as of February 11, 2015, and 1,000,000 warrants will vest as of February 11, 2016. The exercise price of the warrants is $0.30 per share based on the closing price of the Company’s common stock on the grant date of $0.32. If employment is terminated, the terms of any then outstanding warrant held by the holder shall extend for a period ending on the earlier of the date on which such warrant would otherwise expire or three months after such termination of employment and the warrant shall be exercisable to the extent it was exercisable as of the date of termination of employment. Any unvested warrants shall immediately vest on termination. The Company utilized the Black-Scholes method to fair value the 3,000,000 warrants received by these individuals totaling approximately $952,000 for each executive with the following assumptions: volatility, 233%; expected dividend yield, 0%; risk free interest rate, 1.54%; and a life of 5 years. The grant date fair value of each warrant was $0.32. Effective September 25, 2014, the President and COO resigned from their positions with the Company and accordingly, the remaining unvested warrants immediately vested. As of December 31, 2014, their warrants expired. | |||||||||||||||||||
On February 11, 2014, the Company’s Board of Directors approved the granting of 300,000 stock warrants to its CFO Chris Chipman as incentive compensation. Effective July 18, 2014, Chris Chipman resigned from his position of Chief Financial Officer of the Company and accordingly, his unvested share of warrants were deemed to be null and void. | |||||||||||||||||||
For the three months ended March 31, 2014, the Company recognized equity based compensation of approximately $1,133,000 on the warrants issued to the executives. In addition, the Company recognized approximately $9,000 for director options (See Note 8-Stock Options). | |||||||||||||||||||
For the three months ended March 31, 2015, the Company recognized equity based compensation of approximately $79,000 on the warrants issued to the CEO in connection with the employment agreement. In addition, the Company recognized approximately $10,800 for director options (See Note 8-Stock Options), $28,000 to a consultant (Note 11), and $7,400 on the vesting of warrants issued to the CFO on October 1, 2014 (Note 9). | |||||||||||||||||||
During the quarter ended March 31, 2015, the Company issued 4,400,005 warrants in connection with the equity units sold to investors. See note 8 (common stock) for additional details. | |||||||||||||||||||
The following table summarizes the outstanding common stock warrants as of March 31, 2015 and December 31, 2014: | |||||||||||||||||||
March 31, 2015 (Unaudited) | 31-Dec-14 | ||||||||||||||||||
Number of Warrants | Weighted Average Exercise Price | Number of Warrants | Weighted Average Exercise Price | ||||||||||||||||
Outstanding, beginning of period | 28,051,408 | $ | 0.23 | 19,325,800 | $ | 0.21 | |||||||||||||
Granted | 4,400,005 | 0.29 | 15,325,608 | 0.3 | |||||||||||||||
Expired | - | - | (300,000 | ) | 0.77 | ||||||||||||||
Expired | - | - | (6,300,000 | ) | 0.3 | ||||||||||||||
Outstanding, end of period | 32,451,413 | $ | 0.24 | 28,051,408 | $ | 0.23 | |||||||||||||
Warrants outstanding and exercisable by price range as of March 31, 2015 were as follows: | |||||||||||||||||||
Outstanding Warrants | Exercisable Warrants | ||||||||||||||||||
Average | |||||||||||||||||||
Weighted | |||||||||||||||||||
Range | Number | Remaining | Number | Weighted | |||||||||||||||
Contractual | Average | ||||||||||||||||||
Life in Years | Exercise Price | ||||||||||||||||||
$ | 0.01 | 1,575,000 | 2.28 | 1,575,000 | $ | 0.01 | |||||||||||||
$ | 0.05 | 975,000 | 2.37 | 975,000 | $ | 0.05 | |||||||||||||
$ | 0.15 | 7,750,000 | 2.55 | 7,750,000 | $ | 0.15 | |||||||||||||
$ | 0.261 | 100,000 | 3.24 | 100,000 | $ | 0.26 | |||||||||||||
$ | 0.29 | 10,125,613 | 5.55 | 10,125,613 | $ | 0.29 | |||||||||||||
$ | 0.3 | 11,925,800 | 3.5 | 10,725,800 | $ | 0.3 | |||||||||||||
32,451,413 | 31,251,413 | ||||||||||||||||||
Unvested warrants outstanding as of March 31, 2015 were as follows: | |||||||||||||||||||
Unvested Warrants | Average | ||||||||||||||||||
Weighted | |||||||||||||||||||
Weighted | Number | Remaining | |||||||||||||||||
Average | Contractual | ||||||||||||||||||
Exercise Price | Life in Years | ||||||||||||||||||
$ | 0.3 | 1,200,000 | 3.98 |
9_RELATED_PARTY
9. RELATED PARTY | 3 Months Ended |
Mar. 31, 2015 | |
Notes to Financial Statements | |
NOTE 9. RELATED PARTY | Employment Agreement |
On February 11, 2014, the Company entered into an amended employment agreement with its CEO that provides for a base salary of $36,000 per year. The agreement provided for an increase in the base salary to $120,000 if annual gross revenue exceeds five million and $175,000 if annual gross revenue were to exceed ten million on a calendar year basis. Any bonuses awarded will be based upon the Company’s performance and be made at the discretion of the Board of Directors. The CEO will also have the right to receive expense reimbursements and certain employee benefits. The terms of the employment agreement will be three years terminating on December 31, 2016. | |
On September 25, 2014, the Company appointed Norris Gearhart as Principal Operating Officer of the Company and entered into an employment agreement with him. The agreement provides for a base salary of $126,000 per year and performance based bonuses. | |
