Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2018 | Apr. 11, 2019 | Jun. 30, 2018 | |
Document And Entity Information | |||
Entity Registrant Name | Midwest Energy Emissions Corp. | ||
Entity Central Index Key | 0000728385 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2018 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Is Entity a Well-known Seasoned Issuer? | No | ||
Is Entity a Voluntary Filer? | No | ||
Is Entity's Reporting Status Current? | Yes | ||
Entity Filer Category | Non-accelerated Filer | ||
Entity Public Float | $ 10,241,000 | ||
Entity Common Stock, Shares Outstanding | 76,246,113 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2018 | ||
Entity Emerging Growth Company | false | ||
Entity Small Business | true | ||
Entity Shell Company | false |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Current assets | ||
Cash | $ 584,877 | $ 2,418,427 |
Accounts receivable | 1,642,126 | 2,931,353 |
Inventory | 509,416 | 659,579 |
Prepaid expenses and other assets | 136,628 | 210,535 |
Customer acquisition costs, net | 34,467 | 137,866 |
Total current assets | 2,907,514 | 6,357,760 |
Property and equipment, net | 2,397,691 | 2,728,993 |
Intellectual property, net | 2,733,662 | 2,934,862 |
Customer acquisition costs, net | 34,467 | |
Total assets | 8,038,867 | 12,056,082 |
Current liabilities | ||
Accounts payable and accrued expenses | 1,858,326 | 1,795,703 |
Current portion of notes payable, net | 3,961,417 | |
Current portion of equipment notes payable | 63,424 | 61,177 |
Accrued interest | 96,902 | 77,500 |
Customer credits | 167,000 | 167,000 |
Deferred compensation | 555,877 | |
Deferred revenue | 517,060 | |
Total current liabilities | 2,741,529 | 6,579,857 |
Notes payable, net of discount and issuance costs, less current portion | 13,814,208 | 9,733,361 |
Equipment notes payable, less current portion | 167,650 | 228,826 |
Total liabilities | 16,659,963 | 16,480,868 |
COMMITMENTS AND CONTINGENCIES (Note 9) | ||
Stockholders' deficit | ||
Preferred stock, $.001 par value: 2,000,000 shares authorized | ||
Common stock; $.001 par value; 150,000,000 shares authorized; 76,246,113 shares issued and outstanding as of December 31, 2018 and 2017 | 76,246 | 76,246 |
Additional paid-in capital | 42,785,990 | 42,165,620 |
Accumulated deficit | (51,483,332) | (46,666,652) |
Total stockholders' deficit | (8,621,096) | (4,424,786) |
Total liabilities and stockholders' deficit | $ 8,038,867 | $ 12,056,082 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Dec. 31, 2018 | Dec. 31, 2017 |
Stockholders' deficit | ||
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 2,000,000 | 2,000,000 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 150,000,000 | 150,000,000 |
Common stock, shares issued | 76,246,113 | 76,246,113 |
Common stock, shares outstanding | 76,246,113 | 76,246,113 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Consolidated Statements Of Operations | ||
Revenues | $ 12,295,862 | $ 27,499,080 |
Costs and expenses: | ||
Cost of sales | 9,147,745 | 19,016,932 |
Selling, general and administrative expenses | 5,894,511 | 8,471,096 |
Loss on debt restructuring | 44,036 | |
Interest expense | 1,975,097 | 2,154,570 |
Letter of credit fees | 29,000 | 219,333 |
Total costs and expenses | 17,090,389 | 29,861,931 |
Net loss before provision for income taxes | (4,794,527) | (2,362,851) |
Provision for income taxes | (22,153) | (540,422) |
Net loss | $ (4,816,680) | $ (2,903,273) |
Net loss per common share - basic and diluted: | $ (0.06) | $ (0.03) |
Weighted average common shares outstanding | 76,137,894 | 75,061,800 |
CONSOLIDATED STATEMENTS OF STOC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT - USD ($) | Common Stock | Additional Paid in Capital | Accumulated (Deficit) | Total |
Beginning Balance, Shares at Dec. 31, 2016 | 73,509,663 | |||
Beginning Balance, Amount at Dec. 31, 2016 | $ 73,510 | $ 40,031,625 | $ (43,763,379) | $ (3,658,244) |
Stock issued upon debt conversion, Shares | 51,236 | |||
Stock issued upon debt conversion, Amount | $ 51 | 25,567 | 25,618 | |
Stock issued upon cashless warrant exercise, Shares | 630,214 | |||
Stock issued upon cashless warrant exercise, Amount | $ 630 | (630) | ||
Stock issued for the acquisition of patents rights, Shares | 925,000 | |||
Stock issued for the acquisition of patents rights, Amount | $ 925 | 517,075 | 518,000 | |
Stock issued to non-employees, Shares | 1,000,000 | |||
Stock issued to non-employees, Amount | $ 1,000 | 230,250 | 231,250 | |
Stock issued per settlement agreement, Shares | 130,000 | |||
Stock issued per settlement agreement, Amount | $ 130 | 60,970 | 61,100 | |
Re-issuance of warrants | 17,922 | 17,922 | ||
Issuance of stock options | 1,282,841 | 1,282,841 | ||
Net loss | (2,903,273) | (2,903,273) | ||
Ending Balance, Shares at Dec. 31, 2017 | 76,246,113 | |||
Ending Balance, Amount at Dec. 31, 2017 | $ 76,246 | 42,165,620 | (46,666,652) | (4,424,786) |
Issuance of stock options | 351,770 | 351,770 | ||
Vesting of stock issued to non-employees in prior year | 138,750 | 138,750 | ||
Issuance of warrants | 129,850 | 129,850 | ||
Net loss | (4,816,680) | (4,816,680) | ||
Ending Balance, Shares at Dec. 31, 2018 | 76,246,113 | |||
Ending Balance, Amount at Dec. 31, 2018 | $ 76,246 | $ 42,785,990 | $ (51,483,332) | $ (8,621,096) |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Cash flows from operating activities | ||
Net loss | $ (4,816,680) | $ (2,903,273) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Stock based compensation | 490,520 | 1,532,013 |
Amortization of license fees | 1,950 | |
Amortization of patent rights | 201,200 | 134,133 |
Amortization of discount of notes payable | 678,061 | 745,652 |
Amortization of debt issuance costs | 102,183 | 153,303 |
Amortization of customer acquisition costs | 137,866 | 469,870 |
Depreciation expense | 456,914 | 748,020 |
Loss on debt exchange | 44,036 | |
Gain on sale of equipment | 6,303 | |
Deferred tax benefit | 500,000 | |
Noncash settlement charge expenses | 61,100 | |
Change in assets and liabilities | ||
Decrease in accounts receivable | 1,289,227 | 621,743 |
Decrease (Increase) in inventory | 150,163 | (50,507) |
Decrease (Increase) in prepaid expenses and other assets | 73,907 | (11,040) |
Increase (decrease) in accounts payable and accrued liabilities | 82,025 | (2,568,482) |
Increase in deferred compensation | 555,877 | |
(Decrease) Increase in deferred revenue | (517,060) | 517,060 |
(Decrease) in customer credits | (423,206) | |
Net cash used in operating activities | (1,065,458) | (471,664) |
Cash flows used in investing activities | ||
Purchase of property and equipment | (131,915) | (806,460) |
Purchase of intellectual property | (2,500,000) | |
Net cash used in investing activities | (131,915) | (3,306,460) |
Cash flows from financing activities | ||
Payment of equipment notes payable | (61,177) | (55,006) |
Proceeds from issuance of convertible promissory notes and warrants | 300,000 | |
Payments on secured promissory note | (875,000) | (1,500,000) |
Net cash used in financing activities | (636,177) | (1,555,006) |
Net decrease in cash | (1,833,550) | (5,333,130) |
Cash - beginning of year | 2,418,427 | 7,751,557 |
Cash - end of year | 584,877 | 2,418,427 |
SUPPLEMENTAL CASH FLOW INFORMATION: | ||
Cash paid during the year for: Interest | 1,175,450 | 1,254,997 |
Cash paid during the year for: Taxes | 22,153 | 40,422 |
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS | ||
Conversion of secured notes payable into unsecured notes payable | 560,000 | |
Warrants issued upon debt exchange | 89,500 | |
Equipment purchases included in note payable | 101,199 | |
Conversion of debt and accrued interest to equity | $ 25,618 |
Organization
Organization | 12 Months Ended |
Dec. 31, 2018 | |
Notes to Financial Statements | |
Note 1- Organization | Midwest Energy Emissions Corp. Midwest Energy Emissions Corp. (the “Company") is organized under the laws of the State of Delaware with 150,000,000 authorized shares of common stock, par value $.001 per share and 2,000,000 authorized shares of preferred stock, par value $0.001 per share. MES, Inc. MES, Inc. is incorporated in the State of North Dakota. MES, Inc. is a wholly owned subsidiary of Midwest Energy Emissions Corp. and is engaged in the business of developing and commercializing state of the art control technologies relating to the capture and control of mercury emissions from coal fired boilers in the United States and Canada. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2018 | |
Notes to Financial Statements | |
Note 2 - Summary Of Significant Accounting Policies | Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with the Generally Accepted Accounting Principles in the United States of America (“GAAP”). Principles of Consolidation The consolidated financial statements include the accounts of Midwest Energy Emissions Corp. and its wholly-owned subsidiary, MES, Inc. Intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, valuation of equity issuances and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The Company uses estimates in accounting for, among other items, revenue recognition, allowance for doubtful accounts, income tax provisions, excess and obsolete inventory reserve and impairment of intellectual property. Actual results could differ from those estimates. Cash The Company considers all highly liquid debt instruments and other short-term investments with maturity of three months or less, when purchased, to be cash equivalents. At December 31, 2018 and 2017, the Company had no cash equivalents. Accounts Receivable Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Past due balances over 90 days and other higher risk amounts are reviewed individually for collectability. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. At December 31, 2018 and 2017, the allowance for doubtful accounts was zero. Inventory Inventories are stated at the lower of cost (first-in, first-out basis) or net realizable value. Inventories are periodically evaluated to identify obsolete or otherwise impaired products and are written off when management determines usage is not probable. The Company estimates the balance of excess and obsolete inventory by analyzing inventory by age using last used and original purchase date and existing sales pipeline for which the inventory could be used. There was a minimal valuation allowance recorded as of December 31, 2018 and 2017. Property and Equipment Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For consolidated financial statement purposes, equipment is recorded at cost and depreciated using the straight-line method over their estimated useful lives of 2 to 5 years. Leasehold improvements are recorded at cost and depreciated using the straight-line method over the life of the lease. Expenditures for repairs and maintenance which do not materially extend the useful lives of property and equipment are charged to operations. Management reviews the carrying value of its property and equipment for impairment on an annual basis. Intellectual Property Intellectual is recorded at cost and amortized over its estimated useful life of 15 years. Management reviews intellectual property for impairment when events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable. In the event that impairment indicators exist, a further analysis is performed and if the sum of the expected undiscounted future cash flows resulting from the use of the asset or asset group is less than the carrying amount of the asset or asset group, an impairment loss equal to the excess of the asset or asset group's carrying value over its fair value is recorded. Management considers historical experience and all available information at the time the estimates of future cash flows are made, however, the actual cash values that could be realized may differ from those that are estimated. Recoverability of Long-Lived and Intangible Assets Long-lived assets and certain identifiable intangibles held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of the long-lived and or intangible assets would be adjusted, based on estimates of future discounted cash flows. The Company evaluated the recoverability of the carrying value of the Company’s equipment. No impairment charges were recognized for the years ended December 31, 2018 and 2017, respectively. Stock-Based Compensation The Company accounts for stock-based compensation awards in accordance with the provisions of ASC 718, Compensation-Stock Compensation Fair Value of Financial Instruments The fair value hierarchy has three levels based on the inputs used to determine fair value, which are as follows: • Level 1 • Level 2 • Level 3 - The fair value hierarchy requires the use of observable market data when available. In instances where the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability. Cash was the only asset measured at fair value on a recurring basis by the Company at December 31, 2018 and December 31, 2017 and is considered to be Level 1. Financial instruments include cash, accounts receivable, accounts payable, accrued expenses, deferred revenue, customer credits and short-term debt. The carrying amounts of these financial instruments approximated fair value at December 31, 2018 and 2017 due to their short-term maturities. The fair value of the promissory notes payable at December 31, 2018 and 2017 approximated the carrying amount as the notes were issued during the years ended December 31, 2018 and 2017 at interest rates prevailing in the market and interest rates have not significantly changed as of December 31, 2018. The fair value of the promissory notes payable was determined on a Level 2 measurement. Discounts on issued debt, as well as debt issuance costs, are amortized over the term of the individual promissory notes. The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy. Fair Value Measurement as of December 31, 2018 Total Level 1 Level 2 Level 3 Assets: Cash 584,877 584,877 - - Total Assets $ 584,877 $ 584,877 $ - $ - Liabilities Promissory notes 13,814,208 - 13,814,208 - Total Liabilities $ 13,814,208 $ - $ 13,814,208 $ - Fair Value Measurement as of December 31, 2017 Total Level 1 Level 2 Level 3 Assets: Cash 2,418,427 2,418,427 - - Total Assets $ 2,418,427 $ 2,418,427 $ - $ - Liabilities Promissory notes 13,694,778 - 13,694,778 - Total Liabilities $ 13,694,778 $ - $ 13,694,778 $ - Foreign Currency Transactions The Company's functional currency is the United States Dollar (the "U.S. Dollar"). Transactions denominated in currencies other than the U.S. Dollar are re-measured to the U.S. Dollar at the period-end exchange rates. Any associated transactional currency re-measurement gains and losses are recognized in current operations. At both December 31, 2018 and 2017, there were no material gains or losses recognized. Revenue Recognition For the year ended December 31, 2018, the Company records revenue in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: Step 1: Identify the contract(s) with a customer. Step 2: Identify the performance obligations in the contract. Step 3: Determine the transaction price. Step 4: Allocate the transaction price to the performance obligations in the contract. Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation. Revenue is recognized when the Company satisfies its performance obligation under the contract by transferring the promised product to its customer that obtains control of the product. A performance obligation is a promise in a contract to transfer a distinct product to a customer. Most of the Company’s contracts have a single performance obligation, as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products. As such, revenue is recorded net of returns, allowances, customer discounts, and incentives. Sales and other taxes are excluded from revenues. Invoiced shipping and handling costs are included in revenue. The adoption of this standard did not have a material impact on the Company’s financial statements. For the year ended December 31, 2017, the Company recorded revenue from sales in accordance with ASC 605, Revenue Recognition 1. Persuasive evidence of an arrangement exists; 2. Delivery has occurred or services have been rendered; 3. The seller’s price to the buyer is fixed or determinable; and 4. Collectability is reasonably assured. Determination of criteria (3) and (4) was based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments were provided for in the same period the related sales are recorded. Disaggregation of Revenue The Company generated revenue for the years ended December 31, 2018 and 2017 by (i) delivering product to its commercial customers, (ii) completing and commissioning equipment projects at commercial customer sites and (iii) performing demonstrations of its technology at customers with the intent of entering into long term supply agreements based on the performance of the Company’s products during the demonstrations. Revenue for product sales is recognized at the point of time in which the customer obtains control of the product, at the time title passes to the customer upon shipment or delivery of the product based on the applicable shipping terms. Revenue for equipment sales is recognized upon commissioning and customer acceptance of the installed equipment per the terms of the purchase contract. Revenue for demonstrations and consulting services is recognized when performance obligations contained in the contract have been completed, typically the completion of necessary field work and the delivery of any required analysis per the terms of the agreement. Customer Acquisition Costs Customer acquisition costs are amortized on a straight-line bases over the life of the initial customer contract. The capitalized balance of customer acquisition costs was $34,467 and $172,333 on December 31, 2018 and December 31, 2017, respectively. Amortization expense for the years ended December 31, 2018 and 2017 was $137,866 and $469,870, respectively and included in cost of sales. Deferred Revenue Revenue is recognized in the period that delivery is made and performance obligations are met. In accordance with the terms of an agreement with one customer, the Company allocated a fixed amount of payments made against the total deliveries of product made during the contract period. Due to this agreement $517,060 was deferred as of December 31, 2017 and was recognized in 2018 when product was delivered to the customer . Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s consolidated financial statements are based on a more-likely-than-not recognition threshold. The Company did not have any unrecognized tax benefits at December 31, 2018 or 2017. When necessary, the Company would accrue penalties and interest related to unrecognized tax benefits as a component of income tax expense. The Company and its subsidiaries file a consolidated income tax return in the U.S. federal jurisdiction and various state jurisdictions. The Company is no longer subject to U.S. federal examinations for years prior to 2015 or state tax examinations for years prior to 2014. Basic and Diluted Loss Per Common Share Basic net loss per common share is computed using the weighted average number of common shares outstanding. Diluted loss per share reflects the potential dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. There were no dilutive potential common shares as of December 31, 2018 or 2017, because the Company incurred net losses and basic and diluted losses per common share are the same. The following common stock equivalents were excluded from the computation of diluted net loss per share of common stock because they were anti-dilutive. The exercise of these common stock equivalents would dilute earnings per share if the Company becomes profitable in the future. December 31 December 31 2018 2017 Stock Options 9,161,510 8,463,184 Warrants 4,105,398 7,237,763 Convertible debt 3,700,000 3,100,000 Total common stock equivalents excluded from diluted net loss per share 16,966,908 18,800,947 Concentration of Credit Risk Financial instruments that subject the Company to credit risk consist of cash and equivalents on deposit with financial institutions and accounts receivable. The Company’s cash as of December 31, 2018 is maintained at high-quality financial institutions and has not incurred any losses to date. Customer and Supplier Concentration For each of the years ended December 31, 2018 and 2017, 100% of the Company’s revenue related to eight customers. At December 31, 2018 and 2017, 100% of the Company’s accounts receivable related to seven and six customers, respectively. For each of the years ended December 31, 2018 and 2017, 52% and 65% of the Company’s purchases related to two suppliers, respectively. At December 31, 2018 and 2017, 72% and 53% of the Company’s accounts payable and accrued expenses related to two vendors, respectively. The Company believes there are numerous other suppliers that could be substituted should the supplier become unavailable or non-competitive. Contingencies Certain conditions may exist which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they arise from guarantees, in which case the guarantees would be disclosed. Recently Adopted Accounting Standards In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. ASU 2017-11 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value of a down round feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. The guidance in ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, and the guidance is to be applied using a full or modified retrospective approach. The Company early adopted ASU 2017-11 and changed its method of accounting for certain warrants that were initially recorded as liabilities during the year ended December 31, 2014 on a full retrospective basis. Recently Issued Accounting Standards In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), “Leases (Topic 842).” ASU 2016-02 requires lessees to recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases,” to clarify how to apply certain aspects of the new leases standard. In July 2018, the FASB also issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements,” which provides a transition option to not apply the new leases standard to comparative periods presented in a company’s financial statements in the year of adoption. Under this option, a cumulative-effect adjustment to the opening balance of retained earnings would be recorded on the date of adoption. ASU 2016-02 will be effective for the Company beginning on January 1, 2019. We expect that this standard will have a material effect on our financial statements. While we continue to assess all of the effects of adoption, we currently believe the most significant effects relate to the recognition of new right-of-use assets and lease liabilities on our balance sheet for leases of trailers used in the delivery of our products. We do not expect this standard to have a material impact on the statement of operations or statement of cash flows. We do not expect a significant change in our leasing activities between now and adoption. On adoption, we currently expect to recognize additional operating liabilities of approximately $1,353,000 with corresponding right-of-use assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. The new standard also provides practical expedients for an entity's ongoing accounting. We currently expect to elect the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize right-of-use assets or lease liabilities, and this includes not recognizing right-of-use assets or lease liabilities for existing short-term leases of those assets in transitions. We also currently expect to elect the practical expedient to not separate lease and non-lease components for all of our leases. In June 2018, the FASB issued ASU No. 2018-07, “Compensation - Stock Compensation (Topic 718)” (“ASU 2018-07”). ASU 2018-07 is intended to reduce cost and complexity and to improve financial reporting for nonemployee share based payments. Currently, the accounting requirements for nonemployee and employee share-based payment transactions are significantly different. ASU 2018-07 expands the scope of Topic 718, Compensation - Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. This ASU supersedes Subtopic 505-50, Equity - Equity-Based Payments to Nonemployees. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and including interim periods within that fiscal year. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers. The Company is currently evaluating ASU 2018-07 and its impact on its consolidated financial statements. In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in ASU 2018-13 modify the disclosure requirements associated with fair value measurements based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating ASU 2018-13 and its impact on its consolidated financial statements. |
Liquidity and Financial Conditi
Liquidity and Financial Condition | 12 Months Ended |
Dec. 31, 2018 | |
Notes to Financial Statements | |
Note 3 - Liquidity and Financial Condition | Under ASU 2014-15 Presentation of Financial Statements-Going Concern (Subtopic 205-40) (“ASC 205-40”), the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial statements are issued. As required by ASC 205-40, this evaluation shall initially not take into consideration the potential mitigating effects of plans that have not been fully implemented as of the date the financial statements are issued. Management has assessed the Company’s ability to continue as a going concern in accordance with the requirement of ASC 205-40. As reflected in the consolidated financial statements, the Company had $585,000 in cash on its balance sheet at December 31, 2018. The Company had working capital of $132,000 and an accumulated deficit $51.5 million. Additionally, the Company had a loss from operations in the amount of $2.8 million and cash used in operating activities of $1.1 million for the year ended December 31, 2018. The accompanying consolidated financial statements as of December 31, 2018 have been prepared assuming the Company will continue as a going concern. During 2018, the Company restructured convertible notes totaling $560,000 into new loans that mature in 2023. In February 2019, the Company completed the restructuring of its unsecured and secured debt obligations held by its largest promissory noteholder, extending the maturity dates of these debts and the remaining convertible notes until 2022 and eliminating quarterly principal payment requirements. Based on the extended maturities the Company negotiated with its note holders, historical sales and gross margin trends with its current customers under contract and the incremental sales and gross margin from the newly announced customer contracts, management believes substantial doubt regarding the Company’s ability to continue as a going concern has been mitigated. The Company believes it will have sufficient working capital to fund operations for at least the next twelve months from the date of issuance of these financial statements. |
Inventory
Inventory | 12 Months Ended |
Dec. 31, 2018 | |
Notes to Financial Statements | |
Note 4 - Inventory | The Company held product supply inventory valued at $306,651 and $375,882, raw materials inventory valued at $87,730 and $154,952 and equipment and parts inventory valued at $113,035 and $128,744 as of December 31, 2018 and December 31, 2017, respectively. |
Property And Equipment, Net
Property And Equipment, Net | 12 Months Ended |
Dec. 31, 2018 | |
Notes to Financial Statements | |
