UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: June 30, 2016

 

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission File No. 000-54883

 

SPORTS FIELD HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada		98-0357690
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

 

4320 Winfield Road, Suite 200

Warrenville, IL 60555

(Address of principal executive offices)

 

978-914-7570

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

 

As of August 15, 2016, there were 16,343,573 shares outstanding of the registrant’s common stock.

 

 

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements.	F-1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	2
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	8
Item 4.	Controls and Procedures.	8
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings.	9
Item 1A.	Risk Factors.	9
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	9
Item 3.	Defaults Upon Senior Securities.	10
Item 4.	Mine Safety Disclosures.	10
Item 5.	Other Information.	10
Item 6.	Exhibits.	10
Signatures		11

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

SPORTS FIELD HOLDINGS, INC

 

 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

 

Condensed Consolidated Balance Sheets as of June 30, 2016 (Unaudited) and December 31, 2015	F-2
Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2016 and 2015	F-3
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2016 and 2015	F-4
Notes to the Unaudited Condensed Consolidated Financial Statements	F-5 – F-19

 

 

SPORTS FIELD HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		June 30,				December 31,
		2016				2015
		(Unaudited)
ASSETS
Current assets
Cash & cash equivalents		$	-			$	61,400
Accounts receivable			187,202				151,168
Costs and estimated earnings in excess of billings			97,796				137,016
Prepaid expenses and other current assets			178,131				10,346
Total current assets			463,129				359,930
Property, plant and equipment, net			12,221				14,249
Deposits			2,090				2,090
Total assets		$	477,440			$	376,269
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Cash overdraft		$	3,518			$	-
Accounts payable and accrued expenses			1,720,633				1,896,557
Due to factor			58,788				-
Billings in excess of costs and estimated earnings			82,322				-
Provision for estimated  losses on uncompleted contracts			59,315				130,046
Promissory notes			205,775				313,993
Convertible notes payable, net of debt discount of $55,432 and $40,594, respectively and debt issuance costs of $0 and $23,037, respectively			605,068				536,369
Total  current liabilities			2,735,419				2,876,965
Stockholders' equity
Preferred stock, $0.00001 par value; 20,000,000 shares authorized, none issued and outstanding			-				-
Common stock, $0.00001 par value; 250,000,000 shares authorized, 16,281,571 and 13,915,331 issued and outstanding as of June 30, 2016 and December 31, 2015, respectively			163				138
Additional paid in capital			10,160,838				7,773,184
Common stock subscription receivable			(4,500	)			(4,500	)
Accumulated deficit			(12,414,480	)			(10,269,518	)
Total stockholders' equity (deficit)			(2,257,979	)			(2,500,696	)
Total liabilities and stockholders' equity (deficit)		$	477,440			$	376,269

 

See the accompanying notes to these condensed consolidated financial statements

 

 

SPORTS FIELD HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2016				2015				2016				2015
Revenue
Contract revenue		$	467,483			$	896,034			$	1,278,558			$	1,413,894
Total revenue			467,483				896,034				1,278,558				1,413,894
Cost of sales
Contract cost of sales			525,220				1,069,352				1,289,080				1,471,090
Total cost of sales			525,220				1,069,352				1,289,080				1,471,090
Gross profit (loss)			(57,737	)			(173,318	)			(10,522	)			(57,196	)
Operating expenses
Selling, general and administrative			816,399				772,876				1,771,603				1,214,598
Research & development			28,674				-				88,447				-
Depreciation			1,014				7,225				2,028				14,451
Total operating expenses			846,087				780,101				1,862,078				1,229,049
Net loss from operations			(903,824	)			(953,419	)			(1,872,600	)			(1,286,245	)
Other income (expense), net
Interest, net			(113,364	)			(15,042	)			(272,603	)			(11,927	)
Miscellaneous income			-				-				241				-
Total other income (expense), net			(113,364	)			(15,042	)			(272,362	)			(11,927	)
Net loss before income taxes			(1,017,188	)			(968,461	)			(2,144,962	)			(1,298,172	)
Provision for income taxes			-				-				-				-
Net loss		$	(1,017,188	)		$	(968,461	)		$	(2,144,962	)		$	(1,298,172	)
Net loss per common share, basic and diluted		$	(0.06	)		$	(0.07	)		$	(0.14	)		$	(0.10	)
Weighted average common shares outstanding, basic and diluted			16,428,223				13,557,473				15,622,456				13,552,568

 

 

See the accompanying notes to these condensed consolidated financial statements

 

 

