Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2018 | Mar. 26, 2019 | Jun. 30, 2018 | |
Document And Entity Information | |||
Entity Registrant Name | IMAGEWARE SYSTEMS INC | ||
Entity Central Index Key | 0000941685 | ||
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? | No | ||
Entity Filer Category | Accelerated Filer | ||
Entity Emerging Growth Company | false | ||
Entity Small Business | true | ||
Entity Shell Company | false | ||
Entity Public Float | $ 67,362,450 | ||
Entity Common Stock, Shares Outstanding | 98,510,466 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2018 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Dec. 31, 2018 | Dec. 31, 2017 |
Current Assets: | ||
Cash and cash equivalents | $ 5,694 | $ 7,317 |
Accounts receivable, net of allowance for doubtful accounts of $0 and $15 at December 31, 2018 and 2017, respectively. | 968 | 458 |
Inventory, net | 29 | 79 |
Other current assets | 233 | 163 |
Total Current Assets | 6,924 | 8,017 |
Property and equipment, net | 244 | 43 |
Other assets | 332 | 35 |
Intangible assets, net of accumulated amortization | 82 | 93 |
Goodwill | 3,416 | 3,416 |
Total Assets | 10,998 | 11,604 |
Current Liabilities: | ||
Accounts payable | 678 | 457 |
Deferred revenue | 1,215 | 1,016 |
Accrued expenses | 888 | 658 |
Accrued interest payable to related parties | 0 | 527 |
Convertible lines of credit to related parties, net of discount | 0 | 5,774 |
Derivative liabilities | 1,065 | 0 |
Total Current Liabilities | 3,846 | 8,432 |
Other long-term liabilities | 147 | 0 |
Pension obligation | 1,876 | 2,024 |
Total Liabilities | 5,869 | 10,456 |
Mezzanine Equity: | ||
Series C Convertible Redeemable Preferred Stock, $0.01 par value, designated 1,000 shares, 1,000 and 0 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively; liquidation preference $10,000 and $0 at December 31, 2018 and December 31, 2017, respectively. | 8,156 | 0 |
Shareholders' Equity (Deficit): | ||
Common Stock, $0.01 par value, 175,000,000 shares authorized; 98,230,336 and 94,174,540 shares issued at December 31, 2018 and 2017, respectively, and 98,223,632 and 94,167,836 shares outstanding at December 31, 2018 and 2017, respectively. | 981 | 941 |
Additional paid-in capital | 184,130 | 172,414 |
Treasury stock, at cost 6,704 shares | (64) | (64) |
Accumulated other comprehensive loss | (1,428) | (1,664) |
Accumulated deficit | (186,648) | (170,481) |
Total Shareholders' Equity (Deficit) | (3,027) | 1,148 |
Total Liabilities and Shareholders' Equity (Deficit) | 10,998 | 11,604 |
Series A Preferred Stock [Member] | ||
Shareholders' Equity (Deficit): | ||
Preferred stock, authorized 4,000,000 shares | 0 | 0 |
Series B Preferred Stock [Member] | ||
Shareholders' Equity (Deficit): | ||
Preferred stock, authorized 4,000,000 shares | $ 2 | $ 2 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands | Dec. 31, 2018 | Dec. 31, 2017 |
Current Assets: | ||
Accounts receivable, net of allowance for doubtful accounts | $ 0 | $ 15 |
Shareholders' equity: | ||
Common stock, par value | $ .01 | $ 0.01 |
Common stock, shares authorized | 175,000,000 | 175,000,000 |
Common stock, shares issued | 98,230,336 | 94,174,540 |
Common stock, shares outstanding | 98,223,632 | 94,167,836 |
Treasury stock, shares | 6,704 | 6,704 |
Mezzanine Preferred Stock [Member] | ||
Shareholders' equity: | ||
Preferred stock, par value per share | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 1,000 | 1,000 |
Preferred stock, shares issued | 1,000 | 0 |
Preferred stock, shares outstanding | 1,000 | 0 |
Preferred stock, liquidation preference | $ 10,000 | $ 0 |
Series A Preferred Stock [Member] | ||
Shareholders' equity: | ||
Preferred stock, par value per share | $ 0.01 | $ .01 |
Preferred stock, shares authorized | 38,000 | 38,000 |
Preferred stock, shares issued | 37,467 | 31,021 |
Preferred stock, shares outstanding | 37,467 | 31,021 |
Preferred stock, liquidation preference | $ 37,467 | $ 31,021 |
Series B Preferred Stock [Member] | ||
Shareholders' equity: | ||
Preferred stock, par value per share | $ .01 | $ .01 |
Preferred stock, shares authorized | 750,000 | 750,000 |
Preferred stock, shares issued | 389,400 | 389,400 |
Preferred stock, shares outstanding | 239,400 | 239,400 |
Preferred stock, liquidation preference | $ 607 | $ 607 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Revenue: | ||
Product | $ 1,761 | $ 1,614 |
Maintenance | 2,643 | 2,679 |
Revenues | 4,404 | 4,293 |
Cost of revenue: | ||
Product | 205 | 152 |
Maintenance | 671 | 839 |
Gross profit | 3,528 | 3,302 |
Operating expenses: | ||
General and administrative | 4,285 | 3,723 |
Sales and marketing | 3,571 | 2,816 |
Research and development | 7,351 | 6,324 |
Depreciation and amortization | 51 | 68 |
Total | 15,258 | 12,931 |
Loss from operations | (11,730) | (9,727) |
Interest expense | 463 | 591 |
Change in fair value of derivative liabilities | 232 | 0 |
Other components of net periodic pension expense | 118 | 98 |
Other income, net | (34) | (125) |
Loss before income taxes | (12,539) | (10,193) |
Income tax expense (benefit) | 11 | (124) |
Net loss | (12,550) | (10,069) |
Preferred dividends, deemed dividends and accretion | (3,913) | (2,400) |
Preferred stock exchange | 0 | (1,245) |
Net loss available to common shareholders | $ (16,463) | $ (13,714) |
Basic and diluted loss per common share - see Note 2: | ||
Net loss | $ (0.13) | $ (0.11) |
Preferred dividends | (0.04) | (0.03) |
Preferred stock exchange | 0 | (0.01) |
Basic and diluted loss per share available to common shareholders | $ (0.17) | $ (0.15) |
Basic and diluted weighted-average shares outstanding | 95,210,572 | 92,816,723 |
CONSOLIDATED STATEMENTS OF COMP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Statement of Other Comprehensive Income [Abstract] | ||
Net loss | $ (12,550) | $ (10,069) |
Other comprehensive income (loss): | ||
Reduction (increase) in additional minimum pension liability | 209 | (15) |
Foreign currency translation adjustment | 27 | (106) |
Comprehensive loss | $ (12,314) | $ (10,190) |
CONSOLIDATED STATEMENTS OF SHAR
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) - USD ($) $ in Thousands | Series A Convertible Redeemable Preferred | Series B Convertible Redeemable Preferred | Series E Convertible Redeemable Preferred | Series F Convertible Redeemable Preferred | Series G Convertible Redeemable Preferred | Common Stock | Treasury Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total |
Beginning, Shares at Dec. 31, 2016 | 0 | 239,400 | 12,000 | 2,000 | 6,021 | 91,853,499 | (6,704) | ||||
Beginning, Amount at Dec. 31, 2016 | $ 0 | $ 2 | $ 0 | $ 0 | $ 0 | $ 917 | $ (64) | $ 156,195 | $ (1,543) | $ (156,767) | $ (1,260) |
Issuance of Series A Convertible Redeemable Preferred Stock for cash, net of issuance costs, Shares | 11,000 | ||||||||||
Issuance of Series A Convertible Redeemable Preferred Stock for cash, net of issuance costs, Amount | $ 0 | 10,937 | 10,937 | ||||||||
Issuance of Series A Convertible Redeemable Preferred Stock in exchange for preferred shares, Shares | 20,021 | (12,000) | (2,000) | (6,021) | |||||||
Issuance of Series A Convertible Redeemable Preferred Stock in exchange for preferred shares, Amount | $ 0 | $ 0 | $ 0 | $ 0 | 1,245 | (1,245) | 0 | ||||
Accretion of Series A Preferred Stock discount | 0 | ||||||||||
Issuance of common stock warrants as compensation | 57 | 57 | |||||||||
Issuance of common stock pursuant to option exercises, Shares | 369,004 | ||||||||||
Issuance of common stock pursuant to option exercises, Amount | $ 4 | 255 | 259 | ||||||||
Recognition of beneficial conversion feature on convertible debt | 302 | 302 | |||||||||
Stock-based compensation expense | 1,094 | 1,094 | |||||||||
Additional minimum pension liability | (15) | (15) | |||||||||
Foreign currency translation adjustment | (106) | (106) | |||||||||
Dividends on preferred stock, Shares | 1,952,037 | ||||||||||
Dividends on preferred stock, Amount | $ 20 | 2,329 | (2,400) | (51) | |||||||
Net loss | (10,069) | (10,069) | |||||||||
Ending, Shares at Dec. 31, 2017 | 31,021 | 239,400 | 0 | 0 | 0 | 94,174,540 | (6,704) | ||||
Ending, Amount at Dec. 31, 2017 | $ 0 | $ 2 | $ 0 | $ 0 | $ 0 | $ 941 | $ (64) | 172,414 | (1,664) | (170,481) | 1,148 |
Issuance of common stock pursuant to Series A Preferred Stock conversions, Shares | (450) | 391,304 | |||||||||
Issuance of common stock pursuant to Series A Preferred Stock conversions, Amount | $ 0 | $ 4 | (4) | 0 | |||||||
Related Party debt exchange for Series A Preferred Stock, Shares | 6,896 | ||||||||||
Related Party debt exchange for Series A Preferred Stock, Amount | $ 0 | 6,802 | 6,802 | ||||||||
Cumulative effect of ASC 606 adoption | 96 | 96 | |||||||||
Accretion of Series A Preferred Stock discount | (200) | 200 | |||||||||
Issuance of common stock warrants as compensation | 26 | 26 | |||||||||
Issuance of common stock pursuant to option exercises, Shares | 235,852 | ||||||||||
Issuance of common stock pursuant to option exercises, Amount | $ 2 | 162 | 164 | ||||||||
Recognition of beneficial conversion feature on convertible debt | 30 | 30 | |||||||||
Modification of preferred stock | 92 | (92) | 0 | ||||||||
Stock-based compensation expense | 1,272 | 1,272 | |||||||||
Additional minimum pension liability | 209 | 209 | |||||||||
Foreign currency translation adjustment | 27 | 27 | |||||||||
Dividends on preferred stock, Shares | 3,428,640 | ||||||||||
Dividends on preferred stock, Amount | $ 34 | 3,536 | (3,621) | (51) | |||||||
Net loss | (12,550) | (12,550) | |||||||||
Ending, Shares at Dec. 31, 2018 | 37,467 | 239,400 | 0 | 0 | 0 | 98,230,336 | (6,704) | ||||
Ending, Amount at Dec. 31, 2018 | $ 0 | $ 2 | $ 0 | $ 0 | $ 0 | $ 981 | $ (64) | $ 184,130 | $ (1,428) | $ (186,648) | $ (3,027) |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Cash flows from operating activities | ||
Net loss | $ (12,550) | $ (10,069) |
Adjustments to reconcile net loss to net cash used by operating activities | ||
Depreciation and amortization | 51 | 68 |
Amortization of debt discounts and debt issuance costs | 170 | 209 |
Stock-based compensation | 1,272 | 1,094 |
Provision for losses on accounts receivable | 0 | 15 |
Gain from sale of trademark | 0 | (50) |
Reduction in accrued expenses from expiration of statute of limitations | 0 | (222) |
Warrants issued in lieu of cash as compensation for services | 26 | 57 |
Loss from change in fair value of derivative liabilities | 232 | 0 |
Change in assets and liabilities | ||
Accounts receivable | (414) | (186) |
Inventory | 50 | (56) |
Other assets | (229) | (40) |
Accounts payable | (221) | 32 |
Accrued expense | 600 | 359 |
Deferred revenue | 200 | (29) |
Pension obligation | 61 | 115 |
Total adjustments | 2,240 | 1,366 |
Net cash used by operating activities | (10,310) | (8,703) |
Cash flows from investing activities | ||
Purchase of property and equipment | (240) | (5) |
Proceeds from sale of trademark | 0 | 50 |
Net cash provided by (used by) investing activities | (240) | 45 |
Cash flows from financing activities | ||
Proceeds from line of credit | 0 | 3,350 |
Proceeds from exercise of stock options | 162 | 259 |
Proceeds from issuance of preferred stock, net of issuance costs | 8,789 | 10,937 |
Dividends paid to preferred stockholders | (51) | (51) |
Net cash provided by financing activities | 8,900 | 14,495 |
Effect of exchange rate changes on cash and cash equivalents | 27 | (106) |
Net increase (decrease) in cash and cash equivalents | (1,623) | 5,731 |
Cash and cash equivalents at beginning of year | 7,317 | 1,586 |
Cash and cash equivalents at end of year | 5,694 | 7,317 |
Supplemental disclosure of cash flow information: | ||
Cash paid for interest | 0 | 0 |
Cash paid for income taxes | 0 | 0 |
Summary of non-cash investing and financing activities: | ||
Exchange of related-party indebtedness for Series A Preferred Stock | 6,802 | 0 |
Beneficial conversion feature of related party lines of credit | 30 | 302 |
Stock dividends on Series A Convertible Preferred Stock | 3,251 | 923 |
Stock dividends on Series C Convertible Redeemable Preferred Stock | 319 | 0 |
Stock dividends on Series E, Series F and Series G Convertible Preferred Stocks | 0 | 1,426 |
Conversion of Series A Convertible Preferred Stock into Common Stock | 4 | 0 |
Recognition of derivative liabilities on preferred stock issuance | 833 | 0 |
Deemed dividend on preferred stock modification | 92 | 0 |
Accretion of discount on Series C Convertible Redeemable Preferred Stock | 200 | 0 |
Reduction (increase) in additional minimum pension liability | 209 | (15) |
Preferred stock exchange | $ 0 | $ 1,245 |
DESCRIPTION OF BUSINESS AND OPE
DESCRIPTION OF BUSINESS AND OPERATIONS | 12 Months Ended |
Dec. 31, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
DESCRIPTION OF BUSINESS AND OPERATIONS | Overview As used in this Quarterly Report, “we,” “us,” “our,” “ImageWare,” “ImageWare Systems,” “Company” or “our Company” refers to ImageWare Systems, Inc. and all of its subsidiaries. ImageWare Systems, Inc. is incorporated in the state of Delaware. The Company is a pioneer and leader in the emerging market for biometrically enabled software-based identity management solutions. Using those human characteristics that are unique to us all, the Company creates software that provides a highly reliable indication of a person’s identity. The Company’s “flagship” product is the patented IWS Biometric Engine®. The Company’s products are used to manage and issue secure credentials, including national IDs, passports, driver licenses and access control credentials. The Company’s products also provide law enforcement with integrated mug shot, fingerprint LiveScan and investigative capabilities. The Company also provides comprehensive authentication security software using biometrics to secure physical and logical access to facilities or computer networks or internet sites. Biometric technology is now an integral part of all markets the Company addresses, and all the products are integrated into the IWS Biometric Engine. Recent Developments Creation of Series C Convertible Redeemable Preferred Stock On September 10, 2018, the Company filed the Certificate of Designations, Preferences, and Rights of Series C Convertible Redeemable Preferred Stock with the Secretary of State for the State of Delaware – Division of Corporations, designating 1,000 shares of the Company’s preferred stock, par value $0.01 per share, as Series C Convertible Redeemable Preferred Stock (“ Series C Preferred Series C Financing From September 10, 2018 through September 21, 2018, the Company offered and sold an aggregate of 1,000 shares of Series C Preferred at a purchase price of $10,000 per share (the “ Series C Financing Amendment to Certificate of Designations of Series A Convertible Preferred Stock On September 10, 2018, the Company filed an Amendment to the Certificate of Designations, Preferences, and Rights of Series A Convertible Preferred Stock with the Secretary of State for the State of Delaware – Division of Corporations, to increase the number of shares of Series A Convertible Preferred Stock, par value $0.01 per share (“ Series A Preferred Debt Exchange On September 10, 2018, the Company entered into exchange agreements (the “ Exchange Agreements Debt Exchange Declaration of Special Dividend Concurrently with the Series C Financing, the Company’s Board of Directors declared a special dividend (the “ Special Dividend Holder Dividend Warrant provided, however Liquidity, Going Concern and Management’s Plan Historically, our principal sources of cash have included customer payments from the sale of our products, proceeds from the issuance of common and preferred stock and proceeds from the issuance of debt, including our Lines of Credit (defined below). Our principal uses of cash have included cash used in operations, product development, and payments relating to purchases of property and equipment. We expect that our principal uses of cash in the future will be for product development, including customization of identity management products for enterprise and consumer applications, further development of intellectual property, development of Software-as-a-Service (“ SaaS At December 31, 2018, we had positive working capital of approximately $3,078,000, as compared to a working capital deficit of approximately $415,000 at December 31, 2017. Our principal sources of liquidity at December 31, 2018 consisted of cash and cash equivalents of $5,694,000. Our principal sources of liquidity at December 31, 2017 consisted of cash and cash equivalents of $7,317,000. Considering our projected cash requirements, and assuming we are unable to generate incremental revenue, our available cash may be insufficient to satisfy our cash requirements for the next 12 months from the date of this filing. These factors raise substantial doubt about our ability to continue as a going concern. To address our working capital requirements, management may seek additional equity and/or debt financing through the issuance of additional debt and/or equity securities or may seek strategic or other transactions intended to increase shareholder value. There are currently no formal committed financing arrangements to support our projected cash shortfall, including commitments to purchase additional debt and/or equity securities, or other agreements, and no assurances can be given that we will be successful in raising additional debt and/or equity securities, or entering into any other transaction that addresses our ability to continue as a going concern. In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated balance sheet is dependent upon continued operations of the Company, which, in turn, is dependent upon the Company’s ability to continue to raise capital and generate positive cash flows from operations. However, the Company operates in markets that are emerging and highly competitive. There is no assurance that the Company will be able to obtain additional capital, operate at a profit or generate positive cash flows in the future. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 2018 | |
Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company’s wholly-owned subsidiaries are: XImage Corporation, a California Corporation; ImageWare Systems ID Group, Inc., a Delaware corporation (formerly Imaging Technology Corporation); I.W. Systems Canada Company, a Nova Scotia unlimited liability company; ImageWare Digital Photography Systems, LLC, a Nevada limited liability company (formerly Castleworks LLC); Digital Imaging International GmbH, a company formed under German laws; and Image Ware Mexico S de RL de CV, a company formed under Mexican laws. All significant intercompany transactions and balances have been eliminated. Operating Cycle Assets and liabilities related to long-term contracts are included in current assets and current liabilities in the accompanying consolidated balance sheets, although they will be liquidated in the normal course of contract completion which may take more than one operating cycle. Use of Estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expense during the reporting period. Significant estimates include the evaluation of our ability to continue as a going concern, the allowance for doubtful accounts receivable, deferred tax asset valuation allowances, recoverability of goodwill, assumptions used in the Black-Scholes model to calculate the fair value of share based payments, fair value of financial instruments issued with and affected by the Series C Preferred Financing (defined above), fair value of Exchanged Preferred (defined below), assumptions used in the application of revenue recognition policies and assumptions used in the application of fair value methodologies to calculate the fair value of pension assets and obligations. Actual results could differ from estimates. Accounts Receivable In the normal course of business, the Company extends credit without collateral requirements to its customers that satisfy pre-defined credit criteria. Accounts receivable are recorded net of an allowance for doubtful accounts. Accounts receivable are considered delinquent when the due date on the invoice has passed. The Company records its allowance for doubtful accounts based upon its assessment of various factors. The Company considers historical experience, the age of the accounts receivable balances, the credit quality of its customers, current economic conditions and other factors that may affect customers’ ability to pay to determine the level of allowance required. Accounts receivable are written off against the allowance for doubtful accounts when all collection efforts by the Company have been unsuccessful. Inventories Finished goods inventories are stated at the lower of cost, determined using the average cost method, or net realizable value. See Note 6. Property, Equipment and Leasehold Improvements Property and equipment, consisting of furniture and equipment, are stated at cost and are being depreciated on a straight-line basis over the estimated useful lives of the assets, which generally range from three to five years. Maintenance and repairs are charged to expense as incurred. Major renewals or improvements are capitalized. When assets are sold or abandoned, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized. Expenditures for leasehold improvements are capitalized. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements. Revenue Recognition. ASC ASC 606 In accordance with ASC 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The core principle of the standard is that we should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. To achieve that core principle, we apply the following five step model: 1. Identify the contract with the customer; 2. Identify the performance obligation in the contract; 3. Determine the transaction price; 4. Allocate the transaction price to the performance obligations in the contract; and 5. Recognize revenue when (or as) each performance obligation is satisfied. At contract inception, we assess the goods and services promised in a contract with a customer and identify as a performance obligation each promise to transfer to the customer either: (i) a good or service (or a bundle of goods or services) that is distinct or (ii) a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer. We recognize revenue only when we satisfy a performance obligation by transferring a promised good or service to a customer. Determining the timing of the satisfaction of performance obligations as well as the transaction price and the amounts allocated to performance obligations requires judgement. We disclose disaggregation of our customer revenue by classes of similar products and services as follows: ● Software licensing and royalties; ● Computer hardware and identification media; ● Services; and ● Post-contract customer support. Software licensing and royalties Software licenses consist of revenue from the sale of software for identity management applications. Our software licenses are functional intellectual property and typically provide customers with the right to use our software in perpetuity as it exists when made available to the customer. We recognize revenue from software licensing at a point in time upon delivery, provided all other revenue recognition criteria are met. Royalties consist of revenue from usage-based arrangements and guaranteed minimum-based arrangements. We recognize revenue for royalty arrangements at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied. Computer hardware and identification media We generate revenue from the sale of computer hardware and identification media. Revenue for these items is recognized upon delivery of these products to the customer, provided all other revenue recognition criteria are met. Services Services revenue is comprised primarily of software customization services, software integration services, system installation services and customer training. Revenue is generally recognized upon completion of services and customer acceptance provided all other revenue recognition criteria are met. Post-contract customer support (“PCS”) Post contract customer support consists of maintenance on software and hardware for our identity management solutions. Arrangements with multiple performance obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. In addition to selling software licenses, hardware and identification media, services and post-contract customer support on a standalone basis, certain contracts include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on our best estimate of the relative standalone selling price. The standalone selling price for a performance obligation is the price at which we would sell a promised good or service separately to a customer. The primary methods used to estimate standalone selling price are as follows: (i) the expected cost-plus margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service and (ii) the percent discount off of list price approach. Contract costs We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We apply a practical expedient to expense costs as incurred for costs to obtain a contract when the amortization period is one year or less. Other items We do not offer rights of return for our products and services in the normal course of business. Sales tax collected from customers is excluded from revenue. The adoption of ASC 606 as of January 1, 2018 resulted in a cumulative positive adjustment to beginning accumulated deficit and accounts receivable of approximately $96,000. The following table sets forth our disaggregated revenue for the years ended December 31, 2018 and 2017: Year Ended December 31, Net Revenue 2018 2017 (dollars in thousands) Software and royalties $ 1,334 $ 1,248 Hardware and consumables 133 94 Services 294 272 Maintenance 2,643 2,679 Total net revenue $ 4,404 $ 4,293 Fair Value of Financial Instruments For certain of the Company’s financial instruments, including accounts receivable, accounts payable, accrued expense, deferred revenue and lines of credit payable to related parties, the carrying amounts approximate fair value due to their relatively short maturities. Goodwill The Company accounts for its intangible assets under the provisions of ASC 350, “ Intangibles - Goodwill and Other. Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment The Company did not record any goodwill impairment charges for the years ended December 31, 2018 or 2017. Intangible and Long-Lived Assets Intangible assets are carried at their cost less any accumulated amortization. Any costs incurred to renew or extend the life of an intangible or long-lived asset are reviewed for capitalization. The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. The Company’s management currently believes there is no impairment of its long-lived assets. There can be no assurance, however, that market conditions will not change or demand for the Company’s products under development will continue. Either of these could result in future impairment of long-lived assets. Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company places its cash with high quality financial institutions and at times during the years ended December 31, 2018 and 2017 exceeded the FDIC insurance limits of $250,000. Sales are typically made on credit and the Company generally does not require collateral. The Company performs ongoing credit evaluations of its customers’ financial condition and maintains an allowance for doubtful accounts. The Company considers historical experience, the age of the accounts receivable balances, the credit quality of its customers, current economic conditions and other factors that may affect customers’ ability to pay to determine the level of allowance required. Accounts receivable are presented net of an allowance for doubtful accounts of approximately $0 and $15,000 at December 31, 2018 and 2017, respectively. For the year ended December 31, 2018 one customer accounted for approximately 36% or $1,573,000 of total revenue and had trade receivables of approximately $0 as of the end of the year. For the year ended December 31, 2017 one customer accounted for approximately 25% or $1,089,000 of total revenue and had trade receivables of approximately $201,000 as of the end of the year. Stock-Based Compensation At December 31, 2018, the Company had one stock-based compensation plan for employees and nonemployee directors, which authorize the granting of various equity-based incentives including stock options and restricted stock. The Company estimates the fair value of its stock options using a Black-Scholes option-pricing model, consistent with the provisions of ASC 718, “ Compensation – Stock Compensation ASC 718 requires the use of a valuation model to calculate the fair value of stock-based awards. The Company has elected to use the Black-Scholes option-pricing model, which incorporates various assumptions including volatility, expected life, and interest rates. The Company is required to make various assumptions in the application of the Black-Scholes option-pricing model. The Company has determined that the best measure of expected volatility is based on the historical weekly volatility of the Company’s Common Stock. Historical volatility factors utilized in the Company’s Black-Scholes computations for options granted during the years ended December 31, 2018 and 2017 ranged from 57% to 64%. The Company has elected to estimate the expected life of an award based upon the SEC approved “simplified method” noted under the provisions of Staff Accounting Bulletin Topic 14. The expected term used by the Company during the years ended December 31, 2018 and 2017 was 5.17 years. The difference between the actual historical expected life and the simplified method was immaterial. The interest rate used is the risk-free interest rate and is based upon U.S. Treasury rates appropriate for the expected term. Interest rates used in the Company’s Black-Scholes calculations for the years ended December 31, 2018 and 2017 averaged 2.58%. Dividend yield is zero as the Company does not expect to declare any dividends on the Company’s common shares in the foreseeable future. In addition to the key assumptions used in the Black-Scholes model, the estimated forfeiture rate at the time of valuation is a critical assumption. The Company has adopted the provisions of ASU 2016-09 and will continue to use an estimated annualized forfeiture rate of approximately 0% for corporate officers, 4.1% for members of the Board of Directors and 6.0% for all other employees. The Company reviews the expected forfeiture rate annually to determine if that percent is still reasonable based on historical experience. Restricted stock units are recorded at the grant date fair value with corresponding compensation expense recorded ratably over the requisite service period. Income Taxes Current income tax expense or benefit is the amount of income taxes expected to be payable or refundable for the current year. A deferred income tax asset or liability is computed for the expected future impact of differences between the financial reporting and tax bases of assets and liabilities and for the expected future tax benefit to be derived from tax credits and loss carryforwards. 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. Foreign Currency Translation The financial position and results of operations of the Company’s foreign subsidiaries are measured using the foreign subsidiary’s local currency as the functional currency. Revenue and expense of such subsidiaries have been translated into U.S. dollars at weighted-average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of shareholders’ equity, unless there is a sale or complete liquidation of the underlying foreign investments. The Company translates foreign currencies of its German, Canadian and Mexican subsidiaries. The cumulative translation adjustment, which is recorded in accumulated other comprehensive loss, increased approximately $27,000 for the year ended December 31, 2018, and decreased approximately $106,000 for the year ended December 31, 2017. Comprehensive Loss Comprehensive loss consists of net gains and losses affecting shareholders’ equity (deficit) that, under generally accepted accounting principles, are excluded from net loss. For the Company, the only items are the cumulative translation adjustment and the additional minimum liability related to the Company’s defined benefit pension plan, recognized pursuant to ASC 715-30, “ Compensation - Retirement Benefits - Defined Benefit Plans – Pension Advertising Costs The Company expenses advertising costs as incurred. The Company incurred approximately $5,000 in advertising expense during the year ended December 31, 2018, and $45,000 in advertising expense during the year ended December 31, 2017. Loss Per Share Basic loss per common share is calculated by dividing net loss available to common shareholders for the period by the weighted-average number of common shares outstanding during the period. Diluted loss per common share is calculated by dividing net loss available to common shareholders for the period by the weighted-average number of common shares outstanding during the period, adjusted to include, if dilutive, potential dilutive shares consisting of convertible preferred stock, convertible notes payable, stock options and warrants, calculated using the treasury stock and if-converted methods. For diluted loss per share calculation purposes, the net loss available to common shareholders is adjusted to add back any preferred stock dividends in the consolidated statement of operations for the respective periods. (Amounts in thousands, except share and per share amounts) Year Ended December 31, Numerator for basic and diluted loss per share: 2018 2017 Net loss $ (12,550 ) $ (10,069 ) Preferred dividends, deemed dividends and accretion (3,913 ) (2,400 ) Preferred stock exchange — (1,245 ) Net loss available to common shareholders $ (16,463 ) $ (13,714 ) Denominator for basic loss per share — weighted-average shares outstanding 95,210,572 92,816,723 Effect of dilutive securities — — Denominator for diluted loss per share — weighted-average shares outstanding 95,210,572 92,816,723 Basic and diluted loss per share: Net loss $ (0.13 ) $ (0.11 ) Preferred dividends, deemed dividends and accretion (0.04 ) (0.03 ) Preferred stock exchange — (0.01 ) Net loss available to common shareholders $ (0.17 ) $ (0.15 ) The following potential dilutive securities have been excluded from the computations of diluted weighted-average shares outstanding as their effect would have been antidilutive: Potential Dilutive Securities: Common Share Equivalents at December 31, 2018 Common Share Equivalents at December 31, 2017 Convertible lines of credit — 5,221,964 Convertible redeemable preferred stock – Series A 32,580,000 26,974,783 Convertible redeemable preferred stock – Series B 46,029 46,029 Convertible redeemable preferred stock – Series C 10,000,000 — Stock options 7,227,248 6,093,512 Warrants 1,813,856 230,000 Total Potential Dilutive Securities 51,667,133 38,566,288 Recently Issued Accounting Standards From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “ FASB FASB ASU No. 2016-02 (Topic 842): Leases Although the Company is in the process of finalizing the impact of adoption of the ASU on its consolidated financial statements, the Company will elect the optional transition method to account for the impact of the adoption with a cumulative-effect adjustment in the period of adoption and will not restate prior periods. The Company expects to elect certain practical expedients permitted under the transition guidance. The Company will record a right-of-use asset and liability upon adoption of the guidance pertaining to its long-term real estate lease for its corporate facilities. The Company is currently finalizing its review of contracts and may identify additional embedded leases and additional amounts to be recorded . FASB ASU No. 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. FASB ASU No. 2017-04. Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments of this ASU eliminate step 2 from the goodwill impairment test. The annual, or interim test is performed by comparing the fair value of a reporting unit with its carrying amount. The amendments of this ASU also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and if it fails that qualitative test, to perform step 2 of the goodwill impairment test. ASU No. 2017-04 is effective for fiscal years beginning after December 15, 2019 with early adoption permitted. FASB ASU No. 2017-07. Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Periodic Pension Cost and Net Periodic Postretirement Benefit Cost FASB ASU No. 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 FASB ASU No. 2018-07. Shared-Based Payment Arrangements with Nonemployees (Topic 505) FASB ASU No. 2018-13 “Fair Value Measurement (Topic 820) —Disclosure Framework —Changes to the Disclosure Requirements for Fair Value Measurement” ASU 2018-13 FASB ASU No. 2018-14 “Compensation —Retirement Benefits —Defined Benefit Plans —General (Subtopic 715-20) —Disclosure Framework —Changes to the Disclosure Requirements for Defined Benefit Plans” ASU 2018-14 FASB ASU No. 2018-15 “Intangibles —Goodwill and Other —Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” ASU 2018-15 Reclassifications Certain prior period operating expenses have been reclassified to conform with the current period presentation. These reclassifications are between general and administrative expense and research and development expense and approximate $371,000. Pursuant to the Company’s adoption of ASU 2017-07, the Company is presenting certain elements of periodic pension expense as a separate line item “Other components of net periodic pension expense” outside the loss from operations, in the Company’s Consolidated Statements of Operations. Such costs aggregate approximately $118,000 and $98,000 for the years ended December 31, 2018 and 2017, respectively. These reclassifications have no impact on net loss. |