The Company appointed Nick Jennings as its Principal Financial Officer effective September 25, 2014. Mr. Jennings employment with the Company commenced on October 1, 2014. The employment agreement between Mr. Jennings and the Company provides for an annual base salary of $60,000 to be paid in the form of cash and $24,000 to be paid in the form of the Company’s restricted stock. As part of Mr. Jennings’s agreement, 300,000 warrants were issued with a term of five years vesting 100,000 upon the grant date (October 1, 2014), 100,000 on October 1, 2015 and 100,000 on October 1, 2016. The exercise price of the warrant is $0.30 per share based on the volume weighted average price of the Company’s common stock for the five days prior to the grant date. | |
Distribution and Licensing Agreement | |
On March 21, 2014, the Company entered into a distribution and licensing agreement with Plascencia Universal, S. de R.L. de C.V. (“Plascencia Universal”), a Mexican company that will act as the exclusive distributor of TOMI’s products and services in Mexico. The principal of Plascencia Universal is also the broker for the Company’s insurance policies and was appointed a director of the Company. The agreement was amended in April of 2015 (see note 13). |
10_COMMITMENTS_AND_CONTINGENCI
10. COMMITMENTS AND CONTINGENCIES | 3 Months Ended | ||||
Mar. 31, 2015 | |||||
Notes to Financial Statements | |||||
NOTE 10. COMMITMENTS AND CONTINGENCIES | Lease Commitments | ||||
In September of 2014 the Company entered into a lease agreement for office and warehouse space in Fredrick Maryland. As part of the lease agreement, the Company is to receive a rent holiday in the first 5 months of the lease. The lease also provides for an escalation clause where the Company will be subject to an annual rent increase of 3%, year over year. The lease expires on January 31, 2018. The Company accounts for the lease using the straight line method and recorded $11,427 in rent expense for the quarter ended March 31, 2015. Approximate minimum annual rents under lease are as follows: | |||||
Year Ending December 31, | Amount | ||||
2015 | $ | 38,000 | |||
2016 | 52,000 | ||||
2017 | 53,000 | ||||
2018 | 4,000 | ||||
$ | 147,000 |
11_CONTRACTS_AND_AGREEMENTS
11. CONTRACTS AND AGREEMENTS | 3 Months Ended |
Mar. 31, 2015 | |
Notes to Financial Statements | |
NOTE 11. CONTRACTS AND AGREEMENTS | In September 2014, the Company entered into a Sales and Distribution Agreement, superseding previous agreements, with TOMI Panama covering Panama, El Salvador, Guatemala, Nicaragua, Columbia, Honduras, Costa Rica and Ecuador. TOMI Panama is its exclusive distributor of the Company’s products and services within the country of Panama. For the quarter ended March 31, 2015, revenues of approximately $37,000 were recognized with regards to TOMI Panama. |
On October 15, 2014, the Company entered into a manufacturing and development agreement with RG Group, Inc. For the quarter ended March 31, 2015, RG Group, Inc. manufactured substantially all of the Company’s equipment. | |
In January of 2015, the Company entered into a consulting agreement that provides for a fee based on revenue received from existing and prospective clients assigned and revenue from sales related to customers the consultant finds for the Company. The agreement also provided for the issuance of 100,000 shares of the Company’s common restricted stock that were issued in February of 2015 and valued at $25,000. In addition, the agreement provides for the issuance of 75,000 common stock warrants on a quarterly basis that vest upon issuance with strike price equal to the VWAP for the 5 day period prior to the close of the quarter with a term of 3 years. The term of the Consulting agreement is two years. The Company utilized the Black-Scholes method to fair value the 75,000 warrants with the following assumptions: volatility, 174%; expected dividend yield, 0%; risk free interest rate, 1.42%; and a life of 3 years. The grant date fair value of each warrant was $0.37. For the quarter ended March 31, 2015, the Company recognized approximately $28,000 in equity based compensation on the accrual of the warrants issued in April to the consultant. |
12_COMMON_STOCK_TO_BE_ISSUED
12. COMMON STOCK TO BE ISSUED | 3 Months Ended |
Mar. 31, 2015 | |
Equity [Abstract] | |
Note 12. COMMON STOCK TO BE ISSUED | As of March 31, 2015, the Company was obligated to issue 260,011 shares of common stock valued at approximately $78,000 primarily to certain vendors and consultants. |
As of December 31, 2014, the Company was obligated to issue 155,619 shares of common stock valued at approximately $36,000 primarily to certain vendors and consultants. |
13_SUBSEQUENT_EVENTS
13. SUBSEQUENT EVENTS | 3 Months Ended |
Mar. 31, 2015 | |
Notes to Financial Statements | |
NOTE 13. SUBSEQUENT EVENTS | The Company has evaluated subsequent events through the date the financial statements were issued and up to the time of filing of the financial statements with the Securities and Exchange Commission. |
In April of 2015, the Company modified its agreement with Plascencia Universal with respect to the license fee included in the original agreement. The original agreement provided for a $300,000 licensing fee that would be recognized based on the gross purchases made by Plascencia Universal from the Company. Under the revised agreement, the terms of payment of the license fee will occur once Plascencia Universal sells the product acquired from the Company that generated the license fee. | |
In May of 2015, the Company deposited $102,000 or approximately 15% of the first quarter revenue into the bank sinking fund account. | |
In May of 2015, the Company directly sold 625,000 shares of common stock for gross proceeds of $225,000. |
2_SUMMARY_OF_SIGNIFICANT_ACCOU1
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 3 Months Ended | |
Mar. 31, 2015 | ||
