☒
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
|
22-2413505
|
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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7107 Industrial Road, Florence KY
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41042
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|
(Address of principal executive offices)
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(Zip Code)
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Title of Class
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Name of each exchange on which registered
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None
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None
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Page
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Part I
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Item 1.
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4
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Item 1A.
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11
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Item 1B.
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21
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Item 2.
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21
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Item 3.
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21
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Item 4.
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21
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Part II
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Item 5.
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22
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Item 6.
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22
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Item 7.
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22
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Item 7A.
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29
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Item 8.
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29
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Item 9.
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30
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Item 9A.
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30
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Item 9B.
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31
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Part III
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Item 10.
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32
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Item 11.
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36
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Item 12.
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40
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Item 13.
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44
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Item 14.
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45
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Part IV
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||
Item 15.
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46
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Item 16
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51
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•
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significant changes in consumer demand for our products, resulting in volatility of our operating results and financial condition;
|
•
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our ability to effectively respond to changing market conditions;
|
•
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whether as a result of market conditions, or our financial condition or otherwise, the possibility that we will not be able to raise sufficient additional capital needed to operate our business;
|
•
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unexpected costs, lower than expected sales and revenues, and operating deficits;
|
•
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our ability to obtain supply at favorable rates;
|
•
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unexpected changes in our industry's competitive forces including the manner and degree in which our competitors serve our target market;
|
•
|
our ability to attract or retain qualified senior management personnel; and
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•
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other specific risks that may be referred to in this report including those in Part I, Item 1A, "Risk Factors."
|
Current Healthcare
Distribution Model
|
Our Distribution
Model |
Manufacturer
'
|
Manufacturer or Wholesaler
' |
Wholesaler
|
'
|
'
|
'
|
Distributor
|
HealthWarehouse.com
|
'
|
'
|
Pharmacy
|
'
|
'
|
'
|
Consumer
|
Consumer
|
|
● Legitimacy. We have obtained state licenses and certifications to separate ourselves from the numerous uncertified "rogue" pharmacies that exist online. We are the 19th pharmacy in the U.S. to receive Verified Internet Pharmacy Practice Sites accreditation, issued by the National Association of Board of Pharmacy. Google, Yahoo, and Bing now all require VIPPS as a prerequisite to advertise on their sites.
|
|
● Convenience. Our easy-to-use online store is available to consumers 24 hours a day, 7 days a week through the Internet and includes a robust product search engine and a variety of features, like auto-refill. We deliver medications to any location in the United States including Alaska and Hawaii and offer 6-month and 12-month supplies of medications to reduce the need for refills. All of our products are also available for purchase by phone.
|
|
● Selection. Due to our online structure, we are able to offer a significantly broader assortment of products, with greater depth in each product category, because we do not have the shelf display space limitations of brick-and-mortar drugstores.
|
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● Information. We provide a broad array of interactive tools and information on our website to help consumers make informed purchasing decisions. Our information services include detailed product information pages, product user manuals and brochures, detailed product descriptions which contain the manufacturer's phone number, and customer reviews. Our customer support representatives are available by phone or email to answer customers' questions.
|
|
● Privacy. When shopping at a "brick-and-mortar" drugstore, many consumers may feel embarrassed or uncomfortable about buying items or asking questions that may reveal personally sensitive aspects of their health or lifestyle to pharmacists, store personnel, or other shoppers. Our customers avoid these problems by shopping from the privacy of their home or office.
|
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● Value. Our goal is to offer shoppers a broad assortment of generic drugs and health products with competitive pricing. We strive to improve our operating efficiencies and to leverage our fixed costs so that we can pass along the savings to our customers in the form of lower prices and exclusive deals. Since we source drugs directly from manufacturers and wholesalers and eliminate third party payors such as insurance companies, we believe that we have lower costs than traditional pharmacies. We also strive to inform customers of additional cost-saving opportunities when they become available. For example, we show the generic equivalents of all brand name products and also offer 6 and 12 month supplies of our medications to consumers to reduce refills and provide better value. The Company was prominently featured in two nationally recognized consumer magazines during the fourth quarter of 2015 as having the lowest price among top pharmacies for five commonly prescribed medications.
|
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● Customer Service. We keenly focus on customer service and endeavor to lead the industry in our policies and procedures. We are prevented by law from accepting returns for prescription medications. The Company has received numerous awards for customer service and satisfaction and won the 2015 BizRate Circle of Excellence Award for outstanding customer service and satisfaction along with 186 other major online retailers, the fourth time since its inception.
|
•
|
shipping charges, which do not apply to purchases made at a "brick-and-mortar" store;
|
•
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delivery time associated with Internet orders, as compared to the immediate receipt of products at a brick-and-mortar store;
|
•
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lack of consumer awareness of our website;
|
•
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additional steps and delays in verifying prescriptions and ensuring insurance coverage for prescription products;
|
•
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regulatory restrictions or reform at the state and federal levels that could affect our ability to serve our customers;
|
•
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the general acceptance or legalization of prescription drug re-importation;
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•
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customer concerns about the security of online transactions, identity theft, or the privacy of their personal information;
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•
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product damage from shipping or shipments of wrong or expired products from us or other suppliers, resulting in a failure to establish, or loss of, customers' trust in buying drugstore items online;
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•
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inability to serve the acute care needs of customers, including emergency prescription drugs and other urgently needed products;
|
•
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delays in responses to customer inquiries;
|
•
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difficulties or delays in returning or exchanging orders; and
|
•
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activity that diminishes a user's online experience or subjects online shoppers to security risks, such as viruses, spam, spyware, phishing (spoofing e-mails directed at Internet users), "denial of service" attacks directed at Internet service providers and online businesses, and breaches of data security.
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•
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entities engaging in the practice of pharmacy are subject to numerous federal and state regulatory requirements, including those relating to pharmacy licensing and registration, the dispensing of prescription drugs, pharmacy record keeping and reporting, and the confidentiality, security, storage, and release of patient records; and
|
•
|
the sale, advertisement, and promotion of, among other things, prescription, OTC and homeopathic medications, dietary supplements, medical devices, cosmetics, foods, and other consumer products that we sell are subject to regulation by the FDA, the FTC, the Consumer Product Safety Commission, and state regulatory authorities, as the case may be.
|
2016
|
2015
|
|||||||
High
|
Low
|
High
|
Low
|
|||||
First Quarter
|
$ 0.30
|
$ 0.16
|
$ 0.30
|
$ 0.08
|
||||
Second Quarter
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$ 0.42
|
$ 0.27
|
$ 0.23
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$ 0.09
|
||||
Third Quarter
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$ 0.47
|
$ 0.25
|
$ 0.15
|
$ 0.09
|
||||
Fourth Quarter
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$ 0.42
|
$ 0.22
|
$ 0.33
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$ 0.10
|
Year ended
|
Year ended
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|||||||||||||
December 31,
|
% of
|
December 31,
|
% of
|
|||||||||||
2016
|
Net Sales
|
2015
|
Net Sales
|
|||||||||||
Net sales
|
$
|
10,384,893
|
100.0
|
$
|
7,018,137
|
100.0
|
||||||||
Cost of sales
|
3,647,433
|
35.1
|
2,546,392
|
36.3
|
||||||||||
Gross profit
|
6,737,460
|
64.9
|
4,471,745
|
63.7
|
||||||||||
Selling, general & administrative
|
8,026,636
|
77.3
|
4,890,280
|
69.7
|
||||||||||
Loss from operations
|
(1,289,176
|
)
|
(12.4)
|
|
(418,535
|
)
|
(6.0)
|
|
||||||
Interest expense
|
119,027
|
1.0
|
208,147
|
3.0
|
||||||||||
Net loss
|
$
|
(1,408,203
|
)
|
(13.6)
|
|
$
|
(626,682
|
)
|
(9.0)
|
|
Year ended December 31,
|
Change
|
|||||||||||||||
2016
|
2015
|
$ | % | |||||||||||||
Prescriptions
|
$
|
7,999,818
|
$
|
5,021,382
|
$
|
2,978,436
|
59.3
|
|||||||||
OTC Products
|
1,959,602
|
1,229,231
|
730,371
|
59.4
|
||||||||||||
Other
|
425,473
|
767,524
|
(342,051
|
)
|
(44.6
|
)
|
||||||||||
Net Sales
|
$
|
10,384,893
|
$
|
7,018,137
|
$
|
3,366,756
|
48.0
|
Year ended December 31,
|
Change
|
|||||||||||||||
2016
|
2015
|
$ | % | |||||||||||||
Cost of sales
|
$
|
3,647,433
|
$
|
2,546,392
|
$
|
1,101,041
|
43.2
|
|||||||||
Gross margin
|
$
|
6,737,460
|
$
|
4,471,745
|
$
|
2,265,715
|
50.7
|
|||||||||
Gross margin %
|
64.9
|
%
|
63.7
|
%
|
1.2
|
%
|
1.9
|
%
|
Year ended December 31,
|
Change
|
|||||||||||||||
2016
|
2015
|
$ | % | |||||||||||||
S G&A
|
$
|
8,026,636
|
$
|
4,890,280
|
$ |
3,136,356
|
64.1
|
|||||||||
% of Net Sales
|
77.3
|
%
|
69.7
|
%
|
(a)
|
salaries and related payroll taxes expense increased $991,795 after excluding $276,167 of severance pay for departing executives. The increase in salaries expense is primarily the result of increased staffing to process higher levels of call and order volumes, increased time requirements of pharmacy staff to process the higher level of new customer orders and the addition of the Chief Financial Officer in 2016;
|
(b)
|
freight costs and shipping supplies expense increased $531,230 and $77,431, respectively, due to higher order volume and higher expedited shipping costs;
|
(a)
|
legal expenses increased $521,269 which included $370,119 of expenses related to proxy materials for the 2016 annual meeting;
|
(b)
|
shareholder expense increased $193,284 as the result of higher expenses related to the solicitation of votes a contested director election at the 2016 annual meeting;
|
(c)
|
credit card processing fees increased $151,078 directly related to the increase in order volume;
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(d)
|
adverting expense increased $138,420 because of higher volumes of customers visiting our website through targeted online marketing channels;
|
(e)
|
software engineering and maintenance costs increased $131,085 due to additional outsourcing of projects; and
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(f)
|
the local and state income and property tax expense increase of $101,175 included $78,942 of tax expense resulting from the settlement of previous years' taxes.
|
(a)
|
accounting services decreased by $65,939 primarily related to the hiring of the Company's Chief Financial Officer in 2016;
|
(b)
|
depreciation and amortization expense was $34,766 lower in 2016; and
|
(c)
|
rent expense was $37,014 lower in 2016 resulting from a reduction in rented space during 2015.
|
Year Ended December 31,
|
||||||||
2016
|
2015
|
|||||||
Net loss
|
$
|
(1,408,203
|
)
|
$
|
(626,682
|
)
|
||
Non-GAAP adjustments:
|
||||||||
Interest expense
|
119,027
|
208,147
|
||||||
Depreciation and amortization
|
149,553
|
184,320
|
||||||
Stock-based compensation
|
327,202
|
320,366
|
||||||
Proxy solicitation costs
|
578,484
|
-
|
||||||
Severance
|
276,167
|
-
|
||||||
Adjusted EBITDA
|
$
|
42,230
|
$
|
86,151
|
Year ended December 31,
|
Change
|
|||||||||||
2016
|
2015
|
$
|
||||||||||
Net cash provided by (used in):
|
||||||||||||
Operating activities
|
$
|
(116,830
|
)
|
$
|
(548,281
|
)
|
$
|
431,451
|
||||
Investing activities
|
(121,570
|
)
|
25,697
|
(147,267
|
)
|
|||||||
Financing activities
|
231,011
|
27,782
|
203,229
|
|||||||||
Net decrease in cash
|
$
|
(7,389
|
)
|
$
|
(494,802
|
)
|
$
|
487,413
|
•
|
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant;
|
•
|
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and
|
•
|
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant's assets that could have a material effect on the financial statements.
|
Name
|
Age
|
Position
|
||
Current executive officers and directors:
|
||||
John C. Pauly
|
56
|
Chief Operating Officer, Interim President and Chief Executive Officer
|
||
Brian A. Ross
|
59
|
Director
|
||
Mark D. Scott
|
46
|
Director
|
||
Dr. Steven J. Weiss
|
62
|
Director
|
||
Joseph Heimbrock
|
61
|
Director
|
||
J. Robert Smyjunas, Jr.
|
53
|
Director
|
||
Former executive officers and directors:
|
||||
Jeffrey T. Holtmeier
|
58
|
President, Chief Executive Officer and Director
|
||
Lalit Dhadphale
|
45
|
President, Chief Executive Officer and Director
|
||
Daniel Seliga
|
51
|
Chief Operating Officer and Chief Financial Officer
|
||
Youssef Bennani
|
50
|
Director
|
||
Joseph Savarino
|
47
|
Director
|
||
Ambassador Ned L. Siegel
|
65
|
Director
|
Section 16 Insider
|
Type of
Late Report
|
Date Report
Required
|
Date Report
Filed
|
Daniel Joseph Seliga
|
Form 3
|
1/13/2016
|
1/19/2016
|
Joe Heimbrock/MVI Partners, LLC
|
Form 3
|
4/22/2016
|
4/29/2016
|
Joseph Savarino
|
Form 4
|
7/8/2016
|
7/12/2016
|
Ned Siegel
|
Form 4
|
7/8/2016
|
7/12/2016
|
Bennani Youssef
|
Form 4
|
7/8/2016
|
7/13/2016
|
Joe Heimbrock/MVI Partners, LLC
|
Form 4
|
7/8/2016
|
7/14/2016
|
Rx Investor Value Corp.
|
Form 3
|
7/26/2016
|
8/19/2016
|
Jeffrey Holtmeier
|
Form 3
|
7/26/2016
|
8/19/2016
|
Brian Ross
|
Form 3
|
7/26/2016
|
8/19/2016
|
Cormag Holdings, Ltd./Mark D. Scott
|
Form 3
|
7/26/2016
|
8/23/2016
|
Bruce Bedrick
|
Form 3
|
7/26/2016
|
8/23/2016
|
Osgar Holdings Ltd./Hong Penner
|
Form 3
|
7/26/2016
|
8/24/2016
|
Robert Smyjunas
|
Form 3
|
7/26/2016
|
8/24/2016
|
SCW Holdings, LLP/Stephen Weiss
|
Form 3
|
7/26/2016
|
8/25/2016
|
Cape Bear Partners, LLC/Lynn Peppel
|
Form 3
|
7/26/2016
|
8/25/2016
|
Patrick Edward Delaney
|
Form 3
|
7/26/2016
|
8/26/2016
|
Mark D. Scott
|
Form 3
|
9/7/2016
|
9/12/2016
|
Name and
Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Option Awards
($) (1)
|
All Other
Compensation
($)
|
Total
($)
|
Jeffrey T. Holtmeier (4)
President, Chief Executive and Financial Officer
|
2016
|
53,061
|
43,750
|
35,495
|
-
|
132,306
|
Lalit Dhadphale (2)
President, Chief Executive Officer
|
2016
2015
|
128,419
150,000
|
-
-
|
-
11,761
|
-
|
128,419
161,761
|
Daniel Seliga (3)
Chief Operating Officer and Chief Financial Officer
|
2016
|
135,000
|
-
|
-
|
-
|
135,000
|
(1)
|
The amounts in the "Option Awards" column reflect the dollar aggregate grant date fair value computed in accordance with ASC Topic 718. The assumptions we used to calculate these amounts are discussed in the notes to our consolidated financial statements included in this report on Form 10-K.
|
(2)
|
Mr. Dhadphale's resignation from the Company was effective October 13, 2016.
|
(3)
|
Mr. Seliga's employment with the Company was effective January 1, 2016 and his resignation from the Company was effective October 9, 2016.
|
(4)
|
Mr. Holtmeier's employment with the Company was effective October 11, 2016 and his resignation from the Company was effective January 16, 2017.
|
Name
|
Number of
Securities Underlying
Unexercised Options
(#)
Exercisable
|
Number of
Securities Underlying
Unexercised Options
(#)
Unexercisable
|
Option
Exercise Price
($)
|
Option
Expiration
Date
|
Jeffrey T. Holtmeier
Chief Executive Officer and President
|
125,000
|
-
|
0.29
|
(1)
|
(1)
|
Any unexercised options will terminate April 15, 2017 as a result of Mr. Holtmeier's resignation on January 16, 2017.
|
Cash
|
Option
|
Total
|
|||||||
Compensation
|
Awards
|
Compensation
|
|||||||
Name
|
($)
|
($) (2)
|
($)
|
||||||
Current Directors
|
|||||||||
Joseph Heimbrock (1)
|
16,000
|
32,951
|
48,951
|
||||||
Brian A. Ross (1)
|
12,000
|
-
|
12,000
|
||||||
Mark Scott (1)
|
4,000
|
-
|
4,000
|
||||||
Dr. Stephen Weiss (1)
|
4,000
|
-
|
4,000
|
||||||
Former Directors
|
|||||||||
Joseph Savarino (2)
|
24,000
|
37,782
|
61,782
|
||||||
Youssef Bennani (2)
|
24,000
|
37,782
|
61,782
|
||||||
Ned Siegel (2)
|
24,000
|
37,782
|
61,782
|
(1)
|
In connection with the current director's annual service on our Board, (i) on July 6, 2016 we granted options to Mr. Heimbrock to purchase 30,728 shares of our common stock at an exercise price of $0.35 per share, and with a term of ten years. The options immediately vested on the grant date; (ii) the non-cash compensation portion of director fees for the third and fourth quarter of 2016 will be settled in 2017. See above note.
|
(2)
|
In connection with the former director's annual service on our Board, (i) on January 13, 2016 we granted options to each director to purchase 38,218 shares of our common stock at an exercise price of $0.24 per share, and with a term of ten years. The options immediately vested on the grant date; (ii) on April 8, 2016 we granted options to each director to purchase 31,616 shares of our common stock at an exercise price of $0.29 per share. The options immediately vested on the grant date; (iii) on July 6, 2016 we granted options to purchase 43,692 shares of our common stock at an exercise price of $0.35 per share, and with a term of ten years. The options immediately vested on the grant date; and (iv) on November 9, 2016 we granted options to purchase 13,953 shares of our common stock at an exercise price of $0.35 per share, and with a term of ten years. The options immediately vested on the grant date.