FAIR VALUE ACCOUNTING
FAIR VALUE ACCOUNTING | 12 Months Ended |
Dec. 31, 2018 | |
Fair Value Disclosures [Abstract] | |
FAIR VALUE ACCOUNTING | The Company accounts for fair value measurements in accordance with ASC 820, “ Fair Value Measurements and Disclosures ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below: Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2 Applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). The following table sets forth the Company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy. As required by ASC 820, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Fair Value at December 31, 2018 ($ in thousands) Total Level 1 Level 2 Level 3 Assets: Pension assets $ 1,733 $ — $ — $ 1,733 Totals $ 1,733 $ — $ — $ 1,733 Liabilities: Derivative liabilities $ 1,065 $ — $ — $ 1,065 Totals $ 1,065 $ — $ — $ 1,065 Fair Value at December 31, 2017 ($ in thousands) Total Level 1 Level 2 Level 3 Assets: Pension assets $ 1,806 $ — $ — $ 1,806 Totals $ 1,806 $ — $ — $ 1,806 Liabilities: Derivative liabilities $ — $ — $ — $ — Totals $ — $ — $ — $ — The Company’s German pension plan is funded by insurance contract policies whereby the insurance company guarantees a fixed minimum return. The Company has determined that the pension assets are more appropriately classified within Level 3 of the fair value hierarchy because they are valued using actuarial valuation methodologies which approximate cash surrender value that cannot be corroborated with observable market data. Accordingly, the Company has reclassified the classification level of the pension plan insurance contracts to Level 3 for all periods presented. Such pension plan insurance contracts were previously classified by the Company as Level 1. All plan assets are managed in a policyholder pool in Germany by outside investment managers. The investment manager is responsible for the investment strategy of the insurance premiums that Company submits and does not hold individual assets per participating employer. The German Federal Financial Supervisory oversees and supervises the insurance contracts. As of December 31, 2018, the Company had embedded features contained in the Series C Preferred host instrument (issued in September 2018) that qualified for derivative liability treatment. The recorded fair market value of these features at December 31, 2018 was approximately $1,065,000, which is reflected as a current liability in the consolidated balance sheet as of December 31, 2018. The fair value of the Company’s derivative liabilities are classified within Level 3 of the fair value hierarchy because they are valued using pricing models that incorporate management assumptions that cannot be corroborated with observable market data. The Company uses the lattice framework, Monte-Carlo simulations and other fair value methodologies in the determination of the fair value of derivative liabilities. As more fully described in Note 14 to these Consolidated Financial Statements, on September 10, 2018, the Company’s Board of directors declared a Dividend Warrant for Holders of Series A Preferred. The Company evaluated this warrant issuance in conjunction with the Series A Preferred becoming junior to the Series C Preferred in liquidation preference and determined such warrants and changes in liquidation preference to be in effect a modification of the Series A Preferred. To determine the effect of this modification, the Company, using fair value methodologies, determined the value of the Series A Preferred both pre and post warrant issuance. The valuation indicated an increase in the fair value of the Series A Preferred post issuance of approximately $92,000. The Company recorded this incremental increase as a deemed dividend. Some of the aforementioned fair value methodologies are affected by the Company’s stock price as well as assumptions regarding the expected stock price volatility over the term of the derivative liabilities in addition to the probability of future events. The Company monitors the activity within each level and any changes with the underlying valuation techniques or inputs utilized to recognize if any transfers between levels are necessary. That determination is made, in part, by working with outside valuation experts for Level 3 instruments and monitoring market related data and other valuation inputs for Level 1 and Level 2 instruments. The reconciliations of Level 3 pension assets measured at fair value in 2018 and 2017 are presented below: ($ in thousands) December 31, 2018 December 31, 2017 Pension assets: Fair value at beginning of year $ 1,806 $ 1,646 Return on plan assets 82 7 Company contributions and benefits paid, net (71 ) (68 ) Effect of rate changes (84 ) 221 Fair value at end of year $ 1,733 $ 1,806 The reconciliations of Level 3 derivative liabilities measured at fair value in 2018 and 2017 are presented below: ($ in thousands) December 31, 2018 December 31, 2017 Derivative liabilities Fair value at beginning of year $ — $ — Issuances from Series C Preferred Financing 833 — Change in fair value included in earnings 232 — Fair value at end of year $ 1,065 $ — |
INTANGIBLE ASSETS AND GOODWILL
INTANGIBLE ASSETS AND GOODWILL | 12 Months Ended |
Dec. 31, 2018 | |
Intangible Assets, Net (Including Goodwill) [Abstract] | |
INTANGIBLE ASSETS AND GOODWILL | The carrying amounts of the Company’s patent intangible assets were $82,000 and $93,000 as of December 31, 2018 and 2017, respectively, which includes accumulated amortization of $577,000 and $566,000 as of December 31, 2018 and 2017, respectively. Amortization expense for patent intangible assets was $11,000 for the years ended December 31, 2018 and 2017. Patent intangible assets are being amortized on a straight-line basis over their remaining life of approximately 7.5 years. There was no impairment of the Company’s intangible assets during the years ended December 31, 2018 and 2017. The Company annually, or more frequently if events or circumstances indicate a need, tests the carrying amount of goodwill for impairment. The Company performs its annual impairment test in the fourth quarter of each year. In December 2018, the Company adopted the provisions of ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". The provisions of ASU 2017-04 eliminate the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit's carrying amount over its fair value. Entities that have reporting units with zero or negative carrying amounts, will no longer be required to perform a qualitative assessment assuming they pass the simplified impairment test. The Company continues to have only one reporting unit, Identity Management which, at December 31, 2018, had a negative carrying amount of approximately $3,027,000. Based on the results of the Company's impairment testing, the Company determined that its goodwill was not impaired during the years ended December 31, 2018 and 2017. The estimated acquired intangible amortization expense for the next five fiscal years is as follows: Fiscal Year Ended December 31, Estimated Amortization Expense ($ in thousands) 2019 $ 12 2020 12 2021 12 2022 12 2023 12 Thereafter 22 Totals $ 82 |
RELATED PARTIES
RELATED PARTIES | 12 Months Ended |
Dec. 31, 2018 | |
Related Party Transactions [Abstract] | |
RELATED PARTIES | Outstanding lines of credit consist of the following: ($ in thousands) December 31, 2018 December 31, 2017 Lines of Credit with Related Parties 8% convertible lines of credit. Face value of advances under lines of credit $0 and $6,000 at December 31, 2018 and 2017, respectively. Discount on advances under lines of credit was $0 at December 31, 2018 and $226 at December 31, 2017. Maturity date was December 31, 2018; however, the lines of credit were terminated on September 10, 2018, as more thoroughly discussed below. $ — $ 5,774 Total lines of credit to related parties — 5,774 Less current portion — (5,774 ) Long-term lines of credit to related parties $ — $ — Lines of Credit In March 2013, the Company and Neal Goldman, a member of the Company’s Board of Directors (“ Goldman Goldman Line of Credit Amendment As consideration for the initial Goldman Line of Credit, the Company issued a warrant to Goldman, exercisable for 1,052,632 shares of the Company’s Common Stock (the “ Line of Credit Warrant Amendment Warrant The Company estimated the fair value of the Line of Credit Warrant using the Black-Scholes option pricing model using the following assumptions: term of two years, a risk-free interest rate of 2.58%, a dividend yield of 0%, and volatility of 79%. The Company recorded the fair value of the Line of Credit Warrant as a deferred financing fee of approximately $580,000 to be amortized over the life of the Goldman Line of Credit. The Company estimated the fair value of the Amendment Warrant using the Black-Scholes option pricing model using the following assumptions: term of one year, a risk-free interest rate of 2.58%, a dividend yield of 0% and volatility of 74%. The Company recorded the fair value of the Amendment Warrant as an additional deferred financing fee of approximately $127,000 to be amortized over the life of the Goldman Line of Credit. During the years ended December 31, 2018 and 2017, the Company recorded an aggregate of approximately $8,000 and $11,000, respectively in deferred financing fee amortization expense which is recorded as a component of interest expense in the Company’s consolidated statements of operations. In April 2014, the Company and Goldman entered into a further amendment to the Goldman Line of Credit to decrease the available borrowings to $3.0 million (the “ Second Amendment Crocker Crocker LOC In December 2014, the Company and Goldman entered into a further amendment to the Goldman Line of Credit to increase the available borrowing to $5.0 million and extend the maturity date of the Goldman Line of Credit to March 27, 2017 (the “ Third Amendment Outstanding Balance In February 2015, as a result of the Series E Financing, the Company issued 1,978 shares of Series E Preferred to Goldman to satisfy $1,950,000 in principal borrowings under the Goldman Line of Credit, plus approximately $28,000 in accrued interest. As a result of the Series E Financing, the Company’s borrowing capacity under the Goldman Line of Credit was reduced to $3,050,000 with the maturity date unchanged and the Crocker LOC was terminated in accordance with its terms. In March 2016, the Company and Goldman entered into a fourth amendment to the Goldman Line of Credit (the “ Fourth Amendment Contemporaneous with the execution of the Fourth Amendment, the Company entered into a new $500,000 line of credit with Crocker (the “ New Crocker LOC On December 27, 2016, in connection with the consummation of the Series G Financing, the Company and Goldman agreed to enter into the Fifth Amendment (the “ Line of Credit Amendment In addition, on January 23, 2017, the Company and Crocker amended the New Crocker LOC to extend the maturity date thereof to December 31, 2017. On May 10, 2017, Goldman and Crocker agreed to further extend the maturity dates of the Goldman Line of Credit and the New Crocker Line of Credit (collectively, the “ Lines of Credit As the aforementioned amendments to the Lines of Credit resulted in an increase to the borrowing capacity of the Lines of Credit, the Company adjusted the amortization period of any remaining unamortized deferred costs and note discounts to the term of the new arrangement. The Company evaluated the Lines of Credit and determined that the instruments contained a contingent beneficial conversion feature, i.e. an embedded conversion right that enabled the holder to obtain the underlying Common Stock at a price below market value. The beneficial conversion feature was contingent, as the terms of the conversion did not permit the Company to compute the number of shares that the holder would receive if the contingent event occurred (i.e. future borrowings under the Line of Credit). The Company has considered the accounting for this contingent beneficial conversion feature using the guidance in ASC 470, Debt. The guidance in ASC 470 states that a contingent beneficial conversion feature in an instrument shall not be recognized in earnings until the contingency is resolved. The beneficial conversion features of borrowings under the Line of Credit were to be measured using the intrinsic value calculated at the date the contingency is resolved using the conversion price and trading value of the Company’s Common Stock at the date the Lines of Credit were issued (commitment date). For the years ended December 31, 2018 and 2017, the Company recorded approximately $30,000 and $302,000, respectively, in debt discount attributable to beneficial conversion feature and accreted approximately $162,000 and $198,000, respectively, of debt discount. The Company incurred no additional borrowings under the Lines of Credit during the year ended December 31, 2018. On September 10, 2018, the Company entered into the Exchange Agreements with Goldman and Crocker, pursuant to which Goldman and Crocker agreed to exchange approximately $6.3 million and $0.6 million, respectively, of outstanding debt (including accrued and unpaid interest) owed under the terms of their respective Lines of Credit for an aggregate of 6,896 shares of the Company’s Series A Preferred. As a result of the Debt Exchange, all indebtedness, liabilities and other obligations arising under the Lines of Credit were terminated, cancelled and deemed satisfied in full. As a result, no future borrowings are available under the Lines of Credit The following table sets forth the Company’s activity under its Lines of Credit for the periods indicated: Balance outstanding under Lines of Credit as of December 31, 2016 $ 2,650 Borrowing under Lines of Credit 3,350 Repayments — Balance outstanding under Lines of Credit as of December 31, 2017 $ 6,000 Borrowings under Lines of Credit - Repayments - Conversion of Lines of Credit into Series A Preferred Stock (6,000 ) Balance outstanding under Lines of Credit as of December 31, 2018 $ - Series A Financing During the year ended December 31, 2017, Messrs. Miller, Goldman, Wetherell, Clutterbuck and Frischer purchased an aggregate of 1,450 Series A Preferred in connection with the Series A Financing resulting in gross proceeds of $1,450,000 to the Company. Also, during the year ended December 31, 2017, Messrs. Goldman, Clutterbuck and Frischer exchanged an aggregate 11,364 shares of Series E Preferred, Series F Preferred and Series G Preferred for 11,364 shares of Series A Preferred in connection with the Series A Financing. Professional Services Agreement During the year ended December 31, 2018, the Company entered into professional services agreement with a firm whose managing director is also a member of the Company’s Board of Directors. During the year ended December 31, 2018, the Company recorded and paid one-half of the aggregate fee of $50,000. |
INVENTORY
INVENTORY | 12 Months Ended |
Dec. 31, 2018 | |
Inventory Disclosure [Abstract] | |
INVENTORY | Inventories of as of December 31, 2018 were comprised of work in process of representing direct labor costs on in-process projects and finished goods of net of reserves for obsolete and slow-moving items of . Inventories of as of December 31, 2017 were comprised of work in process of representing direct labor costs on in-process projects and finished goods of net of reserves for obsolete and slow-moving items of . Appropriate consideration is given to obsolescence, excessive levels, deterioration and other factors in evaluating net realizable value and required reserve levels. |
PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT | 12 Months Ended |
Dec. 31, 2018 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY AND EQUIPMENT | Property and equipment at December 31, 2018 and 2017, consisted of: ($ in thousands) 2018 2017 Equipment $ 967 $ 946 Leasehold improvements 77 11 Furniture 255 102 1,299 1,059 Less accumulated depreciation (1,055 ) (1,016 ) $ 244 $ 43 Total depreciation expense for the years ended December 31, 2018 and 2017 was approximately $39,000 and $56,000, respectively. |
ACCRUED EXPENSES
ACCRUED EXPENSES | 12 Months Ended |
Dec. 31, 2018 | |
Payables and Accruals [Abstract] | |