SPORTS FIELD HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Six Months Ended June 30,
		2016				2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(2,144,962	)		$	(1,298,172	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			2,028				14,451
Amortization of debt issuance costs			23,037				8,967
Amortization of debt discount			148,023				8,967
Accretion of original issue discount			4,913				-
Common stock and options issued to consultants and employees			761,621				48,200
Changes in operating assets and liabilities:
Cash overdraft			3,518				-
Accounts receivable			(36,034	)			(85,042	)
Prepaid expenses			(73,079	)			(16,625	)
Inventory			-				62,289
Accounts payable and accrued expenses			(132,892	)			381,370
Costs and estimated earnings in excess of billings			39,220				(44,765	)
Billings in excess of costs and estimated earnings			82,322				20,209
Provision for estimated  losses on uncompleted contracts			(70,731	)			232,957
Net cash used in operating activities			(1,393,016	)			(667,194	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of convertible notes			150,000				450,000
Repayments of convertible notes			(150,000	)
Debt issuance costs			-				(45,000	)
Repayments of promissory notes			(202,924	)			-
Proceeds from (repayments to) factoring			56,256				-
Proceeds from common stock subscriptions			1,478,284				-
Net cash provided by financing activities			1,331,616				405,000
Increase (decrease) in cash			(61,400	)			(262,194	)
Cash, beginning of period			61,400				523,492
Cash, end of period		$	-			$	261,298
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest		$	53,345			$	-
Taxes		$	-			$	-
Non cash investing and financing activities:
Notes issued for insurance premiums		$	94,706			$	-
Debt discount - beneficial conversion feature		$	67,637			$	-
Debt discount paid in the form of common shares		$	80,137			$	45,000
Stock issuance costs paid in the form of warrants		$	69,147			$	-
Increase in principal amount of convertible notes in conjunction with debt modification		$	40,500			$	-

 

See the accompanying notes to these condensed consolidated financial statements

 

 

SPORTS FIELD HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – DESCRIPTION OF BUSINESS

 

Sports Field Holdings, Inc. (the “Company”, “Sports Field Holdings”, “we”, “our”, or “us”) is a Nevada corporation engaged in product development, engineering, manufacturing, and the construction, design and building of athletic facilities, as well as supplying its own proprietary high end synthetic turf products to the sports industry. 

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and disclosures required by GAAP for annual financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the condensed financial position of the Company as of June 30, 2016 and the results of operations for the three and six months ended June 30, 2016 and cash flows for the six months ended June 30, 2016. The results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of the operating results for the full year ending December 31, 2016 or any other period.

 

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related disclosures of the Company as of December 31, 2015 and for the year then ended, which were filed with the Securities and Exchange Commission (“SEC”) on Form 10-K on April 12, 2016.

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

 

The accompanying condensed consolidated financial statements include the accounts of Sports Field Holdings, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the periods. Actual results could differ from those estimates. The Company’s significant estimates and assumptions include the accounts receivable allowance for doubtful accounts, percentage of completion revenue recognition method, the useful life of fixed assets and assumptions used in the fair value of stock-based compensation.

 

Revenues and Cost Recognition

 

Revenues from construction contracts are included in contract revenue in the condensed consolidated statements of operations and are recognized under the percentage-of-completion accounting method. The percent complete is measured by the cost incurred to date compared to the estimated total cost of each project. This method is used as management considers expended cost to be the best available measure of progress on these contracts, the majority of which are completed within one year, but may occasionally extend beyond one year. Inherent uncertainties in estimating costs make it at least reasonably possible that the estimates used will change within the near term and over the life of the contracts.

 

Contract costs include all direct material and labor costs and those indirect costs related to contract performance and completion. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. General and administrative costs are charged to expense as incurred.

 

Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income. Such revisions are recognized in the period in which they are determined.

 

Costs and estimated earnings in excess of billings are comprised principally of revenue recognized on contracts (on the percentage-of-completion method) for which billings had not been presented to customers because the amounts were not billable under the contract terms at the balance sheet date. In accordance with the contract terms, any unbilled receivables at period end will be billed subsequently. Amounts are billed based on contractual terms. Billings in excess of costs and estimated earnings represent billings in excess of revenues recognized. 

 

 

Cash and Cash Equivalents

 

The Company considers all short-term highly liquid investments with a remaining maturity at the date of purchase of three months or less to be cash equivalents. As of June 30, 2016 and December 31, 2015 the company did not have any cash equivalents.

 

Property, Plant and Equipment

 

Property, plant and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets, which generally range from 3 to 5 years. Gains and losses from the retirement or disposition of property and equipment are included in operations in the period incurred. Maintenance and repairs are expensed as incurred.

  

Stock-Based Compensation

 

The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. Awards granted to directors are treated on the same basis as awards granted to employees. 

 

Concentrations of Credit Risk

 

Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents. The Company places its cash and temporary cash investments with credit quality institutions. At times, such amounts may be in excess of the FDIC insurance limit.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are stated at the amount management expects to collect from outstanding balances. The Company generally does not require collateral to support customer receivables. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. The Company determines if receivables are past due based on days outstanding, and amounts are written off when determined to be uncollectible by management. The maximum accounting loss from the credit risk associated with accounts receivable is the amount of the receivable recorded, which is the face amount of the receivable, net of the allowance for doubtful accounts. As of June 30, 2016 and December 31, 2015, the Company’s accounts receivable balance was $187,202 and $151,168, respectively, and the allowance for doubtful accounts is $0 in each period.

 

Research and Development

 

Research and development expenses are charged to operations as incurred. For the three months ended June 30, 2016 and 2015, the Company incurred research and development expenses of $28,674 and $0, respectively. For the six months ended June 30, 2016 and 2015, the Company incurred research and development expenses of $88,447 and $0, respectively.