|
(3)
|
The amounts in the "Option Awards" column reflect the dollar aggregate grant date fair value computed in accordance with ASC Topic 718.
|
Plan category
|
Number of shares
of common stock
to be issued upon
exercise of outstanding
options, warrants,
and rights
(a)
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
|
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column
(a) (c)
|
Equity compensation plans approved by security holders
|
1,294,204 (1)
|
$0.51
|
4,948,435 (2)
|
Equity compensation plans not approved by security holders (3)
|
7,806,118
|
$0.30
|
-
|
Total
|
9,100,322
|
$0.33
|
4,948,435
|
Name (1)
|
Number of Shares
Beneficially Owned (2)
|
Percentage of
Shares Beneficially
Owned (3)
|
||
5% or Greater Stockholders:
|
||||
Dr. Bruce Bedrick (4)
|
5,850,000
|
13.1%
|
||
MVI Partners, LLC and Joe Heimbrock (5)
|
6,273,372
|
12.8%
|
||
Cormag Holdings, LTD and Mark Scott (6)
|
4,480,861
|
10.2%
|
||
Dellave Holdings, LLC and Tim Reilly (7)
|
4,367,457
|
10.2%
|
||
Lalit Dhadphale
|
3,207,479
|
7.5%
|
||
Estate of Wayne Corona (8)
|
2,770,676
|
6.5%
|
||
Osgar Holdings, LTD and Hong Penner (9)
|
2,500,000
|
5.8%
|
||
Janice & Ralph Marra (10)
|
2,215,747
|
5.2%
|
||
Executive Officers and Directors:
|
||||
John C. Pauly
|
-
|
*
|
||
Brian A. Ross
|
-
|
*
|
||
Mark D. Scott (6)
|
4,480,861
|
10.2%
|
||
Joseph Heimbrock (5)
|
6,273,372
|
12.8%
|
||
Dr. Stephen Weiss (11)
|
1,005,000
|
2.3%
|
||
J. Robert Smyjunas (12)
|
226,400
|
*
|
||
All executive officers and directors as a group –
(6 persons)
|
11,985,633
|
21.9%
|
|
(1)
|
The address of each officer and director is c/o HealthWarehouse.com, Inc., 7107 Industrial Road, Florence, Kentucky 41042.
|
|
(2)
|
This table is based upon information supplied by officers, directors and principal stockholders and Schedules 13D and 13G filed with the SEC. Unless otherwise indicated, includes shares owned by a spouse, minor children and relatives sharing the same home, as well as the entities owned or controlled by the named person. Table also includes shares if the named person has the right to acquire those shares within 60 days after December 31, 2016, by the exercise of any warrant, stock option, convertible note or other right. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned.
|
|
(3)
|
Applicable percentages are based on 42,649,273 shares of common stock outstanding on February 28, 2017, adjusted as required by rules promulgated by the SEC. There were 553,574 shares of Series B Preferred Stock outstanding on February 28, 2017, which shares are convertible into 6,454,673 shares of common stock, based on a conversion factor of 11.66. The shares of common stock and shares underlying convertible preferred stock, and stock options or warrants are deemed outstanding for purposes of computing the percentage of the person holding such convertible preferred stock, convertible notes, and/or stock options or warrants, but are not deemed outstanding for the purpose of computing the percentage of any other person.
|
(4)
|
Consists of (i) 3,900,000 shares of common stock and (ii) warrants to purchase 1,950,000 shares of common stock owned by Dr. Bedrick. The information in this Note 4 is based in part on information contained in the Schedule 13D/A Amendment No. 7 filed with the SEC by the Rx Investor Value Corporation Group on September 9, 2016. Dr. Bedrick's address is 5375 Monterey Circle #32, Delray Beach, FL 33484.
|
|
(5)
|
Consists of (i) 68,009 shares of common stock, (ii) an option to purchase 30,728 shares of common stock and (iii) 529,557 shares of Series B Preferred Stock convertible into 6,174,635 shares of common stock. The shares of common stock and option are owned by Joe Heimbrock individually and the shares of Series B Preferred Stock are owned by MVI Partners, LLC, an Ohio limited liability company ("MVI"). Mr. Heimbrock serves as a managing member of MVI and thus may be deemed to possess shared voting and dispositive power over the shares of Series B Preferred Stock. The address of Mr. Heimbrock and MVI is 3299 Hughes Court, Taylor Mill, Kentucky 41015. The information contained in this note is based in part on a Schedule 13D filed by MVI and Mr. Heimbrock on April 29, 2016.
|
|
(6)
|
Consists of (i) 3,147,527 shares of common stock and (ii) warrants to purchase 1,333,334 shares of common stock. The securities are owned by Cormag Holdings, Ltd., a Canadian corporation ("Cormag"). Mark Scott is the President, sole stockholder and director of Cormag and has sole voting and dispositive power with respect to the shares owned by Cormag. The owners address is 104 Falcon Ridge Drive, Winnipeg, Manitoba, Canada R3Y1X6. Mr. Scott is a Canadian citizen. The information in this Note 6 is based in part on information contained in the Schedule 13D/A Amendment No. 2 filed with the SEC by Mr. Scott on February 10, 2017.
|
|
(7)
|
Consists of (i) 97,000 shares of common stock owned by Tim E. Reilly's IRA account, (ii) 1,173,103 shares of common stock owned by Tim E. Reilly's CMA account, (iii) 573,826 shares of common stock owned by Melrose Capital Advisors, LLC, an Ohio limited liability company ("MCA") and (iv) 2,523,528 shares of common stock owned by Dellave Holdings LLC, an Ohio limited liability company ("DH"). Mr. Reilly is the single member of both MCA and DH and has sole voting and dispositive power with respect to the shares owned by MCA and DH. The owners address is 1085 Gulf of Mexico Drive #602, Longboat Key, Florida 34288. The information contained in this note is based in part on a Schedule 13D filed by Tim E. Reilly on August 15, 2016.
|
|
(8)
|
Consists of (i) 2,737,644 shares of common stock owned by the Estate of Wayne Corona and (ii) 33,032 shares of common stock owned by MKW Partners, LLC, an Ohio limited liability company ("MKW"). Mr. Corona was the Managing Member of MKW and had sole voting and dispositive power with respect to the shares owned by MKW. The information contained in this Note 8 is based in part on the information contained in Schedule 13G Amendment No. 1 filed with the SEC by Mr. Corona on July 29, 2013.
|
|
|
(9)
|
Consists of (i) 1,666,667 shares of common stock and (ii) warrants to purchase 833,333 shares of common stock. The securities are owned by Osgar Holdings Ltd., a Canadian corporation ("Osgar"). Hong Penner is the President, sole stockholder and director of Osgar and has sole voting and dispositive power with respect to the shares owned by Osgar. The owners address is 400 St. Mary Avenue, 9th Floor, Winnipeg, Manitoba, Canada R3C4K5. Ms. Penner is a Canadian citizen. The information in this Note 9 is based in part on information contained in the Schedule 13D/A Amendment No. 7 filed with the SEC by the Rx Investor Value Corporation Group on September 9, 2016.
|
(10)
|
Consists of (i) 1,935,709 shares of common stock and (ii) 24,017 shares of Series B Preferred Stock which is convertible into 280,038 shares of common stock. Ms. Marra has sole dispositive and voting power with respect to 1,489,029 shares, and shared dispositive and voting power with Ralph Marra with respect to 4,029 shares. Ralph Marra has sole dispositive and voting power with respect to 446,680 shares, and shared dispositive and voting power with Janice Marra with respect to 4,029 shares. Excludes 90,000 shares held in Trust for Janice and Ralph Marra's minor children. The business address for Ms. And Mr. Marra is 5 Post Road, Rumson, NJ 07760. The information contained in this Note 10 is based in part on the information contained in Schedule 13G/A Amendment No. 1 filed with the SEC by Ms. and Mr. Marra on February 14, 2014.
|
|
|
(11)
|
Consists of (i) 670,000 shares of common stock and (ii) warrants to purchase 335,000 shares of common stock. The securities are owned by SCW Holdings, L.L.P., an Arizona limited liability partnership ("SCW"). Dr. Stephen Weiss is the general partner of SCW and has sole voting and dispositive power with respect to the shares owned by SCW. The owners address is 10405 East McDowell Mountain Ranch Road, Scottsdale, Arizona 85255. The information contained in this note is based in part on the information contained in Form 3 filed with the SEC by Mr. Weiss on February 9, 2017.
|
|
(12)
|
Consists of (i) 225,3000 shares of common stock owned by Mr. Smyjunas directly, and (ii) 1,100 shares of common stock owned by RX Investor Value Corporation (RIVC). Mr. Smyjunas is the sole shareholder and officer of RIVC and has sole voting and dispositive power with respect to the shares owned by RIVC. The owners address is 9064 Ridgeway Close Drive, Cincinnati, OH 45236. The information contained in this note is based in part on the information contained in Form 3 filed with the SEC by Mr. Smyjunas on February 7, 2017.
|
Year Ended
|
Year Ended
|
|||||||
December 31, 2016
|
December 31, 2015
|
|||||||
Audit Fees (1)
|
$
|
120,000
|
$
|
120,000
|
||||
Audit-Related Fees (2)
|
-
|
-
|
||||||
Tax Fees (2)
|
-
|
-
|
||||||
All Other Fees (2)
|
-
|
-
|
Exhibit No. | Description | |
2.1
|
Share Exchange Agreement, dated May 14, 2009, between Clacendix, Inc. and HealthWarehouse.com, Inc. (1)
|
|
2.2
|
Asset Purchase Agreement, dated February 14, 2011, among Hocks Acquisition Corporation, and Hocks Pharmacy, Inc. and its shareholders. (9)
|
|
2.3
|
Merger Agreement dated February 14, 2011, among HealthWarehouse.com, Inc., Hocks Acquisition Corporation, Hocks Pharmacy, Inc. and its shareholders, and Hocks.com, Inc. (9)
|
|
3.1
|
Certificate of Incorporation of the Company, as amended through December 31, 2005. (2)
|
|
3.2
|
Certificate of Amendment of the Certificate of Incorporation of the Company, filed on January 4, 2008. (3)
|
|
3.3
|
Certificate of Amendment of the Certificate of Incorporation of the Company, filed on July 14, 2008. (4)
|
|
3.4
|
Certificate of Amendment of the Certificate of Incorporation of the Company, filed on July 31, 2009. (5)
|
|
3.5
|
Certificate of Amendment to the Company's Certificate of Incorporation filed on July 16, 2010. (7)
|
|
3.6
|
State of Delaware Certificate of Amendment of Certificate of Incorporation dated October 17, 2014 (20)
|
|
3.7
|
Certificate of Designation of Preferences, Rights and Limitations of Series B Preferred Stock Pursuant to Section 151 of the Delaware General Corporation Law. (8)
|
|
3.8
|
Amended and Restated By-Laws of the Company. (8)
|
|
3.9
|
Certificate of Designation of Preferences, Rights and Limitations of Series C Preferred Stock Pursuant to Section 151 of the Delaware General Corporation Law, filed on October 17, 2011. (14)
|
|
4.1 |
Warrant to Purchase 156,250 Shares of the common stock of HealthWarehouse.com, Inc. dated November 8, 2010 and Issued to HWH Lending, LLC, as Lender. (10)
|
|
4.2 |
Warrant to Purchase 156,250 Shares of common stock of HealthWarehouse.com, Inc. dated November 8, 2010 and issued to HWH Lending, LLC as Lender. (10)
|
|
4.3 |
Warrant to Purchase 156,250 Shares of common stock of HealthWarehouse.com, Inc. dated November 8, 2010 and issued to Milfam I L.P. (10)
|
|
4.4
|
Warrant to Purchase 156,250 Shares of common stock of HealthWarehouse.com, Inc. dated November 8, 2010 and issued to Milfam I L.P. (10)
|
|
4.5
|
Senior Secured Convertible Promissory Note dated November 8, 2010 in the amount of $500,000 payable by the Company to the order of Milfam I L.P. (8)
|
|
4.6
|
Senior Secured Convertible Promissory Note dated November 8, 2010 in the amount of $500,000 payable by the Company to the order of HWH Lending, LLC. (8)
|
|
4.7
|
Senior Secured Promissory Note dated September 2, 2011 in the principal amount of $1,500,000 payable by the Company to the order of HWH Lending, LLC. (13)
|
|
4.8
|
Warrant to Purchase 250,000 Shares of the common stock of HealthWarehouse.com, Inc., dated September 2, 2011 and Issued to HWH Lending, LLC. (13)
|
|
4.9
|
Senior Secured Promissory Note dated September 2, 2011 in the principal amount of $1,500,000 payable by the Company to the order of Milfam I, L.P. (13)
|
|
4.10
|
Warrant to Purchase 250,000 shares of the common stock of Healthwarehouse.com, Inc. dated September 2, 2011 and issued to Milfam I, L.P. (13)
|
|
4.11
|
Form of common stock Purchase Warrant. (14)
|
|
4.12
|
Warrant to Purchase 750,000 shares of the common stock of HealthWarehouse.com, Inc. dated March 18, 2013 and issued to Melrose Capital Advisors, LLC. (15)
|
|
4.13
|
Warrant to Purchase 150,000 shares of the common stock of HealthWarehouse.com, Inc. dated September 30, 2013 and issued to Melrose Capital Advisors, LLC. (17)
|
|
4.14
|
Warrant to Purchase 150,000 shares of the common stock of HealthWarehouse.com, Inc. dated October 30, 2013 and issued to Steven Deixler. (17)
|
|
4.15
|
Warrant to Purchase 150,000 shares of the common stock of HealthWarehouse.com, Inc. dated March 28, 2014 and issued to Melrose Capital Advisors, LLC. (17)
|
|
4.16
|
Warrant to Purchase 75,000 shares of common stock of HealthWarehouse.com, Inc. dated April 29, 2014 and issued to Melrose Capital Advisors, LLC. (18)
|
|
4.17
|
Warrant to Purchase 500,000 shares of the common stock of HealthWarehouse.com, Inc. dated March 1, 2015 and issued to Melrose Capital Advisors, LLC. (20)
|
|
4.18
|
Common Stock Purchase Warrant dated April 3, 2015 for 137,430 common shares (21)
|
|
4.19
|
Warrant to Purchase 250,000 shares of the common stock of Healthwarehouse.com, Inc. dated November 11, 2015 and issued to Melrose Capital Advisors, LLC. (22)
|
|
4.20
|
Letter Agreement dated November 11, 2015 between the Company and Melrose Capital Advisors, LLC. (22)
|
|
10.1
|
Loan and Security Agreement dated November 8, 2010 among HealthWarehouse.com, Inc. and Hwareh.com, Inc., as Borrowers, and HWH Lending, LLC and Milfam I L.P. as Lenders. (8)
|
|
10.2
|
Securities Purchase Agreement dated August 3, 2011. (11)
|
|
10.3
|
Investor Rights Agreement dated August 3, 2011. (11)
|
|
10.4
|
Indemnification Agreement dated August 3, 2011. (11)
|
|
10.5
|
Lease agreement dated June15, 2011 between the Company and the landlord for 7107 Industrial Road Florence, Kentucky. (12)
|
|
10.6
|
Loan and Security Agreement dated September 2, 2011 among HealthWarehouse.com, Inc., Hwareh.com, Inc. and Hocks.com, Inc., as Borrowers, and HWH Lending LLC, and Milfam I, L.P., as Lenders. (13)
|
|
10.7
|
Stock Purchase Agreement dated September 2, 2011 between the Company and Rock Castle Holdings, LLC. (13)
|
|
10.8
|
Securities Purchase Agreement dated October 17, 2011. (14)
|
|
10.9
|
Amendment No. 1 to Investor Rights Agreement dated October 17, 2011. (14)
|
10.10
|
Form of Subscription Agreement for common stock. (14)
|
|
10.11
|
Security Agreement dated March 28, 2013 between HealthWarehouse.com, Inc., Hwareh.com, Inc. and Hocks.com, Inc., as Debtors, and Melrose Capital Advisors, Inc. as secured party. (15)
|
|
10.12
|
Security Agreement dated September 30, 2013 between Pagosa Health LLC, as Debtor, and Melrose Capital Advisors, Inc. as secured party. (17)
|
|
10.13
|
Promissory Note dated October 30, 2013 in the amount of $100,000 payable by the Company to the order of Steven Deixler (17)
|
|
10.14
|
Subordination Agreement dated October 30, 2013 among Melrose Capital Advisors, LLC, the Company and Steven Deixler (17)
|
|
10.15
|
Deposit Account Control Agreement dated August 18, 2014 between the Company, Melrose Capital Advisors, LLC and The Bank of Kentucky, Inc. (20)
|
|
10.16
|
2009 Incentive Compensation Plan (6)
|
|
10.17
|
2014 Equity Incentive Plan (16)
|
|
10.18
|
Waiver letter dated March 10, 2015 from Melrose Capital Advisors, LLC (20)
|
|
10.19
|
Third Amendment to Lease agreement dated as of April 27, 2015 between the Company and the landlord for 7107 Industrial Road Florence, Kentucky. (21)
|
|
10.20
|
Loan Extension Agreement dated November 11, 2015 between the Company and Melrose Capital Advisers, LLC. (22)
|
|
10.21
|
Amended and Restated Promissory Note dated January 19, 2016 between the Company and Melrose Capital Advisors, LLC. (23)
|
|
10.22
|
Employment Agreement dated January 11, 2016 between the Company and Dan Seliga. (24)
|
|
10.23
|
Fourth Amendment to Lease agreement dated as of March 15, 2016 between the Company and the landlord for 7017 Industrial Road Florence, Kentucky *
|
|
10.24
|
Stock Purchase Agreement dated April 20, 2016 between the Company and MVI Partners, LLC to purchase 494,913 shares of the Series B Preferred Stock of the Company (25)
|
|
10.25
|
Employment Agreement dated May 9, 2016 between the Company and Lalit Dhadphale (26)
|
|
10.26
|
Amendment to Amended and Restated Promissory Note dated June 29, 2016 between the Company and Melrose Capital Advisors, LLC. (27)
|
|
10.27
|
Exchange Agreement dated July 28, 2016 between the Company and Dellave Holdings, Inc. (28)
|
|
10.28
|
Amendment to Amended and Restated Promissory Note dated August 15, 2016 between the Company and Melrose Capital Advisors, LLC. (29)
|
|
10.29
|
Amendment to Amended and Restated Promissory Note dated September 30, 2016 between the Company and Melrose Capital Advisors, LLC. (30)
|
|
10.30
|
Second Amendment to Amended and Restated Promissory Note dated October 14, 2016 between the Company and Melrose Capital Advisors, LLC. (31)
|
|
10.31
|
Third Amendment to Amended and Restated Promissory Note dated October 31, 2016 between the Company and Melrose Capital Advisors, LLC. (32)
|
|
10.32
|
Employment Agreement dated November 4, 2016 between the Company and Jeffrey T. Holtmeier (32)
|
10.33
|
Fourth Amendment to Amended and Restated Promissory Note dated November 30, 2016 between the Company and Melrose Capital Advisors, LLC. (33)
|
|
10.34
|
Separation and Release Agreement dated January 16, 2017 between the Company and Jeffrey T. Holtmeier (34)
|
|
10.35
|
Employment Agreement dated January 18, 2017 between the Company and John Pauly (34)
|
|
10.36
|
Fifth Amendment to Amended and Restated Promissory Note dated November 30, 2016 between the Company and Melrose Capital Advisors, LLC. (35)
|
|
10.37
|
||
21.1
|
||
23.1
|
||
31.1
|
||
31.2
|
||
32.1
|
||
32.2
|
||
101.INS
|
XBRL Instance Document *
|
|
101.SCH
|
XBRL Schema Document *
|
|
101.CAL
|
XBRL Calculation Linkbase Document *
|
|
101.DEF
|
XBRL Definition Linkbase Document *
|
|
101.LAB
|
XBRL Label Linkbase Document *
|
|
101.PRE
|
XBRL Presentation Linkbase Document *
|
1
|
Incorporated by reference to the Company's Current Report on Form 8-K filed on May 15, 2009.