ACCRUED EXPENSES | Principal components of accrued expense consist of: ($ in thousands) December 31, 2018 December 31, 2017 Compensated absences $ 352 $ 273 Wages, payroll taxes and sales commissions 44 38 Customer deposits 30 40 Rent 14 — Royalties 72 72 Pension and employee benefit plans 48 5 Professional services 145 100 Income and sales taxes 79 27 Dividends 42 34 Other 62 69 $ 888 $ 658 |
LINES OF CREDIT
LINES OF CREDIT | 12 Months Ended |
Dec. 31, 2018 | |
Line of Credit Facility [Abstract] | |
LINES OF CREDIT | Outstanding lines of credit consist of the following: ($ in thousands) December 31, 2018 December 31, 2017 Lines of Credit with Related Parties 8% convertible lines of credit. Face value of advances under lines of credit $0 at December 31, 2018 and $6,000 at December 31, 2017. Discount on advances under lines of credit is $0 at December 31, 2018 and $226 at December 31, 2017. Maturity date was December 31, 2018; however, the lines of credit were terminated on September 10, 2018, as more thoroughly discussed below. $ — $ 5,774 Total lines of credit to related parties — 5,774 Less current portion — (5,774 ) Long-term lines of credit to related parties $ — $ — For a more detailed discussion of the Company’s Lines of Credit, see Note 5, Related Parties. |
DERIVATIVE LIABILITIES
DERIVATIVE LIABILITIES | 12 Months Ended |
Dec. 31, 2018 | |
Derivative Liability [Abstract] | |
DERIVATIVE LIABILITIES | The Company accounts for its derivative instruments under the provisions of ASC 815, “ Derivatives and Hedging The Company determined that the conversion option, redemption option and participating dividend feature contained in the Series C Preferred host instrument required bifurcation. The Company valued the bifurcatable features at fair value. Such liabilities aggregated approximately $833,000 at inception and are classified as current liabilities on the Company’s consolidated balance sheet under the caption “Derivative liabilities.” The Company will revalue these features at each balance sheet date and record any change in fair value in the determination of period net income or loss. Such amounts are recorded in the caption “Change in fair value of derivative liabilities” in the Company’s consolidated statement of operations. During the twelve months ended December 31, 2018, the Company recorded an increase to these derivative liabilities using fair value methodologies of approximately $232,000. As a result of this increase, such liabilities aggregated approximately $1,065,000 at December 31, 2018. |
INCOME TAXES
INCOME TAXES | 12 Months Ended |
Dec. 31, 2018 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, ASC 740 requires a company to first determine whether it is more-likely-than-not (defined as a likelihood of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority. The amount accrued for uncertain tax positions was zero at December 31, 2018 and 2017, respectively. The Company’s uncertain position relative to unrecognized tax benefits and any potential increase in these liabilities relates primarily to the allocations of revenue and costs among the Company’s global operations and the impact of tax rulings made during the period affecting its tax positions. The Company’s existing tax position could result in liabilities for unrecognized tax benefits. The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense. The amount of interest and penalties accrued as of December 31, 2018 and 2017 was approximately $0 and $10,000, respectively. Significant judgment is required in evaluating the Company’s uncertain tax positions and determining the Company’s provision for income taxes. No assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in the Company’s historical income tax provisions and accruals. The Company adjusts these items in light of changing facts and circumstances. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The significant components of the income tax provision are as follows: ($ in thousands) Year Ended December 31, Current 2018 2017 Federal $ — $ — State — — Foreign 11 (124 ) Deferred Federal — — State — — Foreign — — $ 11 $ (124 ) The principal components of the Company’s deferred tax assets at December 31, 2018 and 2017 were as follows: ($ in thousands) 2018 2017 Net operating loss carryforwards $ 19,881 $ 13,734 Intangible and fixed assets (85 ) (28 ) Stock based compensation 2,318 1,954 Reserves and accrued expense 45 38 Other — — 22,159 15,698 Less valuation allowance (22,159 ) (15,698 ) Net deferred tax assets $ — $ — A reconciliation of the provision for income taxes to the amount computed by applying the statutory income tax rates to loss before income taxes is as follows: 2018 2017 Amounts computed at statutory rates $ (2,636 ) $ (3,423 ) State income tax, net of federal benefit (1,051 ) (497 ) Change in net operating loss carryforwards (3,012 ) 688 Non-deductible interest 36 250 Tax Act – federal rate change — 7,276 Foreign taxes 210 143 Other 3 4 Net change in valuation allowance on deferred tax assets 6,461 (4,565 ) $ 11 $ (124 ) The Company has established a valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets. On December 22, 2017 the 2017 Tax Cuts and Jobs Act (the “ Act At December 31, 2018 and 2017, the Company had federal and state net operating loss carryforwards, a portion of which may be available to offset future taxable income for tax purposes. The federal net operating loss carryforwards expire at various dates from 2023 through 2038. The state net operating loss carryforwards expire at various dates from 2031 through 2038. Due to an incorrect application of the NOL carryforward periods, the Company reinstated approximately $4,200,000 in deferred tax assets. Such amounts continue to be fully offset by a valuation allowance due to the uncertainty surrounding the realization of such assets. As such amounts are fully reserved, the Company considers such amounts immaterial. At December 31, 2018, the Company had federal net operating loss carryforwards of approximately $67,222,000 that begin to expire in 2023. The Company has federal net operating losses of approximately $10,300,000 that arose after the 2017 tax year and will carryforward indefinitely, the utilization of which is limited to 80% of taxable income in any given year. The Company has net operating losses carryforwards of approximately $50,434,000 for the state of California that will begin to expire in 2035. The Internal Revenue Code (the “Code”) limits the availability of certain tax credits and net operating losses that arose prior to certain cumulative changes in a corporation’s ownership resulting in a change of control of the Company. The Company’s use of its net operating loss carryforwards and tax credit carryforwards will be significantly limited because the Company believes it underwent “ownership changes,” as defined under Section 382 of the Internal Revenue Code, in 1991, 1995, 2000, 2003, 2004, 2011 and 2012, though the Company has not performed a study to determine the limitation. The Company has reduced its deferred tax assets to zero relating to its federal and state research credits because of such limitations. The Company continues to disclose the tax effect of the net operating loss carryforwards at their original amount in the table above as the actual limitation has not yet been quantified. The Company has also established a full valuation allowance for substantially all deferred tax assets due to uncertainties surrounding its ability to generate future taxable income to realize these assets. Since substantially all deferred tax assets are fully reserved, future changes in tax benefits will not impact the effective tax rate. Management periodically evaluates the recoverability of the deferred tax assets. If it is determined at some time in the future that it is more likely than not that deferred tax assets will be realized, the valuation allowance would be reduced accordingly at that time. Tax returns for the years 2014 through 2018 are subject to examination by taxing authorities. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 12 Months Ended |
Dec. 31, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | Employment Agreements The Company has employment agreements with its Chief Executive Officer and its Chief Technical Officer. The Company may terminate the agreements with or without cause. Subject to the conditions and other limitations set forth in each respective employment agreement, each executive will be entitled to the following severance benefits if the Company terminates the executive’s employment without cause or in the event of an involuntary termination (as defined in the employment agreements) by the Company or by the executive: Under the terms of the agreement, the Chief Executive Officer will be entitled to the following severance benefits if we terminate his employment without cause or in the event of an involuntary termination: (i) a lump sum cash payment equal to twenty-four months’ base salary; (ii) continuation of fringe benefits and medical insurance for a period of three years; and (iii) immediate vesting of 50% of outstanding stock options and restricted stock awards. In the event that the Chief Executive Officer’s employment is terminated within six months prior to or thirteen months following a change of control (as defined in the employment agreements), the Chief Executive Officer is entitled to the severance benefits described above, except that 100% of the Chief Executive Officer’s outstanding stock options and restricted stock awards will immediately vest. Under the terms of the employment agreement with our Chief Technical Officer, this executive will be entitled to the following severance benefits if we terminate his employment without cause or in the event of an involuntary termination: (i) a lump sum cash payment equal to six months of base salary; and (ii) continuation of their fringe benefits and medical insurance for a period of six months. In the event that his employment is terminated within six months prior to or thirteen months following a change of control (as defined in the employment agreements), he is entitled to the severance benefits described above, except that 100% of his outstanding stock options and restricted stock awards will immediately vest. Effective September 15, 2017, the employment agreements for the Company’s Chief Executive Officer and Chief Technical Officer were amended to extend the term of each executive officer’s employment agreement until December 31, 2018, and on January 30, 2019, both agreements were amended again to further extend the term of each executive officer’s employment agreement until December 31, 2019. Litigation There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of the Company or any of our subsidiaries, threatened against or affecting the Company, our Common Stock, any of our subsidiaries or of the Company’s or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect. Leases The Company’s corporate headquarters are located in San Diego, California, where it occupies 8,511 square feet of office space at a cost of approximately $30,000 per month. This facility’s lease was entered into by the Company in July 2018. This new lease commenced on November 1, 2018 and terminates on April 30, 2025. In addition to its corporate headquarters, the Company also occupied the following spaces at December 31, 2018: ● 1,508 square feet in Ottawa, Province of Ontario, Canada, at a cost of approximately $3,000 per month until the expiration of the lease on March 31, 2021; ● 9,720 square feet in Portland, Oregon, at a cost of approximately $22,000 per month until the expiration of the lease on February 28, 2023; and ● 183 square feet of office space in Mexico City, Mexico, at a cost of approximately $2,000 per month until September 30, 2019. Prior to entering into the new lease agreement in July 2018 and moving its corporate headquarters to a new location, the Company occupied 9,927 of office space in San Diego, at a cost of approximately $30,000 per month. At December 31, 2018, future minimum lease payments are as follows: ($ in thousands) 2019 $ 480 2020 $ 632 2021 $ 625 2022 $ 635 2023 $ 421 Thereafter $ 519 Total $ 3,312 Rental expense incurred under operating leases for the years ended December 31, 2018 and 2017 was approximately $672,000 and $545,000, respectively. |
MEZZANINE EQUITY
MEZZANINE EQUITY | 12 Months Ended |
Dec. 31, 2018 | |
Mezzanine Equity: | |
MEZZANINE EQUITY | Series C Convertible Redeemable Preferred Stock On September 10, 2018, the Company filed the Certificate of Designations, Preferences, and Rights of Series C Convertible Redeemable Preferred stock (the “ Series C COD Stated Value accrue dividends cumulatively and are payable quarterly at a rate of 8% per annum if paid in cash, or 10% per annum if paid by the issuance of shares of Common Stock. Each share of Series C Preferred has a liquidation preference Conversion Shares On September 10, 2018, the Company offered and sold a total of 890 shares of Series C Preferred at a purchase price of $10,000 per share, and on September 21, 2018, the Company offered and sold an additional 110 shares of Series C Preferred at a purchase price of $10,000 per share. The total gross proceeds to the Company from the Series C Financing were $10,000,000. Issuance costs incurred in conjunction with the Series C Financing were approximately $1,211,000. Such costs have been recorded as a discount on the Series C Preferred Stock and will be accreted to the point of earliest redemption which is the third anniversary of the Series C Financing or September 10, 2021 using the effective interest rate method. The accretion of these costs is recorded as a deemed dividend. The Company had 1,000 shares of Series C Preferred outstanding as of September 30, 2018. The Company issued the holders of Series C Preferred shares of Common Stock on September 30, 2018, as payment of dividends due on that date and on December 31, 2018, the Company issued the holders of Series C Preferred 298,896 shares of Common Stock as payment of dividends due on that date. Guidance for accounting for freestanding financial instruments that contain characteristics of both liabilities and equity are contained in ASC 480, Distinguishing Liabilities From Equity ASR 268 Redeemable Preferred Stocks. Liquidation Preference Amount The Company noted that the Series C Preferred Stock instrument was a hybrid instrument that contains several embedded features. In November 2014, the FASB issued ASU 2014-16 to amend ASC 815, “ Derivatives and Hedging ASC 815 The whole instrument approach requires an issuer or investor to consider the economic characteristics and risks of the entire hybrid instrument, including all of its stated and implied substantive terms and features. Under this approach, all stated and implied features, including the embedded feature being evaluated for bifurcation, must be considered. Each term and feature should be weighed based on the relevantfacts and circumstances to determine the nature of the host contract. This approach results in a single, consistent determination of the nature of the host contract, which is then used to evaluate each embedded feature for bifurcation. That is, the host contract does not change as each feature is evaluated. The revised guidance further clarifies that the existence or omission of any single feature, including an investor-held, fixed-price, noncontingent redemption option, does not determine the economic characteristics and risks of the host contract. Instead, an entity must base that determination on an evaluation of the entire hybrid instrument, including all substantive terms and features. However, an individual term or feature may be weighed more heavily in the evaluation based on facts and circumstances. An evaluation of all relevant terms and features, including the circumstances surrounding the issuance or acquisition of the equity share, as well as the likelihood that an issuer or investor is expected to exercise any options within the host contract, to determine the nature of the host contract, requires judgement. Using the whole instrument approach, the Company concluded that the host instrument is more akin to debt than equity as the majority of identified features contain more characteristics of debt. The Company evaluated the identified embedded features of the Series C Preferred host instrument and determined that certain features meet the definition of and contained the characteristics of derivative financial instruments requiring bifurcation at fair value from the host instrument. Accordingly, the Company has bifurcated from the Series C Preferred host instrument the conversion options, redemption option and participating dividend feature in accordance with the guidance in ASC 815. These bifurcated features aggregated approximately $834,000 at issuance and have been recorded as a discount to the Series C Preferred. Such amount will be accreted to the point of earliest redemption which is the third anniversary of the Series C Financing or September 10, 2021 using the effective interest rate method. The accretion of these features is recorded as a deemed dividend. For the twelve months ended December 31, 2018 the Company recorded the accretion of debt issuance costs and derivative liabilities aggregating approximately $200,000 using the effective interest rate method. The Company reflected the following in Mezzanine Equity for the Series C Preferred Stock as of December 31, 2018: Series C Convertible, Redeemable Preferred (amounts in thousands, except share amounts) Shares Amount Total Issuance of Series C Preferred Stock 1,000 $ 10,000 $ 10,000 Discount - transaction costs - $ (1,211 ) $ (1,211 ) Net Proceeds - $ 8,789 $ 8,789 Discount - bifurcated derivative - $ (833 ) $ (833 ) Accretion of discount - deemed dividend - $ 200 $ 200 Total Series C Preferred Stock 1,000 $ 8,156 $ 8,156 |
EQUITY
EQUITY | 12 Months Ended |
Dec. 31, 2018 | |
Equity [Abstract] | |
