[X]
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
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[_]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to________
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Colorado
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84-1162056
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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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Large accelerated filer ☐
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Accelerated filer ☐
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|
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Non-accelerated filer ☐
(Do not check if a smaller reporting company)
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Smaller reporting company ☒
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Common Stock, no par value
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10,673,225 Shares
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(Class)
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(outstanding at July 31, 2016)
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June 30,
2016
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March 31,
2016
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|||||||
ASSETS
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||||||||
Current assets:
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||||||||
Cash and cash equivalents
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$
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47,369
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$
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292,840
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||||
Restricted cash
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25,000
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25,000
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||||||
Accounts receivable, net of allowance for doubtful accounts of $8,500 at June 30, 2016 and $9,000 at March 31, 2016
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945,327
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839,850
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||||||
Inventories, net of reserve for obsolescence of $402,000 at June 30, 2016 and $410,000 at March 31, 2016
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1,710,233
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1,730,747
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||||||
Prepaid expenses
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169,071
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91,989
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||||||
Total current assets
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2,897,000
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2,980,426
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||||||
Equipment, at cost:
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||||||||
Furniture, fixtures and equipment
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3,115,983
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3,950,710
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||||||
Accumulated depreciation
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(2,585,332
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)
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(3,389,533
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)
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||||
Equipment, net
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530,651
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561,177
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||||||
Patents, net of accumulated amortization of $183,910 at June 30, 2016 and $153,494 at March 31, 2016
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261,999
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252,889
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||||||
Other assets
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15,926
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15,926
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||||||
TOTAL ASSETS
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$
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3,705,576
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$
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3,810,418
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||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
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||||||||
Current liabilities:
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||||||||
Accounts payable
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$
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444,287
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$
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355,890
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||||
Accrued compensation
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204,677
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246,203
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||||||
Other accrued liabilities
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273,891
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257,506
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||||||
Line of credit
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308,613
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387,491
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||||||
Deferred rent
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30,384
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30,384
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||||||
Total current liabilities
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1,261,852
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1,277,474
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||||||
Long-term liability:
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||||||||
Deferred rent
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63,300
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70,896
|
||||||
Total liabilities
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1,325,152
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1,348,370
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||||||
Commitments and contingencies (Note 4)
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||||||||
Shareholders’ equity:
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||||||||
Preferred stock, no par value: 10,000,000 shares authorized; none issued and outstanding
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––
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––
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||||||
Common stock and additional paid-in capital, no par value: 100,000,000 shares authorized; 10,673,225 shares issued and outstanding at June 30 and March 31, 2016
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23,699,400
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23,682,365
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||||||
Accumulated (deficit)
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(21,318,976
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)
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(21,220,317
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)
|
||||
Total shareholders’ equity
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2,380,424
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2,462,048
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||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
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$
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3,705,576
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$
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3,810,418
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Three Months Ended
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||||||||
June 30, 2016
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June 30, 2015
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|||||||
NET REVENUE
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$
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2,277,349
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$
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2,454,325
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||||
COST OF REVENUE
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1,087,017