|
2
|
Incorporated by reference to the Company's Annual Report on Form 10-K SB filed on March 29, 2006.
|
3
|
Incorporated by reference to the Company's Annual Report on Form 10-K filed on March 27, 2009.
|
4
|
Incorporated by reference to the Company's Annual Report Amendment on Form 10-KA filed on May 14, 2009.
|
5
|
Incorporated by reference to the Company's Current Report on Form 8-K filed on August 6, 2009.
|
6
|
Incorporated by reference to the Company's Current Report Amendment on Form 8-KA filed on May 26, 2009.
|
7
|
Incorporated by reference to the Company's Current Report on Form 8-K filed on July 21, 2010.
|
8
|
Incorporated by reference to the Company's Current Report on Form 8-K filed on November 12, 2010.
|
9
|
Incorporated by reference to the Company's Current Report on Form 8-K filed on February 16, 2011.
|
10
|
Incorporated by reference to the Company's Annual Report on Form 10-K filed on April 15, 2011.
|
11
|
Incorporated by reference to the Company's Current Report on Form 8-K filed on August 8, 2011.
|
12
|
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed on August 15, 2011.
|
13
|
Incorporated by reference to the Company's Current Report on Form 8-K filed on September 6, 2011.
|
14
|
Incorporated by reference to the Company's Current Report on Form 8-K filed on October 20, 2011.
|
15
|
Incorporated by reference to the Company's Current Report on Form 8-K filed on April 3, 2013.
|
16
|
Incorporated by reference to the Company's Definitive Proxy Statement filed on September 26, 2014.
|
17
|
Incorporated by reference to the Company's Annual Report on Form 10-K filed on April 14, 2014.
|
18
|
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed on May 16, 2014.
|
19
|
Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the three months ended September 30, 2014 filed on November 14, 2014.
|
20
|
Incorporated by reference to the Company's Annual Report on Form 10-K filed on March 30, 2015.
|
21
|
Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2015 filed on May 11, 2015.
|
22
|
Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the three months ended September 30, 2015 filed on November 13, 2015.
|
23
|
Incorporated by reference to the Company's Current Report on Form 8-K filed on January 25, 2016.
|
24
|
Incorporated by reference to the Company's Current Report on Form 8-K filed on January 14, 2016.
|
25
|
Incorporated by reference to the Company's Current Report on Form 8-K filed on April 21, 2016.
|
26
|
Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2016 filed on May 12, 2016.
|
27
|
Incorporated by reference to the Company's Current Report on Form 8-K filed on July 1, 2016.
|
28
|
Incorporated by reference to the Company's Current Report on Form 8-K filed on August 3, 2016.
|
29
|
Incorporated by reference to the Company's Current Report on Form 8-K filed on August 19, 2016.
|
30
|
Incorporated by reference to the Company's Current Report on Form 8-K filed on October 4, 2016.
|
31
|
Incorporated by reference to the Company's Current Report on Form 8-K filed on October 11, 2016.
|
32
|
Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the three months ended September 30, 2016 filed on November 8, 2016.
|
33
|
Incorporated by reference to the Company's Current Report on Form 8-K filed on November 30, 2016.
|
34
|
Incorporated by reference to the Company's Current Report on Form 8-K filed on January 20, 2017.
|
35
|
Incorporated by reference to the Company's Current Report on Form 8-K filed on March 3, 2017.
|
Dated: March 20, 2017
|
HEALTHWAREHOUSE.COM, INC.
By: /s/ John C. Pauly
John C. Pauly
Chief Operating Officer, Interim President
and Chief Executive Officer
|
Name
|
Title
|
Date
|
||
/s/ John C. Pauly
|
Chief Operating Officer, Interim President and
|
March 20, 2017
|
||
John C. Pauly
|
Chief Executive Officer, and Principal Financial
|
|||
and Accounting Officer
|
||||
/s/ Brian A. Ross
|
Director
|
March 20, 2017
|
||
Brian A. Ross
|
||||
/s/ Mark D. Scott
|
Director
|
March 20, 2017 | ||
Mark D. Scott
|
||||
/s/ Dr. Stephen J. Weiss
|
Director
|
March 20, 2017
|
||
Dr. Stephen J. Weiss
|
||||
/s/ Joseph Heimbrock
|
Director
|
March 20, 2017
|
||
Joseph Heimbrock
|
||||
/s/ J. Robert Symjunas
|
Director
|
March 20, 2017 | ||
J. Robert Symjunas
|
Page(s)
|
||
53
|
||
Consolidated Financial Statements:
|
||
54
|
||
55
|
||
56 to 57
|
||
58
|
||
59 to 78
|
December 31,
|
||||||||
2016
|
2015
|
|||||||
Assets
|
||||||||
Current assets:
|
||||||||
Cash
|
$
|
3,828
|
$
|
11,217
|
||||
Restricted cash
|
243,255
|
145,088
|
||||||
Accounts receivable, net
|
65,431
|
51,627
|
||||||
Inventories
|
209,415
|
182,647
|
||||||
Prepaid expenses and other current assets
|
85,576
|
81,718
|
||||||
Total current assets
|
607,505
|
472,297
|
||||||
Property and equipment, net
|
331,759
|
409,248
|
||||||
Web development costs, net
|
35,901
|
84,562
|
||||||
Total assets
|
$
|
975,165
|
$
|
966,107
|
||||
Liabilities and Stockholders' Deficiency
|
||||||||
Current liabilities:
|
||||||||
Accounts payable – trade
|
$
|
1,841,548
|
$
|
2,189,649
|
||||
Accounts payable – related parties
|
-
|
862
|
||||||
Accrued expenses and other current liabilities
|
1,036,356
|
597,665
|
||||||
Current portion of equipment lease payable
|
-
|
46,143
|
||||||
Notes payable
|
1,300,000
|
991,089
|
||||||
Notes payable – related parties
|
67,905
|
23,889
|
||||||
Redeemable preferred stock - Series C; par value $0.001 per share;
|
||||||||
10,000 designated Series C: 10,000 issued and outstanding as of
|
||||||||
December 31, 2016 and 2015 (aggregate liquidation preference of $1,000,000)
|
1,000,000
|
1,000,000
|
||||||
Total current liabilities
|
5,245,809
|
4,849,297
|
||||||
Commitments and contingencies
|
||||||||
Stockholders' deficiency:
|
||||||||
Preferred stock – par value $0.001 per share; authorized 1,000,000 shares; issued and outstanding
|
||||||||
as of December 31, 2016 and 2015 as follows:
|
||||||||
Convertible preferred stock - Series A – 200,000 shares designated Series A; 44,443 shares available
|
||||||||
to be issued; no shares issued and outstanding
|
-
|
-
|
||||||
Convertible preferred stock - Series B – 625,000 shares designated Series B; 517,359 and 483,512
|
||||||||
shares issued and outstanding as of December 31, 2016 and 2015, respectively (aggregate
|
||||||||
liquidation preference of $5,231,274 and $4,889,043 as of December 31, 2016 and 2015,
|
517
|
484
|
||||||
respectively)
|
||||||||
Common stock – par value $0.001 per share; 100,000,000 shares authorized (see Note 8),
|
||||||||
43,761,825 and 38,844,374 shares issued and 42,582,613 and 37,665,162 shares outstanding as of
|
||||||||
December 31, 2016 and 2015, respectively
|
43,762
|
38,844
|
||||||
Additional paid-in capital
|
32,014,629
|
30,656,598
|
||||||
Treasury stock, at cost, 1,179,212 shares as of December 31, 2016 and 2015
|
(3,419,715
|
)
|
(3,419,715
|
)
|
||||
Accumulated deficit
|
(32,909,837
|
)
|
(31,159,401
|
)
|
||||
Total stockholders' deficiency
|
(4,270,644
|
)
|
(3,883,190
|
)
|
||||
Total liabilities and stockholders' deficiency
|
$
|
975,165
|
$
|
966,107
|
HEALTHWAREHOUSE.COM, INC. AND SUBSIDIARIES
|
||||||||
Year Ended December 31,
|
||||||||
2016
|
2015
|
|||||||
Net sales
|
$
|
10,384,893
|
$
|
7,018,137
|
||||
Cost of sales
|
3,647,433
|
2,546,392
|
||||||
Gross profit
|
6,737,460
|
4,471,745
|
||||||
Selling, general and administrative expenses
|
8,026,636
|
4,890,280
|
||||||
Loss from operations
|
(1,289,176
|
)
|
(418,535
|
)
|
||||
Interest expense
|
119,027
|
208,147
|
||||||
Net loss
|
(1,408,203
|
)
|
(626,682
|
)
|
||||
Preferred stock:
|
||||||||
Series B convertible contractual dividends
|
(342,233
|
)
|
(319,854
|
)
|
||||
Net loss attributable to common stockholders
|
$
|
(1,750,436
|
)
|
$
|
(946,536
|
)
|
||
Per share data:
|
||||||||
Net loss – basic and diluted
|
$
|
(0.03
|
)
|
$
|
(0.02
|
)
|
||
Series B convertible contractual dividends
|
(0.01
|
)
|
(0.01
|
)
|
||||
Net loss attributable to common stockholders - basic and diluted
|
$
|
(0.04
|
)
|
$
|
(0.03
|
)
|
||
Weighted average number of common shares outstanding - basic and diluted
|
39,743,032
|
37,574,278
|
||||||
The accompanying notes are an integral part of these consolidated financial statements.
|
Convertible
|
||||||||||||||||||||||||||||||||||||||||
Series B
|
Additional
|
Total
|
||||||||||||||||||||||||||||||||||||||
Preferred Stock
|
Common Stock
|
Paid-In
|
Employee
|
Treasury Stock
|
Accumulated
|
Stockholders'
|
||||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Advances
|
Shares
|
Amount
|
Deficit
|
Deficiency
|
|||||||||||||||||||||||||||||||
Balances, December 31, 2014
|
451,879
|
$
|
452
|
38,749,595
|
$
|
38,750
|
$
|
29,966,040
|
$
|
(2,143
|
)
|
1,179,212
|
$
|
(3,419,715
|
)
|
$
|
(30,212,865
|
)
|
$
|
(3,629,481
|
)
|
|||||||||||||||||||
Stock-based compensation
|
-
|
-
|
-
|
-
|
320,366
|
-
|
-
|
-
|
-
|
320,366
|
||||||||||||||||||||||||||||||
Cashless exercise of warrants into
|
||||||||||||||||||||||||||||||||||||||||
common stock
|
-
|
-
|
94,779
|
94
|
(94
|
)
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
Issuance of Series B
preferred stock as
|
||||||||||||||||||||||||||||||||||||||||
payment-in-kind for dividend
|
31,633
|
32
|
-
|
-
|
298,886
|
-
|
-
|
-
|
-
|
298,918
|
||||||||||||||||||||||||||||||
Contractual dividends
on Series B convertible
|
||||||||||||||||||||||||||||||||||||||||
preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(319,854
|
)
|
(319,854
|
)
|
||||||||||||||||||||||||||||
Warrants issued as debt discount in
|
||||||||||||||||||||||||||||||||||||||||
connection with notes payable
|
-
|
-
|
-
|
-
|
69,600
|
-
|
-
|
-
|
-
|
69,600
|
||||||||||||||||||||||||||||||
Debt discount related
to repricing of warrants
|
||||||||||||||||||||||||||||||||||||||||
in connection with notes payable
|
-
|
-
|
-
|
-
|
1,800
|
-
|
-
|
-
|
-
|
1,800
|
||||||||||||||||||||||||||||||
Change in fair value
of collateral securing
|
||||||||||||||||||||||||||||||||||||||||
employee advances
|
-
|
-
|
-
|
-
|
-
|
2,143
|
-
|
-
|
-
|
2,143
|
||||||||||||||||||||||||||||||
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(626,682
|
)
|
(626,682
|
)
|
||||||||||||||||||||||||||||
Balances, December 31, 2015
|
483,512
|
$
|
484
|
38,844,374
|
$
|
38,844
|
$
|
30,656,598
|
$
|
-
|
1,179,212
|
$
|
(3,419,715
|
)
|
$
|
(31,159,401
|
)
|
$
|
(3,883,190
|
)
|
Convertible
|
||||||||||||||||||||||||||||||||||||
Series B
|
Additional |
Total
|
||||||||||||||||||||||||||||||||||
Preferred Stock
|
Common Stock
|
Paid-In
|
Treasury Stock
|
Accumulated
|
Stockholders'
|
|||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Shares
|
Amount
|
Deficit
|
Deficiency
|
||||||||||||||||||||||||||||
Balances, December 31, 2015
|
483,512
|
$
|
484
|
38,844,374
|
$
|
38,844
|
$
|
30,656,598
|
1,179,212
|
$
|
(3,419,715
|
)
|
$
|
(31,159,401
|
)
|
$
|
(3,883,190
|
)
|
||||||||||||||||||
Stock-based compensation
|
-
|
-
|
-
|
-
|
327,202
|
-
|
-
|
-
|
327,202
|
|||||||||||||||||||||||||||
Cashless exercise of warrants into
|
||||||||||||||||||||||||||||||||||||
common stock
|
-
|
-
|
1,155,179
|
1,155
|
(1,155
|
)
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
Exercise of stock options
|
||||||||||||||||||||||||||||||||||||
into common stock
|
16,666
|
17
|
1,816
|
-
|
-
|
-
|
1,833
|
|||||||||||||||||||||||||||||
Cashless exercise of stock options
|
||||||||||||||||||||||||||||||||||||
into common stock
|
-
|
-
|
1,492,078
|
1,492
|
(1,492
|
)
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
Conversion of accounts payable
|
||||||||||||||||||||||||||||||||||||
into common stock
|
-
|
-
|
2,253,528
|
2,254
|
696,340
|
-
|
-
|
-
|
698,594
|
|||||||||||||||||||||||||||
Issuance of Series B preferred stock
|
||||||||||||||||||||||||||||||||||||
as payment-in-kind for dividend
|
33,847
|
33
|
-
|
-
|
319,820
|
-
|
-
|
-
|
319,853
|
|||||||||||||||||||||||||||
Contractual dividends on Series B
|
||||||||||||||||||||||||||||||||||||
convertible preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(342,233
|
)
|
(342,233
|
)
|
|||||||||||||||||||||||||
Warrants issued as debt discount in
|
||||||||||||||||||||||||||||||||||||
connection with notes payable
|
-
|
-
|
-
|
-
|
15,500
|
-
|
-
|
-
|
15,500
|
|||||||||||||||||||||||||||
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,408,203
|
)
|
(1,408,203
|
)
|
|||||||||||||||||||||||||
Balances, December 31, 2016
|
517,359
|
$
|
517
|
43,761,825
|
$
|
43,762
|
$
|
32,014,629
|
1,179,212
|
$
|
(3,419,715
|
)
|
$
|
(32,909,837
|
)
|
$
|
(4,270,644
|
)
|
||||||||||||||||||
Year Ended December 31,
|
||||||||
2016
|
2015
|
|||||||
Cash flows from operating activities
|
||||||||
Net loss
|
$
|
(1,408,203
|
)
|
$
|
(626,682
|
)
|
||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
Change in fair value of collateral securing employee advances
|
-
|
2,143
|
||||||
Depreciation and amortization
|
149,553
|
184,320
|
||||||
Stock-based compensation
|
327,202
|
320,366
|
||||||
Gain on settlement of accounts payable
|
(99,774
|
)
|
(111,374
|
)
|
||||
Amortization of debt discount
|
15,500
|
129,767
|
||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
(13,804
|
)
|
49,259
|
|||||
Inventories
|
(26,768
|
)
|
(38,411
|
)
|
||||
Prepaid expenses and other current assets
|
(3,858
|
)
|
(21,516
|
)
|
||||
Accounts payable – trade
|
527,873
|
(241,915
|
)
|
|||||
Accounts payable – related parties
|
(862
|
)
|
(83,452
|
)
|
||||
Accrued expenses and other current liabilities
|
416,311
|
(110,786
|
)
|
|||||
Net cash used in operating activities
|
(116,830
|
)
|
(548,281
|
)
|
||||
Cash flows from investing activities
|
||||||||
Change in restricted cash
|
|
|
(98,167
|
)
|
|
|
50,000
|
|
Capital expenditures
|
(9,703
|
)
|
(6,331
|
)
|
||||
Website development costs
|
(13,700
|
)
|
(17,972
|
)
|
||||
Net cash (used in) provided by investing activities
|
(121,570
|
)
|
25,697
|
|||||
Cash flows from financing activities
|
||||||||
Principal payments on equipment leases payable
|
(46,143
|
)
|
(64,101
|
)
|
||||
Proceeds from exercise of common stock options
|
1,833
|
-
|
||||||
Proceeds from issuance of notes payable
|
358,911
|
250,000
|
||||||
Repayment of notes payable
|
(50,000
|
)
|
(108,911
|
)
|
||||
Repayment of notes payable - related parties
|
(33,590
|
)
|
(49,206
|
)
|
||||
Net cash provided by financing activities
|
231,011
|
27,782
|
||||||
Net decrease in cash
|
(7,389
|
)
|
(494,802
|
)
|
||||
Cash - beginning of period
|
11,217
|
506,019
|
||||||
Cash - end of period
|
$
|
3,828
|
$
|
11,217
|
||||
Supplemental Cash Flow Information:
|
||||||||
Interest paid
|
$
|
95,186
|
$
|
78,489
|
||||
Non-cash investing and financing activities:
|
||||||||
Issuance of Series B preferred stock for settlement of accrued dividends