Note 5 - Property and Equipment, Net | Property and equipment at December 31, 2018 and 2017 are as follows: December 31 December 31 2018 2017 Equipment $ 1,965,659 $ 1,965,659 Trucking equipment 983,948 1,010,961 Office equipment 27,155 27,155 Computer equipment and software 117,212 117,212 Total equipment 3,093,974 3,120,987 Less: accumulated depreciation (2,503,990 ) (2,067,786 ) Total equipment in use, net 589,984 1,053,201 Construction in process 1,807,707 1,675,792 Property and equipment, net $ 2,397,691 $ 2,728,993 During the years ended December 31, 2018 and 2017, depreciation expense charged to operations was $456,914 and $748,020, respectively. |
Intellectual Property
Intellectual Property | 12 Months Ended |
Dec. 31, 2018 | |
Notes to Financial Statements | |
Note 6 - Intellectual Property | On January 15, 2009, the Company entered into an "Exclusive Patent and Know-How License Agreement Including Transfer of Ownership" with the Energy and Environmental Research Center Foundation, a non-profit entity (“EERCF”). Under the terms of the Agreement, the Company has been granted an exclusive license by EERCF for the technology to develop, make, have made, use, sell, offer to sell, lease, and import the technology in any coal-fired combustion systems (power plant) worldwide and to develop and perform the technology in any coal-fired power plant in the world. On April 24, 2017, the Company closed on the acquisition from EERCF of all patent rights, including all patents and patents pending, domestic and foreign, relating to the foregoing technology. A total of 42 domestic and foreign patents and patent applications were included in the acquisition. In accordance with the terms of the License Agreement, the patent rights were acquired for the purchase price of (i) $2,500,000 in cash, and (ii) 925,000 shares of common stock of which 628,998 shares were issued to EERCF and 296,002 were issued to the inventors who had been designated by EERCF. The shares issued were valued at $518,000 ($0.56 per share), representing the value as of the closing date. Patent costs capitalized as of December 31, 2018 and 2017 are as follows: December 31 December 31 2018 2017 Patents $ 3,068,995 $ 3,068,995 Less: Accumulated Amortization (335,333 ) (134,133 ) License, Net $ 2,733,662 $ 2,934,862 Amortization expense for the years ended December 31, 2018 and 2017 was $201,200 and $136,083, respectively. Estimated annual amortization for each of the next five years is approximately $201,200. |
Notes Payable
Notes Payable | 12 Months Ended |
Dec. 31, 2018 | |
Notes to Financial Statements | |
Note 7 - Notes Payable | The Company has the following notes payable outstanding as of December 31: 2018 2017 Secured convertible promissory notes which mature upon the retirement of the New AC Midwest Secured Debt, bear interest at 10% per annum, and are convertible into one share of common stock, par value $0.001 per share. $ 990,000 $ 1,550,000 Secured promissory note which matures on August 25, 2022 and bears interest at 12% per annum. 271,686 1,146,686 Unsecured promissory note which matures on December 15, 2020, and bears interest at LIBOR + 500 per annum. 13,000,000 13,000,000 Unsecured convertible promissory notes which mature on June 15, 2023, bear interest at 12% per annum, and are convertible into one share of common stock, par value $0.001 per share. $ 860,000 $ - Total convertible notes payable before discount 15,121,686 15,696,686 Less discounts (1,249,620 ) (1,841,867 ) Less debt issuance costs (57,858 ) (160,041 ) Total notes payable 13,814,208 13,694,778 Less current portion - 4,050,000 Notes payable, net of current portion $ 13,814,208 $ 9,644,778 As of December 31, 2018, scheduled principal payments due on convertible notes payable are as follows: Twelve months ended December 31, 2019 $ - 2020 13,000,000 2021 - 2022 1,261,686 2023 860,000 $ 15,121,686 As of December 31, 2018, future amortization of discounts and debt issuance costs are as follows: Twelve months ended December 31, Discounts Debt issuance costs 2019 $ 612,690 $ 31,559 2020 586,692 26,299 2021 19,596 - 2022 19,596 - 2023 11,046 - $ 1,249,620 $ 57,858 From July 30, 2013 through December 24, 2013, the Company sold convertible notes and warrants to unaffiliated accredited investors totaling $1,902,500. The notes bear interest at 10% per annum, are secured by the Company’s assets, and are convertible into one share of common stock, par value $0.001 per share, with the initial conversion ratio equal to $0.50 per share. The notes had an initial term of three years, but the maturity of the notes was extended during 2014 to match the retirement of the New AC Midwest Secured Debt. These securities were sold in reliance upon the exemption provided by Section 4(2) of the Securities Act and the safe harbor of Rule 506 under Regulation D promulgated under the Securities Act. Interest expense for the years ended December 31, 2018 and 2017, was $124,967 and $155,618, respectively. A discount on the notes payable of $841,342 was recorded based on the value of the warrants issued using a Black-Scholes options pricing model and was amortized over the initial five year life of the notes. Amortized interest expense for the years ended December 31, 2018 and 2017 on this discount was $74,447 and $152,558, respectively. As of December 31, 2018 and 2017, total principal of $990,000 and $1,550,000, respectively, was outstanding on these notes. On June 15, 2018, the Company issued 2018 Unsecured Notes totaling $560,000 and warrants to certain holders of the 2013 Notes in exchange for their secured 2013 Notes (see description above of the private placement offering commenced during the second quarter of 2018). The 2018 Unsecured Notes have a term of five years, bear interest at 12% per annum, and are convertible into one share of common stock, par value $0.001 per share, with the initial conversion ratio equal to $0.50 per share. For each dollar exchanged, the investor received a warrant to purchase one share of common stock of the Company at an exercise price of $0.70 per share. The 2018 Unsecured Notes may be converted at any time and from time to time in whole or in part prior to the maturity date thereof. Loss on this debt exchange was $44,036. A discount on the notes payable of $89,500 was recorded based on the value of the fair value of the note and warrants exchanged. The included warrants were valued using a Black-Scholes options pricing model. From August 31, 2018 through October 30, 2018, the Company issued additional 2018 Notes totaling $300,000 and warrants to unaffiliated accredited investors. A discount on the notes payable of $40,350 was recorded based on the fair value of the warrants issued with this note using a Black-Scholes options pricing model. Amortized interest expense for the years ended December 31, 2018 and 2017 on these discounts was $8,700 and $0, respectively. These securities were issued in reliance upon the exemption provided by Section 4(a)(2) of the Securities Act and the safe harbor of Rule 506 under Regulation D promulgated under the Securities Act as well as under Section 3(a)(9) under the Securities Act. Interest expense for the years ended December 31, 2018 and 2017, was $46,587 and $0, respectively. As of December 31, 2018 and 2017, total principal of $860,000 and $0 was outstanding on the 2018 Unsecured Notes. The significant assumptions utilized for these Black Scholes calculations consist of an expected life of equal to the expiration term of the option, historical volatility of 100% respectively, and a risk free interest rate of 3%. New AC Midwest Secured Note The New AC Midwest Secured Note, which will mature on August 25, 2022 and is guaranteed by MES, is non-convertible and bears interest at a rate of 15.0% per annum, payable quarterly in arrears on or before the last day of each fiscal quarter. The New AC Midwest Secured Note is secured by all of the assets of the Companies. Interest expense for the years ended December 31, 2018 and 2017 was $66,694 and $267,847, respectively. As of December 31, 2018 and 2017, total principal of $271,686 and $1,146,686, respectively, was outstanding on this note. On February 25 2019, per Amendment No. 3 (“Amendment No. 3”) to the Amended and Restate Financing Agreement (See Note 13), AC Midwest agreed to waive of compliance with a certain financial covenants of the Restated Financing Agreement and strike this covenant in its entirety as of the effective date of the amendment. Also, pursuant to Amendment No. 3, the parties agreed that the maturity date for the remaining principal balance due under the AC Midwest Secured Note would be extended from December 15, 2018 to August 25, 2022. AC Midwest Subordinated Note The AC Midwest Subordinated Note, which will mature on December 15, 2020 and is guaranteed by MES, is non-convertible and bears interest equal to the three-month LIBOR rate plus 5.0% per annum, payable quarterly on or before the last day of each fiscal quarter beginning December 31, 2017. The interest rate shall be subject to adjustment each quarter based on the then current LIBOR rate. Commencing on June 15, 2017 and continuing on each September 15, December 15, March 15 and June 15 thereafter, the Company pays principal on the AC Midwest Subordinated Note in equal installments of (i) $500,000 per quarter for the 2017 calendar year, (ii) $625,000 per quarter for the 2018 calendar year, and (iii) thereafter $750,000 per quarter, with a final payment of all outstanding principal together with such other amounts as shall then be due and owing from the Company to AC Midwest on the maturity date. Notwithstanding the foregoing, until the New AC Midwest Secured Note is paid in full, AC Midwest will not be entitled to receive any payment on account of the AC Midwest Subordinated Note (other than regularly scheduled interest payments). Interest expense for the years ended December 31, 2018 and 2017 was $942,319 and $818,357, respectively. As of December 31, 2018 and 2017, total principal of $13,000,000 and $13,000,000 respectively, was outstanding on this note. The Company determined that the rate of interest on the AC Midwest Subordinated Note was a below market rate of interest and determined that a discount of $2,400,000 should be recorded. This discount is based on an applicable market rate for unsecured debt for the Company of 15% and will be amortized as interested expense over the life of the loan. Amortized discount recorded as interest expense for the years ended December 31, 2018 and 2017 was $593,094 and $593,094 respectively. The AC Midwest Subordinated Note was cancelled on February 25, 2019 (see Note 13). On January 28, 2016, the Companies entered into Amendment No. 3 to Financing Agreement and Reaffirmation of Guaranty (the "Third Amended Financing Agreement") with AC Midwest Energy LLC (the “Lender”), pursuant to which Lender agreed to cause its bank to arrange for the issuance to a certain customer of the Company a standby letter of credit in the amount of $2,000,000 (the "Letter of Credit") to permit the Company to enter into a contract for mercury capture program with such customer. The Letter of Credit is to guarantee the Company's performance under its contract with such customer. Under the Third Amended Financing Agreement, and in consideration for the issuance of the Letter of Credit for the benefit of the Company, the Company shall pay AC Midwest a fee equal to 12.0% per annum of the amount available to be drawn under the Letter of Credit payable on the last day of each calendar month. No amounts were drawn on this letter of credit, which was terminated as of December 31, 2018. Fee expense for the years ended December 31, 2018 and 2017 was $29,000 and $219,333, respectively. |
Equipment Notes Payable
Equipment Notes Payable | 12 Months Ended |
Dec. 31, 2018 | |
Notes to Financial Statements | |
Note 8 - Equipment Notes Payable | The Company has retail installment purchase contracts on equipment outstanding of $167,650 and $228,826 as of December 31, 2018 and 2107, respectively. These loans bear interest rates ranging from 4.22% to 5.62% and mature through 2022. As of December 31, 2018, scheduled principal payments due on convertible notes payable are as follows: For the year ended December 31, 2019 63,424 2020 63,281 2021 36,146 2022 4,799 $ 167,650 |
Commitments and Contingencies
Commitments and Contingencies | 12 Months Ended |
Dec. 31, 2018 | |
Notes to Financial Statements | |
Note 9 - Commitments and Contingencies | Property Leases On January 27, 2015, the Company entered into a lease for office space in Lewis Center, Ohio, commencing February 1, 2015 which lease as amended expires in February 2020. The lease provides for the option to extend the lease for up to five additional years. Monthly rent was $1,463 during 2018 and currently is $1,575 through February 2020. On July 1, 2015, the Company entered into a five year lease for warehouse space in Corsicana, Texas. Rent is $3,750 monthly throughout the term of the lease. The Company is also responsible for the pro rata share of the projected monthly expenses for the property taxes. The current pro rata share is $882. On September 1, 2015, the Company entered into a three year lease for office space in Grand Forks, North Dakota. Rent was $3,500 monthly for the first year and decreased to $2,500 through August 31, 2018. On September 1, 2018, the Company entered into a one year lease for office space in Grand Forks, North Dakota. Monthly rent is $575 a month through August 2019. Future minimum lease payments under these non-cancelable leases are approximately as follows: For the Year Ended December 31 2019 68,275 2020 25,650 $ 93,925 Rent expense was approximately $96,000 and $130,000 for the years ended December 31, 2018 and 2017, respectively. Operating Leases In 2016, the Company entered into a six year agreement to lease trailers used in the delivery of its products. Monthly payments currently total $32,820, Future minimum lease payments under these leases are approximately as follows: For the Year Ended December 31 2019 393,840 2020 393,840 2021 393,840 2022 306,100 $ 1,487,620 Trailer rent expense recorded in cost of sales associated with this agreement was $394,000 and $394,000 for the years ended December 31, 2018 and 2017. Fixed Price Contract The Company’s multi-year contracts with its commercial customers contain fixed prices for product. These contracts expire through 2019 and expose the Company to the potential risks associated with rising material costs during that same period. Revenue reported during interim periods were recorded based on the facts and circumstances at the time and any differences noted when the final revenue is determined is considered to be a change in estimate for the period. Legal proceedings The Company is involved in various claims and legal proceedings arising from the normal course of business. While the ultimate liability, if any, from these proceedings is presently indeterminable, in the opinion of management, these matters should not have a material adverse effect on the Company’s consolidated financial statements. |