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1,280,541
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||||||
GROSS PROFIT
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1,190,332
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1,173,784
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||||||
OPERATING EXPENSES:
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||||||||
Sales and marketing
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629,439
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696,343
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||||||
General and administrative
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344,411
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366,663
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||||||
Research and development
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301,652
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284,038
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||||||
Total operating expenses
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1,275,502
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1,347,044
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||||||
OPERATING LOSS
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(85,170
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)
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(173,260
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)
|
||||
Interest expense, net
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(13,489
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)
|
(719
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)
|
||||
Other expense, net
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––
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(39,220
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)
|
|||||
Interest and other expense, net
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(13,489
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)
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(39,939
|
)
|
||||
LOSS BEFORE PROVISION FOR INCOME TAXES
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(98,659
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)
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(213,199
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)
|
||||
Provision for income taxes
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––
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––
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||||||
NET LOSS
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$
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(98,659
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)
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$
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(213,199
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)
|
||
Net loss per share—basic and diluted
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$
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(0.01
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)
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$
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(0.02
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)
|
||
Weighted average shares—basic and diluted
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10,673,225
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10,673,225
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||||||
Three Months Ended
|
||||||||
June 30, 2016
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June 30, 2015
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|||||||
Cash flows from operating activities:
|
||||||||
Net loss
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$
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(98,659
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)
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$
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(213,199
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)
|
||
Adjustments to reconcile net loss to net cash used in operating activities:
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||||||||
Depreciation and amortization
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60,084
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83,053
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||||||
Share-based compensation expense
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17,035
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17,434
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||||||
Recovery from doubtful accounts, net
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(500
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)
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(3,700
|
)
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||||
Provision for inventory obsolescence, net
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(8,000
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)
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––
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|||||
Change in operating assets and liabilities:
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||||||||
Accounts receivable
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(104,977
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)
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60,234
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|||||
Inventories
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28,514
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142,174
|
||||||
Prepaid expenses and other assets
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(77,082
|
)
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(45,105
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)
|
||||
Accounts payable
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88,397
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(177,789
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)
|
|||||
Accrued compensation and other accrued liabilities
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(32,737
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)
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8,000
|
|||||
Net cash (used in) operating activities
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(127,925
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)
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(128,898
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)
|
||||
Cash flows from investing activities:
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||||||||
Acquisition of property and equipment
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(24,965
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)
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(844
|
)
|
||||
Patent costs
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(13,703
|
)
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(3,886
|
)
|
||||
Net cash (used in) investing activities
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(38,668
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)
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(4,730
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)
|
||||
Cash flows from financing activities:
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||||||||
Paydown of credit facility, net change
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(78,878
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)
|
––
|
|||||
Net cash provided by financing activities
|
(78,878
|
)
|
––
|
|||||
Net decrease in cash and cash equivalents
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(245,471
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)
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(133,628
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)
|
||||
Cash and cash equivalents, beginning of period
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292,840
|
258,656
|
||||||
Cash and cash equivalents, end of period
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$
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47,369
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$
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125,028
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June 30, 2016
|
March 31, 2016
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|||||||
Raw materials
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$
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1,278,453
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$