|
$
|
319,853
|
$
|
298,918
|
||||
Cashless exercise of warrants and stock options into common stock
|
$
|
2,647
|
$
|
95
|
||||
Warrants issued in connection with notes payable
|
$
|
15,500
|
$
|
71,400
|
||||
Accrual of contractual dividends on Series B convertible preferred stock
|
$
|
342,233
|
$
|
319,854
|
||||
Conversion of accounts payable to notes payable - related party
|
$
|
77,606
|
$
|
-
|
||||
Conversion of accounts payable to common stock
|
$
|
698,594
|
$
|
-
|
December 31,
|
||||||||
2016
|
2015
|
|||||||
Options
|
1,294,204
|
5,341,284
|
||||||
Warrants
|
7,806,118
|
10,046,198
|
||||||
Series B Convertible Preferred Stock
|
6,032,406
|
5,507,202
|
||||||
Total potentially dilutive shares
|
15,132,728
|
20,894,684
|
December 31,
|
Useful Life
|
||||||||
2016
|
2015
|
(Years)
|
|||||||
Computer Software
|
$
|
230,299
|
$
|
230,299
|
5 years
|
||||
Equipment
|
549,365
|
548,156
|
15 years
|
||||||
Office Furniture and Equipment
|
98,192
|
95,754
|
7 years
|
||||||
Computer Hardware
|
32,992
|
32,992
|
5 years
|
||||||
Leasehold Improvements
|
309,374
|
303,318
|
(a)
|
||||||
Total
|
1,220,222
|
1,210,519
|
|||||||
Less: Accumulated Depreciation
|
(888,463
|
)
|
(801,271
|
)
|
|||||
Property and Equipment, Net
|
$
|
331,759
|
$
|
409,248
|
December 31,
|
||||||||
2016
|
2015
|
|||||||
Salaries and Benefits
|
$
|
110,819
|
$
|
64,007
|
||||
Dividend Payable
|
342,233
|
319,854
|
||||||
Advertising
|
75,000
|
76,639
|
||||||
Accrued Interest
|
44,249
|
44,249
|
||||||
Accrued Rent
|
51,181
|
49,614
|
||||||
Proxy & Solicitation Costs
|
130,000
|
-
|
||||||
Severance
|
232,417
|
-
|
||||||
Deferred Rent
|
-
|
25,852
|
||||||
Other
|
50,457
|
17,450
|
||||||
$
|
1,036,356
|
$
|
597,665
|
December 31,
|
||||||||
2016
|
2015
|
|||||||
Senior Note
|
$
|
1,200,000
|
$
|
891,089
|
||||
Promissory Note
|
100,000
|
100,000
|
||||||
$
|
1,300,000
|
$
|
991,089
|
•
|
Audit: Ross (Chair), Scott and Weiss
|
•
|
Compensation: Ross, Scott (Chair)
|
•
|
Governance and Nominating: Heimbrock, Scott, Weiss (Chair)
|
Year Ended December 31,
|
||||
2016
|
2015
|
|||
Risk-free interest rate
|
1.00% to 2.12%
|
1.35% to 2.28%
|
||
Expected dividend yield
|
0.00%
|
0.00%
|
||
Expected volatility
|
196% to 200.0%
|
195% to 199.0%
|
||
Weighted average expected life
|
||||
(contractual term) in years
|
5.5 to 10.0
|
5.5 to 10.0
|
Number of
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||
Outstanding, January 1, 2015
|
3,944,557
|
$
|
1.27
|
|||||||||||||
Granted
|
2,491,200
|
0.10
|
||||||||||||||
Exercised
|
-
|
-
|
||||||||||||||
Forfeited
|
(1,094,473
|
)
|
1.40
|
|||||||||||||
Outstanding, December 31, 2015
|
5,341,284
|
$
|
0.70
|
|||||||||||||
Granted
|
660,265
|
0.30
|
||||||||||||||
Exercised
|
(3,108,141
|
)
|
0.16
|
|||||||||||||
Forfeited
|
(1,599,204
|
)
|
1.73
|
|||||||||||||
Outstanding, December 31, 2016
|
1,294,204
|
$
|
0.51
|
8.0
|
$
|
145,533
|
||||||||||
Exercisable, December 31, 2016
|
804,204
|
$
|
0.76
|
7.7
|
$
|
54,267
|
||||||||||
Options Outstanding
|
Options Exercisable
|
||||||||||||||||
Weighted
|
Weighted
|
Weighted
|
|||||||||||||||
Range of
|
Average
|
Outstanding
|
Average
|
Average
|
Exercisable
|
||||||||||||
Exercise
|
Exercise
|
Number of
|
Exercise
|
Remaining Life
|
Number of
|
||||||||||||
Price
|
Price
|
Options
|
Price
|
In Years
|
Options
|
||||||||||||
$0.09 - $0.12
|
$0.10
|
786,667
|
$0.11
|
8.5
|
296,667
|
||||||||||||
$0.25 - $0.35
|
0.32
|
262,087
|
0.32
|
9.8
|
262,087
|
||||||||||||
$0.53 - $1.60
|
0.87
|
188,450
|
0.87
|
4.3
|
188,450
|
||||||||||||
$4.10 - $6.99
|
5.80
|
57,000
|
5.80
|
5.1
|
57,000
|
||||||||||||
$0.09 - $6.99
|
$0.51
|
1,294,204
|
$0.76
|
7.7
|
804,204
|
Year Ended December 31,
|
||||
2016
|
2015
|
|||
Risk-free interest rate
|
1.58%
|
1.22% to 1.75%
|
||
Expected dividend yield
|
0.00%
|
0.00%
|
||
Expected volatility
|
200.0%
|
194.0% to 197.0%
|
||
Contractual term in years
|
5.00
|
2.90 to 7.50
|
Weighted
|
|||||||||||||
Weighted
|
Average
|
||||||||||||
Average
|
Remaining
|
Aggregate
|
|||||||||||
Number of
|
Exercise
|
Life
|
Intrinsic
|
||||||||||
Warrants
|
Price
|
In Years
|
Value
|
||||||||||
Outstanding, January 1, 2015
|
9,339,044
|
$
|
0.45
|
||||||||||
Granted
|
887,430
|
0.10
|
|||||||||||
Exercised
|
(137,430
|
)
|
0.09
|
||||||||||
Forfeited
|
(42,846
|
)
|
3.00
|
||||||||||
Outstanding, December 31, 2015
|
10,046,198
|
$
|
0.41
|
||||||||||
Granted
|
75,000
|
0.25
|
|||||||||||
Exercised
|
(1,795,080
|
)
|
0.13
|
||||||||||
Forfeited
|
(520,000
|
)
|
2.90
|
||||||||||
Outstanding, December 31, 2016
|
7,806,118
|
$
|
0.30
|
2.4
|
$ |
91,257
|
|||||||
Exercisable, December 31, 2016
|
7,806,118
|
$
|
0.30
|
2.4
|
$ |
91,257
|
Warrants Outstanding
|
Warrants Exercisabe
|
|||||||||||||||
Weighted
|
Weighted
|
Weighted
|
||||||||||||||
Range of
|
Average
|
Outstanding
|
Average
|
Average
|
Exercisable
|
|||||||||||
Exercise
|
Exercise
|
Number of
|
Exercise
|
Remaining Life
|
Number of
|
|||||||||||
Price
|
Price
|
Warrants
|
Price
|
In Years
|
Warrants
|
|||||||||||
$0.15 - $0.25
|
$0.25
|
2,116,120
|
$0.25
|
1.7
|
2,116,120
|
|||||||||||
$0.30 - $0.35
|
0.30
|
5,659,998
|
0.30
|
2.7
|
5,659,998
|
|||||||||||
$4.95
|
4.95
|
30,000
|
4.95
|
0.8
|
30,000
|
|||||||||||
$0.15 - $4.95
|
$0.30
|
7,806,118
|
$0.30
|
2.4
|
7,806,118
|
Years ending December 31,
|
Amount
|
|||
2017
|
$
|
79,783
|
||
2018
|
82,633
|
|||
2019
|
85,482
|
|||
Total minimum lease payments
|
$
|
247,898
|
Year Ended December 31,
|
||||||||
2016
|
2015
|
|||||||
Federal:
|
||||||||
Current
|
$
|
-
|
$
|
-
|
||||
Deferred
|
(453,586
|
)
|
(269,394
|
)
|
||||
State and local:
|
||||||||
Current
|
-
|
-
|
||||||
Deferred
|
(53,684
|
)
|
(21,621
|
)
|
||||
(507,270
|
)
|
(291,015
|
)
|
|||||
Change in valuation allowance
|
507,270
|
291,015
|
||||||
Income tax provision (benefit)
|
$
|
-
|
$
|
-
|
December 31,
|
||||||||
2016
|
2015
|
|||||||
Deferred tax assets:
|
||||||||
Net operating loss carryforwards
|
$
|
6,098,963
|
$
|
5,585,989
|
||||
Stock-based compensation
|
700,295
|
767,443
|
||||||
Inventory reserves
|
8,842
|
8,800
|
||||||
Allowance for bad debt
|
-
|
17,915
|
||||||
Deferred Revenue
|
3,318
|
2,575
|
||||||
Deferred Rent
|
-
|
9,824
|
||||||
Contingent Liability
|
-
|
1,910
|
||||||
Charitable contribution carryforwards
|
2,711
|
5,772
|
||||||
Accruals
|
104,397
|
22,491
|
||||||
Total deferred tax assets
|
6,918,526
|
6,422,719
|
||||||
Valuation allowance
|
(6,886,459
|
)
|
(6,379,189
|
)
|
||||
Deferred tax assets, net of valuation allowance
|
32,067
|
43,530
|
||||||
Deferred tax liabilities:
|
||||||||
Property and equipment
|
(32,599
|
)
|
(29,881
|
)
|
||||
Web Development
|
532
|
(13,649
|
)
|
|||||
Deferred tax liabilities
|
$
|
(32,067
|
)
|
$
|
(43,530
|
)
|
||
Net deferred tax assets
|
$
|
-
|
$
|
-
|
||||
Change in valuation allowance
|
$
|
502,270
|
$
|
291,015
|
Year Ended December 31,
|
||||||
2016
|
2015
|
|||||
US federal statutory rate
|
(34.0%)
|
(34.0%)
|
|
|||
State tax rate, net of federal benefit
|
(4.0%)
|
4.0%
|
|
|||
Permanent differences:
|
||||||
Stock based compensation
|
2.5%
|
12.3%
|
|
|||
Adjustments to prior deferred tax balances
|
(0.5%)
|
(20.7%)
|
|
|||
Change in valuation allowance
|
36.0%
|
46.4%
|
|
|||
Income tax provision (benefit)
|
0.0%
|
0.0%
|
|
(a)
|
A cash payment of $30,000.00, less applicable withholding, within sixty (60) days of the execution of this Agreement, and
|
(b)
|
$170,000.00 payable over eighteen (18) months in equal semi-monthly payments, less applicable withholding. These payments shall commence on March 15, 2017, and shall be made on the 15th and the last date of each month.
|
(a)
|
Credit Card. There is a HealthWarehouse.com credit card in Plaintiff's name. The credit card is with Chase Bank and under the account number of 5582 5086 4707 3342. HealthWarehouse.com agrees to pay all charges that it incurred on the credit card until it is canceled. Plaintiff agrees to pay all charges that he incurred on the credit card until the credit card is canceled. Within three (3) days after all charges have been paid by HealthWarehouse.com, Plaintiff will cancel the credit card.
|
(b)
|
Taxes. HealthWarehouse.com agrees to pay the Commonwealth of Kentucky any unpaid sales taxes for the year 2012 and remove the Plaintiff's name as the responsible party. The parties agree that Plaintiff is not responsible to pay those sales taxes or any other HealthWarehouse.com taxes.
|
(c)
|
State Licensing Issues. Within 30 days from the date this Agreement is fully executed, HealthWarehouse.com agrees to contact all state pharmacy regulatory agencies, including but not limited to State Pharmacy Boards and Verified Internet Pharmacy Practice Sites (VIPPS), and have Plaintiff removed as the HealthWarehouse.com contact if it has not done so already.
|
(a) |
Defendant agrees that Plaintiff is permitted work or be employed by a website that offers consumers coupons to obtain discounts at pharmacies. Plaintiff agrees that if he becomes employed in such work, he will not sign up for the website, any pharmacy that does mail order or online advertising until after his non-compete agreement has expired (April 13, 2018).
|
Subsidiary
|
Jurisdiction
|
Ownership
|
||
Hwareh.com, Inc.
|
Delaware
|
100% owned by HealthWarehouse.com, Inc.
|
||
Hocks.com, Inc.
|
Ohio
|
100% owned by HealthWarehouse.com, Inc.
|
||
Ion Networks Holding N.V.
|
Belgium
|
799 shares are owned by HealthWarehouse.com, Inc.
One share is owned by Stephen Gray, the Company's former CEO. |
||
Ion Networks, N.V.
|
Belgium
|
513 shares are owned by Ion Networks Holding N.V.
One share is owned by Stephen Gray, the Company's former CEO. |
1. |
I have reviewed this annual report on Form 10-K of HealthWarehouse.com, Inc.
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(d)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c) |
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d) |
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
(a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
(b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
March 20, 2017
|
/s/ John C. Pauly
|
John C. Pauly
|
|
Chief Operating Officer, Interim President
and Chief Executive Officer
|
1. |
I have reviewed this annual report on Form 10-K of HealthWarehouse.com, Inc.
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(d)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c) |
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d) |
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
(a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
(b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
March 20, 2017
|
/s/ John C. Pauly
|
John C. Pauly
|
|
Principal Financial Officer
|
1. |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
March 20, 2017
|
/s/ John C. Pauly
|
John C. Pauly
|
|
Chief Operating Officer, Interim President
and Chief Executive Officer
|
1. |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
March 20, 2017
|
/s/ John C. Pauly
|
John C. Pauly
|
|
Principal Financial Officer
|
D!
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M$#+'HHSU/M3CA9
Document and Entity Information - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Mar. 16, 2017 |
Jun. 30, 2016 |
|
Document And Entity Information | |||
Entity Registrant Name | HealthWarehouse.com, Inc. | ||
Entity Central Index Key | 0000754813 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2016 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Is Entity a Well-known Seasoned Issuer | No | ||
Is Entity a Voluntary Filer? | No | ||
Is Entity's Reporting Status Current | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 8,011,902 | ||
Entity Common Stock, Shares Outstanding | 42,649,273 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2016 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Consolidated Statements Of Operations | ||
Net sales | $ 10,384,893 | $ 7,018,137 |
Cost of sales | 3,647,433 | 2,546,392 |
Gross profit | 6,737,460 | 4,471,745 |
Selling, general and administrative expenses | 8,026,636 | 4,890,280 |
Loss from operations | (1,289,176) | (418,535) |
Interest expense | 119,027 | 208,147 |
Net loss | (1,408,203) | (626,682) |
Preferred stock: | ||
Series B convertible contractual dividends | (342,233) | (319,854) |
Net loss attributable to common stockholders | $ (1,750,436) | $ (946,536) |
Per share data: | ||
Net loss - basic and diluted | $ (0.03) | $ (0.02) |
Series B convertible contractual dividends | (0.01) | (0.01) |
Net loss attributable to common stockholders - basic and diluted | $ (0.04) | $ (0.03) |
Weighted average number of common shares outstanding - basic and diluted | 39,743,032 | 37,574,278 |
Organization and Basis of Presentation |
12 Months Ended |
---|---|
Dec. 31, 2016 | |
Notes to Financial Statements | |
1. Organization and Basis of Presentation | HealthWarehouse.com, Inc. ("HEWA" or the "Company"), a Delaware company incorporated in 1998, is an online mail order pharmacy, licensed and/or authorized to sell and deliver prescriptions in 50 states and the District of Columbia focusing on the out-of-pocket prescription drug market. The Company is Verified Internet Pharmacy Practice Site ("VIPPS") accredited by the National Association of Boards of Pharmacy ("NABP"). The Company markets a complete range of generic, brand name, and pet prescription medications as well as over-the-counter ("OTC") medications and products. |
Going Concern and Management's Liquidity Plans |
12 Months Ended |
---|---|
Dec. 31, 2016 | |
Notes to Financial Statements | |
2. Going Concern and Management's Liquidity Plans |
The Company adopted the guidance in Accounting Standards Update ("ASU") 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40) - Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, as of December 31, 2016. This ASU requires management to assess a company's ability to continue as a going concern and to provide related disclosures in certain circumstances. Based on the results of the Company's analysis, the following information is provided.
The Company has financed its operations primarily through debt and equity financings. Increased borrowings from the Company's senior lender during 2015 and 2016 have not been sufficient to satisfy the Company's current obligations. As of December 31, 2016, the Company had a working capital deficiency of $4,638,304 and an accumulated deficit of $4,270,644. During the years ended December 31, 2016 and 2015, the Company incurred net losses of $1,408,203 and $626,682, respectively, and used cash in operating activities of $116,830 and $548,281, respectively. These conditions indicate that there is substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are issued.