Summary Of Significant Accounting Policies Policies | ||
Going Concern | The Company incurred net losses of approximately $4,272,000 and $97,000 for the three months ended March 31, 2015 and 2014, respectively. In addition, the Company had a working capital deficiency of approximately $5,409,000 and stockholders’ deficit of $2,574,000 at March 31, 2015. Cash and cash equivalents was approximately $174,000 as of March 31, 2015. In addition, the Company has not been able to generate positive cash from operations for the three months ended March 31, 2015 and 2014. These factors raise substantial doubt about the Company's ability to continue as a going concern. | |
Should the Company seek additional funds from external sources such as debt or additional equity financings or other potential sources, there can be no assurance that such funds will be available on terms acceptable to the Company or that they will not have a significant dilutive effect on the Company's existing stockholders. The inability to generate cash flow from operations or to raise sufficient capital from external sources would force the Company to substantially curtail or cease operations and would, therefore, have a material adverse effect on its business. | ||
During the three months ended March 31, 2015 the Company raised gross proceeds of $510,213 through the sale of 1,760,002 shares of common stock and equity units (see note 8 for additional details). | ||
Accordingly, the Company's existence is dependent on management's ability to develop profitable operations and resolve its liquidity problems. The accompanying consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern. | ||
The Company plans on funding operations and liquidity needs from the sales of its products and services, licensing arrangements, debt financing and/or sales of its common stock and notes convertible into common stock. There can be no assurance that additional funds required for continued operations during the next year or thereafter will be generated from our operations. | ||
Basis of Presentation | The interim unaudited condensed consolidated financial statements included herein, presented in accordance with generally accepted accounting principles utilized in the United States of America (“GAAP”), and stated in U.S. dollars, have been prepared by the Company, without an audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. | |
These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2014 and notes thereto which are included in the Form 10-K previously filed with the SEC on March 25, 2015. The Company follows the same accounting policies in the preparation of interim reports. | ||
Principles of Consolidation | The accompanying consolidated financial statements include the accounts of TOMI Environmental Solutions, Inc. (a Florida Corporation) (TOMI-Florida), and its wholly-owned subsidiary, TOMI Environmental Solutions, Inc. (a Nevada Corporation) (TOMI-Nevada). The Company’s 55% owned subsidiary, TOMI Environmental-China (TOMI-China), has been dormant since its formation in April 2011. All significant intercompany accounts and transactions have been eliminated in consolidation. | |
Use of Estimates | The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the accompanying consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, including those related to the accounts receivable, fair values of financial instruments, intangible assets, useful lives of intangible assets and property and equipment, fair values of stock-based awards, income taxes, and contingent liabilities, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of our assets and liabilities. | |
Reclassification of Accounts | Certain reclassifications have been made to prior-year comparative financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or financial position. | |
Fair Value Measurements | The authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance describes a fair value hierarchy based on the levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following: | |
Level 1: | Quoted prices in active markets for identical assets or liabilities. | |
Level 2: | Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by observable market data or substantially the full term of the assets or liabilities. | |
Level 3: | Unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities. | |
The Company’s financial instruments include cash and equivalents, accounts receivable, accounts payable and accrued expenses. All these items were determined to be Level 1 fair value measurements. | ||
The carrying amounts of cash and equivalents, accounts receivable, accounts payable and accrued expenses, approximated fair value because of the short maturity of these instruments. The recorded value of convertible debt approximates its fair value as the terms and rates approximate market rates (See also Note 6) | ||
Cash and cash equivalents | For purposes of the statement of cash flows, cash and cash equivalents includes cash on hand held at financial institutions and other liquid investments with original maturities of three months or less. | |
Inventories | Inventories are valued at the lower of cost or market using the first-in, first-out (”FIFO”) method. Inventories consist primarily of raw materials and finished goods. | |
Property and Equipment | We account for property and equipment at cost less accumulated depreciation. We compute depreciation using the straight-line method over the estimated useful lives of the assets, generally three to five years. Depreciation for equipment, furniture and fixtures and vehicles commences once placed in service for its intended use. Leasehold improvements are amortized using the straight-line method over the lives of the respective leases or service lives of the improvements, whichever is shorter. | |