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1,469,630
|
||||
Finished goods
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833,780
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671,117
|
||||||
Total gross inventories
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2,112,233
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2,140,747
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||||||
Less reserve for obsolescence
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(402,000
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)
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(410,000
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)
|
||||
Total net inventories
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$
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1,710,233
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$
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1,730,747
|
Three Months Ended
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||||||||
June 30, 2016
|
June 30, 2015
|
|||||||
Net loss
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$
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(98,659
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)
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$
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(213,199
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)
|
||
Weighted-average shares — basic
|
10,673,225
|
10,673,225
|
||||||
Effect of dilutive potential common shares
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—
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—
|
||||||
Weighted-average shares — diluted
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10,673,225
|
10,673,225
|
||||||
Net income (loss) per share — basic
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
||
Net income (loss) per share — diluted
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$
|
(0.01
|
)
|
$
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(0.02
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)
|
||
Antidilutive employee stock options and RSUs
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700,924
|
638,924
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Fiscal Year
|
Amount
|
|||
2017 (nine months remaining)
|
207,549
|
|||
2018
|
285,034
|
|||
2019
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293,585
|
|||
2020
|
99,800
|
|||
Total
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$
|
885,968
|
Three Months Ended
|
||||||||
June 30, 2016
|
June 30, 2015
|
|||||||
Cost of sales
|
$
|
614
|
$
|
491
|
||||
Sales and marketing
|
3,039
|
2,794
|
||||||
General and administrative
|
12,251
|
13,264
|
||||||
Research and development
|
1,131
|
885
|
||||||
Stock-based compensation expense
|
$
|
17,035
|
$
|
17,434
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Fiscal Year
|
Amount
|
|||
2017 (nine months remaining)
|
207,549
|
|||
2018
|
285,034
|
|||
2019
|
293,585
|
|||
2020
|
99,800
|
|||
Total
|
$
|
885,968
|
Payment due by period
|
||||||||||||||||||||
Contractual obligations
|
Totals
|
Less than
1 year
|
1-3 years
|
3-5 years
|
More than
5 years
|
|||||||||||||||
Operating lease obligations
|
885,968
|
278,808
|
532,310
|
74,850
|
––
|
|||||||||||||||
Line of credit obligation
|
308,613
|
308,613
|
––
|
––
|
––
|
|||||||||||||||
1,194,581
|
587,421
|
532,310
|
74,850
|
––
|
31.1 | Certification of President and CEO under Rule 13a-14(a) of the Exchange Act (filed herewith). |
31.2 | Certification of Principal Financial and Accounting Officer under Rule 13a-14(a) of the Exchange Act (filed herewith). |
32.1 | Certifications of President and CEO and Principal Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
101 | The following materials from Encision Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) the unaudited Condensed Balance Sheets, (ii) the unaudited Condensed Statements of Income, (iii) the unaudited Condensed Statements of Cash Flows, and (iv) Notes to Condensed Financial Statements, tagged at Level I. |
August 11, 2016
|
/s/ Mala Ray
|
|
|
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Date
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Mala Ray
Controller
Principal Accounting Officer &
Principal Financial Officer
|
|
|
|
|
|
|
|
1. | I have reviewed this quarterly report on Form 10-Q of Encision 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 and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) 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 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. |
August 11, 2016
|
/s/ Gregory Trudel
|
|
|
|
Date
|
Gregory Trudel
President and CEO
|
|
|
|
|
|
|
|
1. | I have reviewed this quarterly report on Form 10-Q of Encision 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 quarterly 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 and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) 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 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. |
August 11, 2016
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/s/ Mala Ray
|
|
|
|
Date
|
Mala Ray
Controller, Principal Accounting Officer and Principal Financial Officer
|
|
|
|
|
|
|
|
· | the Quarterly Report on Form 10-Q of the Company for the three months ended June 30, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and |
· | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the period covered by the Report. |
Dated: August 11, 2016
|
/s/ Gregory Trudel
|
|
|
|
Gregory Trudel
President and CEO
|
|
|
|
|
|
|
· | the Quarterly Report on Form 10-Q of the Company for the three months ended June 30, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and |
· | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the period covered by the Report. |
Dated: August 11, 2016
|
/s/ Mala Ray
|
|
|
|
Mala Ray
Controller, Principal Accounting Officer & Principal Financial Officer
|
|
|
|
|
|
|
Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Jun. 30, 2016 |
Jul. 31, 2016 |
|
Document and Entity Information | ||
Entity Registrant Name | ENCISION INC | |
Entity Central Index Key | 0000930775 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --03-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 10,673,225 | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q1 |
Condensed Balance Sheets (Parenthetical) - USD ($) |
Jun. 30, 2016 |
Mar. 31, 2016 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Accounts receivable, allowance for doubtful accounts (in dollars) | $ 8,500 | $ 9,000 |
Inventories, reserve for obsolescence (in dollars) | 402,000 | 410,000 |
Accumulated amortization | $ 183,910 | $ 153,494 |
Preferred stock, par value | $ 0 | $ 0 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock and additional paid-in capital, par value | $ 0 | $ 0 |
Common stock and additional paid-in capital, shares authorized | 100,000,000 | 100,000,000 |
Common stock and additional paid-in capital, shares issued | 10,673,225 | 10,673,225 |
Common stock and additional paid-in capital, shares outstanding | 10,673,225 | 10,673,225 |
Condensed Statements of Operations - USD ($) |
3 Months Ended | |
---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Income Statement [Abstract] | ||
NET REVENUE | $ 2,277,349 | $ 2,454,325 |
COST OF REVENUE | 1,087,017 | 1,280,541 |
GROSS PROFIT | 1,190,332 | 1,173,784 |
OPERATING EXPENSES: | ||
Sales and marketing | 629,439 | 696,343 |
General and administrative | 344,411 | 366,663 |
Research and development | 301,652 | 284,038 |
Total operating expenses | 1,275,502 | 1,347,044 |
OPERATING LOSS | (85,170) | (173,260) |
Interest expense, net | (13,489) | (719) |
Other expense, net | 0 | (39,220) |
Interest and other expense, net | (13,489) | (39,939) |
LOSS BEFORE PROVISION FOR INCOME TAXES | (98,659) | (213,199) |
Provision for income taxes | 0 | 0 |
NET LOSS | $ (98,659) | $ (213,199) |
Net loss per share-basic and diluted | $ (0.01) | $ (0.02) |
Weighted average shares-basic and diluted | 10,673,225 | 10,673,225 |
ORGANIZATION AND NATURE OF BUSINESS |
3 Months Ended |
---|---|
Jun. 30, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
ORGANIZATION AND NATURE OF BUSINESS | Encision Inc. is a medical device company that designs, develops, manufactures and markets patented surgical instruments that provide greater safety to, and saves lives of, patients undergoing minimally-invasive surgery. We believe that our patented AEM® (Active Electrode Monitoring) surgical instrument technology is changing the marketplace for electrosurgical devices and instruments by providing a solution to a patient safety risk in laparoscopic surgery. Our sales to date have been made principally in the United States.