 

Warranty Costs

 

The Company generally provides a warranty on the products installed for up to 8 years with certain limitations and exclusions based upon the manufacturer’s product warranty; therefore the Company does not believe a warranty reserve is required as of June 30, 2016 and December 31, 2015.

 

Fair Value of Financial Instruments

 

Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities, and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.

 

 

Beneficial Conversion Feature

 

For conventional convertible debt where the rate of conversion is below market value, the Company records a “beneficial conversion feature” (“BCF”) and related debt discount.

 

When the Company records a BCF the relative fair value of the BCF would be recorded as a debt discount against the face amount of the respective debt instrument. The debt discount attributable to the BCF is amortized over the period from issuance to the date that the debt matures.

 

Derivative Instruments

 

The Company evaluates its convertible debt, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815-15. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

 

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

 

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date.

  

Net Income (Loss) Per Common Share

 

The Company computes basic net income (loss) per share by dividing net income (loss) per share available to common stockholders by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted” methods as applicable. The computation of basic and diluted loss per share excludes potentially dilutive securities because their inclusion would be anti-dilutive.  Anti-dilutive securities excluded from the computation of basic and diluted net loss per share for the six months ended June 30, 2016 and 2015, respectively, are as follows:

 

		June 30,
		2016				2015
Warrants to purchase common stock			662,543				500,000
Options to purchase common stock			622,500				230,000
Unvested restricted common shares			100,000				-
Convertible Notes			679,498				456,075
Totals			2,064,541				1,186,075

 

Shares outstanding

 

Shares outstanding include shares of unvested restricted stock. Unvested restricted stock included in reportable shares outstanding was 100,000 and 0 shares as of June 30, 2016 and 2015, respectively. Shares of unvested restricted stock are excluded from our calculation of basic weighted average shares outstanding, but their dilutive impact is added back in the calculation of diluted weighted average shares outstanding.

 

Significant Customers

 

The Company’s business focuses on securing a smaller number of high quality, highly profitable projects, which sometimes results in having a concentration of sales and accounts receivable among a few customers. This concentration is customary among the design and build industry for a company of our size. As we continue to grow and are awarded more projects, this concentration will continue to decrease. 

 

At June 30, 2016, the Company had three customers representing 100.0% of the total accounts receivable balance. 

 

At December 31, 2015, the Company had two customers representing 94% of the total accounts receivable balance. 

 

 

For the three months ended June 30, 2016, the Company had three customers that represented 46%, 16% and 26% of the total revenue and for the three months ended June 30, 2015, the Company had two customers that represented 74% and 16% of the total revenue.

 

For the six months ended June 30, 2016, the Company had three customers that represented 24%, 51% and 17% of the total revenue and for the six months ended June 30, 2015, the Company had two customers that represented 45% and 49% of the total revenue.

 

Reclassifications

 

Certain items in the prior year financial statements have been reclassified to conform to the current year presentation.

 

Recently Adopted Accounting Guidance

 

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, or ASU 2015-03. ASU 2015-03 amends current presentation guidance by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Prior to the issuance of ASU 2015-03, debt issuance costs were required to be presented as an asset in the balance sheet. We adopted the provisions of ASU 2015-03 on January 1, 2016 and prior period amounts have been reclassified to conform to the current period presentation. As of December 31, 2015, $23,037 of debt issuance costs were reclassified in the condensed consolidated balance sheet from current assets to convertible notes payable. The adoption of ASU 2015-03 did not materially impact our condensed consolidated financial position, results of operations or cash flows. 

 

In June 2014, the Financial Accounting Standards Board issued Accounting Standards Update 2014-12, Compensation-Stock Compensation. The amendments in this update apply to reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target can be achieved after the requisite service period. This Accounting Standards Update is the final version of Proposed Accounting Standards Update EITF-13D-Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, which has been deleted. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. As indicated in the definition of vest, the stated vesting period (which includes the period in which the performance target could be achieved) may differ from the requisite service period. The amendments in this update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, and early adoption is permitted. We adopted the provisions of ASU 2014-12 on January 1, 2016. The adoption of ASU 2014-12 did not impact our condensed consolidated financial position, results of operations or cash flows.

 

Recent Accounting Guidance Not Yet Adopted

 

During May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The new guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In July 2015, the FASB voted to delay the effective date of ASU 2014-09 by one year to the first quarter of 2018 to provide companies sufficient time to implement the standards. Early Adoption will be permitted, but not before the first quarter of 2017. Adoption can occur using one of two prescribed transition methods. The Company is currently evaluating the impact of the new standard. 

  

In August 2014, the Financial Accounting Standards Board issued Accounting Standards Update 2014-15, Presentation of Financial Statements-Going Concern.  The Update provides U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued. This Accounting Standards Update is the final version of Proposed Accounting Standards Update 2013-300-Presentation of Financial Statements (Topic 205): Disclosure of Uncertainties about an Entity’s Going Concern Presumption, which has been deleted. The amendments in this update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The adoption of ASU 2014-15 is not expected to have a material impact on our financial position, results of operations or cash flows.

 

 

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, “Leases” (topic 842). The FASB issued this update to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The updated guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption of the update is permitted. The Company is currently evaluating the impact of the new standard.