Equity
Equity | 12 Months Ended |
Dec. 31, 2018 | |
Notes to Financial Statements | |
Note 10 - Equity | The Company was established with two classes of stock, common stock - 150,000,000 shares authorized at a par value of $0.001 and preferred stock - 2,000,000 shares authorized at a par value of $0.001. The Company is authorized to issue up to 2,000,000 shares of "blank check" preferred stock at a par value of $0.001 which may be issued from time to time in one or more classes and in one or more series within a class upon authorization by our Board of Directors. The Board of Directors, without further approval of the shareholders, is authorized to fix the preferences, limitations and relative rights of the shares of each class or series within a class. The issuance of preferred stock could adversely affect the voting power, conversion or other rights of holders of common stock. Preferred stock could be issued quickly with terms calculated to delay or prevent a change in control of the Company or make removal of management more difficult. Additionally, the issuance of preferred stock may have the effect of decreasing the market price of our common stock. Common Stock From January 13, 2017 to May 3, 2017, the Company issued 630,214 shares of common stock upon the cashless exercise of warrants to purchase 901,280 shares of common stock for $0.35 per share based on a market values from $1.18 to $1.33 per share as determined under the terms of the warrants. On March 30, 2017, the Company issued 51,236 shares of common stock upon the conversion of a note with principal and accrued interest totaling $25,618, that bears interest at 10% per annum, and was convertible into one share of common stock, par value $0.001 per share, with a conversion ratio equal to $0.50 per share. On April 24, 2017, the Company issued 925,000 shares of common stock in connection with the closing on the acquisition of certain patent rights from Energy & Environmental Research Center Foundation (“EERCF”) for the purchase price of $2,500,000 paid to EERCF in cash, 628,998 shares of common stock to EERCF and 296,002 shares to inventors designated by EERCF. The shares issued were valued at $0.56 per share, representing the value as of the closing date. On May 16, 2017, the Company issued 130,000 shares of common stock pursuant to a Settlement Agreement with two unrelated third parties which shares were valued at $0.47 per share based on the market value as of May 16, 2017. Pursuant to the terms of a consulting agreement entered into on July 31, 2017, effective as of July 1, 2017, the Company issued 1,000,000 shares of common stock to Dathna Partners, LLC which shall be earned in the following manner: 250,000 shares will be earned by the consultant and deemed immediately vested on the effective date, and the remaining 750,000 shares will be earned by the consultant and deemed vested, in 12 equal monthly installments of 62,500 shares beginning on July 31, 2017 and monthly thereafter until June 30, 2018. The shares issued were valued at $0.37 per share, representing the value as of the issuance date. Compensation expense for the years ended December 31, 2018 and 2017 on the issued shares was $138,750 and $231,250, respectively. |
Stock Based Compensation
Stock Based Compensation | 12 Months Ended |
Dec. 31, 2018 | |
Notes to Financial Statements | |
Note 11 - Stock Based Compensation | Effective July 20, 2005, the Board of Directors of the Company approved the 2005 Stock Option and Restricted Stock Plan (the “ 2005 Plan On May 6, 2009, the Board of Directors adopted, subject to stockholder approval, which was obtained at the annual stockholders meeting held on June 19, 2009, an amendment to the 2005 Plan that increased the number of shares subject to the Stock Plan. The total number of shares subject to the Stock Plan was revised to 454,545 shares by the Reverse Stock Split. On October 9, 2014, the Board of Directors terminated this plan upon the approving an amendment to the 2014 Equity Incentive Plan. On January 10, 2014, the Board of Directors of the Company approved and adopted, subject to stockholder approval, which was obtained at the annual stockholders meeting held on November 16, 2014, the Midwest Energy Emissions Corp. 2014 Equity Incentive Plan (the “2014 Equity Plan”). The number of shares of the Company’s Common Stock that may be issued under the 2014 Equity Plan is 2,500,000 shares, subject to the adjustment for stock dividends, stock splits, recapitalizations and similar corporate events. Eligible participants under the 2014 Equity Plan shall include officers, employees of or consultants to the Company or any of its subsidiaries, or any person to whom an offer of employment is extended, or any person who is a non-employee director of the Company. On October 9, 2014, the Board of Directors approved and adopted the First Amendment to the plan, subject to stockholder approval, which was obtained at the annual stockholders meeting held on November 18, 2014, which increased the number of shares issuable under the plan to 7,500,000. On February 9, 2017, the Board of Directors of the Company adopted the Midwest Energy Emissions Corp. 2017 Equity Incentive Plan (the “2017 Equity Plan”), which was approved by stockholders at the annual stockholders meeting held on June 6, 2017. The 2017 Equity Plan provides for the grant of incentive stock options (subject to applicable stockholder approval), nonqualified stock options, restricted stock awards, stock appreciation rights, restricted share units, performance awards and other type of awards described therein. Eligible recipients under the 2017 Equity Plan include the Company’s officers, directors, employees and consultants of the Company or one of its subsidiaries. The maximum number of shares of common stock that may be issued under the 2017 Equity Plan is 8,000,000. The 2017 Equity Plan will be administered by the Board or one or more committees appointed by the Board. The 2017 Equity Plan replaces the 2014 Equity Plan which was terminated by the Board of Directors on April 28, 2017. The Company accounts for stock-based compensation awards in accordance with the provisions of ASC 718, which addresses the accounting for employee stock options which requires that the cost of all employee stock options, as well as other equity-based compensation arrangements, be reflected in the consolidated financial statements over the vesting period based on the estimated fair value of the awards. A summary of stock option activity for the years ended December 31, 2018 and 2017 is presented below: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value December 31, 2016 7,550,457 1.29 3.2 - Grants 1,615,000 0.98 4.8 - Expirations (577,273 ) 1.02 - - Cancellations (125,000 ) - - - December 31, 2017 8,463,184 1.26 3.0 - Grants 1,423,326 0.26 4.4 - Expirations (725,000 ) 0.69 - - December 31, 2018 9,161,510 1.15 2.0 - Options exercisable at: December 31, 2017 7,688,184 1.27 3.0 December 31, 2018 9,161,510 1.15 2.0 The Company utilized the Black-Scholes options pricing model. The significant assumptions utilized during the years ended December 31, 2018 and 2017 for the Black Scholes calculations consist of an expected life of equal to the expiration term of the option, historical volatility of 100% and 74.9%, respectively, and a risk free interest rate of 3% and 3%, respectively. No adjustment to compensation expense is recorded for vested options that are forfeited. On February 1, 2017, the Company issued nonqualified stock options to acquire a total of 250,000 shares under the Company’s 2014 Equity Plan. Options to acquire a total of 100,000 of such shares have expired or been cancelled. The options granted are exercisable at $1.20 per share, representing the fair market value of the common stock as of the date of the grant as determined under the 2014 Equity Plan. The options are fully vested and exercisable as of the date of grant and will expire five years thereafter. Based on a Black-Scholes valuation model, these options were valued at $233,817 in accordance with FASB ASC Topic 718. During 2017, the Company issued nonqualified stock options to acquire 1,365,000 shares under the Company’s 2017 Equity Plan. Options to acquire a total of 250,000 of such shares have expired or been cancelled. The options granted are exercisable at prices ranging from $0.24 to $1.15 per share, representing the fair market value of the common stock as of the date of the grant as determined under the 2017 Equity Plan. The options are fully vested and exercisable as of the date of grant and will expire five year thereafter. Based on a Black-Scholes valuation model, these options were valued at $1,062,014 in accordance with FASB ASC Topic 718. During 2018, the Company issued nonqualified stock options to acquire 1,423,236 shares under the Company’s 2017 Equity Plan. The options granted are exercisable at prices ranging from $0.17 to $0.33 per share, representing the fair market value of the common stock as of the date of the grant as determined under the 2017 Equity Plan. The options are fully vested and exercisable as of the date of grant and will expire five year thereafter. Based on a Black-Scholes valuation model, these options were valued at $272,620 in accordance with FASB ASC Topic 718. On February 5, 2018, the Company released the restriction on stock options to acquire 750,000 shares of the Company’s common stock issued to Rick MacPherson on August 31, 2016 making them now fully vested and exercisable. Based on a Black-Scholes valuation model, these options were valued at $76,543 in accordance with FASB ASC Topic 718. |
Warrants
Warrants | 12 Months Ended |
Dec. 31, 2018 | |
Notes to Financial Statements | |
Note 12 - Warrants | Unless sold and issued warrants are subject to the provisions of FASB ASC 815-10, the Company utilized a Black-Scholes options pricing model to value the warrants sold and issued. This model requires the input of highly subjective assumptions such as the expected stock price volatility and the expected period until the warrants are exercised. When calculating the value of warrants issued, the Company uses a volatility factor of 100%, a risk free interest rate and the life of the warrant for the exercise period. On June 15, 2018, the Company issued unsecured convertible notes and warrants to unaffiliated accredited investors totaling $560,000 in exchange for outstanding secured convertible notes payable. The notes are convertible into one share of common stock, with the initial conversion ratio equal to $0.50 per share. The investors received a total of 560,000 warrants to purchase one shares of common stock with an exercise price of $0.70 per share. These securities were sold in reliance upon the exemption provided by Section 4(a)(2) of the Securities Act and the safe harbor of Rule 506 under Regulation D promulgated under the Securities Act, as well as under Section 3(a)(9) under the Securities Act. Using a Black-Scholes Valuation model these warrants had a value of $89,450 which was recorded as a discount on the notes payable and will be amortized over the life of the associated notes payable. On August 31, 2018, the Company issued unsecured convertible notes and warrants to unaffiliated accredited investors totaling $200,000. The notes are convertible into one share of common stock, with the initial conversion ratio equal to $0.50 per share. The investors received a total of 200,000 warrants to purchase one shares of common stock with an exercise price of $0.70 per share. These securities were sold in reliance upon the exemption provided by Section 4(a)(2) of the Securities Act and the safe harbor of Rule 506 under Regulation D promulgated under the Securities Act. Using a Black-Scholes Valuation model these warrants had a value of $28,900 which was recorded as a discount on the notes payable and will be amortized over the life of the associated notes payable. On October 31, 2018, the Company issued unsecured convertible notes and warrants to unaffiliated accredited investors totaling $100,000. The notes are convertible into one share of common stock, with the initial conversion ratio equal to $0.50 per share. The investors received a total of 100,000 warrants to purchase one shares of common stock with an exercise price of $0.70 per share. These securities were sold in reliance upon the exemption provided by Section 4(a)(2) of the Securities Act and the safe harbor of Rule 506 under Regulation D promulgated under the Securities Act. Using a Black-Scholes Valuation model these warrants had a value of $11,450 which was recorded as a discount on the notes payable and will be amortized over the life of the associated notes payable. The following table summarizes information about common stock warrants outstanding at December 31, 2018: Outstanding Exercisable Exercise Price Number Outstanding Weighted Average Remaining Contractual Life (years) Weighted Average Exercise Price Number Exercisable Weighted Average Exercise Price 0.87 1,303,300 0.36 0.87 1,303,300 0.87 0.70 860,000 4.55 0.65 860,000 0.65 0.45 150,000 1.92 0.45 150,000 0.45 0.35 1,792,098 * 1.53 0.35 1,792,098 0.35 $0.50 - $3.30 4,105,398 1.81 4,105,398 Note * 916,720 warrants exercisable at $0.35 contain dilution protections that increase the number of shares purchasable at exercise upon the issuance of securities at a price below the current exercise price. |