Deferred Financing Costs | The Company follows authoritative guidance for accounting for financing costs as it relates to convertible debt issuance cost. These costs are deferred and amortized over the term of the debt period or until redemption of the convertible debentures. Amortization of deferred financing costs amounted to approximately $84,000 and $84,000 for the three months ended March 31, 2015 and 2014, respectively. | |
Income taxes | Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. The measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits, which are, on a more likely than not basis, not expected to be realized; in accordance with ASC guidance for income taxes. Net deferred tax benefits have been fully reserved at March 31, 2015 and December 31, 2014. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted. | |
Loss Per Share | Basic loss per share is computed by dividing the Company’s net loss by the weighted average number of common shares outstanding during the period presented. Diluted loss per share is based on the treasury stock method and includes the effect from potential issuance of common stock such as shares issuable pursuant to the exercise of warrants and conversions of debentures. | |
Potentially dilutive securities as of March 31, 2015, consisted of 17,496,552 common shares from convertible debentures, 32,451,413 common shares from outstanding warrants (including 7,611,000 warrants issued in conjunction with the above convertible notes), 100,000 common shares from options and 510,000 common shares from convertible Series A preferred stock. Diluted and basic weighted average shares are the same, as potentially dilutive shares are anti-dilutive. | ||
Potentially dilutive securities as of March 31, 2014, consisted of 17,496,552 common shares from convertible debentures, 28,625,800 common shares from outstanding warrants, 80,000 common shares from options and 510,000 common shares from convertible Series A preferred stock. Diluted and basic weighted average shares are the same, as potentially dilutive shares are anti-dilutive. | ||
Revenue Recognition | For revenue from services and product sales, the Company recognized revenue in accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition” (SAB No. 104), which superseded Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (SAB No. 101). SAB No. 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) service has been rendered or delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgment regarding the fixed nature of the selling prices of the services rendered or products delivered and the collectability of those amounts. Provisions for discounts to customers, and allowance, and other adjustments will be provided for in the same period the related sales are recorded. | |
Stock-Based Compensation | The Company accounts for stock-based compensation in accordance with Financial Accounting Standards Board (“FASB”), ASC 718, Compensation- “Stock Compensation.” Under the provisions of FASB ASC 718, stock-based compensation cost is estimated at the grant date based on the award’s fair value and is recognized as expense over the requisite service period. The Company currently has one active stock-based compensation plan, TOMI Environmental Solutions, Inc. Stock Option and Restricted Stock Plan (the “Plan”). The Plan calls for the Company, through a committee of its Board of Directors, to issue up to 2,500,000 shares of restricted common stock or stock options. The Company generally issues grants to its employees, consultants, and board members. Stock options are granted with an exercise price equal to the closing price of its common stock on the date of the grant with a term no greater than 10 years. Generally, stock options vest over two to four years. Incentive stock options granted to shareholders who own 10% or more of the Company’s outstanding equity securities are granted at an exercise price that may not be less than 110% of the closing price of the Company’s common stock on the date of grant and have a term no greater than five years. On the date of a grant, the Company determines the fair value of the stock option award and recognizes compensation expense over the requisite service period, which is generally the vesting period of the award. The fair value of the stock option award is calculated using the Black-Scholes option-pricing model. As of March 31, 2015, the Company had 712,291 shares available to be issued under the Plan. | |
On February 11, 2014, the Company’s Board of Directors adopted the 2014 Stock Option Plan (the “Plan”), subject to shareholder approval, intended to attract and retain individuals of experience and ability, to provide incentive to our employees, consultants, and non-employee directors, to encourage employee and director proprietary interests in us, and to encourage employees to remain in our employ. Each of the named executive officers is eligible for annual equity awards, which are granted pursuant to the Plan. The Plan authorizes the grant of non-qualified and incentive stock options, stock appreciation rights and restricted stock awards (each, an “Award”). A maximum of 5,000,000 shares of common stock are reserved for potential issuance pursuant to Awards under the Plan. As of March 31, 2015, no shares have been issued under the 2014 Stock Option Plan. | ||
Concentrations of Credit Risk | Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents. The Company maintains cash balances at financial institutions which exceed the current Federal Deposit Insurance Corporation (“FDIC”) limit of $250,000 at times during the year. | |