We have an accumulated deficit of $20,318,976 at June 30, 2016. Operating funds have been provided primarily by issuances of our common stock and warrants, a line of credit, and the exercise of stock options to purchase our common stock. Should our liquidity be diminished in the future because of operating losses, we may be required to seek additional capital in the future.
Our strategic marketing and sales plan is designed to expand the use of our products in surgically active hospitals and surgery centers in the United States. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Basis of Presentation. The condensed interim financial statements included herein have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles accepted in the United States (GAAP) have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to make the information presented not misleading. The condensed interim financial statements and notes thereto should be read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2016, filed on June 14, 2016.
The accompanying condensed interim financial statements have been prepared, in all material respects, in conformity with the standards of accounting measurements and reflect, in the opinion of management, all adjustments necessary to summarize fairly the financial position and results of operations for such periods in accordance with GAAP. All adjustments are of a normal recurring nature. The results of operations for the most recent interim period are not necessarily indicative of the results to be expected for the full year.
Use of Estimates in the Preparation of Financial Statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expense during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents. For purposes of reporting cash flows, we consider all cash and highly liquid investments with an original maturity of three months or less to be cash equivalents. Restricted cash is cash that was deposited to obtain a letter of credit for our importing and exporting activities.
Fair Value of Financial Instruments. Our financial instruments consist of cash and cash equivalents, short-term trade receivables, payables and a line of credit. The carrying values of cash and cash equivalents, short-term trade receivables, payables and line of credit approximate their fair value due to their short maturities.
Concentration of Credit Risk. Financial instruments, which potentially subject us to concentrations of credit risk, consist of cash and cash equivalents, accounts receivable and a line of credit. From time to time, the amount of cash on deposit with financial institutions may exceed the $250,000 federally insured limit at June 30, 2016. We believe that cash on deposit that exceeds $250,000 with financial institutions is financially sound and the risk of loss is minimal.
We have no significant off-balance sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. We maintain the majority of our cash balances with one financial institution in the form of demand deposits.
Accounts receivable are typically unsecured and are derived from transactions with and from entities in the healthcare industry primarily located in the United States. Accordingly, we may be exposed to credit risk generally associated with the healthcare industry. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The net accounts receivable balance at June 30, 2016 of $945,327 and at March 31, 2016 of $839,850 included no more than 5% from any one customer.
Warranty Accrual. We provide for the estimated cost of product warranties at the time sales are recognized and include it as other accrued liabilities. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, our warranty obligation is based upon historical experience and is also affected by product failure rates and material usage incurred in correcting a product failure. Should actual product failure rates or material usage costs differ from our estimates, revisions to the estimated warranty liability would be required.
Inventories. Inventories are stated at the lower of cost (first-in, first-out basis) or market. We reduce inventory for estimated obsolete or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. At June 30, 2016 and March 31, 2016, inventory consisted of the following:
Property and Equipment. Property and equipment are stated at cost, with depreciation computed over the estimated useful lives of the assets, generally five to seven years. We use the straight-line method of depreciation for property and equipment. Leasehold improvements are depreciated over the shorter of the remaining lease term or the estimated useful life of the asset. Maintenance and repairs are expensed as incurred and major additions, replacements and improvements are capitalized.
Long-Lived Assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. A long-lived asset is considered impaired when estimated future cash flows related to the asset, undiscounted and without interest, are insufficient to recover the carrying amount of the asset. If deemed impaired, the long-lived asset is reduced to its estimated fair value. Long-lived assets to be disposed of are reported at the lower of their carrying amount or estimated fair value less cost to sell.
Patents. The costs of applying for patents are capitalized and amortized on a straight-line basis over the lesser of the patents economic or legal life (20 years from the date of application in the United States). Capitalized costs are expensed if patents are not issued. We review the carrying value of our patents periodically to determine whether the patents have continuing value and such reviews could result in the conclusion that the recorded amounts have been impaired.
Income Taxes. We account for income taxes under the provisions of FASB Accounting Standards Codification (ASC) Topic 740, Accounting for Income Taxes (ASC 740). ASC 740 requires recognition of deferred income tax assets and liabilities for the expected future income tax consequences, based on enacted tax laws, of temporary differences between the financial reporting and tax bases of assets and liabilities. ASC 740 also requires recognition of deferred tax assets for the expected future tax effects of all deductible temporary differences, loss carryforwards and tax credit carryforwards. Deferred tax assets are then reduced, if deemed necessary, by a valuation allowance for the amount of any tax benefits which, more likely than not based on current circumstances, are not expected to be realized. As a result, no provision for income tax is reflected in the accompanying statements of operations. Should we achieve sufficient, sustained income in the future, we may conclude that some or all of the valuation allowance should be reversed. We are required to make many subjective assumptions and judgments regarding our income tax exposures. At June 30, 2016, we had no unrecognized tax benefits, which would affect the effective tax rate if recognized and had no accrued interest, or penalties related to uncertain tax positions.