Tax
Tax | 12 Months Ended |
Dec. 31, 2018 | |
Notes to Financial Statements | |
Note 13 - Tax | Below is breakdown of the income tax provisions for the years ended December 31: 2018 2017 Current: Federal - - State and local $ 22,153 $ 40,422 Total Current 22,153 40,422 Deferred federal income tax benefit - 500,000 Net Provision (Benefit) $ 22,153 $ 540,422 A reconciliation of the provision (benefit) for income taxes with amounts determined by applying the statutory U.S. federal income tax rate to income before income taxes is as follows for the years ended December 31: 2018 2017 Computed tax at the federal statutory rate $ (1,007,000 ) $ (817,000 ) State taxes 22,000 14,000 Debt discounts 142,000 254,000 Other permanent and prior period adjustments 213,000 36,000 Valuation allowance 652,000 513,000 Income tax provisoin $ 22,000 $ - Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows at December 31: 2018 2017 Deferred tax assets: Net operating loss carryforwards $ 4,328,000 $ 3,840,000 Stock based compensation 888,000 903,000 Accrued Compensation 115,000 - Total deferred tax assets 5,331,000 4,743,000 Deferred tax liabilities: Property and equipment (51,000 ) (137,000 ) Other (33,000 ) (11,000 ) Total deferred tax liabilites (84,000 ) (148,000 ) Valuation Allowance (5,247,000 ) (4,595,000 ) Net deferred tax asset $ - $ - The 2017 Tax Cut and Jobs Act (“The Act”) reduces the federal statutory corporate tax rate from 34.0% to 21.0% for the Company’s tax years beginning in 2018. This resulted in the re-measurement of the federal portion of its deferred tax assets and liabilities. In 2017, this resulted in a $2.8 million reduction of net deferred tax assets which was offset by an equivalent adjustment to the valuation allowance. The Company has completed its accounting for the Act, which did not have a material impact on the financial statements. For the years ended December 31, 2018 and 2017, the Company incurred net operating losses and, accordingly, no provision for income taxes has been recorded. In addition, a valuation allowance was recorded and no benefit for income taxes was recorded due to the uncertainty of the realization of any tax assets. The valuation allowance increased by $652,000 from December 2017 to December 31, 2018. At December 31, 2018, the Company had approximately $20,608,000 of federal net operating losses after considering the effects of Section 382 and other limitations on the utilization of certain losses. The net operating loss carryforwards incurred in 2017 and before, if not utilized, will begin to expire in 2031. Federal net operating losses incurred in 2018 can be carried forward indefinitely. The Company’s effective income tax rates for the years ended December 31, 2018 and 2017, respectively are different than what would be expected if the statutory rate were applied to net income before income tax expense primarily because of expense charges in connection with various non-cash financing transactions, the use of net operating loss carryforwards, and the change in the valuation allowance. |
Subsequent Event
Subsequent Event | 12 Months Ended |
Dec. 31, 2018 | |
Notes to Financial Statements | |
Note 14 – Subsequent Event | On February 25, 2019, the Company, along with its wholly-owned subsidiary, MES, Inc. (“MES”, and together with the Company, collectively the “Companies”), entered into an Unsecured Note Financing Agreement (the “Unsecured Note Financing Agreement”) with AC Midwest, pursuant to which AC Midwest exchanged the AC Midwest Subordinated Note, together with all accrued and unpaid interest thereon, for a new unsecured note in the principal amount of $13,154,930.60 (the “New AC Midwest Unsecured Note”). The New AC Midwest Unsecured Note, which has been issued in exchange for the AC Midwest Subordinated Note which has now been cancelled, will mature on August 25, 2022 (the “Maturity Date”). It is guaranteed by MES and bears a zero cash interest rate. If the original principal amount is paid in full on or before August 25, 2020 (18 months from issuance), AC Midwest shall be entitled to a profit participation preference equal to 0.5 times the original principal amount, and if the original principal amount is paid in full after August 25, 2020, AC Midwest shall be entitled to a profit participation preference equal to 1.0 times the original principal amount (the “Profit Share”). The Profit Share is “non-recourse” and shall only be derived from and computed on the basis of, and paid from, Net Litigation Proceeds from claims relating to the Company’s intellectual property, Net Revenue Share and Adjusted Free Cash Flow (as such terms are defined in the Unsecured Note Financing Agreement). The Company shall pay the principal outstanding, as well as the Profit Share, in an amount equal to 60.0% of Net Litigation Proceeds until such time as any litigation funder has been paid in full and, thereafter, in an amount equal to 75.0% of such Net Litigation Proceeds until the Unsecured Note and Profit Share have been paid in full. In addition, and within 30 days following the end of each fiscal quarter, the Company shall pay the principal outstanding and Profit Share in an aggregate amount equal to the Net Revenue Share (which means 60.0% of Net Licensing Revenue (as defined) from licensing the Company’s intellectual property) plus Adjusted Free Cash Flow until the Unsecured Note and Profit Share have been paid in full, provided, however, that such payments shall exclude the first $3,500,000 of Net Licensing Revenue and Adjusted Free Cash Flow achieved commencing with the fiscal quarter ending March 31, 2019. Any remaining principal balance due on the Unsecured Note shall be due and payable in full on the Maturity Date. The Profit Share, however, if not paid in full on or before the Maturity Date, shall remain subject to Unsecured Note Financing Agreement until full and final payment. The New AC Midwest Unsecured Note, which is not be subject to any financial covenants, does contain certain other affirmative and negative covenants. In addition, on February 25, 2019, and effective as of December 15, 2018, the Companies entered into Amendment No. 3 (“Amendment No. 3”) to the Amended and Restated Financing Agreement with AC Midwest which was entered into on November 1, 2016, as previously amended on June 14, 2018 and September 12, 2018 (the “Restated Financing Agreement”). Pursuant to Amendment No. 3, the parties agreed that the maturity date for the remaining principal balance of $271,686 due under the AC Midwest Secured Note (which prior to Amendment No. 3 was due on December 15, 2018) would be extended to August 25, 2022. In addition, AC Midwest has agreed to waive the minimum EBITDA covenant contained in the Restated Financing Agreement and further to strike such covenant from the Restated Financing Agreement in its entirety as of the effective date of Amendment No. 3. Pursuant to this amendment, affected balances due on secured promissory notes totaling $1,261,686 have been disclosed as long term debt at December 31, 2018. |
Summary Of Significant Accoun_2
Summary Of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2018 | |
Summary Of Significant Accounting Policies Policies | |
Basis of Presentation | The accompanying consolidated financial statements have been prepared in accordance with the Generally Accepted Accounting Principles in the United States of America (“GAAP”). |
Principles of Consolidation | The consolidated financial statements include the accounts of Midwest Energy Emissions Corp. and its wholly-owned subsidiary, MES, Inc. Intercompany balances and transactions have been eliminated in consolidation. |
Use of Estimates | The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, valuation of equity issuances and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The Company uses estimates in accounting for, among other items, revenue recognition, allowance for doubtful accounts, income tax provisions, excess and obsolete inventory reserve and impairment of intellectual property. Actual results could differ from those estimates. |
Cash | The Company considers all highly liquid debt instruments and other short-term investments with maturity of three months or less, when purchased, to be cash equivalents. At December 31, 2018 and 2017, the Company had no cash equivalents. |
Accounts Receivable | Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Past due balances over 90 days and other higher risk amounts are reviewed individually for collectability. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. At December 31, 2018 and 2017, the allowance for doubtful accounts was zero. |
Inventory | Inventories are stated at the lower of cost (first-in, first-out basis) or net realizable value. Inventories are periodically evaluated to identify obsolete or otherwise impaired products and are written off when management determines usage is not probable. The Company estimates the balance of excess and obsolete inventory by analyzing inventory by age using last used and original purchase date and existing sales pipeline for which the inventory could be used. There was a minimal valuation allowance recorded as of December 31, 2018 and 2017. |
Property and Equipment | Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For consolidated financial statement purposes, equipment is recorded at cost and depreciated using the straight-line method over their estimated useful lives of 2 to 5 years. Leasehold improvements are recorded at cost and depreciated using the straight-line method over the life of the lease. Expenditures for repairs and maintenance which do not materially extend the useful lives of property and equipment are charged to operations. Management reviews the carrying value of its property and equipment for impairment on an annual basis. |
Intellectual Property | Intellectual is recorded at cost and amortized over its estimated useful life of 15 years. Management reviews intellectual property for impairment when events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable. In the event that impairment indicators exist, a further analysis is performed and if the sum of the expected undiscounted future cash flows resulting from the use of the asset or asset group is less than the carrying amount of the asset or asset group, an impairment loss equal to the excess of the asset or asset group's carrying value over its fair value is recorded. Management considers historical experience and all available information at the time the estimates of future cash flows are made, however, the actual cash values that could be realized may differ from those that are estimated. |
Recoverability of Long-Lived and Intangible Assets | Long-lived assets and certain identifiable intangibles held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of the long-lived and or intangible assets would be adjusted, based on estimates of future discounted cash flows. The Company evaluated the recoverability of the carrying value of the Company’s equipment. No impairment charges were recognized for the years ended December 31, 2018 and 2017, respectively. |
Stock-Based Compensation | The Company accounts for stock-based compensation awards in accordance with the provisions of ASC 718, Compensation-Stock Compensation |
Fair Value of Financial Instruments | The fair value hierarchy has three levels based on the inputs used to determine fair value, which are as follows: • Level 1 • Level 2 • Level 3 - The fair value hierarchy requires the use of observable market data when available. In instances where the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability. Cash was the only asset measured at fair value on a recurring basis by the Company at December 31, 2018 and December 31, 2017 and is considered to be Level 1. Financial instruments include cash, accounts receivable, accounts payable, accrued expenses, deferred revenue, customer credits and short-term debt. The carrying amounts of these financial instruments approximated fair value at December 31, 2018 and 2017 due to their short-term maturities. The fair value of the promissory notes payable at December 31, 2018 and 2017 approximated the carrying amount as the notes were issued during the years ended December 31, 2018 and 2017 at interest rates prevailing in the market and interest rates have not significantly changed as of December 31, 2018. The fair value of the promissory notes payable was determined on a Level 2 measurement. Discounts on issued debt, as well as debt issuance costs, are amortized over the term of the individual promissory notes. The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy. Fair Value Measurement as of December 31, 2018 Total Level 1 Level 2 Level 3 Assets: Cash 584,877 584,877 - - Total Assets $ 584,877 $ 584,877 $ - $ - Liabilities Promissory notes 13,814,208 - 13,814,208 - Total Liabilities $ 13,814,208 $ - $ 13,814,208 $ - Fair Value Measurement as of December 31, 2017 Total Level 1 Level 2 Level 3 Assets: Cash 2,418,427 2,418,427 - - Total Assets $ 2,418,427 $ 2,418,427 $ - $ - Liabilities Promissory notes 13,694,778 - 13,694,778 - Total Liabilities $ 13,694,778 $ - $ 13,694,778 $ - |
Foreign Currency Transactions | The Company's functional currency is the United States Dollar (the "U.S. Dollar"). Transactions denominated in currencies other than the U.S. Dollar are re-measured to the U.S. Dollar at the period-end exchange rates. Any associated transactional currency re-measurement gains and losses are recognized in current operations. At both December 31, 2018 and 2017, there were no material gains or losses recognized. |