The Company is subject to a 2013 Notice of Redemption related to its Series C Redeemable Preferred Stock aggregating $1,000,000, whereby, the Company must now apply all of its assets to redemption of the Series C Preferred Stock and to no other corporate purpose, except to the extent prohibited by Delaware law governing distributions to stockholders (the Company is not permitted to utilize toward the redemption those assets required to pay its debts as they come due and those assets required to continue as a going concern).
The Company recognizes it will need to raise additional capital in order to fund operations, meet its payment obligations and execute its business plan. There is no assurance that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to the Company and whether the Company will become profitable and generate positive operating cash flow. If the Company is unable to raise sufficient additional funds, it will have to develop and implement a plan to further extend payables, attempt to extend note repayments, attempt to negotiate the preferred stock redemption and reduce overhead until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful. If the Company is unable to obtain financing on a timely basis, the Company could be forced to sell its assets, discontinue its operations, and /or seek reorganization under the U.S. bankruptcy code.
Accordingly, the accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"), which contemplates continuation of the Company as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the consolidated financial statements do not necessarily represent realizable or settlement values. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. |
Summary of Significant Accounting Policies |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3. Summary of Significant Accounting Policies |
Principles of Consolidation
The consolidated financial statements include the accounts of HealthWarehouse.com, Inc., Hwareh.com, Inc., Hocks.com, Inc., ION Holding NV, ION Belgium NV, its wholly-owned subsidiaries. ION Holding NV and ION Belgium NV are inactive subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company's significant estimates include reserves related to accounts receivable and inventory, the recoverability and useful lives of long-lived assets and website development costs, the valuation allowance related to deferred tax assets, the valuation of equity instruments, debt discounts and contingencies.
Reclassifications
Certain accounts in the prior period consolidated financial statements have been reclassified for comparison purposes to conform to the presentation of the current period consolidated financial statements. These reclassifications had no effect on the previously reported net loss.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. As of December 31, 2016 and 2015, the Company does not have any cash equivalents.
Restricted Cash
Restricted cash represents cash held by the Company's credit card processor as a reserve to cover potential future refunds and funds held by the senior lender as collateral for the Company's Senior Note. See Note 6 Notes Payable to the consolidated financial statements for additional information.
Accounts Receivable and Allowance for Doubtful Accounts Receivable
Accounts receivable are shown net of an allowance for doubtful accounts of $0 and $47,143 as of December 31, 2016 and 2015, respectively. The Company's management has established an allowance for doubtful accounts sufficient to cover probable and reasonably estimable losses. The nature of the business is that the majority of payments are received before the product is shipped. If the financial conditions of customers were to materially deteriorate, an increase in the allowance amount could be required. The allowance for doubtful accounts considers several factors, including collection experience, current economic trends, estimates of forecasted write-offs, aging of the accounts receivable, and other factors.
Inventories, net
Inventories consist of finished goods and are valued at the lower of cost or market. Cost is determined by using the first-in, first-out method. As part of the valuation process, inventory reserves are established to state excess and slow-moving inventory at their estimated net realizable value. The valuation process for excess or slow-moving inventory contains uncertainty because management must use judgment to estimate when the inventory will be sold and the quantities and prices at which the inventory will be sold in the normal course of business. Inventory reserves are periodically reviewed, reflecting current risks, trends and changes in industry conditions. When preparing these estimates, management considers historical results, inventory levels and current operating trends. In the event the estimates differ from actual results, inventory-related reserves may be adjusted and could materially impact the results of operations.
Property and Equipment, net
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. The costs of additions and betterments are capitalized and expenditures for repairs and maintenance, which do not extend the economic useful life of the related assets, are expensed in the period incurred. Gains or losses on disposal of property and equipment are reflected in the statements of operations in the period of disposal.
Impairment of Long-Lived Assets
The Company reviews the carrying value of intangibles and other long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparing the carrying amount of the asset or asset group to the undiscounted cash flows that the asset or asset group is expected to generate. If the undiscounted cash flows of such assets are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair value. As of December 31, 2016 and 2015, the Company has not recognized any such impairment.
Website Development Costs
The Company capitalizes costs associated with the development of its website. During the years ended December 31, 2016 and 2015, the Company capitalized $13,700 and $17,972, respectively, of website development costs. The Company is amortizing the website development costs on a three-year straight-line basis and incurred amortization expense of $62,361 and $75,951 during the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016, unamortized website development costs totaled $35,901. Estimated future amortization expense related to website development costs is $24,606 in 2017 and $4,446 in 2018. The remainder of the unamortized website development costs will be amortized when the projects to which they relate are placed in service.
Fair Value of Financial Instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. These fair value measurements apply to all financial instruments that are measured and reported on a fair value basis.
Based on the observability of the inputs used in the valuation techniques, financial instruments are categorized according to the fair value hierarchy, which ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
Level 1 - Observable inputs such as quoted prices in active markets. Level 2 - Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly. Level 3 - Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the assignment of an asset or liability within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
The carrying value of items included in the Company's working capital approximates fair value because of the relatively short maturity of these instruments. The Company's notes payable approximate fair value because the terms are substantially similar to comparable debt in the marketplace.
Income Taxes
Deferred tax assets and liabilities are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts ("temporary differences") at enacted tax rates in effect for the years in which the temporary differences are expected to reverse.
GAAP prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company's financial statements as of December 31, 2016 and 2015. The Company does not expect any significant changes in the unrecognized tax benefits within twelve months of the reporting date.
The Company classifies interest expense and any related penalties related to income tax uncertainties as a component of income tax expense. No interest or penalties have been recognized during the years ended December 31, 2016 and 2015.
Debt Discounts
The Company records, as a discount to notes and convertible notes, the relative fair value of warrants issued in connection with the issuances and the intrinsic value of any conversion options based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized to interest expense using the interest method over the earlier of the term of the related debt or their earliest date of redemption. As of December 31, 2016 and 2015, the Company had no unamortized debt discounts.
Revenue Recognition
Revenues for the sales of products are recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed and determinable and collectability is reasonably assured. The Company defers revenue when cash has been received from the customer but delivery has not yet occurred. Such amounts are reflected as deferred revenues in the accompanying consolidated financial statements.
Shipping and Handling Costs
The Company policy is to provide free standard shipping and handling for most orders. Shipping and handling costs incurred are recognized in selling, general and administrative expenses. Such amounts aggregated $1,143,067 and $612,377 for the years ended December 31, 2016 and 2015, respectively.
In certain circumstances, shipping and handling costs are charged to the customer and recognized in Net sales. The amounts recognized in Net sales for the years ended December 31, 2016 and 2015 were $388,921 and $251,550, respectively.
Advertising and Marketing Expenses
The Company expenses all advertising and marketing costs as incurred and were $647,053 and $508,633 for the years ended December 31, 2016 and 2015, respectively.
Sales Taxes
The Company accounts for sales taxes imposed on its goods and services on a net basis in the consolidated statements of operations.
Net Earnings (Loss) Per Share of Common Stock
Basic net earnings (loss) per share is computed by dividing net earnings (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net earnings per share reflects the potential dilution that could occur if securities or other instruments to issue common stock were exercised or converted into common stock. Potentially dilutive securities are excluded from the computation of diluted net earnings per share if their inclusion would be anti-dilutive and consist of the following:
Stock-Based Compensation
Stock-based compensation expense for all stock-based payment awards is based on the estimated fair value of the award. For employees and directors, the award is measured on the grant date. For non-employees, the award is measured on the grant date and is then remeasured at each vesting date and financial reporting date. The Company recognizes the estimated fair value of the award as compensation cost over the requisite service period of the award, which is generally the option vesting term. The Company generally issues new shares of common stock to satisfy option and warrant exercises.
Preferred Stock
Preferred shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. The Company classifies conditionally redeemable preferred shares, which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company's control, as temporary equity. At all other times, the Company classifies its preferred shares in stockholders' deficiency.
Convertible Instruments
GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional as that term is described under applicable GAAP.
When the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption. The Company also records, when necessary, deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the preferred shares.
Common Stock Warrants and Other Derivative Financial Instruments
The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provide the Company with a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company's own stock. The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company's control) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of its common stock purchase warrants and other free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.
The Company evaluated its free-standing warrants to purchase common stock to assess their proper classification in the consolidated balance sheet as of December 31, 2016 and 2015 using the applicable classification criteria enumerated under GAAP and determined that the common stock purchase warrants contain fixed settlement provisions.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, "Revenue from Contracts with Customers", which provides guidance for revenue recognition. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14 which delayed the effective date of the new revenue guidance by one year. As a result, the provisions of ASU 2014-09, and subsequent amendments, are effective for annual reporting periods beginning after December 15, 2017. The Company has not yet determined the effect of the adoption of this standard and its impact on the Company's consolidated financial position and results of operations.
In July 2015, the FASB issued ASU 2015-11, "Simplifying the Measurement of Inventory". ASU 2015-11 requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using last-in, first-out ("LIFO") or the retail inventory method. It is effective for annual reporting periods beginning after December 15, 2016. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption of this standard is not expected to have a material impact on the Company's consolidated financial position and results of operations.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018. Early application is permitted for all public business entities and all nonpublic business entities upon issuance. The Company has not yet determined the effect of the adoption of this standard on the Company's consolidated financial position and results of operations.
In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation" (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for the Company beginning January 1, 2017. The Company is currently evaluating the potential impact of adopting this guidance on the Company's consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments (Topic 230)". ASU 2016-15 adds and clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows, reducing the existing diversity in practice that has resulted from the lack of consistent principles on this topic. ASU 2016-15 is effective for the Company beginning January 1, 2018. Early adoption is permitted. The Company is currently evaluating the impact adopting this guidance will have on classifications in its consolidated statements of cash flows.
In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash." ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning and ending balances shown on the statement of cash flows. The guidance is effective for the Company in the first quarter of 2019 and early adoption is permitted. ASU 2016-18 must be applied retrospectively to all periods presented. The Company is currently evaluating what impact the adoption of this update will have on our consolidated statements of cash flows.
As of the date of this Annual Report on Form 10-K, there were no other recent accounting standard updates that the Company has not yet adopted that we believe would have a material impact on our consolidated financial statements. |
Property and Equipment, Net |
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4. Property and Equipment, Net | Property and equipment, net consisted of the following:
(a) Lesser of useful life or initial term of lease
Depreciation expense for the above assets for the years ended December 31, 2016 and 2015 was $87,192 and $108,369, respectively. |
Accrued Expenses and Other Current Liabilities |
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5. Accrued Expenses and Other Current Liabilities |
Accrued expenses and other current liabilities consisted of the following:
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Notes Payable |
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6. Notes Payable |
Notes payable consisted of the following:
Senior Note
The Company is a party to a Loan and Security Agreement dated March 28, 2013 (the "Loan Agreement") with Melrose Capital Advisors (the "Lender"). Under the terms of the Loan Agreement, the Company has borrowed an aggregate of $1,200,000 from the Lender, including $308,911 and $250,000 during the years ended December 31, 2016 and 2015, respectively. The Loan is evidenced by a promissory note (the "Senior Note") in the face amount of $1,200,000 (as amended). The Company also borrowed and repaid $50,000 from the Lender in a separate transaction during the third quarter 2016.
The Senior Note bears interest on the unpaid principal balance of the Note until the full amount of principal has been paid at a floating rate equal to the Prime Rate plus four and one-quarter percent (4.25%) per annum (7.75%) as of December 31, 2016). Under the terms of the Loan Agreement, the Company has agreed to make monthly payments of accrued interest. On November 30, 2016, the Company and the Lender entered into a Fourth Amendment to Amended and Restated Promissory Note, pursuant to which the Lender agreed to extend the maturity date of the Senior Note from November 30, 2016 to February 28, 2017. The principal amount and all unpaid accrued interest on the Senior Note was payable on February 28, 2017, or earlier in the event of default or a sale or liquidation of the Company. The Loan may be prepaid in whole or in part at any time by the Company without penalty. See Note 13 Subsequent Events for additional information related to the Note's maturity date extension.
The Company granted the Lender a first priority security interest in all of the Company's assets, in order to secure the Company's obligation to repay the Loan, including a Deposit Account Control Agreement, dated as of July 8, 2016, which grants the Lender a security interest in certain bank accounts of the Company. The Loan Agreement contains customary negative covenants restricting the Company's ability to take certain actions without the Lender's consent, including incurring additional indebtedness, transferring or encumbering assets, paying dividends or making certain other payments, and acquiring other businesses. Upon the occurrence of an event of default, the Lender has the right to impose interest at a rate equal to eight percent (8.0%) per annum above the otherwise applicable interest rate (the "Default Rate"). The repayment of the Loan may be accelerated prior to the maturity date upon certain specified events of default, including failure to pay, bankruptcy, breach of covenant, and breach of representations and warranties.
The investor rights agreement of the Company's Series B preferred shares limits the total debt of the Company to $1 million. The Company has received waivers to temporarily exceed the limit in connection with the extensions of the Senior Note. The Senior Note contained financial covenants through June 30, 2016, which required the Company to meet certain minimum targets for earnings before interest, taxes and non-cash expenses, including depreciation, amortization and stock-based compensation ("EBITDAS").
On August 27, 2015, a supplier of the Company was granted an order of garnishment against the Company's funds held in a bank account in the amount of $83,766 for an unpaid debt, accordingly, such amount was classified as restricted cash. On September 16, 2015, the Company's Lender filed a motion with the court to intercede in the garnishment action on the grounds that it has a superior lien on the funds which was granted at a hearing on October 6, 2015. In addition, as a result of the garnishment action, the Lender notified the Company that an event of default has occurred on the Senior Note and the Loan is in default and immediately payable. On November 30, 2015, the court issued an order that the Company's Lender was the priority lienholder with regard to the funds being held in the bank account. Subsequent to receiving the court's order, the funds were released by the bank to the Company's Lender and the funds were applied against the Loan balance. The funds applied against the loan balance were advanced back to the Company in 2016. The Lender waived the events of default related to the garnishment in December 2015.
In connection with the Loan Agreement, the Company granted the Lender five-year warrants to purchase an aggregate of 1,875,000 shares of common stock at an exercise price ranging from $0.10 to $0.35 per share, of which 750,000 warrants were issued during the year ended December 31, 2015. The warrants contain customary anti-dilution provisions. The warrants had an aggregate grant date relative fair value of $472,100, of which $69,600 was recorded as debt discounts during the year ended December 31, 2015, and were amortized using the effective interest method over the term of the Senior Note. In addition, the Company agreed to modify the exercise price on 375,000 previously issued warrants from $0.35 to $0.12 effective November 11, 2015 which resulted in an additional debt discount of $1,800. The Company amortized $114,434 of the debt discount as interest expense during the year ended December 31, 2015. The debt discounts were fully amortized as of December 31, 2015. Including the value of warrants issued in connection with Senior Note and subsequent amendments, the Senior Note had an effective interest rate of 37% per annum.
Promissory Note
On October 30, 2013, the Company issued a note payable with a principal amount of $100,000 to a lender. The note bears interest on the unpaid principal balance until the full amount of principal has been paid at a floating rate equal to the Prime Rate plus four and one-quarter percent (4.25%) per annum (7.75% as of December 31, 2016). Under the terms of the note, the Company has agreed to make monthly payments of accrued interest. The Company's obligations are unsecured and are subordinate to its obligations pursuant to the Senior Note described above. The Loan may be prepaid in whole or in part at any time by the Company without penalty. The principal amount and all unpaid accrued interest was payable on October 31, 2016 (as amended). See Note 13 Subsequent Events for additional information.
On January 11, 2016, the Company entered into an amendment to the Promissory Note which extended the maturity date of the note payable from November 1, 2015 to October 31, 2016. In consideration of the extension of the maturity date of the note payable, the Company issued to the lender a five-year warrant to purchase 75,000 shares of common stock at an exercise price of $0.25 per share. The warrants had a fair value of $15,500 using the Black-Scholes model which was established as debt discount and was amortized using the effective interest method over the remaining term of the Promissory Note. Including the value of the warrants issued in connection with the extension of the maturity date of the Promissory Note, the Promissory Note had an effective interest rate of 23% per annum during the extension period.
The Company amortized $15,500 and $15,333 of the debt discounts as interest expense during the years ended December 31, 2016 and 2015 and as of December 31, 2016, the debt discount was fully amortized. |
Changes in Board of Directors and Management Changes |
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7. Changes in Board of Directors and Management Changes | On September 2, 2016, the Company's shareholders elected four new directors who had run as an alternative slate to the slate the Company had recommended to its shareholders. The elected directors were Mr. Jeffrey T. Holtmeier, Mr. Brian A. Ross, Mark Scott and Dr. Stephen Weiss.
Effective as of September 12, 2016, the newly elected Board of Directors along with Mr. Joseph Heimbrock, a director appointed as a class by the Series B shareholders, elected Mr. Holtmeier as Chairman of the Board. The Board of Directors formed audit, compensation and nominating and governance committees. On October 11, 2016, the board revised committee memberships as the result of the appointment of Mr. Holtmeier as CEO, as follows:
On September 13, 2016, after the election of the new Board of Directors, the Company's Chief Executive Officer, Mr. Lalit Dhadphale, tendered his resignation which the Board of Directors of the Company subsequently accepted. Mr. Dhadphale's separation from the Company was effective October 13, 2016. Mr. Dhadphale's contract provided for severance payments under certain conditions, including a change in the composition of the Board of Directors, and contained restrictive covenants regarding disclosure of confidential information, non-solicitation and employee non-competition.
On September 9, 2016, after the election of the new Board of Directors, the Company's Chief Financial Officer, Mr. Daniel Seliga, tendered his resignation which the Board of Directors of the Company subsequently accepted. Mr. Seliga's separation from the Company was effective October 9, 2016. Mr. Seliga's contract provides for severance payments under certain conditions, including a change in the composition of the Board of Directors, and contained restrictive covenants regarding disclosure of confidential information, non-solicitation and employee non-competition.
See Note 13 for additional management changes subsequent to December 31, 2016.