Long-Lived Assets Including Acquired Intangible Assets | The Company assesses long-lived assets for potential impairments at the end of each year, or during the year if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset. In evaluating long-lived assets for impairment, the Company measures recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If the Company’s long-lived assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value. The Company bases its calculations of the estimated fair value of its long-lived assets on the income approach. For the income approach, The Company uses an internally developed discounted cash flow model that include, among others, the following assumptions: projections of revenues and expenses and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. We base these assumptions on our historical data and experience, industry projections, micro and macro general economic condition projections, and our expectations. | |
We have had no long-lived asset impairment charges for three months ended March 31, 2015 and 2014. The Company’s most recent detailed test disclosed an estimated fair value of its patents and trademarks that exceeded its’ respective carrying amount based on our model and assumptions. | ||
Advertising and Promotional Expenses | The Company expenses advertising costs in the period in which they are incurred. For the three months ended March 31, 2015 and 2014, advertising and promotional expenses were approximately $3,000 and $3,000, respectively. | |
Recent Accounting Pronouncements | In May of 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09) “Revenue from Contracts with Customers.” ASU 2014-09 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605)”, and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflect the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. We are currently in the process of evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements. |
3_INVENTORIES_Tables
3. INVENTORIES (Tables) | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Inventory Disclosure [Abstract] | |||||||||
INVENTORIES | March 31, | December 31, | |||||||
2015 (Unaudited) | 2014 | ||||||||
Raw materials | $ | 105,120 | $ | 159,807 | |||||
Finished goods | 806,785 | 613,026 | |||||||
Inventory, end of period | $ | 911,905 | $ | 772,833 |
4_PROPERTY_AND_EQUIPMENT_Table
4. PROPERTY AND EQUIPMENT (Tables) | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Property And Equipment Tables | |||||||||
PROPERTY AND EQUIPMENT | March 31, | December 31, | |||||||
2015 (Unaudited) | 2014 | ||||||||
Furniture and fixture | $ | 71,647 | $ | 69,555 | |||||
Equipment | 382,321 | 374,620 | |||||||
Vehicles | 44,344 | 44,344 | |||||||
Software | 12,167 | 12,167 | |||||||
Leasehold Improvements | 8,630 | 8,630 | |||||||
519,109 | 509,316 | ||||||||
Less: Accumulated depreciation | 254,033 | 221,157 | |||||||
$ | 265,076 | $ | 288,159 |
5_INTANGIBLE_ASSETS_AND_ASSET_1
5. INTANGIBLE ASSETS AND ASSET ACQUISITION (Tables) | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Intangible Assets And Asset Acquisition Tables | |||||||||
Definite life intangible assets | March 31, | December 31, | |||||||
2015 (Unaudited) | 2014 | ||||||||
Intellectual property and patents | $ | 2,848,300 | $ | 2,848,300 | |||||
Less: Accumulated Amortization | 723,621 | 631,244 | |||||||
Intangible Assets, net | $ | 2,124,679 | $ | 2,217,056 | |||||
Indefinite life intangible assets | March 31, | December 31, | |||||||
2015 (Unaudited) | 2014 | ||||||||
Trademarks | $ | 440,000 | $ | 440,000 | |||||
March 31, | December 31, | ||||||||
2015 (Unaudited) | 2014 | ||||||||
Total Intangible Assets | $ | 2,564,679 | $ | 2,657,056 | |||||
Approximate amortization over the next five years | Year Ending December 31, | Amount | |||||||
2015 | $ | 274,000 | |||||||
2016 | 370,000 | ||||||||
2017 | 370,000 | ||||||||
2018 | 370,000 | ||||||||
2019 | 370,000 | ||||||||
Thereafter | 370,000 | ||||||||
$ | 2,124,000 |
6_CONVERTIBLE_DEBT_Tables
6. CONVERTIBLE DEBT (Tables) | 3 Months Ended | ||||||||||||
Mar. 31, 2015 | |||||||||||||
Notes to Financial Statements | |||||||||||||
Convertible Notes potential future financing and fundamental transactions | Convertible Notes | ||||||||||||
March 31, | December 31, | ||||||||||||
2015 (Unaudited) | 2014 | Inception | |||||||||||
Closing stock price | $ | 0.5 | $ | 0.27 | 0.13-0.55 | ||||||||
Conversion price | $ | 0.29 | $ | 0.29 | 0.29 | ||||||||
Expected volatility | 134 | % | 114 | % | 185%-190 | % | |||||||
Remaining term (years) | 0.33 | 0.58 | 2.30-2.07 | ||||||||||
Risk-free rate | 0.04 | % | 0.13 | % | .25%-.43 | % | |||||||
Expected dividend yield | 0 | % | 0 | % | 0 | % | |||||||
Warrant | |||||||||||||
Inception | |||||||||||||
Closing stock price | 0.13-0.55 | ||||||||||||
Conversion price | 0.3 | ||||||||||||
Expected volatility | 250 | % | |||||||||||
Remaining term (years) | 5.30-5.09 | ||||||||||||
Risk-free rate | .76% - (1.61 | %) | |||||||||||
Expected dividend yield | 0 | % | |||||||||||
Convertible notes | March 31, | December 31, | |||||||||||
2015 (Unaudited) | 2014 | ||||||||||||
Convertible notes | $ | 5,074,000 | $ | 5,074,000 | |||||||||
Less: Debt discount | 3,032,685 | 3,996,033 | |||||||||||
Convertible notes, net | $ | 2,041,315 | $ | 1,077,967 |
7_FAIR_VALUE_Tables
7. FAIR VALUE (Tables) | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Notes to Financial Statements | |||||||||
Fair Value Measurements and Disclosures | March 31, 2015: | Level 3 | Total | ||||||
Derivative Instruments | $ | 4,402,031 | $ | 4,402,031 | |||||
December 31, 2014: | Level 3 | Total | |||||||