Revenue Recognition | For the year ended December 31, 2018, the Company records revenue in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: Step 1: Identify the contract(s) with a customer. Step 2: Identify the performance obligations in the contract. Step 3: Determine the transaction price. Step 4: Allocate the transaction price to the performance obligations in the contract. Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation. Revenue is recognized when the Company satisfies its performance obligation under the contract by transferring the promised product to its customer that obtains control of the product. A performance obligation is a promise in a contract to transfer a distinct product to a customer. Most of the Company’s contracts have a single performance obligation, as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products. As such, revenue is recorded net of returns, allowances, customer discounts, and incentives. Sales and other taxes are excluded from revenues. Invoiced shipping and handling costs are included in revenue. The adoption of this standard did not have a material impact on the Company’s financial statements. For the year ended December 31, 2017, the Company recorded revenue from sales in accordance with ASC 605, Revenue Recognition 1. Persuasive evidence of an arrangement exists; 2. Delivery has occurred or services have been rendered; 3. The seller’s price to the buyer is fixed or determinable; and 4. Collectability is reasonably assured. Determination of criteria (3) and (4) was based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments were provided for in the same period the related sales are recorded. |
Disaggregation of Revenue | The Company generated revenue for the years ended December 31, 2018 and 2017 by (i) delivering product to its commercial customers, (ii) completing and commissioning equipment projects at commercial customer sites and (iii) performing demonstrations of its technology at customers with the intent of entering into long term supply agreements based on the performance of the Company’s products during the demonstrations. Revenue for product sales is recognized at the point of time in which the customer obtains control of the product, at the time title passes to the customer upon shipment or delivery of the product based on the applicable shipping terms. Revenue for equipment sales is recognized upon commissioning and customer acceptance of the installed equipment per the terms of the purchase contract. Revenue for demonstrations and consulting services is recognized when performance obligations contained in the contract have been completed, typically the completion of necessary field work and the delivery of any required analysis per the terms of the agreement. |
Customer Acquisition Costs | Customer acquisition costs are amortized on a straight-line bases over the life of the initial customer contract. The capitalized balance of customer acquisition costs was $34,467 and $172,333 on December 31, 2018 and December 31, 2017, respectively. Amortization expense for the years ended December 31, 2018 and 2017 was $137,866 and $469,870, respectively and included in cost of sales. |
Deferred Revenue | Revenue is recognized in the period that delivery is made and performance obligations are met. In accordance with the terms of an agreement with one customer, the Company allocated a fixed amount of payments made against the total deliveries of product made during the contract period. Due to this agreement $517,060 was deferred as of December 31, 2017 and was recognized in 2018 when product was delivered to the customer. |
Income Taxes | Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s consolidated financial statements are based on a more-likely-than-not recognition threshold. The Company did not have any unrecognized tax benefits at December 31, 2018 or 2017. When necessary, the Company would accrue penalties and interest related to unrecognized tax benefits as a component of income tax expense. The Company and its subsidiaries file a consolidated income tax return in the U.S. federal jurisdiction and various state jurisdictions. The Company is no longer subject to U.S. federal examinations for years prior to 2015 or state tax examinations for years prior to 2014. |
Basic and Diluted Loss Per Common Share | Basic net loss per common share is computed using the weighted average number of common shares outstanding. Diluted loss per share reflects the potential dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. There were no dilutive potential common shares as of December 31, 2018 or 2017, because the Company incurred net losses and basic and diluted losses per common share are the same. The following common stock equivalents were excluded from the computation of diluted net loss per share of common stock because they were anti-dilutive. The exercise of these common stock equivalents would dilute earnings per share if the Company becomes profitable in the future. December 31 December 31 2018 2017 Stock Options 9,161,510 8,463,184 Warrants 4,105,398 7,237,763 Convertible debt 3,700,000 3,100,000 Total common stock equivalents excluded from diluted net loss per share 16,966,908 18,800,947 |
Concentration of Credit Risk | Financial instruments that subject the Company to credit risk consist of cash and equivalents on deposit with financial institutions and accounts receivable. The Company’s cash as of December 31, 2018 is maintained at high-quality financial institutions and has not incurred any losses to date. |
Customer and Supplier Concentration | For each of the years ended December 31, 2018 and 2017, 100% of the Company’s revenue related to eight customers. At December 31, 2018 and 2017, 100% of the Company’s accounts receivable related to seven and six customers, respectively. For each of the years ended December 31, 2018 and 2017, 52% and 65% of the Company’s purchases related to two suppliers, respectively. At December 31, 2018 and 2017, 72% and 53% of the Company’s accounts payable and accrued expenses related to two vendors, respectively. The Company believes there are numerous other suppliers that could be substituted should the supplier become unavailable or non-competitive. |
Contingencies | Certain conditions may exist which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they arise from guarantees, in which case the guarantees would be disclosed. |
Recently Adopted Accounting Standards | In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. ASU 2017-11 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value of a down round feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. The guidance in ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, and the guidance is to be applied using a full or modified retrospective approach. The Company early adopted ASU 2017-11 and changed its method of accounting for certain warrants that were initially recorded as liabilities during the year ended December 31, 2014 on a full retrospective basis. |
Recently Issued Accounting Standards | In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), “Leases (Topic 842).” ASU 2016-02 requires lessees to recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases,” to clarify how to apply certain aspects of the new leases standard. In July 2018, the FASB also issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements,” which provides a transition option to not apply the new leases standard to comparative periods presented in a company’s financial statements in the year of adoption. Under this option, a cumulative-effect adjustment to the opening balance of retained earnings would be recorded on the date of adoption. ASU 2016-02 will be effective for the Company beginning on January 1, 2019. We expect that this standard will have a material effect on our financial statements. While we continue to assess all of the effects of adoption, we currently believe the most significant effects relate to the recognition of new right-of-use assets and lease liabilities on our balance sheet for leases of trailers used in the delivery of our products. We do not expect this standard to have a material impact on the statement of operations or statement of cash flows. We do not expect a significant change in our leasing activities between now and adoption. On adoption, we currently expect to recognize additional operating liabilities of approximately $1,353,000 with corresponding right-of-use assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. The new standard also provides practical expedients for an entity's ongoing accounting. We currently expect to elect the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize right-of-use assets or lease liabilities, and this includes not recognizing right-of-use assets or lease liabilities for existing short-term leases of those assets in transitions. We also currently expect to elect the practical expedient to not separate lease and non-lease components for all of our leases. In June 2018, the FASB issued ASU No. 2018-07, “Compensation - Stock Compensation (Topic 718)” (“ASU 2018-07”). ASU 2018-07 is intended to reduce cost and complexity and to improve financial reporting for nonemployee share based payments. Currently, the accounting requirements for nonemployee and employee share-based payment transactions are significantly different. ASU 2018-07 expands the scope of Topic 718, Compensation - Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. This ASU supersedes Subtopic 505-50, Equity - Equity-Based Payments to Nonemployees. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and including interim periods within that fiscal year. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers. The Company is currently evaluating ASU 2018-07 and its impact on its consolidated financial statements. In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in ASU 2018-13 modify the disclosure requirements associated with fair value measurements based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating ASU 2018-13 and its impact on its consolidated financial statements. |
Summary of Significant Accoun_3
Summary of Significant Accounting Policies (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Summary Of Significant Accounting Policies | |
Schedule of fair value assets and liabilities measured on recurring basis | Fair Value Measurement as of December 31, 2018 Total Level 1 Level 2 Level 3 Assets: Cash 584,877 584,877 - - Total Assets $ 584,877 $ 584,877 $ - $ - Liabilities Promissory notes 13,814,208 - 13,814,208 - Total Liabilities $ 13,814,208 $ - $ 13,814,208 $ - Fair Value Measurement as of December 31, 2017 Total Level 1 Level 2 Level 3 Assets: Cash 2,418,427 2,418,427 - - Total Assets $ 2,418,427 $ 2,418,427 $ - $ - Liabilities Promissory notes 13,694,778 - 13,694,778 - Total Liabilities $ 13,694,778 $ - $ 13,694,778 $ - |
Schedule of earnings per share basic and diluted | December 31 December 31 2018 2017 Stock Options 9,161,510 8,463,184 Warrants 4,105,398 7,237,763 Convertible debt 3,700,000 3,100,000 Total common stock equivalents excluded from diluted net loss per share 16,966,908 18,800,947 |
Property And Equipment, Net (Ta
Property And Equipment, Net (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Property And Equipment Net | |
Schedule of property and equipment | December 31 December 31 2018 2017 Equipment $ 1,965,659 $ 1,965,659 Trucking equipment 983,948 1,010,961 Office equipment 27,155 27,155 Computer equipment and software 117,212 117,212 Total equipment 3,093,974 3,120,987 Less: accumulated depreciation (2,503,990 ) (2,067,786 ) Total equipment in use, net 589,984 1,053,201 Construction in process 1,807,707 1,675,792 Property and equipment, net $ 2,397,691 $ 2,728,993 |
Intellectual Property (Tables)
Intellectual Property (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Intellectual Property Tables Abstract | |
Schedule of patent costs capitalized | December 31 December 31 2018 2017 Patents $ 3,068,995 $ 3,068,995 Less: Accumulated Amortization (335,333 ) (134,133 ) License, Net $ 2,733,662 $ 2,934,862 |
Notes Payable (Tables)
Notes Payable (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Notes Payable | |
Schedule of notes payable outstanding | 2018 2017 Secured convertible promissory notes which mature upon the retirement of the New AC Midwest Secured Debt, bear interest at 10% per annum, and are convertible into one share of common stock, par value $0.001 per share. $ 990,000 $ 1,550,000 Secured promissory note which matures on August 25, 2022 and bears interest at 12% per annum. 271,686 1,146,686 Unsecured promissory note which matures on December 15, 2020, and bears interest at LIBOR + 500 per annum. 13,000,000 13,000,000 Unsecured convertible promissory notes which mature on June 15, 2023, bear interest at 12% per annum, and are convertible into one share of common stock, par value $0.001 per share. $ 860,000 $ - Total convertible notes payable before discount 15,121,686 15,696,686 Less discounts (1,249,620 ) (1,841,867 ) Less debt issuance costs (57,858 ) (160,041 ) Total notes payable 13,814,208 13,694,778 Less current portion - 4,050,000 Notes payable, net of current portion $ 13,814,208 $ 9,644,778 |
Schedule of payments due on convertible notes payable | Twelve months ended December 31, 2019 $ - 2020 13,000,000 2021 - 2022 1,261,686 2023 860,000 $ 15,121,686 |
Schedule of discounts and debt issuance costs | Twelve months ended December 31, Discounts Debt issuance costs 2019 $ 612,690 $ 31,559 2020 586,692 26,299 2021 19,596 - 2022 19,596 - 2023 11,046 - $ 1,249,620 $ 57,858 |
Equipment Notes Payable (Tables
Equipment Notes Payable (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Equipment Notes Payable | |