EQUITY | The Company’s Certificate of Incorporation, as amended, authorizes the issuance of two classes of stock to be designated “Common Stock” and “Preferred Stock.” The Preferred Stock may be divided into such number of series and with the rights, preferences, privileges and restrictions as the Board of Directors may determine. Series A Convertible Preferred Stock On September 15, 2017, the Company filed the Certificate of Designations of the Series A Preferred with the Delaware Secretary of State, designating 31,021 shares of the Company’s preferred stock, par value $0.01 per share, as Series A Preferred. Shares of Series A Preferred accrue dividends at a rate of 8% per annum if the Company chooses to pay accrued dividends in cash, and 10% per annum if the Company chooses to pay accrued dividends in shares of Common Stock. Each share of Series A Preferred has a liquidation preference of $1,000 per share and is convertible, at the option of the holder, into that number of shares of the Company’s Common Stock equal to the Liquidation Preference, divided by $1.15 (“ Conversion Shares Holders of Series A Preferred may elect to convert shares of Series A Preferred into Conversion Shares at any time. In the event the volume-weighted average price (“ VWAP On September 18, 2017, the Company offered and sold a total of 11,000 shares of Series A Preferred at a purchase price of $1,000 per share (the “ Series A Financing Concurrently with the Series A Financing, the Company entered into exchange agreements with holders of all outstanding shares of the Company’s Series E Convertible Preferred Stock, all outstanding shares of the Company’s Series F Convertible Preferred Stock and all outstanding shares of the Company's Series G Convertible Preferred Stock (collectively, the “ Exchanged Preferred Preferred Stock Exchange The Company evaluated the Preferred Stock Exchange and determined that the Preferred Stock Exchange was both an induced conversion and an extinguishment transaction. Using the guidance in ASC 260-10-S99-2, Earnings Per Share – SEC Materials – SEC Staff Announcement: The Effect on the Calculations of Earnings Per Share for a Period That Includes the Redemption or Induced Conversion of Preferred Stock and Debt – Modifications and Extinguishments, On September 10, 2018, the Company filed an Amendment to the Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock with the Delaware Division of Corporations to increase the number of shares of Series A Preferred authorized for issuance thereunder to 38,000 shares. On September 10, 2018, the Company entered into the Exchange Agreements with Goldman and Crocker, pursuant to which Goldman and Crocker agreed to exchange approximately $6.3 million and $0.6 million, respectively, of outstanding debt (including accrued and unpaid interest) owed under the terms of their respective Lines of Credit for an aggregate of 6,896 shares of Series A Preferred. On September 10, 2018 the Company’s Board of Directors also declared a Special Dividend for Holders of the Series A Preferred, pursuant to which each Holder received a Dividend Warrant to purchase 39.87 shares of Common Stock for every share of Series A Preferred held, which resulted in the issuance of Dividend Warrants to the Holders as a group to purchase an aggregate of 1,493,856 shares of Common Stock. Each Dividend Warrant has an exercise price of $0.01 per share, and is exercisable immediately upon issuance; provided, however The Company evaluated this warrant issuance in conjunction with the Series A Preferred becoming junior to the Series C Preferred in liquidation preference and determined such warrants and changes in liquidation preference to be in effect a modification of the SeriesA Preferred. To determine the effect of this modification, the Company, using fair value methodologies, determined the value of the Series A Preferred both pre and post warrant issuance. The valuation indicated an increase in the fair value of the Series A Preferred post issuance of approximately $92,000. The Company recorded this increase as a deemed dividend. The Company had 37,467 shares and 31,021 shares of Series A Preferred outstanding as of December 31, 2018 and 2017, respectively. At December 31, 2018 and 2017, the Company had cumulative undeclared dividends of $0. During the year ended December 31, 2018, certain holders of Series A Preferred converted 450 shares of Series A Preferred into 391,304 shares of the Company’s Common Stock. The Company issued the holders of Series A Preferred shares of Common Stock during the year ended December 31, 2018 as payment of dividends due during the 2018 year. The Company issued the holders of Series A Preferred shares of Common Stock during the year ended December 31, 2017 as payment of dividends due during the 2017 year. Series B Convertible Redeemable Preferred Stock The Company had 239,400 shares of Series B Convertible Preferred stock, par value $0.01 per share (“ Series B Preferred Common Stock On February 8, 2018, the Company filed with the Secretary of the State of Delaware a Certificate of Amendment to its Certificate of Incorporation, as amended, to increase the authorized number of shares of its Common Stock to from 150,000,000 shares to 175,000,000 shares. The following table summarizes outstanding Common Stock activity for the following periods: Common Stock Shares outstanding at December 31, 2016 91,846,795 Shares issued pursuant to payment of stock dividend on Series E Preferred 585,058 Shares issued pursuant to payment of stock dividend on Series F Preferred 822,122 Shares issued pursuant to payment of stock dividend on Series G Preferred 135,855 Shares issued pursuant to cashless warrants exercised 409,002 Shares issued pursuant to option exercises 369,004 Shares outstanding at December 31, 2017 94,167,836 Shares issued pursuant to payment of stock dividend on Series A Preferred 3,074,008 Shares issued as payment of stock dividend on Series C Preferred 354,632 Shares issued pursuant to conversion of Series A Preferred 391,304 Shares issued pursuant to option exercises 235,852 Shares outstanding at December 31, 2018 98,223,632 Warrants As of December 31, 2018, warrants to purchase 1,813,856 As discussed above, on September 10, 2018 the Company’s Board of Directors declared a Special Dividend for Holders of the Series A Preferred, pursuant to which each Holder received a Dividend Warrant to purchase 39.87 shares of Common Stock for every share of Series A Preferred held, which resulted in the issuance of Dividend Warrants to the Holders as a group to purchase an aggregate of 1,493,856 shares of Common Stock. Each Dividend Warrant has an exercise price of $0.01 per share, and is exercisable immediately upon issuance; provided, however During the year ended December 31, 2018, the Company issued an aggregate of 40,000 warrants to certain members of the Company’s advisory board. The Company determined the grant date fair value of these warrants using the Black-Scholes option valuation model and recorded approximately $9,000 in expense for the year ended December 31, 2018. The Company used the following assumptions in the application of the Black-Scholes option valuation model: an exercise price ranging between $1.09 and $1.17, a term of 2.0 years, a risk-free interest rate of 2.58%, a dividend yield of 0% and volatility of 59%. Such expense is recorded in the Company’s consolidated statement of operations as a component of general and administrative expense. The Company also issued, during the year ended December 31, 2018, an aggregate of 50,000 warrants to a certain professional services provider firm. The Company determined the grant date fair value of these warrants using the Black-Scholes option valuation model and recorded approximately $17,000 in expense for the year ended December 31, 2018. The Company used the following assumptions in the application of the Black-Scholes option valuation model: an exercise price of $1.14, a term of 2.0 years, a risk-free interest rate of 2.58%, a dividend yield of 0% and volatility of 51%. Such expense is recorded in the Company’s consolidated statement of operations as a component of general and administrative expense. The following table summarizes warrant activity for the following periods: Warrants Weighted- Average Exercise Price Balance at December 31, 2016 175,000 $ 0.84 Granted 80,000 $ 1.13 Expired / Canceled (25,000 ) $ 1.10 Exercised — $ — Balance at December 31, 2017 230,000 $ 0.91 Granted 1,583,856 $ 0.08 Expired / Canceled — $ — Exercised — $ — Balance at December 31, 2018 1,813,856 $ 0.19 There were no warrants exercised during the twelve months ended December 31, 2018 and zero warrants expired unexercised during the 2018 year. |
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION | 12 Months Ended |
Dec. 31, 2018 | |
Compensation Related Costs [Abstract] | |
STOCK-BASED COMPENSATION | Stock Options As of December 31, 2018, the Company had one active stock-based compensation plan: the 1999 Stock Option Plan (the “ 1999 Plan 1999 Plan The Company’s 1999 Stock Award Plan (the “ 1999 Plan The Company estimates the fair value of its stock options using a Black-Scholes option-pricing model, consistent with the provisions of ASC 718, “ Compensation – Stock Compensation ASC 718 requires the use of a valuation model to calculate the fair value of stock-based awards. The Company has elected to use the Black-Scholes option-pricing model, which incorporates various assumptions including volatility, expected life, and interest rates. The Company is required to make various assumptions in the application of the Black-Scholes option-pricing model. The Company has determined that the best measure of expected volatility is based on the historical weekly volatility of the Company’s Common Stock. Historical volatility factors utilized in the Company’s Black-Scholes computations for options granted during the years ended December 31, 2018 and 2017 ranged from 57% to 64%. The Company has elected to estimate the expected life of an award based upon the SEC approved “simplified method” noted under the provisions of Staff Accounting Bulletin Topic 14. The expected term used by the Company during the years ended December 31, 2018 and 2017 was 5.17 years. The difference between the actual historical expected life and the simplified method was immaterial. The interest rate used is the risk-free interest rate and is based upon U.S. Treasury rates appropriate for the expected term. Interest rates used in the Company’s Black-Scholes calculations for the years ended December 31, 2018 and 2017 averaged 2.58%. Dividend yield is zero as the Company does not expect to declare any dividends on the Company’s common shares in the foreseeable future. In addition to the key assumptions used in the Black-Scholes model, the estimated forfeiture rate at the time of valuation is a critical assumption. The Company has adopted the provisions of ASU 2016-09 and will continue to use an estimated annualized forfeiture rate of approximately 0% for corporate officers, 4.1% for members of the Board of Directors and 6.0% for all other employees. The Company reviews the expected forfeiture rate annually to determine if that percent is still reasonable based on historical experience. A summary of the activity under the Company’s stock option plans is as follows: Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Balance at December 31, 2016 6,506,843 $ 1.21 6.6 Granted 112,500 $ 1.39 — Expired/Cancelled (156,827 ) $ 1.67 — Exercised (369,004 ) $ 0.70 — Balance at December 31, 2017 6,093,512 $ 1.23 5.8 Granted 1,545,500 $ 1.67 — Expired/Cancelled (175,912 ) $ 1.33 — Exercised (235,852 ) $ 0.70 — Balance at December 31, 2018 7,227,248 $ 1.34 5.8 At December 31, 2018, a total of 7,227,248 options were outstanding, of which 5,753,529 were exercisable at a weighted average price of $1.27 per share with a remaining weighted average contractual term of approximately 5.0 years. The Company expects that, in addition to the 5,753,529 options that were exercisable as of December 31, 2018, another 1,473,719 will ultimately vest resulting in a combined total of 7,227,248. Those 7,227,248 shares have a weighted average exercise price of $1.34 and an aggregate intrinsic value of approximately $248,000 as of December 31, 2018. Stock-based compensation expense related to equity options was approximately $1,272,000 and $1,094,000 for the years ended December 31, 2018 and 2017, respectively. The weighted-average grant-date fair value per share of options granted to employees during the years ended December 31, 2018 and 2017 was and $0.77, respectively. At December 31, 2018, the total remaining unrecognized compensation cost related to unvested stock options amounted to approximately , which will be amortized over the weighted-average remaining requisite service period of 2.0 years. During the year ended December 31, 2018, there were 235,852 options exercised for cash resulting in the issuance of 235,852 shares of the Company’s Common Stock and proceeds of approximately $164,000. During the year ended December 31, 2017, there were 369,004 options exercised for cash resulting in the issuance of 369,004 shares of the Company’s Common Stock and proceeds of approximately $259,000. The intrinsic value of options exercised during the years ended December 31, 2018 and 2017 was approximately $175,000 and $177,000, respectively. The intrinsic value of options exercisable at December 31, 2018 and 2017 was approximately $248,000 and $2,388,000, respectively. The intrinsic value of options that vested during 2018 was approximately $0. The aggregate intrinsic value for all options outstanding as of December 31, 2018 and 2017 was approximately $248,000 and $2,595,000, respectively. In September 2016, the Company issued an aggregate of 168,000 options to purchase shares of the Company’s Common Stock to certain members of the Company’s Board of Directors in return for their service from January 1, 2017 through December 31, 2017. Such options vested at the rate of 14,000 options per month on the last day of each month during the 2017 year. The options have an exercise price of $1.37 per share and a term of 10 years. The Company began recognition of compensation based on the grant-date fair value ratably over the 2017 requisite service period and recorded approximately $140,000 in expense. Such expense is recorded in the Company’s consolidated statement of operations as a component of general and administrative expense. In January 2018, the Company issued an aggregate of 324,000 options to purchase shares of the Company’s Common Stock to certain members of the Company’s Board of Directors in return for their service on the Board from January 1, 2018 through December 31, 2018. Such options vest at the rate of 27,000 options per month on the last day of each month during the 2018 year. The options have an exercise price of $1.75 per share and a term of 10 years. Pursuant to this issuance, the Company recorded compensation expense of approximately $320,000 during the year ended December 31, 2018based on the grant-date fair value of the options determined using the Black-Scholes option-valuation model. Stock-based Compensation Stock-based compensation related to equity options has been classified as follows in the accompanying consolidated statements of operations (in thousands): Year Ended December 31, 2018 2017 Cost of revenue $ 19 $ 19 General and administrative 840 655 Sales and marketing 216 220 Research and development 197 200 Total $ 1,272 $ 1,094 Common Stock Reserved for Future Issuance The following table summarizes the Common Stock reserved for future issuance as of December 31, 2018: Common Stock Convertible preferred stock – Series A, Series B and Series C 42,626,029 Stock options outstanding 7,227,248 Warrants outstanding 1,813,856 Authorized for future grant under stock option plans 730,677 |
EMPLOYEE BENEFIT PLAN
EMPLOYEE BENEFIT PLAN | 12 Months Ended |
Dec. 31, 2018 | |
Employee Benefits and Share-based Compensation, Noncash [Abstract] | |
EMPLOYEE BENEFIT PLAN | During 1995, the Company adopted a defined contribution 401(k) retirement plan (the “ Plan Employees are fully vested in their share of the Company’s contributions after the completion of five years of service. In 2017, the Company authorized contributions of approximately $154,000 for the 2017 plan year of which $115,000 were paid prior to December 31, 2017. In 2018, the Company authorized contributions of approximately $166,000 for the 2018 plan year of which $128,000 were paid prior to December 31, 2018. |
PENSION PLAN
PENSION PLAN | 12 Months Ended |
Dec. 31, 2018 | |
Employee Benefits and Share-based Compensation, Noncash [Abstract] | |