Derivative Instruments | $ | 1,728,883 | $ | 1,728,883 | |||||
Financial instruments | March 31, | December 31, | |||||||
2015 (Unaudited) | 2014 | ||||||||
Beginning Balance | $ | 1,728,883 | $ | 7,665,502 | |||||
Change in fair value | 2,673,148 | (5,936,619 | ) | ||||||
Ending Balance | $ | 4,402,031 | $ | 1,728,883 |
8_STOCKHOLDERS_EQUITY_DEFICIEN1
8. STOCKHOLDERS' EQUITY (DEFICIENCY) (Tables) | 3 Months Ended | ||||||||||||||||||
Mar. 31, 2015 | |||||||||||||||||||
Summary of stock warrants outstanding | March 31, 2015 (Unaudited) | 31-Dec-14 | |||||||||||||||||
Number of Warrants | Weighted Average Exercise Price | Number of Warrants | Weighted Average Exercise Price | ||||||||||||||||
Outstanding, beginning of period | 28,051,408 | $ | 0.23 | 19,325,800 | $ | 0.21 | |||||||||||||
Granted | 4,400,005 | 0.29 | 15,325,608 | 0.3 | |||||||||||||||
Expired | - | - | (300,000 | ) | 0.77 | ||||||||||||||
Expired | - | - | (6,300,000 | ) | 0.3 | ||||||||||||||
Outstanding, end of period | 32,451,413 | $ | 0.24 | 28,051,408 | $ | 0.23 | |||||||||||||
Warrants outstanding and exercisable by price range | Outstanding Warrants | Average | Exercisable Warrants | ||||||||||||||||
Weighted | |||||||||||||||||||
Range | Number | Remaining | Number | Weighted | |||||||||||||||
Contractual | Average | ||||||||||||||||||
Life in Years | Exercise Price | ||||||||||||||||||
$ | 0.01 | 1,575,000 | 2.28 | 1,575,000 | $ | 0.01 | |||||||||||||
$ | 0.05 | 975,000 | 2.37 | 975,000 | $ | 0.05 | |||||||||||||
$ | 0.15 | 7,750,000 | 2.55 | 7,750,000 | $ | 0.15 | |||||||||||||
$ | 0.261 | 100,000 | 3.24 | 100,000 | $ | 0.26 | |||||||||||||
$ | 0.29 | 10,125,613 | 5.55 | 10,125,613 | $ | 0.29 | |||||||||||||
$ | 0.3 | 11,925,800 | 3.5 | 10,725,800 | $ | 0.3 | |||||||||||||
32,451,413 | 31,251,413 | ||||||||||||||||||
Unvested warrants outstanding | Unvested Warrants | Average | |||||||||||||||||
Weighted | |||||||||||||||||||
Weighted | Number | Remaining | |||||||||||||||||
Average | Contractual | ||||||||||||||||||
Exercise Price | Life in Years | ||||||||||||||||||
$ | 0.3 | 1,200,000 | 3.98 | ||||||||||||||||
Options [Member] | |||||||||||||||||||
Summary of stock options outstanding | March 31, 2015 (Unaudited) | 31-Dec-14 | |||||||||||||||||
Number of Options | Weighted Average Exercise Price | Number of Options | Weighted Average Exercise Price | ||||||||||||||||
Outstanding, beginning of period | 60,000 | $ | 1.42 | 60,000 | $ | 1.42 | |||||||||||||
Granted | 40,000 | 0.27 | 20,000 | 0.44 | |||||||||||||||
Exercised | - | - | (20,000 | ) | 0.44 | ||||||||||||||
Outstanding, end of period | 100,000 | $ | 0.96 | 60,000 | $ | 1.42 | |||||||||||||
Options outstanding and exercisable by price range | Outstanding Options | Average | Exercisable Options | ||||||||||||||||
Weighted | |||||||||||||||||||
Range | Number | Remaining | Number | Weighted | |||||||||||||||
Contractual | Average | ||||||||||||||||||
Life in Years | Exercise Price | ||||||||||||||||||
$ | 2.1 | 40,000 | 4.76 | 40,000 | $ | 2.1 | |||||||||||||
$ | 0.05 | 20,000 | 5.77 | 20,000 | $ | 0.05 | |||||||||||||
$ | 0.27 | 40,000 | 9.77 | 40,000 | $ | 0.27 | |||||||||||||
100,000 | 100,000 |
10_COMMITMENTS_AND_CONTINGENCI1
10. COMMITMENTS AND CONTINGENCIES (Tables) | 3 Months Ended | ||||
Mar. 31, 2015 | |||||
Notes to Financial Statements | |||||
Minimum annual rents | Year Ending December 31, | Amount | |||
2015 | $ | 38,000 | |||
2016 | 52,000 | ||||
2017 | 53,000 | ||||
2018 | 4,000 | ||||
$ | 147,000 |
2_SUMMARY_OF_SIGNIFICANT_ACCOU2
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||
Net losses | $4,271,805 | $97,208 |
Working capital deficiency | 5,409,000 | |
Stockholders' deficit | 2,574,000 | |
Cash and cash equivalents | 174,000 | |
Proceeds From Sale of Common Stock and equity units | 510,213 | |
Sale of Common Stock and equity units, Shares | 1,760,002 | |
Amortization of deferred financing cost | 84,000 | 84,000 |
Potentially dilutive securities, convertible debentures | 17,496,552 | 17,496,552 |
Potentially dilutive securities, outstanding warrants | 32,451,413 | 28,625,800 |
Potentially dilutive securities, outstanding options | 100,000 | 80,000 |
Potentially dilutive securities, convertible Series A preferred stock | 510,000 | 510,000 |
Shares available to be issued under the Plan | 712,291 | |
Advertising and promotional expenses | $3,000 | $3,000 |
3_INVENTORIES_Details
3. INVENTORIES (Details) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Inventory Disclosure [Abstract] | ||
Raw materials | $105,120 | $159,807 |
Finished goods | 806,785 | 613,026 |
Inventory, end of period | $911,905 | $772,833 |
4_PROPERTY_AND_EQUIPMENT_Detai
4. PROPERTY AND EQUIPMENT (Details) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Property And Equipment Details | ||
Furniture and fixtures | $71,647 | $69,555 |
Equipment | 382,321 | 374,620 |
Vehicles | 44,344 | 44,344 |
Software | 12,167 | 12,167 |
Leasehold Improvements | 8,630 | 8,630 |
Property and Equipment Gross | 519,109 | 509,316 |
Less: Accumulated depreciation | 254,033 | 221,157 |
Property and Equipment Net | $265,076 | $288,159 |
4_PROPERTY_AND_EQUIPMENT_Detai1
4. PROPERTY AND EQUIPMENT (Details Narrative) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Property And Equipment Details Narrative | ||
Depreciation | $32,876 | $19,529 |
5_INTANGIBLE_ASSETS_AND_ASSET_2
5. INTANGIBLE ASSETS AND ASSET ACQUISITION (Details) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Intangible Assets And Asset Acquisition Details | ||
Intellectual Property and Patents | $2,848,300 | $2,848,300 |
Less: Accumulated Amortization | 723,621 | 631,244 |
Life Intangible Assets, net | $2,124,679 | $2,217,056 |