Schedule of principal payments due on convertible notes payable | For the year ended December 31, 2019 63,424 2020 63,281 2021 36,146 2022 4,799 $ 167,650 |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Commitments And Contingencies | |
Schedule of non-cancelable leases | For the Year Ended December 31 2019 68,275 2020 25,650 $ 93,925 |
Schedule of future minimum lease payments | For the Year Ended December 31 2019 393,840 2020 393,840 2021 393,840 2022 306,100 $ 1,487,620 |
Stock Based Compensation (Table
Stock Based Compensation (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Stock Based Compensation | |
Schedule of stock option activity | Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value December 31, 2016 7,550,457 1.29 3.2 - Grants 1,615,000 0.98 4.8 - Expirations (577,273 ) 1.02 - - Cancellations (125,000 ) - - - December 31, 2017 8,463,184 1.26 3.0 - Grants 1,423,326 0.26 4.4 - Expirations (725,000 ) 0.69 - - December 31, 2018 9,161,510 1.15 2.0 - Options exercisable at: December 31, 2017 7,688,184 1.27 3.0 December 31, 2018 9,161,510 1.15 2.0 |
Warrants (Tables)
Warrants (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Warrants | |
Schedule of common stock warrants outstanding | Outstanding Exercisable Exercise Price Number Outstanding Weighted Average Remaining Contractual Life (years) Weighted Average Exercise Price Number Exercisable Weighted Average Exercise Price 0.87 1,303,300 0.36 0.87 1,303,300 0.87 0.70 860,000 4.55 0.65 860,000 0.65 0.45 150,000 1.92 0.45 150,000 0.45 0.35 1,792,098 * 1.53 0.35 1,792,098 0.35 $0.50 - $3.30 4,105,398 1.81 4,105,398 |
Tax (Tables)
Tax (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Tax | |
Schedule of tax benefits and provisions | 2018 2017 Current: Federal - - State and local $ 22,153 $ 40,422 Total Current 22,153 40,422 Deferred federal income tax benefit - 500,000 Net Provision (Benefit) $ 22,153 $ 540,422 |
Schedule of Effective Income Tax Rate Reconciliation | 2018 2017 Computed tax at the federal statutory rate $ (1,007,000 ) $ (817,000 ) State taxes 22,000 14,000 Debt discounts 142,000 254,000 Other permanent and prior period adjustments 213,000 36,000 Valuation allowance 652,000 513,000 Income tax provisoin $ 22,000 $ - |
Schedule of Deferred Tax Assets and Liabilities | 2018 2017 Deferred tax assets: Net operating loss carryforwards $ 4,328,000 $ 3,840,000 Stock based compensation 888,000 903,000 Accrued Compensation 115,000 - Total deferred tax assets 5,331,000 4,743,000 Deferred tax liabilities: Property and equipment (51,000 ) (137,000 ) Other (33,000 ) (11,000 ) Total deferred tax liabilites (84,000 ) (148,000 ) Valuation Allowance (5,247,000 ) (4,595,000 ) Net deferred tax asset $ - $ - |
Organization (Details Narrative
Organization (Details Narrative) - $ / shares | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Organization | ||
State of Incorporation | Delaware | |
Common stock, shares authorized | 150,000,000 | 150,000,000 |
Common stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 2,000,000 | 2,000,000 |
Preferred stock, par value | $ 0.001 | $ 0.001 |
Summary of Significant Accoun_4
Summary of Significant Accounting Policies (Details) - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Assets: | ||
Total Assets | $ 8,038,867 | $ 12,056,082 |
Liabilities | ||
Total Liabilities | 16,659,963 | 16,480,868 |
Fair Value [Member] | ||
Assets: | ||
Cash | 584,877 | 2,418,427 |
Total Assets | 584,877 | 2,418,427 |
Liabilities | ||
Promissory notes | 13,814,208 | 13,694,778 |
Total Liabilities | 13,814,208 | 13,694,778 |
Level 1 [Member] | ||
Assets: | ||
Cash | 584,877 | 2,418,427 |
Total Assets | 584,877 | 2,418,427 |
Liabilities | ||
Promissory notes | ||
Total Liabilities | ||
Level 2 [Member] | ||
Assets: | ||
Cash | ||
Total Assets | ||
Liabilities | ||
Promissory notes | 13,814,208 | 13,694,778 |
Total Liabilities | 13,814,208 | 13,694,778 |
Level 3 [Member] | ||
Assets: | ||
Cash | ||
Total Assets | ||
Liabilities | ||
Promissory notes | ||
Total Liabilities |
Summary of Significant Accoun_5
Summary of Significant Accounting Policies (Details 1) - shares | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Total common stock equivalents excluded from diluted net loss per share | 16,966,908 | 18,800,947 |
Convertible Debt [Member] | ||
Total common stock equivalents excluded from diluted net loss per share | 3,700,000 | 3,100,000 |
Stock Options [Member] | ||
Total common stock equivalents excluded from diluted net loss per share | 9,161,510 | 8,463,184 |
Warrants [Member] | ||
Total common stock equivalents excluded from diluted net loss per share | 4,105,398 | 7,237,763 |
Summary of Significant Accoun_6
Summary of Significant Accounting Policies (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Estimated useful life of intellectual property | 15 years | |
Operating leases, future minimum payments | $ 1,353,000 | |
Customer acquisition costs, net | 34,467 | $ 137,866 |
Amortization expense | 137,866 | 469,870 |
Deferred revenue | $ 517,060 | $ 517,060 |
Minimum [Member] | ||
Estimated useful lives of property and equipment | 2 years | |
Maximum [Member] | ||
Estimated useful lives of property and equipment | 5 years | |
Two Suppliers [Member] | ||
Concentration risk percentage | 52.00% | 65.00% |
Accounts Payable And Accrued Expenses [Member] | Two Vendors [Member] | ||
Concentration risk percentage | 72.00% | 53.00% |
Revenue [Member] | Eight Customers [Member] | ||
Concentration risk percentage | 100.00% | 100.00% |
Accounts Receivable [Member] | Seven Customers [Member] | ||
Concentration risk percentage | 100.00% | |
Accounts Receivable [Member] | Six Customers [Member] | ||
Concentration risk percentage | 100.00% |
Liquidity and Financial Condi_2
Liquidity and Financial Condition (Details Narrative) - USD ($) | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Liquidity And Financial Condition | |||
Cash | $ 584,877 | $ 2,418,427 | $ 7,751,557 |
Accumulated deficit | (51,483,332) | (46,666,652) | |
Working capital | 132,000 | ||
Loss from operations | 2,800,000 | ||
Cash used in operating activities | (1,065,458) | $ (471,664) | |
Restructed convertible notes | $ 560,000 | ||
New loans maturity year | 2023 |
Inventory (Details Narrative)
Inventory (Details Narrative) - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Inventory Details Narrative Abstract | ||
Inventory | $ 306,651 | $ 375,882 |
Raw materials inventory | 87,730 | 154,952 |
Equipment and parts inventory | $ 113,035 | $ 128,744 |
Property And Equipment, Net (De
Property And Equipment, Net (Details) - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Total Equipment | $ 3,093,974 | $ 3,120,987 |
Less: accumulated depreciation | (2,503,990) | (2,067,786) |
Total equipment in use, net | 589,984 | 1,053,201 |
Construction in process | 1,807,707 | 1,675,792 |
Property and equipment, net | 2,397,691 | 2,728,993 |
Equipment [Member] | ||
Total Equipment | 1,965,659 | 1,965,659 |
Trucking Equipment [Member] | ||
Total Equipment | 983,948 | 1,010,961 |
Office Equipment [Member] | ||
Total Equipment | 27,155 | 27,155 |
Computer Equipment and Software [Member] | ||
Total Equipment | $ 117,212 | $ 117,212 |
Property And Equipment, Net (_2
Property And Equipment, Net (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Property And Equipment Net Details Narrative | ||
Depreciation expense | $ 456,914 | $ 748,020 |
Intellectual Property (Details)
Intellectual Property (Details) - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Intellectual Property Details Abstract | ||
Patents | $ 3,068,995 | $ 3,068,995 |
Less: accumulated amortization | (335,333) | (134,133) |
License, Net | $ 2,733,662 | $ 2,934,862 |
Intellectual Property (Details
Intellectual Property (Details Narrative) | 12 Months Ended | |
Dec. 31, 2018USD ($)Integer$ / sharesshares | Dec. 31, 2017USD ($) | |
Amortization expense charged to cost and expenses | $ 201,200 | $ 136,083 |
Estimated amortization cost for 2019 | 201,200 | |
Estimated amortization cost for 2020 | 201,200 | |
Estimated amortization cost for 2021 | 201,200 | |
Estimated amortization cost for 2022 | 201,200 | |
Estimated amortization cost for 2023 | 201,200 | |
Purchase of intellectual property | $ (2,500,000) | |
On April 24, 2017 [Member] | ||
Purchase of intellectual property | $ 2,500,000 | |
Shares issued | shares | 925,000 | |
Shares issued, value | $ 518,000 | |
Shares issued, price per share | $ / shares | $ 0.56 | |
On April 24, 2017 [Member] | Inventors designated by EERCF [Member] | ||
Shares issued | shares | 296,002 | |
EERCF [Member] | On April 24, 2017 [Member] | ||
Shares issued | shares | 628,998 | |
Number of patent applications | Integer | 42 |
Notes Payable (Details)
Notes Payable (Details) - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Total notes payable before discount and debt issuance costs | $ 15,121,686 | $ 15,696,686 |
Less discounts | (1,249,620) | (1,841,867) |
Less debt issuance costs | (57,858) | (160,041) |
Total notes payable | 13,814,208 | 13,694,778 |
Less current portion | 4,050,000 | |
Notes payable, net of current portion | 13,814,208 | 9,644,778 |
Secured Convertible Promissory Notes [Member] | ||
Total notes payable before discount and debt issuance costs | 990,000 | 1,550,000 |
Secured Convertible Promissory Notes One [Member] | ||
Total notes payable before discount and debt issuance costs | 271,686 | 1,146,686 |
Unsecured Convertible Promissory Notes [Member] | ||
Total notes payable before discount and debt issuance costs | 13,000,000 | 13,000,000 |
Unsecured Convertible Promissory Notes One [Member] | ||
Total notes payable before discount and debt issuance costs | $ 860,000 |
Notes Payable (Details 1)
Notes Payable (Details 1) | Dec. 31, 2018USD ($) |
Notes Payable Details 1Abstract | |
2019 | |
2020 | 13,000,000 |
2021 | |
2022 | 1,261,686 |
2023 | 860,000 |
Total | $ 15,121,686 |
Notes Payable (Details 2)
Notes Payable (Details 2) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Discounts | $ 678,061 | $ 745,652 |
Debt issuance costs | 102,183 | $ 153,303 |
Amortization of Discounts and Debt Issuance costs [Member] | ||
Discounts | 1,249,620 | |
Debt issuance costs | 57,858 | |
2019 [Member] | ||
Discounts | 612,690 | |
Debt issuance costs | 31,559 | |
2020 [Member] | ||
Discounts | 586,692 | |
Debt issuance costs | 26,299 | |
2021 [Member] | ||
Discounts | 19,596 | |
Debt issuance costs | ||
2022 [Member] | ||
Discounts | 19,596 | |
Debt issuance costs | ||
2023 [Member] | ||
Discounts | 11,046 | |
Debt issuance costs |
Notes Payable (Details Narrativ
Notes Payable (Details Narrative) - USD ($) | 1 Months Ended | 12 Months Ended | |
Jun. 15, 2018 | Dec. 31, 2018 | Dec. 31, 2017 | |
Loss on debt exchange | $ 44,036 | ||
Common stock, par value | $ 0.001 | $ 0.001 | |
Letter of credit fees | $ 29,000 | $ 219,333 | |
Volatility | 100.00% | 74.90% | |
Risk free interest rate | 3.00% | 3.00% | |
January 28, 2016 [Member] | |||
Letter of Credit | $ 2,000,000 | ||
Subordinated Note [Member] | |||
Interest expense | 942,319 | $ 818,357 | |
Principal outstanding on notes | 13,000,000 | 13,000,000 | |
Amortized interest expense on note discount | $ 593,094 | 593,094 | |
Interest rate | 5.00% | ||
Maturity Date | Dec. 15, 2020 | ||
Market rate of interest discount | $ 2,400,000 | ||
Market rate of interest | 15.00% | ||
Thereafter [Member] | |||
Equal installments per quarter as principal amount for secured note | $ 750,000 | ||
Equal installments per quarter as principal amount for subordinated note | 750,000 | ||
2017 [Member] | |||
Equal installments per quarter as principal amount for secured note | 500,000 | ||
Equal installments per quarter as principal amount for subordinated note | 500,000 | ||
2018 [Member] | |||
Equal installments per quarter as principal amount for secured note | 625,000 | ||
Equal installments per quarter as principal amount for subordinated note | 625,000 | ||
Secured Note [Member] | |||
Interest expense | 66,694 | 267,847 | |
Principal outstanding on notes | $ 271,686 | 1,146,686 | |
Interest rate | 15.00% | ||
Maturity Date | Aug. 25, 2022 | ||
August 31, 2018 through October 30, 2018 [Member] | |||
Unsecured convertible notes and warrants | $ 300,000 | ||
Interest expense | 46,587 | 0 | |
Principal outstanding on notes | 860,000 | 0 | |
Amortized interest expense on note discount | 8,700 | 0 | |
Discount on notes payable | $ 40,350 | ||
Volatility | 100.00% | ||
Risk free interest rate | 3.00% | ||
Notes 2013 [Member] | |||
Unsecured convertible notes and warrants | $ 560,000 | ||
Loss on debt exchange | $ 44,036 | ||
Debt term | 5 years | ||
Interest rate | 12.00% | ||
Common stock, par value | $ 0.001 | ||
Exercise price | $ 0.70 | ||
Conversion ratio | Equal to $0.50 per share | ||
Discount on notes payable | $ 89,500 | ||
July 30, 2013 through December 24, 2013 [Member] | |||
Interest expense | $ 124,967 | 155,618 | |
Principal outstanding on notes | 990,000 | 1,550,000 | |
Amortized interest expense on note discount | 74,447 | $ 152,558 | |
Convertible note | $ 1,902,500 | ||
Debt term | 3 Years | ||
Interest rate | 10.00% | ||
Common stock, par value | $ 0.001 | ||
Conversion ratio | Equal to $0.50 per share | ||
Discount on notes payable | $ 841,342 |
Equipment Notes Payable (Detail
Equipment Notes Payable (Details) | Dec. 31, 2018USD ($) |
2019 | $ 13,000,000 |
2020 | |
2021 | 1,261,686 |
2022 | 860,000 |
Equipment Notes Payable [Member] | |
2019 | 63,423 |
2020 | 63,281 |
2021 | 36,146 |
2022 | 4,799 |
Total principle payments due on convertible notes payable | $ 167,650 |
Equipment Notes Payable (Deta_2
Equipment Notes Payable (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Equipment notes payable, less current portion | $ 167,650 | $ 228,826 |
Maturity date | mature through 2022 | mature through 2022 |
Minimum [Member] | ||
Interest rate | 4.22% | 4.22% |