Revenue Recognition. Revenue from product sales is recorded when we ship the product and title has passed to the customer, provided that we have evidence of a customer arrangement and can conclude that collection is probable. Our shipping policy is FOB Shipping Point. We recognize revenue from sales to stocking distributors when there is no right of return, other than for normal warranty claims. We have no ongoing obligations related to product sales, except for normal warranty obligations. Revenue from engineering services is recognized when the service is performed.
Research and Development Expenses. We expense research and development costs for products and processes as incurred.
Stock-Based Compensation. Stock-based compensation is presented in accordance with the guidance of ASC Topic 718, Compensation Stock Compensation (ASC 718). Under the provisions of ASC 718, companies are required to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our statements of operations.
Stock-based compensation expense recognized under ASC 718 for the three months ended June 30, 2016 was $17,035 and for the three months ended June 30, 2015 was $17,434, which consisted of stock-based compensation expense related to grants of employee stock options and restricted stock units (RSUs).
Segment Reporting. We have concluded that we have one operating segment.
Recent Accounting Pronouncements. We have reviewed all recently issued, but not yet effective, accounting pronouncements. The Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09 (Revenue from Contracts with Customers), which is effective for annual reporting periods beginning after December 15, 2017. The Company does not expect ASU 2014-09 to have an impact on its financial statements.
The Financial Accounting Standards Board has also issued Accounting Standards Update 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern (the ASU), which provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. The ASU requires management to perform an assessment every reporting period (including interim periods) to determine whether there is substantial doubt about a companys ability to continue as a going concern and to provide related footnote disclosures. The ASU also defines that substantial doubt exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued). The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. We are currently evaluating this new guidance and the related impact on the financial statements.
In July 2015, the FASB issued Accounting Standards Update 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, (ASU 2015-11). ASU 2015-11 affects reporting entities that measure inventory using first-in, first-out (FIFO) or average cost. Specifically, ASU 2015-11 requires that inventory be measured 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 LIFO or the retail inventory method. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company does not expect ASU 2015-11 to have an impact on its financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02), which modified lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases under previous accounting standards and disclosing key information about leasing arrangements. ASU 2016-02 will be effective for the Company beginning in its third quarter of 2020 and early adoption is permitted. The Company is currently evaluating the timing of its adoption and the impact of adopting the new lease standard on its consolidated financial statements. |
BASIC AND DILUTED INCOME AND LOSS PER COMMON SHARE |
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Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BASIC AND DILUTED INCOME AND LOSS PER COMMON SHARE | We report both basic and diluted net income (loss) per share. Basic net income or loss per common share is computed by dividing net income or loss for the period by the weighted average number of common shares outstanding for the period. Diluted net income or loss per common share is computed by dividing the net income or loss for the period by the weighted average number of common and potential common shares outstanding during the period if the effect of the potential common shares is dilutive. The shares used in the calculation of dilutive potential common shares exclude options and RSUs to purchase shares where the exercise price was greater than the average market price of common shares for the period.
The following table presents the calculation of basic and diluted net loss per share:
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COMMITMENTS AND CONTINGENCIES |
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||
COMMITMENTS AND CONTINGENCIES | Effective December 1, 2013, we extended our noncancelable lease agreement through July 31, 2019 for our facilities at 6797 Winchester Circle, Boulder, Colorado. The lease includes $172,176 of leasehold improvements granted by the landlord. The $172,176 was recorded on our condensed balance sheets as leasehold improvements and deferred rent. The leasehold improvements are being amortized over the lesser of the lease term or the assets life and the deferred rent is being amortized against rent expense over the lease term. The minimum future lease payment, by fiscal year, as of June 30, 2016 is as follows:
In March 2016, we entered into a loan and security agreement with Crestmark Bank. The loan is due on demand and has no financial covenants. Under the agreement, we were provided with a line of credit that is not to exceed the lesser of $1,000,000 or 85% of eligible accounts receivable. The interest rate is prime rate plus 2%, with a floor of 5.5%, plus a monthly maintenance fee of 0.4%, based on the average monthly loan balance. Interest is charged on a minimum loan balance of $500,000, a loan fee of 1% annually, and an exit fee of 3%, 2% and 1% during years one, two and three, respectively. As of June 30, 2016, we had $308,613 of borrowings from the credit facility and had an additional approximately $216,000 available to borrow.