Employment Agreement
On October 11, 2016, the Board of Directors of the Company appointed Jeffrey T. Holtmeier as the President and Chief Executive Officer of the Company. Subsequently, the Company and Mr. Holtmeier entered into a written agreement outlining compensation and other terms of Mr. Holtmeier's employment. Mr. Holtmeier was to be paid an annual salary of $175,000, and had an annual bonus target of 100% of base salary, with the amount of bonus to be determined according to the Company achieving certain financial metrics. Mr. Holtmeier was also granted options under the Company's Long Term Incentive Plan to purchase 125,000 shares of the Company's common stock, at a price of $0.29 per share, which was the closing price for the Company's common stock on the date of grant. Mr. Holtmeier's agreement contained other provisions that no longer apply due to his resignation. See Note 13 - Subsequent Events for additional information.
Related to the solicitation of shareholders' proxies and subsequent resignations per certain employment agreements mentioned above, the Company incurred proxy and solicitation costs of $578,484 and severance costs of $276,167 during the year ended December 31, 2016, which are included as a component of selling, general and administrative expenses in the consolidated statements of operations. At December 31, 2016, $211,722 and $392,417 of these costs are recorded in Accounts Payable, and Accrued Expenses and Other Current Liabilities, respectfully. |
Stockholders' Deficiency |
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8. Stockholders' Deficiency |
Authorized Capital
The Company is authorized to issue up to 100,000,000 shares of common stock with a par value of $0.001 per share and 1,000,000 shares of preferred stock with a par value of $0.001 per share.
Common Stock
On December 21, 2015, the Company issued 94,779 shares of common stock to a former employee resulting from a cashless exercise of warrants.
On July 28, 2016, the Company entered an Exchange Agreement with Dellave Holdings LLC ("Dellave") whereby the Company issued an aggregate of 2,253,528 shares of common stock in exchange for the extinguishment of $698,594 of accounts payable balances held by Dellave. The exchange was based on the prior day's closing price of $0.31 of the Company's common stock. The $698,594 aggregate fair value of the common stock issued was credited to equity at conversion. Mr. Timothy Reilly is the managing member of Dellave and he is also the managing member of Melrose Capital Advisors, LLC, the Company's senior lender at the time of the transaction.
Preferred Stock
Series A Preferred Stock
The Company has designated 200,000 of the 1,000,000 authorized shares of preferred stock as Series A Convertible Preferred Stock ("Series A Preferred Stock"). The Series A Preferred Stock is non-voting, has a liquidation preference equal to its purchase price, and does not pay dividends. The holders can call for the conversion of the Series A Preferred Stock at any time and are entitled to half a share of the Company's common stock for each share of Series A Preferred Stock converted. As of December 31, 2016, 44,443 shares of Series A Preferred Stock are available to be issued. There were no shares of Series A Preferred Stock outstanding as of December 31, 2016 or 2015.
Series B Preferred Stock
The Company has designated 625,000 of the 1,000,000 authorized shares of preferred stock as Series B Convertible Preferred Stock ("Series B Preferred Stock"). The Series B Preferred Stock has voting rights equal to one vote for each common share equivalent, has a liquidation preference equal to its purchase price, and receives preferred dividends equal to 7% of all outstanding shares in either cash or payment-in-kind. The holders can call for the conversion of the Series B Preferred Stock at any time and are entitled to five shares of the Company's common stock for each share of Series B Preferred Stock converted.
In addition, the Series B Preferred Stock is subject to weighted average anti-dilution protection whereby if shares of common stock are sold below the current conversion price, the conversion price is reduced pursuant to a pre-defined formula. As of December 31, 2016 and 2015, Series B holders were entitled to convert into 11.66 and 11.39 shares, respectively, of the Company's common stock for each share of Series B Preferred Stock due to the anti-dilution provision. The anti-dilution provision represents a contingent beneficial conversion feature. As of December 31, 2016, an incremental 3,445,611 shares of common stock are issuable at conversion of the Series B Convertible Preferred Stock as compared to the original terms. Using the commitment date common stock price in effect, the commitment date value of the incremental shares is $8,696,723.
However, recognition of beneficial conversion features is limited to the aggregate gross proceeds allocated to the preferred stock of $3,199,689 (422,315 shares of Series B Convertible Preferred Stock times $9.45 per share less the proceeds allocated to the warrants of $791,188) less the $1,666,967 beneficial conversion feature already recognized on the original 365,265 shares of Series B Preferred Stock (prior to the issuance of additional shares as payment-in-kind in lieu of cash dividends). Due to these limitations, no beneficial conversion feature value was recorded for the years ended December 31, 2016 and 2015. The investor rights agreement of the Company's Series B preferred shares limits the total debt of the Company to $1 million. The agreement also limits the ability to raise preferred equity at current market conversion rates.
As of and for the year ended December 31, 2016 and 2015, the Company had accrued contractual dividends of $342,233 and $319,854, respectively, related to the Series B Preferred Stock. On January 3, 2016, the Company issued 33,847 shares of Series B convertible preferred stock valued at approximately $320,000, representing approximately $0.66 in value per share of Series B Preferred Stock outstanding on that date, to the Series B convertible preferred stock owners as payment in kind for dividends.
Series C Preferred Stock
The Company's Certificate of Designation designates 10,000 shares of the Company's preferred stock as Series C Preferred Stock to be issued at an original issue price of $100 per share. The Series C Preferred Stock has voting rights equal to one vote for each share held, has a liquidation preference equal to its purchase price, and has certain redemption rights available at the option of the holder. The Series C Preferred Stock is non-convertible and does not pay dividends.
On October 17, 2011, the Company received net cash proceeds of $1,000,000 for the sale of 10,000 shares of Series C Preferred Stock to a greater than 10% stockholder of the Company. Since certain of the Company's preferred shares contain redemption rights which are not solely within the Company's control, these issuances of preferred stock were initially presented as temporary equity. On February 13, 2013, the Company received a Notice of Redemption of Series C Preferred Stock and as a result, the shares are classified as a current liability as of December 31, 2016 in the Company's consolidated balance sheet.
Incentive Compensation / Stock Option Plans
The Company sponsors an Incentive Compensation Plan (the "2009 Plan") which was approved by the Board of Directors and the Company's Stockholders, and initially allowed the total number of shares of common stock issuable pursuant to the 2009 Plan to be 2,881,425 shares.
The 2009 Plan imposes individual limitations on the amount of certain awards. Under these limitations during any fiscal year of the Company, the number of options, stock appreciation rights, shares of restricted stock, shares of deferred stock, performance shares and other stock based-awards granted to any one participant under the 2009 Plan may not exceed 250,000 shares, subject to adjustment in certain circumstances. The maximum amount that may be paid out as performance units in any 12-month performance period is an aggregate value of $2,000,000, and the maximum amount that may be paid out as performance units in any performance period greater than 12 months is an aggregate value of $4,000,000. The maximum term of each option or stock appreciation right, the times at which each option or stock appreciation right will be exercisable, and provisions requiring forfeiture of unexercised options or stock appreciation rights at or following termination of employment generally are fixed by the board of directors or committee of the Company's board of directors designated to administer the 2009 Plan (the "Committee"), except that no option or stock appreciation right may have a term exceeding ten years. The exercise price per share subject to an option and the grant price of a stock appreciation rights are determined by the Committee, but in the case of an incentive stock option (ISO) must not be less than the fair market value of a share of common stock on the date of grant.
Following the approval of the Board of Directors and stockholders of record as of August 25, 2014, the Company adopted the 2014 Equity Incentive Plan (the "2014 Plan") which made a total of 6,000,000 shares of common stock authorized and available for issuance pursuant to awards granted under the 2014 Plan.
The 2014 Plan limit imposes individual limitations on the amount of certain awards. Under these limitations during any fiscal year of the Company, the number of options, stock appreciation rights, shares of restricted stock, shares of deferred stock, performance shares and other stock based-awards granted to any one participant under the 2014 Plan may not exceed 1,500,000 shares, subject to adjustment in certain circumstances. The maximum number of shares that may be awarded that are not subject to performance targets is an aggregate of 1,200,000 shares. The maximum term of each option or stock appreciation right, the times at which each option or stock appreciation right will be exercisable, and provisions requiring forfeiture of unexercised options or stock appreciation rights at or following termination of employment generally are fixed by the Committee designated to administer the 2014 Plan, except that no option or stock appreciation right may have a term exceeding ten years. The exercise price per share subject to an option and the grant price of a stock appreciation rights are determined by the Committee, but in the case of an incentive stock option (ISO) must not be less than the fair market value of a share of common stock on the date of grant.
Stock Options
Grants
During the year ended December 31, 2016, the Company granted options to and directors, employees, and consultants of the Company to purchase an aggregate of 660,265 shares of common stock under a previously approved plan at exercise price ranging between $0.24 and $0.35 per share for an aggregate grant date value of $195,875. The options vested on the grant date and have a term of ten years.
During the year ended December 31, 2015, the Company granted options to employees and directors of the Company to purchase an aggregate of 2,141,339 shares of common stock under the 2014 Plan at an exercise price of between $0.09 to $0.15 per share for an aggregate grant date value of $211,860. The options have a vesting period ranging from immediate to three years and have a term of ten years.
During the year ended December 31, 2015, the Company granted options to consultants of the Company to purchase an aggregate of 349,861 shares of common stock under the 2014 Plan at an exercise price of between $0.09 and $0.12 per share for an aggregate grant date value of $37,423. The options have a vesting period ranging from immediate to three years and have a term of ten years.
Exercise
During the year ended December 31, 2016, the Company issued an aggregate of 1,492,078 shares of common stock to holders of options who elected to exercise options to purchase 3,091,475 shares of common stock on a cashless basis under the terms of the options. The options had exercise prices ranging from $0.09 and $0.30 per share.
During the year ended December 31, 2016, the Company received proceeds of $1,833 from the exercise of options to purchase 16,666 shares of common stock.
The aggregate intrinsic value of the options exercised was $480,041 for the year ended December 31, 2016.
Valuation and Amortization
Option valuation models require the input of highly subjective assumptions. The fair value of the stock-based payment awards is estimated utilizing the Black-Scholes option model. The volatility component of this calculation is derived from the historical trading prices of the Company's own common stock. The Company accounts for the expected life of options in accordance with the "simplified" method for "plain vanilla" share options. The risk-free interest rate was determined from the implied yields of U.S. Treasury zero-coupon bonds with a remaining life consistent with the expected term of the options.
In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company's forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the number of vested options as a percentage of total options outstanding. If the Company's actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what the Company has recorded in the current period. The Company estimated forfeitures related to option grants at a weighted average annual rate of 5% and 3% per year for options granted during the years ended December 31, 2016 and 2015, respectively.
In applying the Black-Scholes option pricing model to stock options granted, the Company used the following weighted average assumptions:
Stock-based compensation expense related to stock options was recorded in selling, general and administrative expenses in the consolidated statements of operations and totaled $327,202 and $308,026 for the years ended December 31, 2016 and 2015, respectively.
As of December 31, 2016, stock-based compensation expense related to stock options of $36,291 remains unamortized which is being amortized over the weighted average remaining period of 1.5 years.
Summary
A summary of the stock option activity during the years ended December 31, 2016 and 2015 is presented below:
The following table presents information related to stock options outstanding and exercisable at December 31, 2016:
Warrants
Valuation
In applying the Black-Scholes option pricing model to stock warrants granted, the Company used the following weighted average assumptions:
Grants
On January 11, 2016, the Company issued to a lender a five-year warrant to purchase 75,000 shares of common stock at an exercise price of $0.25 per share for an aggregate grant date value of $15,500. See Note 6 Notes Payable for additional information.
On April 3, 2015, the Company granted warrants to a former employee of the Company to purchase an aggregate of 137,430 shares of common stock at an exercise price of $0.09 per share for an aggregate grant date value of $12,018. The warrants have a term of five years. The warrants were issued as repayment for amounts previously accrued.
The weighted average fair value of the stock warrants granted during the years ended December 31, 2016 and 2015, respectively, was $0.25 and $0.09 per share.
Exercise
During the year ended December 31, 2015, the Company issued an aggregate of 97,449 shares of common stock to a holder of warrants who elected to exercise warrants to purchase 137,430 shares of common stock on a cashless basis under the terms of the warrants. The warrants had an exercise price of $0.09 per share. The aggregate intrinsic value of the warrants exercised was $27,486 for the year ended December 31, 2015.
During the year ended December 31, 2016, the Company issued an aggregate of 1,155,179 shares of common stock to a holder of warrants who elected to exercise warrants to purchase 1,795,080 shares of common stock on a cashless basis under the terms of the warrants. The warrants had an exercise prices ranging from $0.10 to 0.15 per share. The aggregate intrinsic value of the warrants exercised was $414,176 for the year ended December 31, 2016.
A stock-based compensation benefit related to the mark-to-market adjustment for consultant warrants for the year ended December 31, 2015 was recorded in the consolidated statements of operations as a component of selling, general and administrative expenses and totaled $322. During the year ended December 31, 2015, the Company recorded aggregate stock-based compensation expense of $12,340 related to warrants. As of December 31, 2016, there was no stock-based compensation expense related to warrants that remains unamortized.
A summary of the stock warrant activity during the years ended December 31, 2016 and 2015, respectively, is presented below:
The following table presents information related to stock warrants at December 31, 2016:
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Commitments and Contingent Liabilities |
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Notes to Financial Statements | |||||||||||||||||||||||||||||||
9. Commitments and Contingent Liabilities |
Operating Leases
The Company entered a lease agreement dated June 15, 2011, as amended, for approximately 62,000 square feet of office and storage space and for its Company's corporate headquarters in Florence, Kentucky. On December 15, 2014, the Company agreed to sublease 34,106 square feet of the space for $9,948 per month and the sublease was subsequently terminated by the Company on June 14, 2015. On April 27, 2015, the Company entered in an amendment to the lease agreement which reduced its square footage to approximately 28,500 square feet effective June 15, 2015. The amendment reduced the monthly rent to $4,868 for July 2015 to December 2015 and $5,462 per month in 2016. On March 15, 2016, the Company entered into an amendment of the lease agreement which extended the lease for an additional three years to December 31, 2019. The amended monthly lease rate will be $6,649 in 2017, $6,886 in 2018 and $7,124 in 2019.
The Company accounts for rent expense using the straight-line method of accounting, deferring the difference between actual rent paid and the straight-line amount. The Company amortizes the balance of the remaining deferred rent payable over the remaining life of the amended lease term. Deferred rent payable of $0 and $25,852 as of December 31, 2016 and 2015, respectively, has been included in accrued expenses and other current liabilities on the consolidated balance sheets.
On June 7, 2013, a subsidiary of the Company which was liquidated in 2014, signed a three-year lease for $1,000 per month to house an office, pharmacy and inventory located in Lawrenceburg, Indiana. On July 8, 2013, the parties agreed to extend the lease for two additional years to a new termination date of June 7, 2018. In January 2014, the Company closed and vacated the Lawrenceburg facility. The present value of the remaining lease payments of $51,181 is reflected as a component of accrued expenses and other liabilities on the consolidated balance sheet as of December 31, 2016 and therefore excluded from the table below.
Future minimum payments under our non-cancelable operating lease as of December 31, 2016 are as follows:
During the years ended December 31, 2016 and 2015, the Company recorded aggregate rent expense of $69,819 and $106,833, respectively.
Employment Agreement
On May 9, 2016, the Company entered into an employment agreement (the "Employment Agreement") with Mr. Lalit Dhadphale. The terms of the Employment Agreement include a term of two years beginning on January 1, 2016 with an extension provision, the titles and positions of Chief Executive Officer and President, an initial base salary of $175,000 per year, subject to certain bonus and severance provisions. Mr. Dhadphale's agreement was bound by restrictive covenants regarding disclosure of confidential information, non-solicitation and employee non-competition. See Notes 7 and 13 for additional information.
Litigation
In the ordinary course of business, we may become subject to lawsuits and other claims and proceedings that might arise from litigation matters or regulatory audits. Such matters are subject to uncertainty and outcomes are often not predictable with assurance. Our management does not presently expect that any such matters will have a material adverse effect on the Company's consolidated financial condition or consolidated results of operations. We are not currently involved in any pending or threatened material litigation or other material legal proceedings nor have we been made aware of any penalties from regulatory audits, except as described below.
On February 9, 2012, two of our former stockholders, Rock Castle Holdings, LLC and Jason Smith (collectively "Plaintiffs"), filed suit against us in the Hamilton County, Ohio Court of Common Pleas, alleging that we had breached the terms of certain incentive options we granted to the Plaintiffs in connection with our now-terminated oral consulting arrangements with the Plaintiffs, by among other things, refusing Plaintiffs' purported exercise of options to purchase 233,332 shares of our common stock at an exercise price of $2.00 per share in December 2011. Plaintiffs requested that, among other things, the court require us to permit the exercise of the 233,332 options. Plaintiffs also provided an expert report indicating damages of $2.086 million. On December 1, 2014, the Company executed a settlement agreement with the Plaintiff for $150,000 to be paid in unequal monthly installments through June 10, 2015. The settlement amount was included in Selling, General and Administrative expense for the year ended December 31, 2014 and aggregate payments of $135,000 and $15,000 were made during the years ended December 31, 2015 and 2014, respectively.
On May 15, 2013, a former consultant filed suit in Boone County, Kentucky Circuit Court alleging breach of contract and unjust enrichment for unpaid consulting fees and expenses of approximately $55,000. On September 29, 2014, the Company executed a settlement agreement with the former consultant for $25,000 which was paid in monthly installments through March 1, 2015 when such settlement amount had been fully repaid.
On June 7, 2016, Shipping & Transit LLC filed suit against the Company for infringing on certain claims of patents held by Shipping & Transit. On July 20, 2016, the Company entered into a Settlement, Release and License Agreement whereby the Company paid $11,000 for any past violations and future licensing of the patents.
On May 13, 2016, Taft Stettinius & Hollister, LLP (the "Plaintiff") filed a complaint in the Court of Common Pleas for Hamilton County, Ohio against the Company. The complaint asserts that the Plaintiff provided legal services to the Company beginning in April 2011 until January 2015 and billed the Company $936,777 which the Company has not made payment. The complaint seeks damages against the Company in the amount of $936,777 plus interest. The Company is in the process of investigating such claims and has entered negotiations with the Plaintiff. The Company has accounted for this matter in accordance with ASC 450 ("Contingencies").