5_INTANGIBLE_ASSETS_AND_ASSET_3
5. INTANGIBLE ASSETS AND ASSET ACQUISITION (Details 1) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Intangible Assets And Asset Acquisition Details | ||
Trademarks | $440,000 | $440,000 |
Total Intangible Assets, net | $2,564,679 | $2,657,056 |
5_INTANGIBLE_ASSETS_AND_ASSET_4
5. INTANGIBLE ASSETS AND ASSET ACQUISITION (Details 2) (USD $) | Dec. 31, 2014 |
Intangible Assets And Asset Acquisition Details 3 | |
2015 | $274,000 |
2016 | 370,000 |
2017 | 370,000 |
2018 | 370,000 |
2019 | 370,000 |
Thereafter | 370,000 |
Total | $2,124,000 |
5_INTANGIBLE_ASSETS_AND_ASSET_5
5. INTANGIBLE ASSETS AND ASSET ACQUISITION (Details Narrative) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
INTANGIBLE ASSETS | ||
Amortization expense | $92,377 | $92,377 |
6_CONVERTIBLE_DEBT_Details
6. CONVERTIBLE DEBT (Details) (USD $) | 3 Months Ended | 12 Months Ended | 0 Months Ended |
Mar. 31, 2015 | Dec. 31, 2014 | Apr. 12, 2013 | |
Closing stock price | $0.50 | $0.27 | |
Conversion price | $0.29 | $0.29 | $0.29 |
Expected volatility | 134.00% | 114.00% | |
Remaining term (years) | 3 months 29 days | 6 months 29 days | |
Risk-free rate | 0.04% | 0.13% | |
Expected dividend yield | 0.00% | 0.00% | 0.00% |
Warrant 1 [Member] | |||
Conversion price | $0.30 | ||
Expected volatility | 250.00% | ||
Expected dividend yield | 0.00% | ||
Minimum [Member] | |||
Closing stock price | $0.13 | ||
Expected volatility | 185.00% | ||
Remaining term (years) | 2 years 3 months 18 days | ||
Risk-free rate | 0.25% | ||
Minimum [Member] | Warrant 1 [Member] | |||
Closing stock price | $0.13 | ||
Remaining term (years) | 5 years 3 months 18 days | ||
Risk-free rate | 0.76% | ||
Maximum [Member] | |||
Closing stock price | $0.55 | ||
Expected volatility | 190.00% | ||
Remaining term (years) | 2 years 26 days | ||
Risk-free rate | 0.43% | ||
Maximum [Member] | Warrant 1 [Member] | |||
Closing stock price | $0.55 | ||
Remaining term (years) | 5 years 1 month 2 days | ||
Risk-free rate | -1.61% |
6_CONVERTIBLE_DEBT_Details_1
6. CONVERTIBLE DEBT (Details 1) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Convertible Debt Details 1 | ||
Convertible notes | $5,074,000 | $5,074,000 |
Less: Debt discount | 3,032,685 | 3,996,033 |
Total convertible notes, net | $2,041,315 | $1,077,967 |
7_FAIR_VALUE_Details
7. FAIR VALUE (Details) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Derivative Instruments | $4,402,031 | $1,728,883 |
Level 3 | ||
Derivative Instruments | $4,402,031 | $1,728,883 |
7_FAIR_VALUE_Details_1
7. FAIR VALUE (Details 1) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Fair Value Details 1 | ||
Beginning Balance | $1,728,883 | $7,665,502 |
Change in fair value | 2,673,148 | -5,936,619 |
Ending Balance | $4,402,031 | $1,728,883 |
8_STOCKHOLDERS_EQUITY_DEFICIEN2
8. STOCKHOLDERS' EQUITY (DEFICIENCY) (Details) (USD $) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2015 | Dec. 31, 2014 | |
Number of Options | ||
Outstanding option, Beginning balance | 60,000 | 60,000 |
Granted, Options | 40,000 | 20,000 |
Exercised, Options | -20,000 | |
Outstanding option, Ending balance | 100,000 | 60,000 |
Weighted Average Exercise Price | ||
Outstanding Weighted Average Exercise Price, Beginning balance | $1.42 | $1.42 |
Granted, Weighted Average Exercise Price | $0.27 | $0.44 |
Exercised, Weighted Average Exercise Price | $0.44 | |
Outstanding Weighted Average Exercise Price, Ending balance | $0.96 | $1.42 |
8_STOCKHOLDERS_EQUITY_DEFICIEN3
8. STOCKHOLDERS' EQUITY (DEFICIENCY) (Details 1) (USD $) | 3 Months Ended | ||
Mar. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Schedule of Trading Securities and Other Trading Assets [Line Items] | |||
Outstanding option, Number | 100,000 | 60,000 | 60,000 |
Exercisable Options, Number | 100,000 | ||
0.05 Range [Member] | |||
Schedule of Trading Securities and Other Trading Assets [Line Items] | |||
Outstanding option, Number | 20,000 | ||
Average Weighted Remaining Contractual Life in Years, option | 5 years 9 months 7 days | ||
Exercisable Options, Number | 20,000 | ||
Weighted Average Exercise Price, Exercisable Options | $0.05 | ||
2.10 Range[Member] | |||
Schedule of Trading Securities and Other Trading Assets [Line Items] | |||
Outstanding option, Number | 40,000 | ||
Average Weighted Remaining Contractual Life in Years, option | 4 years 9 months 4 days | ||
Exercisable Options, Number | 40,000 | ||
Weighted Average Exercise Price, Exercisable Options | $2.10 | ||
0.27 Range [Member] | |||
Schedule of Trading Securities and Other Trading Assets [Line Items] | |||
Outstanding option, Number | 40,000 | ||
Average Weighted Remaining Contractual Life in Years, option | 9 years 9 months 7 days | ||
Exercisable Options, Number | 40,000 | ||
Weighted Average Exercise Price, Exercisable Options | $0.27 |
8_STOCKHOLDERS_EQUITY_DEFICIEN4
8. STOCKHOLDERS' EQUITY (DEFICIENCY) (Details 2) (USD $) | 12 Months Ended | 3 Months Ended |
Dec. 31, 2014 | Mar. 31, 2015 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Outstanding Warrants, Beginning Balance | 19,325,800 | |
Granted, Warrants | 15,325,608 | |
Expired. Warrants | -300,000 | |
Exercised, Warrants | -6,300,000 | |
Outstanding Warrants, Ending Balance | 28,051,408 | |
Outstanding Weighted Average Exercise Price, Beginning balance | $0.21 | |
Granted, Weighted Average Exercise Price | $0.30 | |
Expired, Weighted Average Exercise Price | $0.77 | |
Exercised, Weighted Average Exercise Price | $0.30 | |
Outstanding Weighted Average Exercise Price, Ending balance | $0.23 | |
Warrant [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Outstanding Warrants, Beginning Balance | 28,051,408 | |
Granted, Warrants | 4,400,005 | |