Maximum [Member] | ||
Interest rate | 5.62% | 5.62% |
Commitments and Contingencies_2
Commitments and Contingencies (Details) | Dec. 31, 2018USD ($) |
Future minimum maintenance fee payments | |
2019 | $ 393,840 |
2020 | 393,840 |
Future minimum maintenance fee payments Net | 1,487,620 |
Non Cancelable Leases [Member] | |
Future minimum maintenance fee payments | |
2019 | 68,275 |
2020 | 25,650 |
Future minimum maintenance fee payments Net | $ 93,925 |
Commitments and Contingencies_3
Commitments and Contingencies (Details 1) | Dec. 31, 2018USD ($) |
Future minimum maintenance fee payments | |
2019 | $ 393,840 |
2020 | 393,840 |
2021 | 393,840 |
2022 | 306,100 |
Future minimum maintenance fee payments Net | $ 1,487,620 |
Commitments and Contingencies_4
Commitments and Contingencies (Details Narrative) - USD ($) | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Lease term | 6 years | ||
Monthly rent expenses | $ 32,820 | ||
Rent expense | $ 96,000 | $ 130,000 | |
Trailer rent expense | $ 394,000 | $ 394,000 | |
Commercial Customers [Member] | |||
Contract’s expiry date | 2019 | ||
September 1, 2018 [Member] | |||
Lease term | 1 year | ||
Monthly rent expenses | $ 575 | ||
On September 1, 2015 [Member] | |||
Lease term | 3 years | ||
Monthly rent expenses | $ 3,500 | ||
Decreases in monthly rent expenses | $ 2,500 | ||
On July 1, 2015 [Member] | |||
Lease term | 5 years | ||
Monthly rent expenses | $ 3,750 | ||
Monthly expenses pro rata basis | 882 | ||
On January 27, 2015 [Member] | |||
Monthly rent expenses | $ 1,463 | ||
Lease commencement date | Feb. 1, 2015 | ||
Lease expiry date | February 2020 |
Equity (Details Narrative)
Equity (Details Narrative) | 1 Months Ended | 4 Months Ended | 12 Months Ended | ||||||
Oct. 31, 2018 | Aug. 31, 2018 | Jun. 15, 2018 | Dec. 31, 2017$ / sharesshares | May 16, 2017$ / sharesshares | Mar. 30, 2017USD ($)$ / sharesshares | May 03, 2017$ / sharesshares | Dec. 31, 2018USD ($)Integer$ / sharesshares | Dec. 31, 2017USD ($)$ / sharesshares | |
Preferred stock, par value | $ / shares | $ 0.001 | $ 0.001 | $ 0.001 | ||||||
Preferred stock, shares authorized | 2,000,000 | 2,000,000 | 2,000,000 | ||||||
Common stock, par value | $ / shares | $ 0.001 | $ 0.001 | $ 0.001 | ||||||
Common stock, shares authorized | 150,000,000 | 150,000,000 | 150,000,000 | ||||||
Vesting of stock issued to non-employees in prior year | $ | $ 138,750 | ||||||||
Stock issued to non-employees, Amount | $ | $ 231,250 | ||||||||
On July 1, 2017 [Member] | Dathna Partners LLC [Member] | |||||||||
Price per share | $ / shares | $ 0.37 | ||||||||
Business acquisition consideration transferred or transferable, shares issued | 1,000,000 | ||||||||
Shares vested | 250,000 | ||||||||
Shares expected to vest | 750,000 | ||||||||
Monthly installments | 62,500 | ||||||||
Number of instalments | Integer | 12 | ||||||||
Inventors designated by EERCF [Member] | On April 24, 2017 [Member] | EERCF [Member] | |||||||||
Price per share | $ / shares | $ 0.56 | ||||||||
Business acquisition consideration transferred or transferable, shares issued | 925,000 | ||||||||
Purchase price paid in cash | $ | $ 2,500,000 | ||||||||
On April 24, 2017 [Member] | EERCF [Member] | |||||||||
Business acquisition consideration transferred or transferable, shares issued | 628,998 | ||||||||
Warrants [Member] | |||||||||
Common stock, par value | $ / shares | $ 0.001 | ||||||||
Common stock shares issued | 130,000 | 51,236 | 630,214 | ||||||
Debt conversion converted amount | $ | $ 25,618 | ||||||||
Interest rate | 10.00% | ||||||||
Terms of conversion feature | equal to $0.50 per share | equal to $0.50 per share | equal to $0.50 per share | Convertible into one share of common stock, par value $0.001 per share, with a conversion ratio equal to $0.50 per share. | |||||
Conversion ratio | 0.50 | ||||||||
Warrants issued | 901,280 | ||||||||
Price per share | $ / shares | $ 0.35 | ||||||||
Price per share description | common stock for $0.35 per share based on a market values from $1.18 to $1.33 per share as determined under the terms of the warrants. | ||||||||
Market price of the share | $ / shares | $ 0.47 | ||||||||
Blank check [Member] | |||||||||
Preferred stock, par value | $ / shares | $ 0.001 | ||||||||
Preferred stock, shares authorized | 2,000,000 |
Stock Based Compensation (Detai
Stock Based Compensation (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Weighted Average Remaining Contractual Life (years) | ||
Beginning Balance | 1 year 9 months 22 days | |
Stock Options [Member] | ||
Number of Shares | ||
Beginning Balance | 8,463,184 | 7,550,457 |
Grants | 1,423,326 | 1,615,000 |
Expirations | (725,000) | (577,273) |
Cancellations | (125,000) | |
Ending Balance | 9,161,510 | 8,463,184 |
Options exercisable | 9,161,510 | 7,688,184 |
Weighted Average Exercise Price | ||
Beginning Balance | $ 1.26 | $ 1.29 |
Grants | 0.26 | 0.98 |
Expirations | 0.69 | 1.02 |
Cancellations | ||
Ending Balance | 1.15 | 1.26 |
Options exercisable | $ 1.15 | $ 1.27 |
Weighted Average Remaining Contractual Life (years) | ||
Beginning Balance | 3 years | 3 years 3 months 19 days |
Grants | 4 years 4 months 24 days | 4 years 9 months 18 days |
Ending Balance | 2 years | 3 years |
Options exercisable | 2 years | 3 years |
Aggregate Intrinsic Value | ||
Beginning Balance | ||
Grants | ||
Cancellations | ||
Ending Balance |
Stock Based Compensation (Det_2
Stock Based Compensation (Details Narrative) - USD ($) | 1 Months Ended | 12 Months Ended | ||||||
Dec. 31, 2017 | Jun. 19, 2009 | Jul. 20, 2005 | Dec. 31, 2018 | Dec. 31, 2017 | Feb. 09, 2017 | Nov. 18, 2014 | Jan. 10, 2014 | |
Volatility rate | 100.00% | 74.90% | ||||||
Risk free interest rate | 3.00% | 3.00% | ||||||
Nonqualified stock options | 1,423,236 | |||||||
Value of option | $ 272,620 | |||||||
Stock options expiration term | 5 years | |||||||
2017 Equity Plan [Member] | ||||||||
Shares issued | 8,000,000 | |||||||
2005 Plan [Member] | ||||||||
Reverse Stock Split shares reserved | 136,364 | |||||||
Option exercise period | 10 years | |||||||
Generally option exercise period | 5 years | |||||||
Revised Reverse Stock Split shares | 454,545 | |||||||
During 2017 [Member] | ||||||||
Nonqualified stock options | 1,365,000 | 1,365,000 | ||||||
Option to acquire shares | 250,000 | 250,000 | ||||||
Value of option | $ 1,062,014 | $ 1,062,014 | ||||||
Stock options expiration term | 5 years | |||||||
February 1, 2016 [Member] | ||||||||
Nonqualified stock options | 250,000 | 250,000 | ||||||
Option to acquire shares | 100,000 | 100,000 | ||||||
Options exercisable price | $ 1.20 | $ 1.20 | ||||||
Value of option | $ 233,817 | $ 233,817 | ||||||
Stock options expiration term | 5 years | |||||||
Minimum [Member] | ||||||||
Options exercisable price | $ 0.17 | |||||||
Minimum [Member] | During 2017 [Member] | ||||||||
Options exercisable price | $ 0.24 | $ 0.24 | ||||||
Maximum [Member] | ||||||||
Options exercisable price | $ 0.33 | |||||||
Maximum [Member] | During 2017 [Member] | ||||||||
Options exercisable price | $ 1.15 | $ 1.15 | ||||||
Richard MacPherson [Member] | February 5, 2018 [Member] | ||||||||
Option to acquire shares | 750,000 | |||||||
Value of option | $ 76,543 | |||||||
2014 Equity Plan [Member] | ||||||||
Common stock shares reserved for future issuance | 7,500,000 | 2,500,000 |
Warrants (Details)
Warrants (Details) | 12 Months Ended | |
Dec. 31, 2018$ / sharesshares | ||
Common stock warrants outstanding | ||
Number outstanding | shares | 4,105,398 | |
Weighted Average Remaining Contractual Life (years) | 1 year 9 months 22 days | |
Number Exercisable | shares | 4,105,398 | |
Minimum [Member] | ||
Common stock warrants outstanding | ||
Exercise Price | $ 0.50 | |
Weighted Average Exercise Price Exercisable | 0.17 | |
Maximum [Member] | ||
Common stock warrants outstanding | ||
Exercise Price | 3.30 | |
Weighted Average Exercise Price Exercisable | 0.33 | |
Warrants [Member] | ||
Common stock warrants outstanding | ||
Exercise Price | $ 0.87 | |
Number outstanding | shares | 1,303,300 | |
Weighted Average Remaining Contractual Life (years) | 4 months 9 days | |
Weighted Average Exercise Price Outstanding | $ 0.87 | |
Number Exercisable | shares | 1,303,300 | |
Weighted Average Exercise Price Exercisable | $ 0.87 | |
Warrant One [Member] | ||
Common stock warrants outstanding | ||
Exercise Price | $ 0.70 | |
Number outstanding | shares | 860,000 | |
Weighted Average Remaining Contractual Life (years) | 4 years 6 months 18 days | |
Weighted Average Exercise Price Outstanding | $ 0.65 | |
Number Exercisable | shares | 860,000 | |
Weighted Average Exercise Price Exercisable | $ 0.65 | |
Warrant Two [Member] | ||
Common stock warrants outstanding | ||
Exercise Price | $ 0.45 | |
Number outstanding | shares | 150,000 | |
Weighted Average Remaining Contractual Life (years) | 1 year 11 months 1 day | |
Weighted Average Exercise Price Outstanding | $ 0.45 | |
Number Exercisable | shares | 150,000 | |
Weighted Average Exercise Price Exercisable | $ 0.45 | |
Warrant Three [Member] | ||
Common stock warrants outstanding | ||
Exercise Price | $ 0.35 | |
Number outstanding | shares | 1,792,098 | [1] |
Weighted Average Remaining Contractual Life (years) | 1 year 6 months 10 days | |
Weighted Average Exercise Price Outstanding | $ 0.35 | |
Number Exercisable | shares | 1,792,098 | |
Weighted Average Exercise Price Exercisable | $ 0.35 | |
[1] | 916,720 warrants exercisable at $0.35 contain dilution protections that increase the number of shares purchasable at exercise upon the issuance of securities at a price below the current exercise price. |
Warrants (Details Narrative)
Warrants (Details Narrative) - Warrants [Member] - USD ($) | 1 Months Ended | 12 Months Ended | |||
Oct. 31, 2018 | Aug. 31, 2018 | Jun. 15, 2018 | Mar. 30, 2017 | Dec. 31, 2018 | |
Volatility factor rate | 100.00% | ||||
Warrants exercise price | $ 0.70 | $ 0.70 | $ 0.70 | $ 0.35 | |
Warrants exercisable | 100,000 | 200,000 | 560,000 | 916,720 | |
Conversion ratio | equal to $0.50 per share | equal to $0.50 per share | equal to $0.50 per share | Convertible into one share of common stock, par value $0.001 per share, with a conversion ratio equal to $0.50 per share. | |
Unsecured convertible notes and warrants | $ 100,000 | $ 200,000 | $ 560,000 | ||
Discount on notes payable | $ 11,450 | $ 28,900 | $ 89,450 |
Tax (Details)
Tax (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Current: | ||
Federal | ||
State and local | 22,153 | 40,422 |
Total Current | 22,153 | 40,422 |
Deferred federal income tax benefit | 500,000 | |
Net Provision (Benefit) | $ 22,153 | $ 540,422 |
Tax (Details 1)
Tax (Details 1) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Tax Details 1Abstract | ||
Computed tax at the federal statutory rate | $ (1,007,000) | $ (817,000) |
State taxes | 22,000 | 14,000 |
Debt discounts | 142,000 | 254,000 |
Other | 213,000 | 36,000 |
Valuation allowance | 652,000 | 513,000 |
Federal income tax benefit | $ 22,000 |
Tax (Details 2)
Tax (Details 2) - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Deferred tax assets: | ||
Net operating loss carryforwards | $ 4,328,000 | $ 3,840,000 |
Stock based compensation | 888,000 | 903,000 |
Accrued Compensation | 115,000 | |
Total deferred tax assets | 5,331,000 | 4,743,000 |
Deferred tax liabilities: | ||
Property and equipment | (51,000) | (137,000) |
Other | (33,000) | (11,000) |
Total deferred tax liabilites | (84,000) | (148,000) |
Valuation Allowance | (5,247,000) | (4,595,000) |
Net deferred tax asset |
Tax (Details Narrative)
Tax (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Tax Details Narrative Abstract | ||
Federal statutory corporate tax rate description | The 2017 Tax Cut and Jobs Act reduces the federal statutory corporate tax rate from 34.0% to 21.0% for the Company’s tax years beginning in 2018. This resulted in the re-measurement of the federal portion of its deferred tax assets and liabilities. | |
Increase in valuation allowance | $ 652,000 | |
Decrease in net deferred tax assets | $ 280,000 | |
Net operating loss carryforward | $ 20,608,000 | |
Net operating loss carryforward, expiration year | 2031 |
Subsequent Events (Details Narr
Subsequent Events (Details Narrative) - Subsequent Event [Member] - AC Midwest Unsecured Note [Member] - February 25, 2019 [Member] | 12 Months Ended |
Dec. 31, 2018USD ($) | |
Exchanged subordinate note | $ 13,154,931 |
Maturity date | Aug. 25, 2022 |
Profit participation description | If the original principal amount is paid in full on or before August 25, 2020 (18 months from issuance), AC Midwest shall be entitled to a profit participation preference equal to 0.5 times the original principal amount, and if the original principal amount is paid in full after August 25, 2020, AC Midwest shall be entitled to a profit participation preference equal to 1.0 times the original principal amount (the “Profit Share”). |
Litigation proceeds description | The Company shall pay the principal outstanding, as well as the Profit Share, in an amount equal to 60.0% of Net Litigation Proceeds until such time as any litigation funder has been paid in full and, thereafter, in an amount equal to 75.0% of such Net Litigation Proceeds until the Unsecured Note and Profit Share have been paid in full. In addition, and within 30 days following the end of each fiscal quarter, the Company shall pay the principal outstanding and Profit Share in an aggregate amount equal to the Net Revenue Share (which means 60.0% of Net Licensing Revenue (as defined) from licensing the Company’s intellectual property) plus Adjusted Free Cash Flow until the Unsecured Note and Profit Share have been paid in full, provided, however, that such payments shall exclude the first $3,500,000 of Net Licensing Revenue and Adjusted Free Cash Flow achieved commencing with the fiscal quarter ending March 31, 2019. |
Long term debt | $ 1,261,686 |
Extended debt principal balance | $ 271,686 |