Also see Note 13 Subsequent Events for additional information. |
Concentrations |
12 Months Ended |
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Dec. 31, 2016 | |
Notes to Financial Statements | |
10. Concentrations |
The Company maintains deposits in financial institutions which are insured by the Federal Deposit Insurance Corporation ("FDIC"). At various times, the Company has deposits in these financial institutions in excess of the amount insured by the FDIC.
During the year ended December 31, 2016, three suppliers represented 43%, 17% and 16% of total inventory purchases. During the year ended December 31, 2015, two suppliers represented 63% and 11% of total inventory purchases.
As of December 31, 2016, the Company has included $936,777 in its accounts payable-trade in the consolidated balance sheets related to amounts in litigation. See Note 9 - Commitments and Contingent Liabilities for additional information. Excluding this amount, no Company supplier was owed an amount greater than 10% of the Company's accounts payable balance. |
Related Party Transactions |
12 Months Ended |
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Dec. 31, 2016 | |
Notes to Financial Statements | |
11. Related Party Transactions | Effective September 4, 2014, the Company entered into a consulting agreement with Dr. Bruce Bedrick, a stockholder, to provide consulting services related to business development and marketing activities for the Company and other duties as agreed to by management. The Company was required to pay the related party a monthly fee of $10,000 plus expense reimbursement. Subsequent to the effective date, the related party agreed to defer the payment of the monthly fee for a period of four months beginning with the November 4, 2014 payment. The deferred fees were to be payable on the earlier of the termination date or the second anniversary of the effective date. The consulting agreement had an initial term of one year and could be automatically renewed for a one-year period unless terminated by either party. The Agreement could be terminated by the Company by providing a sixty-day notice prior to the first anniversary of the effective date. On July 6, 2015, the Company notified the related party of its intent to terminate the contract effective September 4, 2015. During the year ended December 31, 2015, the Company incurred and paid consulting and other expenses of $100,000 related to the consulting agreement.
In March 2013, the Company converted a $40,000 advance from a related party to a note payable with a maturity date of December 31, 2013 with the principal balance of the note due at maturity with no interest. The Company made principal payments of $31,000 and $5,000 during the years ended December 31, 2015 and 2014, respectively, and the note has been repaid in full as of December 31, 2015. Imputed interest expense on this note was de minimis.
On August 15, 2013, the Company was advanced $56,000 from a related party. Subsequently, $7,000 of that advance was repaid and the Company issued a promissory note for the remaining balance of $49,000 (the "Original Note"). The Original Note had an interest rate of 10% per annum and a maturity date of November 7, 2013. The Company made payments on the note and in November 2013, the remaining $42,095 balance of the Original Note was replaced by another note (the "Replacement Note"). The Replacement Note waived any existing default under the Original Note and had a maturity date of May 31, 2014 with all other terms of the Replacement Note and Original Note remaining the same. Effective July 23, 2015, the Company reached a settlement agreement with the related party whereby the Company agreed to pay twelve monthly payments of $4,099 on the first of each month starting on August 1, 2015 to fully satisfy its obligations under the note payable. During the years ended December 31, 2016 and 2015, the Company made principal payments of $23,889 and $18,206, respectively, and recorded interest expense on this note of $702 and $2,868, respectively. The note was repaid in full in July 2016. On October 3, 2016, the Company reached a settlement with the same related party in regards to certain balances of accounts receivables from and accounts payable to the related party. The Company agreed to pay $77,606, payable in twenty-four monthly payments of $3,234, beginning October 15, 2016. The agreement resulted in the Company recognizing a $44,343 gain which is included in Selling, General and Administrative Expenses for the year ended December 31, 2016.
In the fourth quarter of 2016, the Company entered into a master services agreement for information technology and marketing analytics projects with a company that Mr. Jeff T. Holtmeier, the Company's President and Chief Executive Officer, holds a minority ownership interest and was chairman of its board of directors. During 2016, the Company incurred $49,376 of costs under the agreement of which $13,700 was capitalized as web development costs.
In 2016, the Company entered into an Exchange Agreement with Dellave Holdings LLC (See Note 8 Stockholders' Deficiency) which the Company issued the Company's common stock in exchange for the extinguishment of accounts payable balances held by Dellave. Mr. Tim Reilly, a significant stockholder of the Company, is the single member of both Dellave and Melrose Capital Advisors, LLC, the Company's senior lender (See Note 6 Notes Payable). |
Income Taxes |
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Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
12. Income Taxes | The income tax provision (benefit) for the years ended December 31, 2016 and 2015 was as follows:
The effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2016 and 2015 are as follows:
The Company assesses the likelihood that deferred tax assets will be realized. To the extent that realization is not likely, a valuation allowance is established. Based upon the history of losses, management believes that it is more likely than not that future benefits of deferred tax assets will not be realized and has established a full valuation allowance for the years ended December 31, 2016 and 2015.
The Company files income tax returns in the U.S. Federal jurisdiction and various state and local jurisdiction, and its federal, state and local income tax returns for the tax years beginning in 2012 remain subject to examination. The Company is in the process of filing its federal and state tax returns for the year ended December 31, 2016. The Net operating losses ("NOLs") for this year will not be available to reduce future taxable income until the returns are filed. Assuming these returns are filed, as of December 31, 2016 and 2015, the Company had $16,821,182 and $15,464,258, respectively, of federal net operating loss carryforwards ("NOL's") that may be available to offset future taxable income. The federal net operating loss carryforwards, if not utilized, will expire from 2027 to 2036. As of December 31, 2016 and 2015, the Company had approximately $9,494,025 and $8,137,101 of state net operating loss carryforwards available to offset future taxable income. The state NOLs, if not utilized, will expire beginning in 2031.
In accordance with Section 382 of the Internal Revenue code, the usage of the Company's net operating loss carryforwards could be limited in the event of a change in ownership. Based upon a study that analyzed the Company's stock ownership, a change of ownership was deemed to have occurred in 2011. This change of ownership created an annual limitation on the usage of the Company's losses which are available through 2031. A full Section 382 analysis has not been prepared since 2011 and any NOLs arising since 2011 could be subject to limitation under Section 382.
For the years ended December 31, 2016 and 2015, the expected tax expense (benefit) based on the statutory rate is reconciled with the actual tax expense (benefit) as follows:
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Subsequent Events |
12 Months Ended |
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Notes to Financial Statements | |
13. Subsequent Events |
The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements, except as disclosed.
Effective January 16, 2017, Mr. Jeffrey Holtmeier, Chief Executive Officer of the Company, has left the Company to pursue other interests, and in connection with his departure, has also resigned his position as a director of the Company. On January 19, 2017, the Company and Mr. Holtmeier entered into a Separation and Release Agreement in connection with his departure. Mr. Holtmeier will be paid his current salary for the period up to and including the day which is thirty days after the Termination Date, at the rate in effect as of the Termination Date. In addition, the Company will pay Mr. Holtmeier an annual bonus for the 2016 year of $43,750 which was accrued as of December 31, 2016. The salary (less appropriate withholding for benefits, taxes and any other required withholdings) will be made in accordance with normal Company payroll timing and practices. The bonus (less appropriate withholding for benefits, taxes and any other required withholdings) will be paid and in ten equal monthly payments, beginning February 1, 2017. As of December 31, 2016, the Company has accrued $66,950 of costs related to Mr. Holtmeier's incurred expenses which will be paid in ten equal monthly payments during 2017.
On January 18, 2017, the Board of Directors of the Company appointed John C. Pauly as the Chief Operating Officer and interim President and Chief Executive Officer of the Company. Subsequently, the Company and Mr. Pauly entered into a written agreement outlining compensation and other terms of Mr. Pauly's employment by which Mr. Pauly will be paid an annual salary of $100,000. The term of Mr. Pauly's employment with the Company shall be for a period commencing on January 18, 2017, and continuing through the close of business on December 31, 2017, unless and until terminated as provided. The agreement shall renew for subsequent one year terms unless terminated by either party.
On February 28, 2017, the Company and Melrose Capital Advisors, LLC (the "Lender") entered into a Fifth Amendment to Amended and Restated Promissory Note (the "Senior Note"), pursuant to which the Lender agreed to extend the maturity date of the Senior Note from February 28, 2017 to March 30, 2017. The principal amount and all unpaid accrued interest on the Senior Note is payable on March 31, 2017, or earlier in the event of default or a sale or liquidation of the Company. The Loan may be prepaid in whole or in part at any time by the Company without penalty.
On March 3, 2017, the Company and Steven Deixler entered into a Third Amendment to Promissory Note effective as October 31, 2016 which extended the maturity date of the payable from October 31, 2016 to March 31, 2017. The Company will make monthly payments of accrued interest on the first day of every month beginning October 31, 2016, and continuing on the first day of each month thereafter. On March 31, 2017, the entire unpaid principal sum of the note and all accrued and unpaid interest shall be due and payable in full. The Company's payment and other obligations under this Note shall be unsecured.
On March 15, 2017, the Company entered into a settlement agreement (the "Settlement Agreement") by and between the Company and Lalit Dhadphale ("Dhadphale) relating to a claim filed by Dhadphale in Lalit Dhadphale v. Healthwarehouse.com, Inc., Boone County, Kentucky Circuit Court, Civil Action No. 16-CI-01628 (the "Complaint") alleging failure to pay certain severance payments pursuant to the employment agreement by and between the Company and Dhadphale. Pursuant to the Settlement Agreement, the Company agreed to pay Dhadphale $200,000 in return for a full release of any and all future claims and a dismissal with prejudice of the Complaint within seven business days of the execution of the Settlement Agreement. The Company has agreed to pay Mr. Dhadphale $30,000 within sixty days of the execution of the Agreement with the remaining $170,000 payable in equal semi-monthly payments over eighteen months beginning March 15, 2017. As of December 31, 2016, the Company had accrued $190,000 related to this liability.
In February 2017, the Company received a letter from a former employee asking for payment of $100,000, plus interest for the contribution of certain equipment to the Company in 2008. The Company is in the preliminary process of investigating the claim to determine the validity of the claim. |
Summary of Significant Accounting Policies (Policies) |
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Summary Of Significant Accounting Policies Policies | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Principles of Consolidation | The consolidated financial statements include the accounts of HealthWarehouse.com, Inc., Hwareh.com, Inc., Hocks.com, Inc., ION Holding NV, ION Belgium NV, its wholly-owned subsidiaries. ION Holding NV and ION Belgium NV are inactive subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. |
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Use of Estimates | The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company's significant estimates include reserves related to accounts receivable and inventory, the recoverability and useful lives of long-lived assets and website development costs, the valuation allowance related to deferred tax assets, the valuation of equity instruments, debt discounts and contingencies. |
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Reclassifications | Certain accounts in the prior period consolidated financial statements have been reclassified for comparison purposes to conform to the presentation of the current period consolidated financial statements. These reclassifications had no effect on the previously reported net loss. |
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Cash and Cash Equivalents | The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. As of December 31, 2016 and 2015, the Company does not have any cash equivalents. |
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Restricted Cash | Restricted cash represents cash held by the Company's credit card processor as a reserve to cover potential future refunds and funds held by the senior lender as collateral for the Company's Senior Note. See Note 6 Notes Payable to the consolidated financial statements for additional information. |
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Accounts Receivable and Allowance for Doubtful Accounts Receivable | Accounts receivable are shown net of an allowance for doubtful accounts of $0 and $47,143 as of December 31, 2016 and 2015, respectively. The Company's management has established an allowance for doubtful accounts sufficient to cover probable and reasonably estimable losses. The nature of the business is that the majority of payments are received before the product is shipped. If the financial conditions of customers were to materially deteriorate, an increase in the allowance amount could be required. The allowance for doubtful accounts considers several factors, including collection experience, current economic trends, estimates of forecasted write-offs, aging of the accounts receivable, and other factors. |
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Inventories, net | Inventories consist of finished goods and are valued at the lower of cost or market. Cost is determined by using the first-in, first-out method. As part of the valuation process, inventory reserves are established to state excess and slow-moving inventory at their estimated net realizable value. The valuation process for excess or slow-moving inventory contains uncertainty because management must use judgment to estimate when the inventory will be sold and the quantities and prices at which the inventory will be sold in the normal course of business. Inventory reserves are periodically reviewed, reflecting current risks, trends and changes in industry conditions. When preparing these estimates, management considers historical results, inventory levels and current operating trends. In the event the estimates differ from actual results, inventory-related reserves may be adjusted and could materially impact the results of operations. |
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Property and Equipment, net | Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. The costs of additions and betterments are capitalized and expenditures for repairs and maintenance, which do not extend the economic useful life of the related assets, are expensed in the period incurred. Gains or losses on disposal of property and equipment are reflected in the statements of operations in the period of disposal. |
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Impairment of Long-Lived Assets | The Company reviews the carrying value of intangibles and other long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparing the carrying amount of the asset or asset group to the undiscounted cash flows that the asset or asset group is expected to generate. If the undiscounted cash flows of such assets are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair value. As of December 31, 2016 and 2015, the Company has not recognized any such impairment. |
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Website Development Costs | The Company capitalizes costs associated with the development of its website. During the years ended December 31, 2016 and 2015, the Company capitalized $13,700 and $17,972, respectively, of website development costs. The Company is amortizing the website development costs on a three-year straight-line basis and incurred amortization expense of $62,361 and $75,951 during the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016, unamortized website development costs totaled $35,901. Estimated future amortization expense related to website development costs is $24,606 in 2017 and $4,446 in 2018. The remainder of the unamortized website development costs will be amortized when the projects to which they relate are placed in service. |
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Fair Value of Financial Instruments | Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. These fair value measurements apply to all financial instruments that are measured and reported on a fair value basis.
Based on the observability of the inputs used in the valuation techniques, financial instruments are categorized according to the fair value hierarchy, which ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
Level 1 - Observable inputs such as quoted prices in active markets. Level 2 - Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly. Level 3 - Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the assignment of an asset or liability within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
The carrying value of items included in the Company's working capital approximates fair value because of the relatively short maturity of these instruments. The Company's notes payable approximate fair value because the terms are substantially similar to comparable debt in the marketplace. |
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Income Taxes | Deferred tax assets and liabilities are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts ("temporary differences") at enacted tax rates in effect for the years in which the temporary differences are expected to reverse.
GAAP prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company's financial statements as of December 31, 2016 and 2015. The Company does not expect any significant changes in the unrecognized tax benefits within twelve months of the reporting date.
The Company classifies interest expense and any related penalties related to income tax uncertainties as a component of income tax expense. No interest or penalties have been recognized during the years ended December 31, 2016 and 2015. |
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Debt Discounts | The Company records, as a discount to notes and convertible notes, the relative fair value of warrants issued in connection with the issuances and the intrinsic value of any conversion options based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized to interest expense using the interest method over the earlier of the term of the related debt or their earliest date of redemption. As of December 31, 2016 and 2015, the Company had no unamortized debt discounts. |
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Revenue Recognition | Revenues for the sales of products are recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed and determinable and collectability is reasonably assured. The Company defers revenue when cash has been received from the customer but delivery has not yet occurred. Such amounts are reflected as deferred revenues in the accompanying consolidated financial statements. |
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Shipping and Handling Costs | The Company policy is to provide free standard shipping and handling for most orders. Shipping and handling costs incurred are recognized in selling, general and administrative expenses. Such amounts aggregated $1,143,067 and $612,377 for the years ended December 31, 2016 and 2015, respectively.
In certain circumstances, shipping and handling costs are charged to the customer and recognized in Net sales. The amounts recognized in Net sales for the years ended December 31, 2016 and 2015 were $388,921 and $251,550, respectively. |
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Advertising and Marketing Expenses | The Company expenses all advertising and marketing costs as incurred and were $647,053 and $508,633 for the years ended December 31, 2016 and 2015, respectively. |
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Sales Taxes | The Company accounts for sales taxes imposed on its goods and services on a net basis in the consolidated statements of operations. |
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Net Earnings (Loss) Per Share of Common Stock | Basic net earnings (loss) per share is computed by dividing net earnings (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net earnings per share reflects the potential dilution that could occur if securities or other instruments to issue common stock were exercised or converted into common stock. Potentially dilutive securities are excluded from the computation of diluted net earnings per share if their inclusion would be anti-dilutive and consist of the following:
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Stock-Based Compensation |
Stock-based compensation expense for all stock-based payment awards is based on the estimated fair value of the award. For employees and directors, the award is measured on the grant date. For non-employees, the award is measured on the grant date and is then remeasured at each vesting date and financial reporting date. The Company recognizes the estimated fair value of the award as compensation cost over the requisite service period of the award, which is generally the option vesting term. The Company generally issues new shares of common stock to satisfy option and warrant exercises. |
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Preferred Stock | Preferred shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. The Company classifies conditionally redeemable preferred shares, which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company's control, as temporary equity. At all other times, the Company classifies its preferred shares in stockholders' deficiency. |
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Convertible Instruments | GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional as that term is described under applicable GAAP.
When the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption. The Company also records, when necessary, deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the preferred shares. |
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Common Stock Warrants and Other Derivative Financial Instruments | The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provide the Company with a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company's own stock. The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company's control) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of its common stock purchase warrants and other free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.
The Company evaluated its free-standing warrants to purchase common stock to assess their proper classification in the consolidated balance sheet as of December 31, 2016 and 2015 using the applicable classification criteria enumerated under GAAP and determined that the common stock purchase warrants contain fixed settlement provisions. |
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Recently Issued Accounting Pronouncements | In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, "Revenue from Contracts with Customers", which provides guidance for revenue recognition. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14 which delayed the effective date of the new revenue guidance by one year. As a result, the provisions of ASU 2014-09, and subsequent amendments, are effective for annual reporting periods beginning after December 15, 2017. The Company has not yet determined the effect of the adoption of this standard and its impact on the Company's consolidated financial position and results of operations.
In July 2015, the FASB issued ASU 2015-11, "Simplifying the Measurement of Inventory". ASU 2015-11 requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using last-in, first-out ("LIFO") or the retail inventory method. It is effective for annual reporting periods beginning after December 15, 2016. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption of this standard is not expected to have a material impact on the Company's consolidated financial position and results of operations.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018. Early application is permitted for all public business entities and all nonpublic business entities upon issuance. The Company has not yet determined the effect of the adoption of this standard on the Company's consolidated financial position and results of operations.