 

In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-06, “Derivatives and Hedging” (topic 815). The FASB issued this update to clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments in this update is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. The updated guidance is effective for annual periods beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption of the update is permitted. The Company is currently evaluating the impact of the new standard.

 

In April 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-09, “Compensation – Stock Compensation” (topic 718). The FASB issued this update to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The updated guidance is effective for annual periods beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption of the update is permitted. The Company is currently evaluating the impact of the new standard.

 

In April 2016, the Financial Accounting Standards Board (‘FASB”) issued Accounting Standards Update (“ASU”) No. 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing” (topic 606). In March 2016, the Financial Accounting Standards Board (‘FASB”) issued Accounting Standards Update (“ASU”) No. 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross verses Net)” (topic 606). These amendments provide additional clarification and implementation guidance on the previously issued ASU 2014-09, “Revenue from Contracts with Customers”. The amendments in ASU 2016-10 provide clarifying guidance on materiality of performance obligations; evaluating distinct performance obligations; treatment of shipping and handling costs; and determining whether an entity's promise to grant a license provides a customer with either a right to use an entity's intellectual property or a right to access an entity's intellectual property. The amendments in ASU 2016-08 clarify how an entity should identify the specified good or service for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. The adoption of ASU 2016-10 and ASU 2016-08 is to coincide with an entity's adoption of ASU 2014-09, which we intend to adopt for interim and annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of the new standard.

 

There were no other new accounting pronouncements that were issued or became effective since the issuance of our 2015 Annual Report on Form 10-K that had, or are expected to have, a material impact on our condensed consolidated financial position, results of operations or cash flows. 

 

Subsequent Events

 

Management has evaluated subsequent events or transactions occurring through the date on which the financial statements were 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 condensed consolidated financial statements, except as disclosed.

 

NOTE 3 – GOING CONCERN

 

As reflected in the accompanying condensed consolidated financial statements, as of June 30, 2016 the Company had a cash deficit of $(3,518) and a working capital deficit of $(2,272,290). Furthermore, the Company had a net loss and net cash used in operations of $(2,144,962) and (1,393,016), respectively, for the six months ended June 30, 2016 and an accumulated deficit totaling $(12,414,480). These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The ability of the Company to continue its operations as a going concern is dependent on Management's plans, which include the raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources, including but not limited to term notes, until such time that funds provided by operations are sufficient to fund working capital requirements.

 

The Company will require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives. The Company believes its current available cash along with anticipated revenues may be insufficient to meet its cash needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all.

 

 

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

  

NOTE 4 – COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROCESS

 

Following is a summary of costs, billings, and estimated earnings on contracts in process as of June 30, 2016 and December 31, 2015:

 

		June 30,				December 31,
		2016				2015
Costs incurred on contracts in progress		$	4,686,789			$	5,395,046
Estimated earnings (losses)			(642,505	)			(863,259	)
			4,044,284				4,531,787
Less billings to date			(4,088,125	)			(4,524,817	)
		$	(43,841	)		$	6,970

 

The above accounts are shown in the accompanying condensed consolidated balance sheet under these captions at June 30, 2016 and December 31, 2015:

 

		June 30,				December 31,
		2016				2015
Costs and estimated earnings in excess of billings		$	97,796			$	137,016
Billings in excess of costs and estimated earnings			(82,322	)			-
Provision for estimated  losses on uncompleted contracts			(59,315	)			(130,046	)
		$	(43,841	)		$	6,970

  

Warranty Costs

 

During the three and six months ended June 30, 2016 the Company incurred costs of approximately $8,300 and $17,500, respectively. During the three and six months ended June 30, 2015 the Company incurred costs of approximately $206,000 and $206,000, respectively, relating to the installation of materials by a subcontractor that has been released from the Company. The Company has implemented policies and procedures to avoid these costs in the future. The Company generally provides a warranty on the products installed for up to 8 years with certain limitations and exclusions based upon the manufacturer’s product warranty; therefore, the Company does not believe a warranty reserve is required as of June 30, 2016.

 

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment consists of the following:

 

		June 30, 2016				December 31, 2015
Furniture and equipment		$	20,278			$	20,278
Total			20,278				20,278
Less:  accumulated depreciation			(8,057	)			(6,029	)
		$	12,221			$	14,249

  

Depreciation expense for the three and six months ended June 30, 2016 was $1,014 and $2,028, respectively.

 

Depreciation expense for the three and six months ended June 30, 2015 was $7,225 and $14,451, respectively.

 

 

NOTE 6 – DEBT

 

Convertible Notes

 

On May 7, 2015, the Company issued unsecured convertible promissory notes (collectively the “Notes”) in an aggregate principal amount of $450,000 to three accredited investors (collectively the “Note Holders”) through a private placement. The notes pay interest equal to 9% of the principal amount of the notes, payable in one lump sum, and mature on February 1, 2016 unless the notes are converted into common stock if the Company undertakes a qualified offering of securities of at least $2,000,000 (the “Qualified Offering”). The principal of the notes are convertible into shares of common stock at a conversion price that is the lower of $1.00 per share or the price per share offered in a Qualified Offering. In order to induce the investors to invest in the notes, one of the Company’s shareholders assigned an aggregate of 45,000 shares of his common stock to such investors. The Company recorded a $45,000 debt discount relating to the 45,000 shares of common stock issued with an offsetting entry to additional paid in capital. The debt discount shall be amortized to interest expense over the life of the notes. As part of the transaction, we incurred placement agent fees of $22,500 and legal fees of $22,500 which were recorded as debt issue costs and shall be amortized over the life of the notes. The outstanding principal balance on the notes at December 31, 2015 was $450,000.