PENSION PLAN | One of the Company’s dormant foreign subsidiaries maintains a defined benefit pension plan that provides benefits based on length of service and final average earnings. The following table sets forth the benefit obligation, fair value of plan assets, and the funded status of the Company’s plan; amounts recognized in the Company’s consolidated financial statements; and the assumptions used in determining the actuarial present value of the benefit obligations as of December 31: ($ in thousands) 2018 2017 Change in benefit obligation: Benefit obligation at beginning of year $ 3,830 $ 3,540 Service cost — — Interest cost 72 64 Actuarial (gain) loss (34 ) (167 ) Effect of exchange rate changes (174 ) 473 Effect of curtailment — — Benefits paid (84 ) (80 ) Benefit obligation at end of year 3,610 3,830 Change in plan assets: Fair value of plan assets at beginning of year 1,806 1,645 Actual return of plan assets 82 7 Company contributions 13 12 Benefits paid (84 ) (80 ) Effect of exchange rate changes (83 ) 222 Fair value of plan assets at end of year 1,734 1,806 Funded status (1,876 ) (2,024 ) Unrecognized actuarial loss (gain) 1,542 1,629 Unrecognized prior service (benefit) cost — — Additional minimum liability (1,542 ) (1,629 ) Unrecognized transition (asset) liability — — Net amount recognized $ (1,876 ) $ (2,024 ) Components of net periodic benefit cost are as follows: Service cost $ — $ — Interest cost on projected benefit obligations 72 64 Expected return on plan assets (56 ) (70 ) Amortization of prior service costs — Amortization of actuarial loss 102 104 Net periodic benefit costs $ 118 $ 98 The weighted average assumptions used to determine net periodic benefit cost for the years ended December 31, were Discount rate 2.0 % 1.9 % Expected return on plan assets 3.2 % 3.2 % Rate of pension increases 2.0 % 2.0 % Rate of compensation increase N/A N/A The following discloses information about the Company’s defined benefit pension plan that had an accumulated benefit obligation in excess of plan assets as of December 31, Projected benefit obligation $ 3,610 $ 3,830 Accumulated benefit obligation $ 3,610 $ 3,830 Fair value of plan assets $ 1,733 $ 1,806 As of December 31, 2018, the following benefit payments are expected to be paid as follows (in thousands): 2019 $ 82 2020 $ 83 2021 $ 97 2022 $ 99 2023 $ 106 2024 — 2028 $ 679 The Company made contributions to the plan of approximately $13,000 during the year ended December 31, 2018, and $12,000 during the year ended December 31, 2017. The company anticipates to make contributions at similar levels during the next fiscal year. In accordance with the Company’s adoption of ASU 2017-07, the components of net periodic pension expense is shown in the Company’s Consolidated Statement of Operations for the years ended December 31, 2018 and 2017 under the caption “Other components of net periodic pension expense”. The Company’s German pension plan is funded by insurance contract policies whereby the insurance company guarantees a fixed minimum return. The Company has determined that the pension assets are more appropriately classified within Level 3 of the fair value hierarchy because they are valued using actuarial valuation methodologies which approximate cash surrender value. Accordingly, the Company has reclassified the classification level of the pension plan insurance contracts to Level 3 for all periods presented. Such pension plan insurance contracts were previously classified by the Company as Level 1. All plan assets are managed in a policyholder pool in Germany by outside investment managers. The investment manager is responsible for the investment strategy of the insurance premiums that Company submits and does not hold individual assets per participating employer. The German Federal Financial Supervisory oversees and supervises the insurance contracts. The measurement date used to determine the benefit information of the plan was January 1, 2019. |
ACCUMULATED OTHER COMPREHENSIVE
ACCUMULATED OTHER COMPREHENSIVE LOSS | 12 Months Ended |
Dec. 31, 2018 | |
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | |
ACCUMULATED OTHER COMPREHENSIVE LOSS | Accumulated other comprehensive loss is the combination of the additional minimum liability related to the Company’s defined benefit pension plan, recognized pursuant to ASC 715-30, “ Compensation - Retirement Benefits - Defined Benefit Plans – Pension As of December 31, 2018 and 2017, the components of accumulated other comprehensive loss were as follows: ($ in thousands) 2018 2017 Additional minimum pension liability $ (1,144 ) $ (1,353 ) Foreign currency translation adjustment (284 ) (311 ) Ending balance $ (1,428 ) $ (1,664 ) |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 12 Months Ended |
Dec. 31, 2018 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | Subsequent to December 31, 2018, the Company issued 286,834 shares of its Common Stock pursuant to the exercise of 286,834 options and received aggregate proceeds of approximately $106,000. |
SUMMARY OF SIGNIFICANT ACCOUN_2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2018 | |
Accounting Policies [Abstract] | |
Principles of Consolidation | The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company’s wholly-owned subsidiaries are: XImage Corporation, a California Corporation; ImageWare Systems ID Group, Inc., a Delaware corporation (formerly Imaging Technology Corporation); I.W. Systems Canada Company, a Nova Scotia unlimited liability company; ImageWare Digital Photography Systems, LLC, a Nevada limited liability company (formerly Castleworks LLC); Digital Imaging International GmbH, a company formed under German laws; and Image Ware Mexico S de RL de CV, a company formed under Mexican laws. All significant intercompany transactions and balances have been eliminated. |
Operating Cycle | Assets and liabilities related to long-term contracts are included in current assets and current liabilities in the accompanying consolidated balance sheets, although they will be liquidated in the normal course of contract completion which may take more than one operating cycle. |
Use of Estimates | The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expense during the reporting period. Significant estimates include the evaluation of our ability to continue as a going concern, the allowance for doubtful accounts receivable, deferred tax asset valuation allowances, recoverability of goodwill, assumptions used in the Black-Scholes model to calculate the fair value of share based payments, fair value of financial instruments issued with and affected by the Series C Preferred Financing (defined above), fair value of Exchanged Preferred (defined below), assumptions used in the application of revenue recognition policies and assumptions used in the application of fair value methodologies to calculate the fair value of pension assets and obligations. Actual results could differ from estimates. |
Accounts receivable | In the normal course of business, the Company extends credit without collateral requirements to its customers that satisfy pre-defined credit criteria. Accounts receivable are recorded net of an allowance for doubtful accounts. Accounts receivable are considered delinquent when the due date on the invoice has passed. The Company records its allowance for doubtful accounts based upon its assessment of various factors. The Company considers historical experience, the age of the accounts receivable balances, the credit quality of its customers, current economic conditions and other factors that may affect customers’ ability to pay to determine the level of allowance required. Accounts receivable are written off against the allowance for doubtful accounts when all collection efforts by the Company have been unsuccessful. |
Inventories | Finished goods inventories are stated at the lower of cost, determined using the average cost method, or net realizable value. See Note 6. |
Property, Equipment and Leasehold Improvements | Property and equipment, consisting of furniture and equipment, are stated at cost and are being depreciated on a straight-line basis over the estimated useful lives of the assets, which generally range from three to five years. Maintenance and repairs are charged to expense as incurred. Major renewals or improvements are capitalized. When assets are sold or abandoned, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized. Expenditures for leasehold improvements are capitalized. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements. |
Revenue Recognition | Effective January 1, 2018, we adopted Accounting Standards Codification (“ ASC ASC 606 In accordance with ASC 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The core principle of the standard is that we should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. To achieve that core principle, we apply the following five step model: 1. Identify the contract with the customer; 2. Identify the performance obligation in the contract; 3. Determine the transaction price; 4. Allocate the transaction price to the performance obligations in the contract; and 5. Recognize revenue when (or as) each performance obligation is satisfied. At contract inception, we assess the goods and services promised in a contract with a customer and identify as a performance obligation each promise to transfer to the customer either: (i) a good or service (or a bundle of goods or services) that is distinct or (ii) a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer. We recognize revenue only when we satisfy a performance obligation by transferring a promised good or service to a customer. Determining the timing of the satisfaction of performance obligations as well as the transaction price and the amounts allocated to performance obligations requires judgement. We disclose disaggregation of our customer revenue by classes of similar products and services as follows: ● Software licensing and royalties; ● Computer hardware and identification media; ● Services; and ● Post-contract customer support. Software licensing and royalties Software licenses consist of revenue from the sale of software for identity management applications. Our software licenses are functional intellectual property and typically provide customers with the right to use our software in perpetuity as it exists when made available to the customer. We recognize revenue from software licensing at a point in time upon delivery, provided all other revenue recognition criteria are met. Royalties consist of revenue from usage-based arrangements and guaranteed minimum-based arrangements. We recognize revenue for royalty arrangements at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied. Computer hardware and identification media We generate revenue from the sale of computer hardware and identification media. Revenue for these items is recognized upon delivery of these products to the customer, provided all other revenue recognition criteria are met. Services Services revenue is comprised primarily of software customization services, software integration services, system installation services and customer training. Revenue is generally recognized upon completion of services and customer acceptance provided all other revenue recognition criteria are met. Post-contract customer support (“PCS”) Post contract customer support consists of maintenance on software and hardware for our identity management solutions. Arrangements with multiple performance obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. In addition to selling software licenses, hardware and identification media, services and post-contract customer support on a standalone basis, certain contracts include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on our best estimate of the relative standalone selling price. The standalone selling price for a performance obligation is the price at which we would sell a promised good or service separately to a customer. The primary methods used to estimate standalone selling price are as follows: (i) the expected cost-plus margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service and (ii) the percent discount off of list price approach. Contract costs We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We apply a practical expedient to expense costs as incurred for costs to obtain a contract when the amortization period is one year or less. Other items We do not offer rights of return for our products and services in the normal course of business. Sales tax collected from customers is excluded from revenue. The adoption of ASC 606 as of January 1, 2018 resulted in a cumulative positive adjustment to beginning accumulated deficit and accounts receivable of approximately $96,000. The following table sets forth our disaggregated revenue for the years ended December 31, 2018 and 2017: Year Ended December 31, Net Revenue 2018 2017 (dollars in thousands) Software and royalties $ 1,334 $ 1,248 Hardware and consumables 133 94 Services 294 272 Maintenance 2,643 2,679 Total net revenue $ 4,404 $ 4,293 |
Fair Value of Financial Instruments | For certain of the Company’s financial instruments, including accounts receivable, accounts payable, accrued expense, deferred revenue and lines of credit payable to related parties, the carrying amounts approximate fair value due to their relatively short maturities. |
Goodwill | The Company accounts for its intangible assets under the provisions of ASC 350, “ Intangibles - Goodwill and Other. Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment The Company did not record any goodwill impairment charges for the years ended December 31, 2018 or 2017. |
Intangible and Long Lived Assets | Intangible assets are carried at their cost less any accumulated amortization. Any costs incurred to renew or extend the life of an intangible or long-lived asset are reviewed for capitalization. The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. The Company’s management currently believes there is no impairment of its long-lived assets. There can be no assurance, however, that market conditions will not change or demand for the Company’s products under development will continue. Either of these could result in future impairment of long-lived assets. |
Concentration of Credit Risk | Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company places its cash with high quality financial institutions and at times during the years ended December 31, 2018 and 2017 exceeded the FDIC insurance limits of $250,000. Sales are typically made on credit and the Company generally does not require collateral. The Company performs ongoing credit evaluations of its customers’ financial condition and maintains an allowance for doubtful accounts. The Company considers historical experience, the age of the accounts receivable balances, the credit quality of its customers, current economic conditions and other factors that may affect customers’ ability to pay to determine the level of allowance required. Accounts receivable are presented net of an allowance for doubtful accounts of approximately $0 and $15,000 at December 31, 2018 and 2017, respectively. For the year ended December 31, 2018 one customer accounted for approximately 36% or $1,573,000 of total revenue and had trade receivables of approximately $0 as of the end of the year. For the year ended December 31, 2017 one customer accounted for approximately 25% or $1,089,000 of total revenue and had trade receivables of approximately $201,000 as of the end of the year. |
Stock-Based Compensation | At December 31, 2018, the Company had one stock-based compensation plan for employees and nonemployee directors, which authorize the granting of various equity-based incentives including stock options and restricted stock. The Company estimates the fair value of its stock options using a Black-Scholes option-pricing model, consistent with the provisions of ASC 718, “ Compensation – Stock Compensation ASC 718 requires the use of a valuation model to calculate the fair value of stock-based awards. The Company has elected to use the Black-Scholes option-pricing model, which incorporates various assumptions including volatility, expected life, and interest rates. The Company is required to make various assumptions in the application of the Black-Scholes option-pricing model. The Company has determined that the best measure of expected volatility is based on the historical weekly volatility of the Company’s Common Stock. Historical volatility factors utilized in the Company’s Black-Scholes computations for options granted during the years ended December 31, 2018 and 2017 ranged from 57% to 64%. The Company has elected to estimate the expected life of an award based upon the SEC approved “simplified method” noted under the provisions of Staff Accounting Bulletin Topic 14. The expected term used by the Company during the years ended December 31, 2018 and 2017 was 5.17 years. The difference between the actual historical expected life and the simplified method was immaterial. The interest rate used is the risk-free interest rate and is based upon U.S. Treasury rates appropriate for the expected term. Interest rates used in the Company’s Black-Scholes calculations for the years ended December 31, 2018 and 2017 averaged 2.58%. Dividend yield is zero as the Company does not expect to declare any dividends on the Company’s common shares in the foreseeable future. In addition to the key assumptions used in the Black-Scholes model, the estimated forfeiture rate at the time of valuation is a critical assumption. The Company has adopted the provisions of ASU 2016-09 and will continue to use an estimated annualized forfeiture rate of approximately 0% for corporate officers, 4.1% for members of the Board of Directors and 6.0% for all other employees. The Company reviews the expected forfeiture rate annually to determine if that percent is still reasonable based on historical experience. Restricted stock units are recorded at the grant date fair value with corresponding compensation expense recorded ratably over the requisite service period. |
Income Taxes | Current income tax expense or benefit is the amount of income taxes expected to be payable or refundable for the current year. A deferred income tax asset or liability is computed for the expected future impact of differences between the financial reporting and tax bases of assets and liabilities and for the expected future tax benefit to be derived from tax credits and loss carryforwards. 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. |
Foreign Currency Translation | The financial position and results of operations of the Company’s foreign subsidiaries are measured using the foreign subsidiary’s local currency as the functional currency. Revenue and expense of such subsidiaries have been translated into U.S. dollars at weighted-average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of shareholders’ equity, unless there is a sale or complete liquidation of the underlying foreign investments. The Company translates foreign currencies of its German, Canadian and Mexican subsidiaries. The cumulative translation adjustment, which is recorded in accumulated other comprehensive loss, increased approximately $27,000 for the year ended December 31, 2018, and decreased approximately $106,000 for the year ended December 31, 2017. |
Comprehensive Loss | Comprehensive loss consists of net gains and losses affecting shareholders’ equity (deficit) that, under generally accepted accounting principles, are excluded from net loss. For the Company, the only items are the cumulative translation adjustment and the additional minimum liability related to the Company’s defined benefit pension plan, recognized pursuant to ASC 715-30, “ Compensation - Retirement Benefits - Defined Benefit Plans – Pension |