In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation" (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for the Company beginning January 1, 2017. The Company is currently evaluating the potential impact of adopting this guidance on the Company's consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments (Topic 230)". ASU 2016-15 adds and clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows, reducing the existing diversity in practice that has resulted from the lack of consistent principles on this topic. ASU 2016-15 is effective for the Company beginning January 1, 2018. Early adoption is permitted. The Company is currently evaluating the impact adopting this guidance will have on classifications in its consolidated statements of cash flows.
In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash." ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning and ending balances shown on the statement of cash flows. The guidance is effective for the Company in the first quarter of 2019 and early adoption is permitted. ASU 2016-18 must be applied retrospectively to all periods presented. The Company is currently evaluating what impact the adoption of this update will have on our consolidated statements of cash flows.
As of the date of this Annual Report on Form 10-K, there were no other recent accounting standard updates that the Company has not yet adopted that we believe would have a material impact on our consolidated financial statements. |
Summary of Significant Accounting Policies (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary Of Significant Accounting Policies Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Potentially Dilutive Securities |
Potentially dilutive securities are excluded from the computation of diluted net earnings per share if their inclusion would be anti-dilutive and consist of the following:
|
Property and Equipment, Net (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property And Equipment Net Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment, Net | Property and equipment, net consisted of the following:
|
Accrued Expenses and Other Current Liabilities (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued Expenses And Other Current Liabilities Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued expenses and other current liabilities |
Accrued expenses and other current liabilities consisted of the following:
|
Notes Payable (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Payable Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Payable | Notes payable consisted of the following:
|
Stockholders' Deficiency (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Option [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Stock Granted |
In applying the Black-Scholes option pricing model to stock options granted, the Company used the following weighted average assumptions:
\ |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Stock Activity |
A summary of the stock option activity during the years ended December 31, 2016 and 2015 is presented below:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Stock Outstanding and Exercisable |
The following table presents information related to stock options outstanding and exercisable at December 31, 2016:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Warrant [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Stock Granted |
In applying the Black-Scholes option pricing model to stock warrants granted, the Company used the following weighted average assumptions:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Stock Activity |
A summary of the stock warrant activity during the years ended December 31, 2016 and 2015, respectively, is presented below:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Stock Outstanding and Exercisable |
The following table presents information related to stock warrants at December 31, 2016:
|
Commitments and Contingent Liabilities (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 | |||||||||||||||||||||||||||||||
Commitments And Contingent Liabilities Tables | |||||||||||||||||||||||||||||||
Summary of future minimum payments under operating leases |
Future minimum payments under our non-cancelable operating lease as of December 31, 2016 are as follows:
|
Income Taxes (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of income tax provision (benefit) | The income tax provision (benefit) for the years ended December 31, 2016 and 2015 was as follows:
|
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Summary of significant portions of the deferred tax assets and liabilities | The effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2016 and 2015 are as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of tax expense (benefit) based on the statutory rate | For the years ended December 31, 2016 and 2015, the expected tax expense (benefit) based on the statutory rate is reconciled with the actual tax expense (benefit) as follows:
|
Going Concern and Management's Liquidity Plans (Details Narrative) - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Going Concern And Managements Liquidity Plans Details Narrative | |||
Working Capital Deficiency | $ (4,638,304) | ||
Accumulated deficit | (4,270,644) | $ (3,883,190) | $ (3,629,481) |
Net losses | (1,408,203) | (626,682) | |
Net Cash Used in Operating Activities | (116,830) | (548,281) | |
Redeemable preferred stock Series C, aggregate liquidation preference | $ 1,000,000 | $ 1,000,000 |
Summary of Significant Accounting Policies (Details) - shares |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Total potentially dilutive shares | 15,132,728 | 20,894,684 |
Stock Option [Member] | ||
Total potentially dilutive shares | 1,294,204 | 5,341,284 |
Warrant [Member] | ||
Total potentially dilutive shares | 7,806,118 | 10,046,198 |
Series B Convertible Preferred Stock [Member] | ||
Total potentially dilutive shares | 6,032,406 | 5,507,202 |
Summary of Significant Accounting Policies (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Summary Of Significant Accounting Policies Details Narrative | ||
Allowance for doubtful accounts | $ 0 | $ 47,143 |
Website development costs | (13,700) | (17,972) |
Amortization expense | 62,361 | 75,951 |
Unamortized website development costs | 35,901 | 84,562 |
Estimated future amortization expense related to website development costs in 2017 | 24,606 | |
Estimated future amortization expense related to website development costs in 2018 | 4,446 | |
Shipping and handling costs | 1,143,067 | 612,377 |
Amounts recognized in revenues | 388,921 | 251,550 |
Advertising expense | $ 647,053 | $ 508,633 |
Property and Equipment (Details) - USD ($) |
12 Months Ended | |||
---|---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|||
Property and Equipment, Gross | $ 1,220,222 | $ 1,210,519 | ||
Less: accumulated depreciation | (888,463) | (801,271) | ||
Property and Equipment, Net | $ 331,759 | 409,248 | ||
Computer Software [Member] | ||||
Estimates Useful Life | 5 years | |||
Property and Equipment, Gross | $ 230,299 | 230,299 | ||
Equipment [Member] | ||||
Estimates Useful Life | 15 years | |||
Property and Equipment, Gross | $ 549,365 | 548,156 | ||
Office Furniture and Equipment [Member] | ||||
Estimates Useful Life | 7 years | |||
Property and Equipment, Gross | $ 98,192 | 95,754 | ||
Computer Hardware [Member] | ||||
Estimates Useful Life | 5 years | |||
Property and Equipment, Gross | $ 32,992 | 32,992 | ||
Leasehold Improvements [Member] | ||||
Estimates Useful Life | [1] | 0 years | ||
Property and Equipment, Gross | $ 309,374 | $ 303,318 | ||
|
Property and Equipment (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Property And Equipment Details Narrative | ||
Depreciation expense | $ 87,192 | $ 108,369 |
Accrued Expenses and Other Current Liabilities (Details) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Accrued Expenses And Other Current Liabilities Details | ||
Salaries and benefits | $ 110,819 | $ 64,007 |
Dividends payable | 342,233 | 319,854 |
Advertising | 75,000 | 76,639 |
Accrued interest | 44,249 | 44,249 |
Accrued Rent | 51,181 | 49,614 |
Proxy and Solicitation Costs | 130,000 | |
Severance | 232,417 | |
Deferred rent | 0 | 25,852 |
Other | 50,457 | 17,450 |
Total | $ 1,036,356 | $ 597,665 |
Notes Payable (Details) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Notes payable | $ 1,300,000 | $ 991,089 |
Senior Notes [Member] | ||
Notes payable | 1,200,000 | 891,089 |
Promissory Note [Member] | ||
Notes payable | $ 100,000 | $ 100,000 |
Board of Directors and Management Changes (Details Narrative) - USD ($) |
Dec. 31, 2016 |
Oct. 11, 2016 |
Dec. 31, 2015 |
---|---|---|---|
Annual salary | $ 110,819 | $ 64,007 | |
Proxy and Solicitation Costs | 130,000 | ||
Severance | 232,417 | ||
Accounts Payable and Accrued Expenses | 211,722 | ||
Other Current Liabilities | 392,417 | ||
Mr. Holtmeier's [Member] | |||
Annual salary | 43,750 | $ 175,000 | |
Annual bonus target | 100.00% | ||
Options granted, shares | 125,000 | ||
Options granted, price per share | $ 0.29 | ||
Accounts Payable and Accrued Expenses | 66,950 | ||
Employment Agreement [Member] | |||
Proxy and Solicitation Costs | 578,484 | ||
Severance | $ 276,167 |
Stockholders' Deficiency (Details) - Stock Option [Member] |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Expected dividend yield | 0.00% | 0.00% |
Minimum [Member] | ||
Risk free interest rate | 1.00% | 1.35% |
Expected volatility | 196.00% | 195.00% |
Weighted average expected life (contractual term) in years | 5 years 6 months | 5 years 6 months |
Maximum [Member] | ||
Risk free interest rate | 2.12% | 2.28% |
Expected volatility | 200.00% | 199.00% |
Weighted average expected life (contractual term) in years | 10 years | 10 years |
Stockholders' Deficiency (Details 1) - Stock Option [Member] - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Number of Options, outstanding | ||
Outstanding, beginning of period (in shares) | 5,341,284 | 3,944,557 |
Granted | 660,265 | 2,491,200 |
Exercised | (3,108,141) | |
Forfeited | (1,599,204) | (1,094,473) |
Outstanding, end of period (in shares) | 1,294,204 | 5,341,284 |
Exercisable | 804,204 | |
Weighted average exercise price | ||
Outstanding, beginning of period (in dollars per share) | $ 0.70 | $ 1.27 |
Granted | 0.30 | 0.10 |
Exercised | 0.16 | |
Forfeited | 1.73 | 1.40 |
Outstanding, end of period (in dollars per share) | 0.51 | $ 0.70 |
Exercisable | $ 0.76 | |
Weighted Average Remaining Life (in years) Outstanding | 8 years | |
Weighted Average Remaining Life (in years) Exercisable | 7 years 8 months 12 days | |
Aggregate Intrinsic Value | ||
Aggregate Intrinsic Value Outstanding | $ 145,533 | |
Aggregate Intrinsic Value Exercisable | $ 54,267 |
Stockholders' Deficiency (Details 3) - Warrant [Member] |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Risk free interest rate | 1.58% | |
Dividend yield | 0.00% | 0.00% |
Expected volatility | 200.00% | |
Contractual term in years | 5 years | |
Minimum [Member] | ||
Risk free interest rate | 1.22% | |
Expected volatility | 194.00% | |
Contractual term in years | 2 years 10 months 24 days | |
Maximum [Member] | ||
Risk free interest rate | 1.75% | |
Expected volatility | 197.00% | |
Contractual term in years | 7 years 6 months |
Stockholders' Deficiency (Details 4) - Warrant [Member] - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Number of Warrants, outstanding | ||
Outstanding, beginning of period (in shares) | 10,046,198 | 9,339,044 |
Granted | 75,000 | 887,430 |
Exercised | (1,795,080) | (137,430) |
Forfeited | (520,000) | (42,846) |
Outstanding, end of period (in shares) | 7,806,118 | 10,046,198 |
Exercisable | 7,806,118 | |
Weighted average exercise price | ||
Outstanding, beginning of period (in dollars per share) | $ 0.41 | $ 0.45 |
Granted | 0.25 | 0.10 |
Exercised | 0.13 | 0.09 |
Forfeited | 2.90 | 3.00 |
Outstanding, end of period (in dollars per share) | 0.30 | $ 0.41 |
Exercisable | $ 0.30 | |
Weighted Average Remaining Life (in years) Outstanding | 2 years 4 months 24 days | |
Weighted Average Remaining Life (in years) Exercisable | 2 years 4 months 24 days | |
Aggregate Intrinsic Value | ||
Aggregate Intrinsic Value Outstanding | $ 91,257 | |
Aggregate Intrinsic Value Exercisable | $ 91,257 |
Commitments and Contingent Liabilities (Details) |
Dec. 31, 2016
USD ($)
|
---|---|
Commitments And Contingent Liabilities Details | |
2017 | $ 79,783 |
2018 | 82,633 |
2019 | 85,482 |
Total future minimum lease payments | $ 247,898 |
Commitments and Contingent Liabilities (Details Narrative) - USD ($) |
1 Months Ended | 6 Months Ended | 12 Months Ended | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 07, 2013 |
Dec. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2019 |
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
Oct. 15, 2016 |
Jul. 20, 2016 |
May 13, 2016 |
May 09, 2016 |
Aug. 01, 2015 |
Sep. 29, 2014 |
May 15, 2013 |
Feb. 09, 2012 |
|
Deferred rent payable | $ 25,852 | $ 0 | $ 25,852 | |||||||||||||
Accrued expenses and other liabilities | 50,863 | |||||||||||||||
Monthly rent | $ 1,000 | $ 9,948 | $ 4,868 | $ 7,124 | $ 6,886 | $ 6,649 | 5,462 | |||||||||
Rent Expense | 69,819 | 106,833 | ||||||||||||||
Present value of the remaining lease payments | 51,181 | |||||||||||||||
Administrative expense | $ 135,000 | $ 15,000 | ||||||||||||||
Outstanding consulting fees and expenses | $ 55,000 | |||||||||||||||
Settlement agreement monthly installments | $ 3,234 | $ 4,099 | $ 25,000 | |||||||||||||
Violations and future licensing of patents | $ 11,000 | |||||||||||||||
Plaintiff [Member] | ||||||||||||||||
Accrued Professional Fees | $ 936,777 | |||||||||||||||
Former Stockholders [Member] | ||||||||||||||||
Options to purchase | 233,332 | |||||||||||||||
Exercise price | $ 2.00 | |||||||||||||||
Expert report on damages, value | $ 2,086,000 | |||||||||||||||
Settelment amount | $ 150,000 | |||||||||||||||
Employment Agreement [Member] | ||||||||||||||||
Base salary | $ 175,000 |
Concentrations (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Accounts payable-trade | $ 936,777 | |
Supplier 1 [Member] | ||
Concentration Inventory Purchases Percentage | 43.00% | 63.00% |
Supplier 2 [Member] | ||
Concentration Inventory Purchases Percentage | 17.00% | 11.00% |
Supplier 3 [Member] | ||
Concentration Inventory Purchases Percentage | 16.00% |
Related Party Transactions (Details Narrative) - USD ($) |
1 Months Ended | 12 Months Ended | |||||||
---|---|---|---|---|---|---|---|---|---|
Aug. 15, 2013 |
Nov. 30, 2013 |
Mar. 31, 2013 |
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
Oct. 15, 2016 |
Aug. 01, 2015 |
Sep. 29, 2014 |
|
Consulting and other expenses | $ 10,000 | $ 100,000 | $ 21,110 | ||||||
Estimated value of collateral | 0 | (2,143) | |||||||
Advance from related party | $ 56,000 | $ 40,000 | |||||||
Maturity date | Nov. 07, 2013 | May 31, 2014 | Dec. 31, 2013 | ||||||
Principal payment | 31,000 | $ 5,000 | |||||||
Payment to related party | $ 7,000 | ||||||||
Remaining balance of note | $ 49,000 | $ 42,095 | |||||||
Interest rate | 10.00% | ||||||||
Settlement agreement monthly installments | $ 3,234 | $ 4,099 | $ 25,000 | ||||||
Interest expense | 119,027 | 208,147 | |||||||
Conversion of accounts payable to notes payable - related party | 77,606 | ||||||||
Selling, general and administrative expenses | 8,026,636 | 4,890,280 | |||||||
Costs under the agreement | 49,376 | ||||||||
Website development costs | (13,700) | (17,972) | |||||||
On August 15, 2013 [Member] | |||||||||
Principal payment | 23,889 | 18,206 | |||||||
Interest expense | 702 | $ 2,868 | |||||||
Selling, general and administrative expenses | $ 44,343 |
Income Taxes (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Federal: | ||
Current | ||
Deferred | (453,586) | (269,394) |
State and local: | ||
Current | ||
Deferred | (53,684) | (291,015) |
Total | (507,270) | (291,015) |
Change in valuation allowance | 502,270 | 291,015 |
Income tax provision (benefit) |
Income Taxes (Details 1) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Deferred tax assets: | ||
Net operating loss carryforwards | $ 6,098,963 | $ 5,585,989 |
Stock-based compensation | 700,295 | 767,443 |
Inventory reserves | 8,842 | 8,800 |
Allowance for bad debt | 17,915 | |
Deferred Revenue | 3,318 | 2,575 |
Deferred Rent | 9,824 | |
Contingent Liability | 1,910 | |
Charitable contribution carryforwards | 2,711 | 5,772 |
Accruals | 104,397 | 22,491 |
Total deferred tax assets | 6,918,526 | 6,422,719 |
Valuation allowance | (6,886,459) | (6,379,189) |
Deferred tax assets, net of valuation allowance | 32,067 | 43,530 |
Deferred tax liabilities: | ||
Property and equipment | (32,599) | (29,881) |
Web Development | 532 | (13,649) |
Deferred tax liabilities | (32,067) | (43,530) |
Net deferred tax assets | ||
Change in valuation allowance | $ 502,270 | $ 291,015 |
Income Taxes (Details 2) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Income Taxes Details 2 | ||
US federal statutory rate | (34.00%) | (34.00%) |
State tax rate, net of federal benefit | (4.00%) | (4.00%) |
Permanent differences | ||
Stock based compensation | 2.50% | 12.30% |
Adjustments to prior deferred tax balances | (0.50%) | (20.70%) |
Change in valuation allowance | 36.00% | 46.40% |
Income tax provision (benefit) | 0.00% | 0.00% |
Income Taxes (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Income Taxes Details Narrative | ||
Federal net operating loss carry forwards | $ 16,821,182 | $ 15,464,258 |
State net operating loss carry forwards | $ 9,494,025 | $ 8,137,101 |
Federal net operating loss carry forwards expiry period | 2027 to 2036 | 2027 to 2035 |
State net operating loss carry forwards expiry period | 2031 | 2031 |
Subsequent Events (Details Narrative) - USD ($) |
Mar. 15, 2017 |
Feb. 28, 2017 |
Jan. 18, 2017 |
Dec. 31, 2016 |
Oct. 15, 2016 |
Oct. 11, 2016 |
Dec. 31, 2015 |
Aug. 01, 2015 |
Sep. 29, 2014 |
---|---|---|---|---|---|---|---|---|---|
Annual salary | $ 110,819 | $ 64,007 | |||||||
Accounts Payable and Accrued Expenses | 211,722 | ||||||||
Settlement agreement monthly installments | $ 3,234 | $ 4,099 | $ 25,000 | ||||||
Accrued liability | 190,000 | ||||||||
Contribution of equipment by former employee under investigation | $ 100,000 | ||||||||
Mr. Holtmeier's [Member] | |||||||||
Annual salary | 43,750 | $ 175,000 | |||||||
Accounts Payable and Accrued Expenses | $ 66,950 | ||||||||
Mr. Pauly [Member] | |||||||||
Annual salary | $ 100,000 | ||||||||
Mr. Dhadphale [Member] | |||||||||
Settlement Agreement return agreed to pay | $ 200,000 | ||||||||
Settlement agreement monthly installments | 30,000 | ||||||||
Remaining agreement value | $ 170,000 |
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