 

The notes matured on February 1, 2016. On March 31, 2016, the Note Holders entered into a letter agreement whereby, effective as of February 1, 2016, they waived any and all defaults that may or may not have occurred prior to the date thereof (the “Waiver”). As consideration for the Waiver, the Company issued the Note Holders an aggregate of 45,000 shares of the Company’s common stock. The principal amount on the Notes increased from $450,000 to $490,500 as the initial interest amount, $40,500 as of February 1, 2016, was added to the principal amount of the Notes. The maturity date of the Notes was extended to July 1, 2016 and the Notes shall pay interest as of February 1, 2016 at a rate of 9% per annum, payable in one lump sum on the maturity date. In addition, on any note conversion date from February 1, 2016 through July 1, 2016, the Notes are convertible into shares of the Company’s common stock at a conversion price of $1.00 per share. On any Note conversion after July 1, 2016, the notes are convertible into shares of the Company’s common stock at a conversion price that is the lower of (i) $1.00 per share and (ii) the volume-weighted average price for the last five trading days preceding the conversion date. All remaining terms of the Notes remained the same.

 

Glenn Tilley, a director of the Company, is the holder of $163,500 of principal of the aforementioned Notes.

 

As of July 1, 2016, the Company is not compliant with the repayment terms of the Notes but no defaults under the Notes have been called by the Note Holders. As of that date, the outstanding principal balance on the Notes was $450,000. The Company is currently conducting good faith negotiations with the Note Holders to further extend the maturity date, however, there can be no assurance that a further extension will be granted.

 

In accordance with ASC 470, since the present value of the cash flows under the new debt instrument was not at least ten percent different from the present value of the remaining cash flows under the terms of the original debt instrument, the Company accounted for the Waiver as a debt modification. Accordingly, the Company recorded a debt discount of $49,500 in the condensed consolidated balance sheet. The debt discount shall be amortized to interest expense over the life of the note.

 

On August 19, 2015, we entered into a Securities Purchase Agreement (the “Agreement”) with a private investor (the “Investor”). Under the Agreement, the Investor agreed to purchase convertible debentures in the aggregate principal amount of up to $450,000 (together the “Debentures” and each individual issuance a “Debenture”), bearing interest at a rate of 0% per annum, with maturity on the thirty-six (36) month anniversary of the respective date of issuance.

 

On the Initial Closing Date, we issued and sold to the Investor, and the Investor purchased from us, a first Debenture in the principal amount of $150,000 for a purchase price of $135,000. $15,000 was recorded as an original issue discount and will be accreted over the life of the note to interest expense. The Agreement provides that, subject to our compliance with certain conditions to closing, at the request of the Company and approval by the Investor, (i) we will issue and sell to the Investor, and the Investor will purchase from us, a second Debenture in the principal amount of $150,000 for a purchase price of $135,000 and (ii) thereafter, we will issue and sell to the Investor, and the Investor will purchase from us, a third Debenture in the principal amount of $150,000 for a purchase price of $135,000. 

   

The principal amount of the Debentures can be converted at the option of the Investor into shares of our common stock at a conversion price per share of $1.00 until the six month anniversary of each closing date.  If the Debenture is not repaid within six months, the Investor will be able to convert such Debenture at a conversion price equal to 65% of the lowest closing bid price for our common stock during the previous 20 trading days, subject to the terms and conditions contained in the Debenture. If the Debentures are repaid within 90 days of the date of issuance, there is no prepayment penalty or premium.  Following such time, a prepayment penalty or premium will apply.  As part of the transaction, we agreed to pay the Investor $5,000 and issue 25,000 shares of our Common Stock for certain due diligence and other transaction related costs. In-addition the Company incurred placement agent fees of $7,500 and legal fees of $7,500. The Company recorded a $25,000 debt discount relating to the 25,000 shares of common stock issued. The debt discount shall be amortized to interest expense over the life of the note. The remaining fees were recorded as debt issue costs and shall be amortized over the life of the note.

 

The Company assessed the conversion feature of the Debentures on the date of issuance and at end of each subsequent reporting period and concluded the conversion feature of the Debentures do not qualify as a derivative because there is no market mechanism for net settlement and it is not readily convertible to cash. The Company will reassess the conversion feature of the Debentures for derivative treatment at the end of each subsequent reporting period.

 

 

The outstanding principal balance on the Debentures at December 31, 2015 was $150,000. On February 19, 2016, the Company paid the Debentures in full along with a prepayment penalty in the amount of $45,000.