Advertising Costs | The Company expenses advertising costs as incurred. The Company incurred approximately $5,000 in advertising expense during the year ended December 31, 2018, and $45,000 in advertising expense during the year ended December 31, 2017. |
Loss Per Share | Basic loss per common share is calculated by dividing net loss available to common shareholders for the period by the weighted-average number of common shares outstanding during the period. Diluted loss per common share is calculated by dividing net loss available to common shareholders for the period by the weighted-average number of common shares outstanding during the period, adjusted to include, if dilutive, potential dilutive shares consisting of convertible preferred stock, convertible notes payable, stock options and warrants, calculated using the treasury stock and if-converted methods. For diluted loss per share calculation purposes, the net loss available to common shareholders is adjusted to add back any preferred stock dividends in the consolidated statement of operations for the respective periods. (Amounts in thousands, except share and per share amounts) Year Ended December 31, Numerator for basic and diluted loss per share: 2018 2017 Net loss $ (12,550 ) $ (10,069 ) Preferred dividends, deemed dividends and accretion (3,913 ) (2,400 ) Preferred stock exchange — (1,245 ) Net loss available to common shareholders $ (16,463 ) $ (13,714 ) Denominator for basic loss per share — weighted-average shares outstanding 95,210,572 92,816,723 Effect of dilutive securities — — Denominator for diluted loss per share — weighted-average shares outstanding 95,210,572 92,816,723 Basic and diluted loss per share: Net loss $ (0.13 ) $ (0.11 ) Preferred dividends, deemed dividends and accretion (0.04 ) (0.03 ) Preferred stock exchange — (0.01 ) Net loss available to common shareholders $ (0.17 ) $ (0.15 ) The following potential dilutive securities have been excluded from the computations of diluted weighted-average shares outstanding as their effect would have been antidilutive: Potential Dilutive Securities: Common Share Equivalents at December 31, 2018 Common Share Equivalents at December 31, 2017 Convertible lines of credit — 5,221,964 Convertible redeemable preferred stock – Series A 32,580,000 26,974,783 Convertible redeemable preferred stock – Series B 46,029 46,029 Convertible redeemable preferred stock – Series C 10,000,000 — Stock options 7,227,248 6,093,512 Warrants 1,813,856 230,000 Total Potential Dilutive Securities 51,667,133 38,566,288 |
Recently Issued Accounting Standards | From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “ FASB FASB ASU No. 2016-02 Topic 842 Leases Although the Company is in the process of finalizing the impact of adoption of the ASU on its consolidated financial statements, the Company will elect the optional transition method to account for the impact of the adoption with a cumulative-effect adjustment in the period of adoption and will not restate prior periods. The Company expects to elect certain practical expedients permitted under the transition guidance. The Company will record a right-of-use asset and liability upon adoption of the guidance pertaining to its long-term real estate lease for its corporate facilities. The Company is currently finalizing its review of contracts and may identify additional embedded leases and additional amounts to be recorded . FASB ASU No. 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. FASB ASU No. 2017-04. Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments of this ASU eliminate step 2 from the goodwill impairment test. The annual, or interim test is performed by comparing the fair value of a reporting unit with its carrying amount. The amendments of this ASU also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and if it fails that qualitative test, to perform step 2 of the goodwill impairment test. ASU No. 2017-04 is effective for fiscal years beginning after December 15, 2019 with early adoption permitted. FASB ASU No. 2017-07. Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Periodic Pension Cost and Net Periodic Postretirement Benefit Cost FASB ASU No. 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 FASB ASU No. 2018-07. Shared-Based Payment Arrangements with Nonemployees (Topic 505) FASB ASU No. 2018-13 “Fair Value Measurement (Topic 820) —Disclosure Framework —Changes to the Disclosure Requirements for Fair Value Measurement” ASU 2018-13 FASB ASU No. 2018-14 “Compensation —Retirement Benefits —Defined Benefit Plans —General (Subtopic 715-20) —Disclosure Framework —Changes to the Disclosure Requirements for Defined Benefit Plans” ASU 2018-14 FASB ASU No. 2018-15 “Intangibles —Goodwill and Other —Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” ASU 2018-15 |
Reclassifications | Certain prior period operating expenses have been reclassified to conform with the current period presentation. These reclassifications are between general and administrative expense and research and development expense and approximate $371,000. Pursuant to the Company’s adoption of ASU 2017-07, the Company is presenting certain elements of periodic pension expense as a separate line item “Other components of net periodic pension expense” outside the loss from operations, in the Company’s Consolidated Statements of Operations. Such costs aggregate approximately $118,000 and $98,000 for the years ended December 31, 2018 and 2017, respectively. These reclassifications have no impact on net loss. |
SUMMARY OF SIGNIFICANT ACCOUN_3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Accounting Policies [Abstract] | |
Disaggregation of revenue | Year Ended December 31, Net Revenue 2018 2017 (dollars in thousands) Software and royalties $ 1,334 $ 1,248 Hardware and consumables 133 94 Services 294 272 Maintenance 2,643 2,679 Total net revenue $ 4,404 $ 4,293 |
Computation of basic and diluted loss per share | (Amounts in thousands, except share and per share amounts) Year Ended December 31, Numerator for basic and diluted loss per share: 2018 2017 Net loss $ (12,550 ) $ (10,069 ) Preferred dividends, deemed dividends and accretion (3,913 ) (2,400 ) Preferred stock exchange — (1,245 ) Net loss available to common shareholders $ (16,463 ) $ (13,714 ) Denominator for basic loss per share — weighted-average shares outstanding 95,210,572 92,816,723 Effect of dilutive securities — — Denominator for diluted loss per share — weighted-average shares outstanding 95,210,572 92,816,723 Basic and diluted loss per share: Net loss $ (0.13 ) $ (0.11 ) Preferred dividends, deemed dividends and accretion (0.04 ) (0.03 ) Preferred stock exchange — (0.01 ) Net loss available to common shareholders $ (0.17 ) $ (0.15 ) |
Potential dilutive securities | Potential Dilutive Securities: Common Share Equivalents at December 31, 2018 Common Share Equivalents at December 31, 2017 Convertible lines of credit — 5,221,964 Convertible redeemable preferred stock – Series A 32,580,000 26,974,783 Convertible redeemable preferred stock – Series B 46,029 46,029 Convertible redeemable preferred stock – Series C 10,000,000 — Stock options 7,227,248 6,093,512 Warrants 1,813,856 230,000 Total Potential Dilutive Securities 51,667,133 38,566,288 |
FAIR VALUE ACCOUNTING (Tables)
FAIR VALUE ACCOUNTING (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Fair Value Disclosures [Abstract] | |
Fair value measurement of assets and liabilities | Fair Value at December 31, 2018 ($ in thousands) Total Level 1 Level 2 Level 3 Assets: Pension assets $ 1,733 $ — $ — $ 1,733 Totals $ 1,733 $ — $ — $ 1,733 Liabilities: Derivative liabilities $ 1,065 $ — $ — $ 1,065 Totals $ 1,065 $ — $ — $ 1,065 Fair Value at December 31, 2017 ($ in thousands) Total Level 1 Level 2 Level 3 Assets: Pension assets $ 1,806 $ — $ — $ 1,806 Totals $ 1,806 $ — $ — $ 1,806 Liabilities: Derivative liabilities $ — $ — $ — $ — Totals $ — $ — $ — $ — |
Schedule of insurance contracts | ($ in thousands) December 31, 2018 December 31, 2017 Pension assets: Fair Value at beginning of year $ 1,806 $ 1,646 Return on plan assets 82 7 Company contributions and benefits paid, net (71 ) (68 ) Effect of rate changes (84 ) 221 Fair value at end of year $ 1,733 $ 1,806 |
Schedule of derivative liabilities | ($ in thousands) December 31, 2018 December 31, 2017 Derivative liabilities Fair value at beginning of year $ — $ — Issuances from Series C Preferred Financing 833 — Change in fair value included in earnings 232 — Fair value at end of year $ 1,065 $ — |
INTANGIBLE ASSETS AND GOODWILL
INTANGIBLE ASSETS AND GOODWILL (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Intangible Assets, Net (Including Goodwill) [Abstract] | |
Intangible amortization expense | Fiscal Year Ended December 31, Estimated Amortization Expense ($ in thousands) 2019 $ 12 2020 12 2021 12 2022 12 2023 12 Thereafter 22 Totals $ 82 |
RELATED PARTIES (Tables)
RELATED PARTIES (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Related Party Transactions [Abstract] | |
Outstanding lines of credit | ($ in thousands) December 31, 2018 December 31, 2017 Lines of Credit with Related Parties 8% convertible lines of credit. Face value of advances under lines of credit $0 and $6,000 at December 31, 2018 and 2017, respectively. Discount on advances under lines of credit was $0 at December 31, 2018 and $226 at December 31, 2017. Maturity date was December 31, 2018; however, the lines of credit were terminated on September 10, 2018, as more thoroughly discussed below. $ — $ 5,774 Total lines of credit to related parties — 5,774 Less current portion — (5,774 ) Long-term lines of credit to related parties $ — $ — |
Activity under lines of credit | Balance outstanding under Lines of Credit as of December 31, 2016 $ 2,650 Borrowing under Lines of Credit 3,350 Repayments — Balance outstanding under Lines of Credit as of December 31, 2017 $ 6,000 Borrowings under Lines of Credit - Repayments - Conversion of Lines of Credit into Series A Preferred Stock (6,000 ) Balance outstanding under Lines of Credit as of December 31, 2018 $ - |
PROPERTY AND EQUIPMENT (Tables)
PROPERTY AND EQUIPMENT (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Property, Plant and Equipment [Abstract] | |
Property and equipment | ($ in thousands) 2018 2017 Equipment $ 967 $ 946 Leasehold improvements 77 11 Furniture 255 102 1,299 1,059 Less accumulated depreciation (1,055 ) (1,016 ) $ 244 $ 43 |
ACCRUED EXPENSES (Tables)
ACCRUED EXPENSES (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Payables and Accruals [Abstract] | |
Accrued expenses | ($ in thousands) December 31, 2018 December 31, 2017 Compensated absences $ 352 $ 273 Wages, payroll taxes and sales commissions 44 38 Customer deposits 30 40 Rent 14 — Royalties 72 72 Pension and employee benefit plans 48 5 Professional services 145 100 Income and sales taxes 79 27 Dividends 42 34 Other 62 69 $ 888 $ 658 |
LINE OF CREDIT (Tables)
LINE OF CREDIT (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Line of Credit Facility [Abstract] | |
Outstanding lines of credit | ($ in thousands) December 31, 2018 December 31, 2017 Lines of Credit with Related Parties 8% convertible lines of credit. Face value of advances under lines of credit $0 and $6,000 at December 31, 2018 and 2017, respectively. Discount on advances under lines of credit was $0 at December 31, 2018 and $226 at December 31, 2017. Maturity date was December 31, 2018; however, the lines of credit were terminated on September 10, 2018, as more thoroughly discussed below. $ — $ 5,774 Total lines of credit to related parties — 5,774 Less current portion — (5,774 ) Long-term lines of credit to related parties $ — $ — |
INCOME TAXES (Tables)
INCOME TAXES (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Income Tax Disclosure [Abstract] | |
Income tax provision | ($ in thousands) Year Ended December 31, Current 2018 2017 Federal $— $— State — — Foreign 11 (124 ) Deferred Federal — — State — — Foreign — — $ 11 $ (124 ) |
Deferred tax assets | ($ in thousands) 2018 2017 Net operating loss carryforwards $ 19,881 $ 13,734 Intangible and fixed assets (85 ) (28 ) Stock based compensation 2,318 1,954 Reserves and accrued expense 45 38 Other — — 22,159 15,698 Less valuation allowance (22,159 ) (15,698 ) Net deferred tax assets $ — $ — |
Reconciliation income tax rate | 2018 2017 Amounts computed at statutory rates $ (2,636 ) $ (3,423 ) State income tax, net of federal benefit (1,051 ) (497 ) Change in net operating loss carryforwards (3,012 ) 688 Non-deductible interest 36 250 Tax Act – federal rate change — 7,276 Foreign taxes 210 143 Other 3 4 Net change in valuation allowance on deferred tax assets 6,461 (4,565 ) $ 11 $ (124 ) |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Future minimum lease payments | ($ in thousands) 2019 $ 480 2020 $ 632 2021 $ 625 2022 $ 635 2023 $ 421 Thereafter $ 519 Total $ 3,312 |
MEZZANINE EQUITY (Tables)
MEZZANINE EQUITY (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Mezzanine Equity: | |
Mezzanine equity | Series C Convertible, Redeemable Preferred (amounts in thousands, except share amounts) Shares Amount Total Issuance of Series C Preferred Stock 1,000 $ 10,000 $ 10,000 Discount - transaction costs — $ (1,211 ) $ (1,211 ) Net Proceeds — $ 8,789 $ 8,789 Discount - bifurcated derivative — $ (833 ) $ (833 ) Accretion of discount - deemed dividend — $ 200 $ 200 Total Series C Preferred Stock 1,000 $ 8,156 $ 8,156 |
EQUITY (Tables)
EQUITY (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Equity [Abstract] | |
Summary of common stock activity | Common Stock Shares outstanding at December 31, 2016 91,846,795 Shares issued pursuant to payment of stock dividend on Series E Preferred 585,058 Shares issued pursuant to payment of stock dividend on Series F Preferred 822,122 Shares issued pursuant to payment of stock dividend on Series G Preferred 135,855 Shares issued pursuant to cashless warrants exercised 409,002 Shares issued pursuant to option exercises 369,004 Shares outstanding at December 31, 2017 94,167,836 Shares issued pursuant to payment of stock dividend on Series A Preferred 3,074,008 Shares issued as payment of stock dividend on Series C Preferred 354,632 Shares issued pursuant to conversion of Series A Preferred 391,304 Shares issued pursuant to option exercises 235,852 Shares outstanding at December 31, 2018 98,223,632 |
Summary of warrant activity | Warrants Weighted- Average Exercise Price Balance at December 31, 2016 175,000 $ 0.84 Granted 80,000 $ 1.13 Expired / Canceled (25,000 ) $ 1.10 Exercised — $ — Balance at December 31, 2017 230,000 $ 0.91 Granted 1,583,856 $ 0.08 Expired / Canceled — $ — Exercised — $ — Balance at December 31, 2018 1,813,856 $ 0.19 |
STOCK-BASED COMPENSATION (Table
STOCK-BASED COMPENSATION (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Compensation Related Costs [Abstract] | |
Stock option plan activity | Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Balance at December 31, 2016 6,506,843 $ 1.21 6.6 Granted 112,500 $ 1.39 — Expired/Cancelled (156,827 ) $ 1.67 — Exercised (369,004 ) $ 0.70 — Balance at December 31, 2017 6,093,512 $ 1.23 5.8 Granted 1,545,500 $ 1.67 — Expired/Cancelled (175,912 ) $ 1.33 — Exercised (235,852 ) $ 0.70 — Balance at December 31, 2018 7,227,248 $ 1.34 5.8 |
Stock-based compensation related to equity options | Year Ended December 31, 2018 2017 Cost of revenue $ 19 $ 19 General and administrative 840 655 Sales and marketing 216 220 Research and development 197 200 Total $ 1,272 $ 1,094 |
Common stock reserved for future issuance | Common Stock Convertible preferred stock – Series A, Series B and Series C 42,626,029 Stock options outstanding 7,227,248 Warrants outstanding 1,813,856 Authorized for future grant under stock option plans 730,677 |
PENSION PLAN (Tables)
PENSION PLAN (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Employee Benefits and Share-based Compensation, Noncash [Abstract] | |
Actuarial present value of the benefit obligations | ($ in thousands) 2018 2017 Change in benefit obligation: Benefit obligation at beginning of year $ 3,830 $ 3,540 Service cost — — Interest cost 72 64 Actuarial (gain) loss (34 ) (167 ) Effect of exchange rate changes (174 ) 473 Effect of curtailment — — Benefits paid (84 ) (80 ) Benefit obligation at end of year 3,610 3,830 Change in plan assets: Fair value of plan assets at beginning of year 1,806 1,645 Actual return of plan assets 82 7 Company contributions 13 12 Benefits paid (84 ) (80 ) Effect of exchange rate changes (83 ) 222 Fair value of plan assets at end of year 1,734 1,806 Funded status (1,876 ) (2,024 ) Unrecognized actuarial loss (gain) 1,542 1,629 Unrecognized prior service (benefit) cost — — Additional minimum liability (1,542 ) (1,629 ) Unrecognized transition (asset) liability — — Net amount recognized $ (1,876 ) $ (2,024 ) Components of net periodic benefit cost are as follows: Service cost $ — $ — Interest cost on projected benefit obligations 72 64 Expected return on plan assets (56 ) (70 ) Amortization of prior service costs — Amortization of actuarial loss 102 104 Net periodic benefit costs $ 118 $ 98 The weighted average assumptions used to determine net periodic benefit cost for the years ended December 31, were Discount rate 2.0 % 1.9 % Expected return on plan assets 3.2 % 3.2 % Rate of pension increases 2.0 % 2.0 % Rate of compensation increase N/A N/A The following discloses information about the Company’s defined benefit pension plan that had an accumulated benefit obligation in excess of plan assets as of December 31, Projected benefit obligation $ 3,610 $ 3,830 Accumulated benefit obligation $ 3,610 $ 3,830 Fair value of plan assets $ 1,733 $ 1,806 |
Benefit payments | 2019 $ 82 2020 $ 83 2021 $ 97 2022 $ 99 2023 $ 106 2024 — 2028 $ 679 |
ACCUMULATED OTHER COMPREHENSI_2
ACCUMULATED OTHER COMPREHENSIVE LOSS (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | |
Components of accumulated other comprehensive loss | ($ in thousands) 2018 2017 Additional minimum pension liability $ (1,144 ) $ (1,353 ) Foreign currency translation adjustment (284 ) (311 ) Ending balance $ (1,428 ) $ (1,664 ) |
DESCRIPTION OF BUSINESS AND O_2
DESCRIPTION OF BUSINESS AND OPERATIONS (Details Narrative) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||