Aside from the operating lease, we do not have any material contractual commitments requiring settlement in the future.
We are subject to regulation by the United States Food and Drug Administration (FDA). The FDA provides regulations governing the manufacture and sale of our products and regularly inspects us and other manufacturers to determine compliance with these regulations. We believe that we were in substantial compliance with all known regulations at June 30, 2016. FDA inspections are conducted periodically at the discretion of the FDA. Our latest inspection by the FDA occurred in October 2015. |
SHARE-BASED COMPENSATION |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SHARE-BASED COMPENSATION | The provisions of ASC 718-10-55 requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors, including employee stock options and RSUs, based on estimated fair values. The following table summarizes stock-based compensation expense related to employee stock options, RSUs and employee stock purchases for the Three Months ended June 30, 2016 and 2015, which was allocated as follows:
Share-based compensation cost for stock options is measured at the grant date, based on the fair value as calculated by the Black-Scholes-Merton ("BSM") option-pricing model. The BSM option-pricing model requires the use of actual employee exercise behavior data and the application of a number of assumptions, including expected volatility, risk-free interest rate and expected dividends. There were no stock options granted or forfeited during the three months ended June 30, 2016. Share-based compensation cost for RSUs is measured based on the closing fair market value of the Company's common stock on the date of grant. There were no RSUs granted during the three months ended June 30, 2016.
As of June 30, 2016, $201,000 of total unrecognized compensation costs related to nonvested stock options is expected to be recognized over a period of five years. |
RELATED PARTY TRANSACTION |
3 Months Ended |
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Jun. 30, 2016 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTION | We paid consulting fees of $18,468 and $22,466 to an entity owned by one of our directors during the three months ended June 30, 2016 and 2015, respectively. |
SUBSEQUENT EVENTS |
3 Months Ended |
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Jun. 30, 2016 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | We evaluated all of our activity as of the date the condensed interim financial statements were issued and concluded that no subsequent events have occurred that would require recognition in our financial statements or disclosed in the notes to our financial statements. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation | Basis of Presentation. The condensed interim financial statements included herein have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles accepted in the United States (GAAP) have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to make the information presented not misleading. The condensed interim financial statements and notes thereto should be read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2016, filed on June 14, 2016.
The accompanying condensed interim financial statements have been prepared, in all material respects, in conformity with the standards of accounting measurements and reflect, in the opinion of management, all adjustments necessary to summarize fairly the financial position and results of operations for such periods in accordance with GAAP. All adjustments are of a normal recurring nature. The results of operations for the most recent interim period are not necessarily indicative of the results to be expected for the full year. |
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Use of Estimates in the Preparation of Financial Statements | Use of Estimates in the Preparation of Financial Statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expense during the reporting period. Actual results could differ from those estimates. |
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Cash and Cash Equivalents | Cash and Cash Equivalents. For purposes of reporting cash flows, we consider all cash and highly liquid investments with an original maturity of three months or less to be cash equivalents. Restricted cash is cash that was deposited to obtain a letter of credit for our importing and exporting activities. |
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Fair Value of Financial Instruments | Fair Value of Financial Instruments. Our financial instruments consist of cash and cash equivalents, short-term trade receivables, payables and a line of credit. The carrying values of cash and cash equivalents, short-term trade receivables, payables and line of credit approximate their fair value due to their short maturities. |
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Concentration of Credit Risk | Concentration of Credit Risk. Financial instruments, which potentially subject us to concentrations of credit risk, consist of cash and cash equivalents, accounts receivable and a line of credit. From time to time, the amount of cash on deposit with financial institutions may exceed the $250,000 federally insured limit at June 30, 2016. We believe that cash on deposit that exceeds $250,000 with financial institutions is financially sound and the risk of loss is minimal.
We have no significant off-balance sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. We maintain the majority of our cash balances with one financial institution in the form of demand deposits.