 

On February 22, 2016 (the “Effective Date”), the Company issued a convertible note in the principal aggregate amount of $170,000 to a private investor. The note pays interest at a rate of 12% per annum and matures on August 19, 2016 (the “Maturity Date”). The Note is convertible into shares of the Company’s common stock at a conversion price equal to: (i) from the Effective Date through the Maturity Date at $1.00 per share; and (ii) beginning one day after the Maturity Date, or notwithstanding the foregoing, at any time after the Company has registered shares of its common stock underlying the note in a registration statement on Form S-1 or any other form applicable thereto, the lower of $1.00 per share or the variable conversion price (as defined in the note).

 

The Company used the proceeds of the note to pay off a debenture issued in favor of a private investor on August 19, 2015. The debenture was in the principal amount of $150,000 and as of the date of this filing the investor has been paid all principal and interest due in full satisfaction thereof.

 

As additional consideration for issuing the note, on the Effective Date the Company issued to the investor 35,000 shares of the Company’s restricted common stock. The Company recorded a $30,637 debt discount relating to the 35,000 shares of common stock issued. The debt discount shall be amortized to interest expense over the life of the convertible note.

 

The intrinsic value of the convertible note, when issued, gave rise to a beneficial conversion feature which was recorded as a discount to the note of $67,637 to be amortized over the period from issuance to the date that the debt matures.

 

The Company assessed the conversion feature of the note on the date of issuance and at end of each subsequent reporting period and concluded the conversion feature of the note did not qualify as a derivative because there is no market mechanism for net settlement and it is not readily convertible to cash. The Company will reassess the conversion feature of the note for derivative treatment at the end of each subsequent reporting period.

 

The outstanding principal balance on the convertible note at June 30, 2016 was $170,000.

 

Promissory Notes

 

On September 15, 2015, the Company entered into a short term loan agreement with an investor. The principal amount of the loan was $200,000. The first $100,000 of the loan is payable upon the Company raising $500,000 in a qualified offering. The remaining balances is payable upon the Company raising $1,000,000 in a qualified offering. The loan bears interest at a rate of 8%. As part of the transaction, we incurred placement agent fees of $10,000 which were recorded as debt issue costs and shall be amortized over the life of the loan. On May 3, 2016, the Company paid 10,000 in note principal and $10,000 of accrued interest on the loan and the Company entered into a promissory note with the lender for the remaining principal amount of $190,000. Pursuant to the terms of the promissory note agreement, the note bears interest at a rate of 8% and requires the Company to make one monthly principal payment of $10,000, one monthly principal payment of $12,500, eleven monthly principal payments of $15,000 and one monthly principal payment of $2,500, all along with interest starting on June 1, 2016. The note matures on July 1, 2017 and is unsecured. The outstanding principal balance on the note at June 30, 2016 was $170,000.

 

On September 21, 2015, the Company entered into a promissory note with an investor in the principal amount of $163,993. The Company received proceeds of $155,993 and $8,000 was recorded as an original issue discount which will be accreted over the life of the note to interest expense. The promissory note is due on demand and carries a 5.0% interest rate. The promissory note is secured by all assets of the Company. On November 17, 2015, the Company paid $50,000 of principal on the note. The outstanding principal balance on the note at December 31, 2015 was $113,993. During the six months ended June 30, 2016, the Company paid the remaining note principal of $113,993 in full. As of June 30, 2016, accrued interest due was $2,486.

 

On January 26, 2016, the Company entered into a finance agreement with IPFS Corporation (“IPFS”). Pursuant to the terms of the agreement, IPFS loaned the Company the principal amount of $65,006, which would accrue interest at 3.5% per annum, to partially fund the payment of the premium of the Company’s general liability insurance. The agreement requires the Company to make nine monthly payments of $7,328.66, including interest starting on February 27, 2016.

  

As of June 30, 2016, the outstanding balance related to this finance agreement was $29,102.

 

On November 30, 2015, the Company entered into a finance agreement with First Insurance Funding (“FIF”). Pursuant to the terms of the agreement, FIF loaned the Company the principal amount of $29,700, which would accrue interest at 3.8% per annum, to partially fund the payment of the premium of the Company’s directors and officers insurance. The agreement requires the Company to make nine monthly payments of $3,352.47, including interest starting on January 3, 2016.

 

As of June 30, 2016, the outstanding balance related to this finance agreement was $6,673.

 

 

NOTE 7- FACTOR AGREEMENT

 

On March 28, 2016, the Company entered into an agreement with a financial services company (the “Factor”) for the purchase and sale of accounts receivables. The financial services company advances up to 80% of qualified customer invoices and holds the remaining 20% as a reserve until the customer pays the financial services company. The released reserves are returned to the Company, less applicable discount fees. The Company is initially charged 2.0% on the face value of each invoice purchased and 0.008% for every 30 days the invoice remains outstanding. Uncollectable customer invoices are charged back to the Company after 90 days. During the six months ended June 30, 2016, accounts receivable purchased by the Factor amounted to $353,648 and advances from the Factor amounted to $282,917. At June 30, 2016 the advances from the factor, inclusive of fees, amounted to $58,788. Advances from the Factor are collateralized by all accounts receivable of the Company.