State of Incorporation | Delaware | ||
Working capital deficit | $ 3,078 | $ (415) | |
Cash | $ 5,694 | $ 7,317 | $ 1,586 |
SUMMARY OF SIGNIFICANT ACCOUN_4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Revenue | $ 4,404 | $ 4,293 |
Software and royalties | ||
Revenue | 1,334 | 1,248 |
Hardware and consumables | ||
Revenue | 133 | 94 |
Services [Member] | ||
Revenue | 294 | 272 |
Maintenance [Member] | ||
Revenue | $ 2,643 | $ 2,679 |
SUMMARY OF SIGNIFICANT ACCOUN_5
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) - USD ($) $ / shares in Units, $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Numerator for basic and diluted loss per share: | ||
Net loss | $ (12,550) | $ (10,069) |
Preferred dividends | (3,913) | (2,400) |
Preferred stock exchange | 0 | (1,245) |
Net loss available to common shareholders | $ (16,463) | $ (13,714) |
Denominator for basic loss per share weighted-average shares outstanding | 95,210,572 | 92,816,723 |
Effect of dilutive securities | $ 0 | $ 0 |
Denominator for diluted loss per share weighted-average shares outstanding | 95,210,572 | 92,816,723 |
Basic and diluted loss per share: | ||
Net loss | $ (0.13) | $ (0.11) |
Preferred dividends, deemed dividends and accretion | (0.04) | (0.03) |
Preferred stock exchange | 0 | (0.01) |
Net loss available to common shareholders | $ (0.17) | $ (0.15) |
SUMMARY OF SIGNIFICANT ACCOUN_6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) - shares | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Total potential dilutive securities | 51,667,133 | 38,566,288 |
Convertible lines of credit | ||
Total potential dilutive securities | 0 | 5,221,964 |
Series A Preferred Stock [Member] | ||
Total potential dilutive securities | 32,580,000 | 26,974,783 |
Series B Preferred Stock [Member] | ||
Total potential dilutive securities | 46,029 | 46,029 |
Series C Preferred Stock [Member] | ||
Total potential dilutive securities | 10,000,000 | 0 |
Stock options | ||
Total potential dilutive securities | 7,227,248 | 6,093,512 |
Warrants | ||
Total potential dilutive securities | 1,813,856 | 230,000 |
SUMMARY OF SIGNIFICANT ACCOUN_7
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Accounting Policies [Abstract] | ||
FDIC insurance limits | $ 250 | |
Accounts receivable | $ 0 | $ 15 |
Customer risk revenue percentage | 36.00% | 25.00% |
Customer accounted for revenue | $ 1,573 | $ 1,089 |
Trade receivables | 0 | 201 |
Stock based compensation expense | 1,272 | 1,094 |
Foreign currency translation adjustment | 27 | (106) |
Advertising expense | $ 5 | $ 45 |
FAIR VALUE ACCOUNTING (Details)
FAIR VALUE ACCOUNTING (Details) - USD ($) $ in Thousands | Dec. 31, 2018 | Dec. 31, 2017 |
Assets: | ||
Pension assets | $ 1,733 | $ 1,806 |
Totals | 1,733 | 1,806 |
Liabilities: | ||
Derivative liabilities | 1,065 | 0 |
Totals | 1,065 | 0 |
Level 1 | ||
Assets: | ||
Pension assets | 0 | 0 |
Totals | 0 | 0 |
Liabilities: | ||
Derivative liabilities | 0 | 0 |
Totals | 0 | 0 |
Level 2 | ||
Assets: | ||
Pension assets | 0 | 0 |
Totals | 0 | 0 |
Liabilities: | ||
Derivative liabilities | 0 | 0 |
Totals | 0 | 0 |
Level 3 | ||
Assets: | ||
Pension assets | 1,733 | 1,806 |
Totals | 1,733 | 1,806 |
Liabilities: | ||
Derivative liabilities | 1,065 | 0 |
Totals | $ 1,065 | $ 0 |
FAIR VALUE ACCOUNTING (Details
FAIR VALUE ACCOUNTING (Details 1) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Fair Value Disclosures [Abstract] | ||
Fair value of plan assets at beginning of year | $ 1,806 | $ 1,646 |
Return on plan assets | 82 | 7 |
Company contributions and benefits paid, net | (71) | (68) |
Effect of rate changes | (84) | 221 |
Fair value of plan assets at end of year | $ 1,733 | $ 1,806 |
FAIR VALUE ACCOUNTING (Detail_2
FAIR VALUE ACCOUNTING (Details 2) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Fair Value Disclosures [Abstract] | ||
Derivative liabilities, beginning | $ 0 | $ 0 |
Issuances | 833 | 0 |
Change in fair value included in earnings | 232 | 0 |
Derivative liabilities, ending | $ 1,065 | $ 0 |
INTANGIBLE ASSETS AND GOODWIL_2
INTANGIBLE ASSETS AND GOODWILL (Details) - USD ($) $ in Thousands | Dec. 31, 2018 | Dec. 31, 2017 |
Intangible Assets, Net (Including Goodwill) [Abstract] | ||
2019 | $ 12 | |
2020 | 12 | |
2021 | 12 | |
2022 | 12 | |
2023 | 12 | |
Thereafter | 22 | |
Totals | $ 82 | $ 93 |
INTANGIBLE ASSETS AND GOODWIL_3
INTANGIBLE ASSETS AND GOODWILL (Details Narrative) - Patents [Member] - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Patents | $ 82 | $ 93 |
Accumulated amortization | 577 | 566 |
Amortization expense | $ 11 | $ 11 |
Weighted-average remaining life of acquired patents | 7 years 6 months |
RELATED PARTIES (Details)
RELATED PARTIES (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Lines of credit to a related party | $ 0 | $ 5,774 |
Total lines of credit to related parties | 0 | 5,774 |
Less current portion | 0 | (5,774) |
Long-term lines of credit to related parties | 0 | 0 |
Line Of Credit [Member] | ||
Lines of credit to a related party | $ 0 | $ 5,774 |
Line of credit rate | 8.00% | 8.00% |
Advances under line of credit | $ 0 | $ 6 |
Discount on advances | $ 0 | $ 226 |
RELATED PARTIES (Details 1)
RELATED PARTIES (Details 1) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Related Party Transactions [Abstract] | ||
Balance outstanding under lines of credit, beginning | $ 6,000 | $ 2,650 |
Borrowing under lines of credit | 0 | 3,350 |
Repayments | 0 | 0 |
Conversion of lines of credit into Series A Preferred Stock | (6,000) | |
Balance outstanding under lines of credit, ending | $ 0 | $ 6,000 |
RELATED PARTIES (Details Narrat
RELATED PARTIES (Details Narrative) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Related Party Transactions [Abstract] | ||
Deferred financing fee amortization expense | $ 8 | $ 11 |
Beneficial conversion feature | 30 | 302 |
Accretion | $ 162 | $ 198 |
INVENTORY (Details Narrative)
INVENTORY (Details Narrative) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Inventory Disclosure [Abstract] | ||
Inventory | $ 29 | $ 79 |
Work in process | 21 | 23 |
Direct labor cost, in-process projects | 8 | 26 |
Reserves for obsolete and slow-moving items | $ 3 | $ 3 |
PROPERTY AND EQUIPMENT (Details
PROPERTY AND EQUIPMENT (Details) - USD ($) $ in Thousands | Dec. 31, 2018 | Dec. 31, 2017 |
Property, Plant and Equipment [Abstract] | ||
Equipment | $ 967 | $ 946 |
Leasehold improvements | 77 | 11 |
Furniture | 255 | 102 |
Property and equipment total | 1,299 | 1,059 |
Less accumulated depreciation | (1,055) | (1,016) |
Property and equipment net | $ 244 | $ 43 |
PROPERTY AND EQUIPMENT (Detai_2
PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Property, Plant and Equipment [Abstract] | ||
Depreciation expense | $ 39 | $ 56 |
ACCRUED EXPENSES (Details)
ACCRUED EXPENSES (Details) - USD ($) $ in Thousands | Dec. 31, 2018 | Dec. 31, 2017 |
Payables and Accruals [Abstract] | ||
Compensated absences | $ 352 | $ 273 |
Wages, payroll taxes and sales commissions | 44 | 38 |
Customer deposits | 30 | 40 |
Rent | 14 | 0 |
Royalties | 72 | 72 |
Pension and employee benefit plans | 48 | 5 |
Professional services | 145 | 100 |
Income and sales taxes | 79 | 27 |
Dividends | 42 | 34 |
Other | 62 | 69 |
Accrued liabilities | $ 888 | $ 658 |
LINES OF CREDIT (Details)
LINES OF CREDIT (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Lines of credit to a related party | $ 0 | $ 5,774 |
Total lines of credit to related parties | 0 | 5,774 |
Less current portion | 0 | (5,774) |
Long-term lines of credit to related parties | 0 | 0 |
Line Of Credit [Member] | ||
Lines of credit to a related party | $ 0 | $ 5,774 |
Line of credit rate | 8.00% | 8.00% |
Advances under line of credit | $ 0 | $ 6 |
Discount on advances | $ 0 | $ 226 |
INCOME TAXES (Details)
INCOME TAXES (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Current | ||
Federal | $ 0 | $ 0 |
State | 0 | 0 |
Foreign | 11 | (124) |
Deferred | ||
Federal | 0 | 0 |
State | 0 | 0 |
Foreign | 0 | 0 |
Total | $ 11 | $ (124) |
INCOME TAXES (Details 1)
INCOME TAXES (Details 1) - USD ($) $ in Thousands | Dec. 31, 2018 | Dec. 31, 2017 |
Income Tax Disclosure [Abstract] | ||
Net operating loss carryforwards | $ 19,881 | $ 13,734 |
Intangible and fixed assets | (85) | (28) |
Stock based compensation | 2,318 | 1,954 |
Reserves and accrued expenses | 45 | 38 |
Other | 0 | 0 |
Deferred tax assets, gross | 22,159 | 15,698 |
Less valuation allowance | (22,159) | (15,698) |
Deferred tax assets, net | $ 0 | $ 0 |
INCOME TAXES (Details 2)
INCOME TAXES (Details 2) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Income Tax Disclosure [Abstract] | ||
Amounts computed at statutory rates | $ (2,636) | $ (3,423) |
State income tax, net of federal benefit | (1,051) | (497) |
Change in net operating loss carryforwards | (3,012) | 688 |
Non-deductible interest | $ 36 | $ 250 |
Tax Act - federal rate change | 0.00% | 727600.00% |
Foreign taxes | $ 210 | $ 143 |
Other | 3 | 4 |
Net change in valuation allowance on deferred tax assets | 6,461 | (4,565) |
Reconciliation of the provision-benefit) for income taxes | $ 11 | $ (124) |
INCOME TAXES (Details Narrative
INCOME TAXES (Details Narrative) - USD ($) $ in Thousands | Dec. 31, 2018 | Dec. 31, 2017 |
Income Tax Disclosure [Abstract] | ||
Interest and penalties accrued | $ 0 | $ 10 |
COMMITMENTS AND CONTINGENCIES_2
COMMITMENTS AND CONTINGENCIES (Details) $ in Thousands | Dec. 31, 2018USD ($) |
Commitments and Contingencies Disclosure [Abstract] | |
2019 | $ 480 |
2020 | 632 |
2021 | 625 |
2022 | 635 |
2023 | 421 |
Thereafter | 519 |
Total | $ 3,312 |
COMMITMENTS AND CONTINGENCIES_3
COMMITMENTS AND CONTINGENCIES (Details Narratives) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | ||
Rent expense | $ 672 | $ 545 |
MEZZANINE EQUITY (Details)
MEZZANINE EQUITY (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Issuance of Series C Preferred Stock, amount | $ 10,000 | |
Discount - transaction costs, amount | (1,211) | |
Net Proceeds, amount | 8,789 | $ 10,937 |
Discount - bifurcated derivative, amount | (833) | |
Accretion of discount - deemed dividend, amount | 200 | |
Total Series C Preferred Stock, amount | $ 8,156 | |
Series C Preferred Stock [Member] | ||
Issuance of Series C Preferred Stock, shares | 1,000 | |
Discount - transaction costs, shares | 0 | |
Net Proceeds, shares | 0 | |
Discount - bifurcated derivative, shares | 0 | |
Accretion of discount - deemed dividend, shares | 0 | |
Total Series C Preferred Stock, shares | 1,000 | |
Issuance of Series C Preferred Stock, amount | $ 10,000 | |
Discount - transaction costs, amount | (1,211) | |
Net Proceeds, amount | 8,789 | |
Discount - bifurcated derivative, amount | (833) | |
Accretion of discount - deemed dividend, amount | 200 | |
Total Series C Preferred Stock, amount | $ 8,156 |
EQUITY (Details)
EQUITY (Details) - shares | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Equity [Abstract] | ||
At beginning of period | 94,167,836 | 91,846,795 |
Shares issued pursuant to payment of stock dividend on Series A Preferred | 3,074,008 | |
Shares issued pursuant to payment of stock dividend on Series E Preferred | 585,058 | |
Shares issued pursuant to payment of stock dividend on Series F Preferred | 822,122 | |
Shares issued pursuant to payment of stock dividend on Series G Preferred | 135,855 | |
Shares issued pursuant to cashless warrants exercised | 409,002 | |
Shares issued as payment of stock dividend on Series C Preferred | 354,632 | |
Shares issued pursuant to conversion of Series A Preferred | 391,304 | |
Shares issued pursuant to option exercises | 235,852 | 369,004 |
At end of period | 98,223,632 | 94,167,836 |
EQUITY (Details 1)
EQUITY (Details 1) - $ / shares | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Equity [Abstract] | ||
Begining Balance | 230,000 | 175,000 |
Granted | 1,583,856 | 80,000 |
Expired/Cancelled | 0 | (25,000) |
Exercised | 0 | 0 |
Ending Balance | 1,813,856 | 230,000 |
Begining Balance, Weighted-Average Exercise Price | $ .91 | $ .84 |
Granted, Weighted-Average Exercise Price | .08 | 1.13 |
Expired/Cancelled, Weighted-Average Exercise Price | .00 | 1.10 |
Exercised, Weighted-Average Exercise Price | .00 | .00 |
Ending Balance, Weighted-Average Exercise Price | $ .19 | $ .91 |
EQUITY (Details Narrative)
EQUITY (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Shares issued pursuant to options exercised | 235,852 | 369,004 |
Cash proceeds from option exercises | $ 162 | $ 259 |
Compensation expense | $ 1,272 | $ 1,094 |
Series A Preferred Stock [Member] | ||
Preferred stock outstanding | 37,467 | 31,021 |
Preferred par value | $ 0.01 | $ .01 |
Cumulative dividends | $ 0 | $ 0 |
Series B Preferred Stock [Member] | ||
Preferred stock outstanding | 239,400 | 239,400 |
Preferred par value | $ .01 | $ .01 |
Cumulative dividends | $ 8 | $ 8 |
STOCK-BASED COMPENSATION (Detai
STOCK-BASED COMPENSATION (Details) - $ / shares | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Compensation Related Costs [Abstract] | ||
Begining Balance | 6,093,512 | 6,506,843 |
Granted, Options | 1,545,500 | 112,500 |
Expired/Cancelled | (175,912) | (156,827) |
Exercised, Options | (235,852) | (369,004) |
Ending Balance | 7,227,248 | 6,093,512 |
Begining Balance, Weighted-Average Exercise Price | $ 1.23 | $ 1.21 |
Granted, Weighted-Average Exercise Price | 1.67 | 1.39 |
Expired/Cancelled, Weighted-Average Exercise Price | 1.33 | 1.67 |
Exercised, Weighted-Average Exercise Price | .70 | .70 |
Ending Balance, Weighted-Average Exercise Price | $ 1.34 | $ 1.23 |
Begining Balance,Weighted-Average Remaining Contractual Term | 5 years 9 months 18 days | 6 years 7 months 6 days |
Ending Balance,Weighted-Average Remaining Contractual Term | 5 years 9 months 18 days | 5 years 9 months 18 days |
STOCK-BASED COMPENSATION (Det_2
STOCK-BASED COMPENSATION (Details 1) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Stock-based compensation | $ 1,272 | $ 1,094 |
Cost of Revenues [Member] | ||
Stock-based compensation | 19 | 19 |
General and Administrative Expense [Member] | ||
Stock-based compensation | 840 | 655 |
Selling And Marketing Expense [Member] | ||
Stock-based compensation | 216 | 220 |
Research and Development Expense [Member] | ||
Stock-based compensation | $ 197 | $ 200 |
STOCK-BASED COMPENSATION (Det_3
STOCK-BASED COMPENSATION (Details 2) | Dec. 31, 2018shares |
Authorized Future Grant Under Stock Option Plans [Member] | |
Common stock reserved for future issuance | 730,677 |
Convertible Preferred Stock [Member] | |
Common stock reserved for future issuance | 42,626,029 |
Stock options outstanding | |
Common stock reserved for future issuance | 7,227,248 |
Warrants outstanding | |
Common stock reserved for future issuance | 1,813,856 |
STOCK-BASED COMPENSATION (Det_4
STOCK-BASED COMPENSATION (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Stock-based compensation expense | $ 1,272 | $ 1,094 | |
Options outstanding | 7,227,248 | 6,093,512 | 6,506,843 |
Weighted average exercise price | $ .94 | $ .77 | |
Unrecognized compensation cost related to unvested stock options | $ 995 | ||
Options exercised | (235,852) | (369,004) | |
Intrinsic value of options exercised | $ 175 | $ 177 | |
Intrinsic value of options exercisable | 248 | 2,388 | |
Intrinsic value of options vested | 0 | 0 | |
Intrinsic value for options outstanding | $ 248 | $ 2,595 | |
1999 Plan [Member] | |||
Options authorized under plan | 730,677 |
PENSION PLAN (Details)
PENSION PLAN (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Change in benefit obligation: | ||
Benefit obligation at beginning of year | $ 3,830 | $ 3,540 |
Service cost | 0 | 0 |
Interest cost | 72 | 64 |
Actuarial (gain) loss | (34) | (167) |
Effect of exchange rate changes | (174) | 473 |
Effect of curtailment | 0 | 0 |
Benefits paid | (84) | (80) |
Benefit obligation at end of year | 3,610 | 3,830 |
Change in plan assets: | ||
Fair value of plan assets at beginning of year | 1,806 | 1,646 |
Actual return of plan assets | 82 | 7 |
Company contributions | 13 | 12 |
Benefits paid | (84) | (80) |
Effect of exchange rate changes | (83) | 222 |
Fair value of plan assets at end of year | 1,733 | 1,806 |
Funded status | (1,876) | (2,024) |
Unrecognized actuarial loss (gain) | 1,542 | 1,629 |
Unrecognized prior service (benefit) cost | 0 | 0 |
Additional minimum liability | (1,542) | (1,629) |
Unrecognized transition (asset) liability | 0 | 0 |
Net amount recognized | (1,876) | (2,024) |
Components of net periodic benefit cost are as follows: | ||
Service cost | 0 | 0 |
Interest cost on projected benefit obligations | 72 | 64 |
Expected return on plan assets | (56) | (70) |
Amortization of prior service costs | 0 | 0 |
Amortization of actuarial loss | 102 | 104 |
Net periodic benefit costs | $ 118 | $ 98 |
The weighted average assumptions used to determine net periodic benefit cost for the years ended December 31, were | ||
Discount rate | 2.00% | 1.90% |
Expected return on plan assets | 3.20% | 3.20% |
Rate of pensionincrease | 2.00% | 2.00% |
Rate of compensation increase | ||
The following discloses information about the Companys defined benefit pension plan that had an accumulated benefit obligation in excess of plan assets as of December 31, | ||
Projected benefit obligation | $ 3,610 | $ 3,830 |
Accumulated benefit obligation | 3,610 | 3,830 |
Fair value of plan assets | $ 1,733 | $ 1,806 |
PENSION PLAN (Details 1)
PENSION PLAN (Details 1) $ in Thousands | Dec. 31, 2018USD ($) |
Employee Benefits and Share-based Compensation, Noncash [Abstract] | |
2019 | $ 82 |
2020 | 83 |
2021 | 97 |
2022 | 99 |
2023 | 106 |
2024-2028 | $ 679 |
PENSION PLAN (Details Narrative
PENSION PLAN (Details Narrative) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Employee Benefits and Share-based Compensation, Noncash [Abstract] | ||
Contributions to the plan | $ 13 | $ 12 |
ACCUMULATED OTHER COMPREHENSI_3
ACCUMULATED OTHER COMPREHENSIVE LOSS (Details) - USD ($) $ in Thousands | Dec. 31, 2018 | Dec. 31, 2017 |
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | ||
Additional minimum pension liability | $ (1,144) | $ (1,353) |
Foreign currency translation adjustment | (284) | (311) |
Ending Balance | $ (1,428) | $ (1,664) |