Accounts receivable are typically unsecured and are derived from transactions with and from entities in the healthcare industry primarily located in the United States. Accordingly, we may be exposed to credit risk generally associated with the healthcare industry. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The net accounts receivable balance at June 30, 2016 of $945,327 and at March 31, 2016 of $839,850 included no more than 5% from any one customer. |
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Warranty Accrual | Warranty Accrual. We provide for the estimated cost of product warranties at the time sales are recognized and include it as other accrued liabilities. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, our warranty obligation is based upon historical experience and is also affected by product failure rates and material usage incurred in correcting a product failure. Should actual product failure rates or material usage costs differ from our estimates, revisions to the estimated warranty liability would be required. |
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Inventories | Inventories. Inventories are stated at the lower of cost (first-in, first-out basis) or market. We reduce inventory for estimated obsolete or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. At June 30, 2016 and March 31, 2016, inventory consisted of the following:
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Property and Equipment |
Property and Equipment. Property and equipment are stated at cost, with depreciation computed over the estimated useful lives of the assets, generally five to seven years. We use the straight-line method of depreciation for property and equipment. Leasehold improvements are depreciated over the shorter of the remaining lease term or the estimated useful life of the asset. Maintenance and repairs are expensed as incurred and major additions, replacements and improvements are capitalized. |
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Long-Lived Assets | Long-Lived Assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. A long-lived asset is considered impaired when estimated future cash flows related to the asset, undiscounted and without interest, are insufficient to recover the carrying amount of the asset. If deemed impaired, the long-lived asset is reduced to its estimated fair value. Long-lived assets to be disposed of are reported at the lower of their carrying amount or estimated fair value less cost to sell. |
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Patents | Patents. The costs of applying for patents are capitalized and amortized on a straight-line basis over the lesser of the patents economic or legal life (20 years from the date of application in the United States). Capitalized costs are expensed if patents are not issued. We review the carrying value of our patents periodically to determine whether the patents have continuing value and such reviews could result in the conclusion that the recorded amounts have been impaired. |
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Income Taxes | Income Taxes. We account for income taxes under the provisions of FASB Accounting Standards Codification (ASC) Topic 740, Accounting for Income Taxes (ASC 740). ASC 740 requires recognition of deferred income tax assets and liabilities for the expected future income tax consequences, based on enacted tax laws, of temporary differences between the financial reporting and tax bases of assets and liabilities. ASC 740 also requires recognition of deferred tax assets for the expected future tax effects of all deductible temporary differences, loss carryforwards and tax credit carryforwards. Deferred tax assets are then reduced, if deemed necessary, by a valuation allowance for the amount of any tax benefits which, more likely than not based on current circumstances, are not expected to be realized. As a result, no provision for income tax is reflected in the accompanying statements of operations. Should we achieve sufficient, sustained income in the future, we may conclude that some or all of the valuation allowance should be reversed. We are required to make many subjective assumptions and judgments regarding our income tax exposures. At June 30, 2016, we had no unrecognized tax benefits, which would affect the effective tax rate if recognized and had no accrued interest, or penalties related to uncertain tax positions. |
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Revenue Recognition | Revenue Recognition. Revenue from product sales is recorded when we ship the product and title has passed to the customer, provided that we have evidence of a customer arrangement and can conclude that collection is probable. Our shipping policy is FOB Shipping Point. We recognize revenue from sales to stocking distributors when there is no right of return, other than for normal warranty claims. We have no ongoing obligations related to product sales, except for normal warranty obligations. Revenue from engineering services is recognized when the service is performed.
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Research and Development Expenses | Research and Development Expenses. We expense research and development costs for products and processes as incurred. |
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Stock-Based Compensation | Stock-Based Compensation. Stock-based compensation is presented in accordance with the guidance of ASC Topic 718, Compensation Stock Compensation (ASC 718). Under the provisions of ASC 718, companies are required to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our statements of operations.
Stock-based compensation expense recognized under ASC 718 for the three months ended June 30, 2016 was $17,035 and for the three months ended June 30, 2015 was $17,434, which consisted of stock-based compensation expense related to grants of employee stock options and restricted stock units (RSUs). |
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Segment Reporting | Segment Reporting. We have concluded that we have one operating segment. |
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Recent Accounting Pronouncements | Recent Accounting Pronouncements. We have reviewed all recently issued, but not yet effective, accounting pronouncements. The Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09 (Revenue from Contracts with Customers), which is effective for annual reporting periods beginning after December 15, 2017. The Company does not expect ASU 2014-09 to have an impact on its financial statements.