 

NOTE 8- STOCKHOLDERS EQUITY (DEFICIT)

 

There is not yet a viable market for the Company’s common stock to determine its fair value, therefore management is required to estimate the fair value to be utilized in the determining stock-based compensation costs. In estimating the fair value, management considers recent sales of its common stock to independent qualified investors and other factors. Considerable management judgment is necessary to estimate the fair value.  Accordingly, actual results could vary significantly from management’s estimates.

  

Preferred Stock

 

The Company has authorized 20,000,000 shares of preferred stock, with a par value of $0.00001 per share. As of June 30, 2016 and December 31, 2015, the Company has -0- shares of preferred stock issued and outstanding.

 

Common Stock

 

The Company has authorized 250,000,000 shares of common stock, with a par value of $0.00001 per share. As of June 30, 2016 and December 31, 2015, the Company has 16,281,571 and 13,915,331 shares of common stock issued and outstanding, respectively.

 

Common stock issued in placement of debt

 

As part of a securities purchase agreement entered into on February 19, 2016, we agreed to issue an investor 35,000 shares of our common stock.

 

Common stock issued in debt modification

 

As part of a debt modification entered into on March 31, 2016, we agreed to issue three investors an aggregate of 45,000 shares of our common stock.

 

Common stock issued for services

 

On March 31, 2016, 1,000 shares of common stock were granted to a certain employee with a fair value of $1,100.

 

On June 30, 2016, 1,500 shares of common stock were granted to a certain employee with a fair value of $1,650.

 

During the six months ended June 30, 2016, 489,000 shares of common stock valued at $524,150 were issued to various consultants for professional services provided to the Company.

 

As discussed in Note 10, Jeromy Olson was issued 250,000 shares of common stock valued at $275,000 as per the terms of his employment agreement with the company as Chief Executive Officer. 

 

Sale of common stock

 

During the six months ended June 30, 2016, the Company sold 1,544,740 shares of common stock to investors in exchange for $1,699,214 in gross proceeds in connection with the private placement of the Company’s stock.

 

In connection with the private placement the Company incurred fees of $220,929. In addition, 154,475 five year warrants with an exercise price of $1.10 were issued to the placement agent. The Company valued the warrants at $69,147 on the commitment date using a Black-Scholes-Merton option pricing model. The value of the warrants was a direct cost of the private placement and has been recorded as a reduction in additional paid in capital.

 

 

Stock options issued for services

 

During the six months ended June 30, 2016, the Company's board of directors authorized the grant of 200,000 stock options, having a total fair value of approximately $97,500, with a vesting period of 2.00 years. These options expire on January 4, 2021. 

 

The Company uses the Black-Scholes option pricing model to determine the fair value of the options granted. In applying the Black-Scholes option pricing model to options granted, the Company used the following weighted average assumptions:

 

		For the Six Months Ended June 30,
		2016
Risk free interest rate			1.73	%
Dividend yield			0.00	%
Expected volatility			45.25	%
Expected life in years			5
Forfeiture Rate			0.00	%

 

Since the Company has limited trading history, volatility was determined by averaging volatilities of comparable companies.

 

The expected term of the option, taking into account both the contractual term of the option and the effects of employees’ expected exercise and post-vesting employment termination behavior: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding. Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected term = ((vesting term + original contractual term) / 2), if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The contractual term is used as the expected term for share options and similar instruments that do not qualify to use the simplified method. 

 

The following is a summary of the Company’s stock option activity during the six months ended June 30, 2016:

 

		Number of Options				Weighted Average Exercise Price				Weighted Average Remaining Contractual Life
Outstanding - January 31, 2016			430,000			$	1.03				5.00
Granted			200,000				1.00				5.00
Exercised			-				-				-
Forfeited/Cancelled			(7,500	)			1.50				-
Outstanding - June 30, 2016			622,500			$	1.02				4.07
Exercisable - June 30, 2016			355,000			$	1.04				3.95

 

At June 30, 2016 and 2015, the total intrinsic value of options outstanding was $60,000 and $0, respectively. 

 

At June 30, 2016 and 2015, the total intrinsic value of options exercisable was $32,500 and $0, respectively. 

 

Stock-based compensation for stock options has been recorded in the condensed consolidated statements of operations and totaled $35,150 and $69,721 for the three and six months ended June 30, 2016, respectively, and $12,317 and $23,201 for the three and six months ended June 30, 2015, respectively. As of June 30, 2016, the remaining balance of unamortized expense is $134,564 and is expected to be amortized over a remaining period of 1.25 years. 

 

 

Stock Warrants

 

The following is a summary of the Company’s stock warrant activity during the six months ended June 30, 2016:

 

		Number of Warrants				Weighted Average Exercise Price				Weighted Average Remaining Contractual Life
Outstanding - January 1, 2016			508,068			$	1.00				3.13
Granted			154,475				1.10
Exercised			-				-
Forfeited/Cancelled			-				-
Outstanding - June 30, 2016			662,543			$	1.03				3.12
Exercisable - June 30, 2016			662,543			$	1.03				3.12

 

At June 30, 2016 and 2015, the total intrinsic value of warrants outstanding and exercisable was $49,625 and $0, respectively.