Expired. Warrants | ||
Expired, Warrants One | ||
Outstanding Warrants, Ending Balance | 32,451,413 | |
Outstanding Weighted Average Exercise Price, Beginning balance | $0.23 | |
Granted, Weighted Average Exercise Price | $0.29 | |
Expired, Weighted Average Exercise Price | ||
Expired One, Weighted Average Exercise Price | ||
Outstanding Weighted Average Exercise Price, Ending balance | $0.24 |
8_STOCKHOLDERS_EQUITY_DEFICIEN5
8. STOCKHOLDERS' EQUITY (DEFICIENCY) (Details 3) (USD $) | 3 Months Ended |
Mar. 31, 2015 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Outstanding warrants, Number | 32,451,413 |
Exercisable Warrants, Number | 31,251,413 |
0.01 Range [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Outstanding warrants, Number | 1,575,000 |
Average Weighted Remaining Contractual Life in Years, Warrant | 2 years 3 months 11 days |
Exercisable Warrants, Number | 1,575,000 |
Weighted Average Exercise Price, Exercisable Warrants | $0.01 |
0.05 Range [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Outstanding warrants, Number | 975,000 |
Average Weighted Remaining Contractual Life in Years, Warrant | 2 years 4 months 13 days |
Exercisable Warrants, Number | 975,000 |
Weighted Average Exercise Price, Exercisable Warrants | $0.05 |
0.15 Range [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Outstanding warrants, Number | 7,750,000 |
Average Weighted Remaining Contractual Life in Years, Warrant | 2 years 6 months 18 days |
Exercisable Warrants, Number | 7,750,000 |
Weighted Average Exercise Price, Exercisable Warrants | $0.15 |
0.261 Range [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Outstanding warrants, Number | 100,000 |
Average Weighted Remaining Contractual Life in Years, Warrant | 3 years 2 months 27 days |
Exercisable Warrants, Number | 100,000 |
Weighted Average Exercise Price, Exercisable Warrants | $0.26 |
0.29 Range [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Outstanding warrants, Number | 10,125,613 |
Average Weighted Remaining Contractual Life in Years, Warrant | 5 years 6 months 18 days |
Exercisable Warrants, Number | 10,125,613 |
Weighted Average Exercise Price, Exercisable Warrants | $0.29 |
0.30 Range [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Outstanding warrants, Number | 11,925,800 |
Average Weighted Remaining Contractual Life in Years, Warrant | 3 years 6 months |
Exercisable Warrants, Number | 10,725,800 |
Weighted Average Exercise Price, Exercisable Warrants | $0.30 |
8_STOCKHOLDERS_EQUITY_DEFICIEN6
8. STOCKHOLDERS' EQUITY (DEFICIENCY) (Details 4) (Unvested Warrants [Member], USD $) | 3 Months Ended |
Mar. 31, 2015 | |
Unvested Warrants [Member] | |
Schedule of Trading Securities and Other Trading Assets [Line Items] | |
Average Weighted Remaining Contractual Life in Years, Unvested Warrants | 3 years 11 months 23 days |
Unvested Warrants, Number | 1,200,000 |
Weighted Average Exercise Price, Unvested Warrants | $0.30 |
8_STOCKHOLDERS_EQUITY_DEFICIEN7
8. STOCKHOLDERS' EQUITY (DEFICIENCY) (Details Narrative) (USD $) | 3 Months Ended | ||
Mar. 31, 2015 | Mar. 31, 2014 | Dec. 31, 2014 | |
Preferred Stock Authorized | 1,000,000 | 1,000,000 | |
Preferred Stock Issued | 510,000 | 510,000 | |
Preferred Stock Outstanding | 510,000 | 510,000 | |
Preferred Stock par value | $0.01 | $0.01 | |
Common Stock issued for professional services, shares, Shares | 100,000 | 19,758 | |
Common Stock issued for professional services, Amount, Amount | $25,000 | $9,000 | |
Common Stock issued for legal services to Harold Paul, Shares | 6,420 | ||
Common Stock issued for legal services to Harold Paul, Amount | 3,000 | ||
Common Stock issued for labor and services support to Rolyn Companies, Inc., Shares | 230,000 | ||
Compensation expense related to warrants issued to CEO, Amount | 25,000 | ||
Compensation expense related to warrants issued to CEO, Shares | 78,125 | ||
Stock based compensation expense on the vested portion of the warrants | 79,000 | 1,133,000 | |
Warrants issued in connection with the private placement | 4,400,005 | ||
Series A Preferred Stock [Member] | |||
Preferred Stock Authorized | 1,000,000 | ||
Preferred Stock Issued | 510,000 | ||
Preferred Stock Outstanding | 510,000 | ||
Preferred Stock par value | $0.01 | ||
Series B Preferred Stock [Member] | |||
Preferred Stock Authorized | 4,000 | ||
Preferred Stock Issued | 0 | ||
Preferred Stock Outstanding | 0 | ||
Preferred Stock par value | $0 | ||
Nick Jennings [Member] | |||
Compensation expense related to warrants issued to CFO, Amount | 6,000 | ||
Compensation expense related to warrants issued to CFO, Shares | 20,245 | ||
Transaction One [Member] | |||
Equity units sold | 1,500,002 | ||
Exercise price of warrant | $0.29 | ||
Term of warrant | 7 years | ||
Gross proceeds net of expenses | 434,826 | ||
Transaction Two [Member] | |||
Equity units sold | 260,000 | ||
Exercise price of warrant | $0.29 | ||
Term of warrant | 7 years | ||
Gross proceeds net of expenses | $75,387 |
10_COMMITMENTS_AND_CONTINGENCI2
10. COMMITMENTS AND CONTINGENCIES (Details) (USD $) | Mar. 31, 2015 |
Notes to Financial Statements | |
2015 | $38,000 |
2016 | 52,000 |
2017 | 53,000 |
2018 | 4,000 |
Total | $147,000 |
10_COMMITMENTS_AND_CONTINGENCI3
10. COMMITMENTS AND CONTINGENCIES (Details Narrative) (USD $) | 3 Months Ended |
Mar. 31, 2015 | |
Notes to Financial Statements | |
Rent expense | $11,427 |
12_COMMON_STOCK_TO_BE_ISSUED_D
12. COMMON STOCK TO BE ISSUED (Details Narrative) (Vendors, Consultants and [Member], USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Vendors, Consultants and [Member] | ||
Common stock shares issued | 260,011 | 155,619 |
Common stock value | $78,000 | $36,000 |