The Financial Accounting Standards Board has also issued Accounting Standards Update 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern (the ASU), which provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. The ASU requires management to perform an assessment every reporting period (including interim periods) to determine whether there is substantial doubt about a companys ability to continue as a going concern and to provide related footnote disclosures. The ASU also defines that substantial doubt exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued). The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. We are currently evaluating this new guidance and the related impact on the financial statements.
In July 2015, the FASB issued Accounting Standards Update 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, (ASU 2015-11). ASU 2015-11 affects reporting entities that measure inventory using first-in, first-out (FIFO) or average cost. Specifically, ASU 2015-11 requires that inventory be measured 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 LIFO or the retail inventory method. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company does not expect ASU 2015-11 to have an impact on its financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02), which modified lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases under previous accounting standards and disclosing key information about leasing arrangements. ASU 2016-02 will be effective for the Company beginning in its third quarter of 2020 and early adoption is permitted. The Company is currently evaluating the timing of its adoption and the impact of adopting the new lease standard on its consolidated financial statements. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of inventory |
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BASIC AND DILUTED INCOME AND LOSS PER COMMON SHARE (Tables) |
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Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of calculation of basic and diluted net loss per share |
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COMMITMENTS AND CONTINGENCIES (Tables) |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||
Schedule of minimum future lease payments, by fiscal year |
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SHARE-BASED COMPENSATION (Tables) |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of stock-based compensation expense related to employee stock options |
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ORGANIZATION AND NATURE OF BUSINESS (Details Narrative) - USD ($) |
Jun. 30, 2016 |
Mar. 31, 2016 |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Accumulated deficit | $ 21,318,976 | $ 21,220,317 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) |
Jun. 30, 2016 |
Mar. 31, 2016 |
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Inventories | ||
Raw materials | $ 1,278,453 | $ 1,469,630 |
Finished goods | 833,780 | 671,117 |
Total gross inventories | 2,112,233 | 2,140,747 |
Less reserve for obsolescence | (402,000) | (410,000) |
Total net inventories | $ 1,710,233 | $ 1,730,747 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) |
3 Months Ended | ||
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Jun. 30, 2016 |
Jun. 30, 2015 |
Mar. 31, 2016 |
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Property, Plant and Equipment [Line Items] | |||
Federally insured limit | $ 250,000 | ||
Accounts Receivable | 945,327 | $ 839,850 | |
Stock-based compensation expense | $ 17,035 | $ 17,434 | |
Minimum [Member] | |||
Property, Plant and Equipment [Line Items] | |||
Estimated useful lives of assets | 5 years | ||
Maximum [Member] | |||
Property, Plant and Equipment [Line Items] | |||
Estimated useful lives of assets | 7 years |
BASIC AND DILUTED INCOME AND LOSS PER COMMON SHARE (Details) - USD ($) |
3 Months Ended | |
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Jun. 30, 2016 |
Jun. 30, 2015 |
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Earnings Per Share [Abstract] | ||
Net loss | $ (98,659) | $ (213,199) |
Weighted-average shares - basic | 10,673,225 | 10,673,225 |
Effect of dilutive potential common shares | 0 | 0 |
Weighted-average shares - diluted | 10,673,225 | 10,673,225 |
Net income (loss) per share-basic | $ (0.01) | $ (0.02) |
Net income (loss) per share-diluted | $ (0.01) | $ (0.02) |
Antidilutive employee stock options and RSUs | 700,924 | 638,924 |
COMMITMENTS AND CONTINGENCIES (Details) |
Mar. 31, 2016
USD ($)
|
---|---|
Minimum future lease payments, by fiscal year | |
2017 (nine months remaining) | $ 207,549 |
2018 | 285,034 |
2019 | 293,585 |
2020 | 99,800 |
Total | $ 885,968 |
COMMITMENTS AND CONTINGENCIES (Details Narrative) |
Jun. 30, 2016
USD ($)
|
---|---|
Commitments And Contingencies Details Narrative | |
Amount of borrowings | $ 308,613 |
Amount available to borrow | $ 216,000 |
SHARE-BASED COMPENSATION (Details Narrative) |
Jun. 30, 2016
USD ($)
|
---|---|
Share-based Compensation Details Narrative | |
Unrecognized compensation costs related to nonvested stock options | $ 201,000 |
RELATED PARTY TRANSACTION (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Director [Member] | ||
Related Party Transaction [Line Items] | ||
Consulting fees paid | $ 18,468 | $ 22,466 |
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