 

NOTE 9 - RELATED PARTY TRANSACTIONS

  

Jeromy Olson, the Chief Executive Officer of the Company, owns 33.3% of a sales management and consulting firm, NexPhase Global that provides sales services to the Company. These services include the retention of two full-time senior sales representatives including the current National Sales Director of the Company. Consulting expenses pertaining to the firm’s services were $61,000 and $122,000 for the three and six months ended June 30, 2016, respectively. Included in consulting expense for the three and six months ended June 30, 2016 were 10,000 and 20,000 shares of common stock valued at $11,000 and $22,000, respectively, issued to Nexphase Global.

 

Consulting expenses pertaining to the firm’s services were $40,000 and $80,000 for the three and six months ended June 30, 2015. Included in consulting expense for the three and six months ended June 30, 2015 were 10,000 and 20,000 shares of common stock valued at $10,000 and $20,000, respectively, issued to Nexphase Global.

 

Glenn Tilley, a director of the Company, was issued 15,000 shares of our common stock as part of a Waiver entered into with Mr. Tilley on March 31, 2016. (See Note 6 - Convertible Notes - May 7, 2015 Notes).

 

NOTE 10 – COMMITMENTS AND CONTINGENCIES

 

Services Agreements

 

On August 12, 2015, the Company entered into a Services Agreement with Aranea Partners. Aranea Partners agreed to provide investor relations services to the Company for a period of 12 months. As compensation for the services, the Company issued 50,000 shares of the Company common stock on August 12, 2015. On August 12, 2016, the Company is obligated to issue an additional 100,000 shares of the Company’s common stock. The Company has recorded compensation expense relating to the agreement of $39,782 and $79,563 during the three and six months ended June 30, 2016, respectively.

 

On August 4, 2015, the Company entered into a Services Agreement with a consultant. The consultant agreed to provide investor relations services to the Company for a period of 12 months. As compensation for the services, the Company was obligated to issue 62,500 shares of the Company common stock on August 16, 2015. On November 15, 2016, the Company is obligated to issue an additional 62,500 shares of the Company’s common stock. The Company has recorded compensation expense relating to the agreement of $32,633 and $65,266 during the three and six months ended June 30, 2016, respectively.

 

On February 19, 2016 (the “Effective Date”), the Company entered into a Services Agreement with a consultant. The consultant agreed to provide investor relations services to the Company for a period of 12 months. As compensation for the services, the Company shall pay the consultant $12,000 per month and is obligated to issue 62,500 shares of the Company common stock upon the 90-day anniversary of the Effective Date and on the 180-day, 270-day and 360-day anniversary of the Effective Date, if the agreement is renewed as outline in the terms of the service. The Company may terminate this agreement by providing 5 days advance written notice in the first 60 days of entering into this agreement and with 30 days advance written notice thereafter for the duration of the agreement. The Company has recorded compensation expense relating to the equity portion of the agreement of $68,374 and $99,180 during the three and six months ended June 30, 2016, respectively.

 

On April 14, 2016 (the “Effective Date”), the Company entered into a Services Agreement with a consultant. The consultant agreed to provide financial and operational services to the Company. The agreement terminates on March 31, 2017. As compensation for the services, the Company shall pay the consultant $2,400 per month and is obligated to issue $1,000 in shares of the Company common stock to be issued quarterly in arrears based on a share price equal to the 30-day moving average share price. The Company may terminate this agreement by providing 21 days advance written notice for the duration of the agreement. The Company has recorded compensation expense relating to the equity portion of the agreement of $2,500 and $2,500 during the three and six months ended June 30, 2016, respectively.

 

 

Consulting Agreements

 

In March 2014, the Company reached an agreement with a consulting firm owned by the CEO of the Company to provide non-exclusive sales services. The consulting firm will receive between 3.5% and 5% commissions on sales referred to the Company. In addition, the consulting firm will receive a monthly fee of $6,000, 50,000 shares of common stock upon execution of the agreement, and 10,000 shares of common stock at the beginning of each three month period for the term of the agreement and any renewal periods thereafter. The agreement is for 18 months, and is renewable for successive 18 month terms. On December 10, 2014, the consulting agreement was amended. The monthly fee was increased to $10,000 per month retroactive to September 1, 2014 and 50,000 additional shares of common stock were issued. In addition, the consulting firm will be issued qualified stock options as follows:

 

●

100,000 stock options at an exercise price of $1.50 per share that vest on December 31, 2015

 

●

100,000 stock options at an exercise price of $1.75 per share that vest on December 31, 2016

 

●

100,000 stock options at an exercise price of $2.50 per share that vest on December 31, 2017

  

The options will be issued after the Company adopts a formal option plan that is approved by the Board of Directors.

 

On March 14, 2016, the consulting agreement was further amended. The monthly fee was increased to $20,000 per month for a period of twelve months. At the end of the twelve month period the monthly payment reverts back to $10,000.

 

In March 2014, the Company reached an agreement with a consulting firm to provide non-exclusive sales services. The consulting firm will receive up to 5% commissions on sales referred to the Company. The term of the agreement is for one year, and automatically renews for successive one year terms unless either party notifies the other, in writing, of its intention not to renew at least 60 days before the end of the initial term of this agreement or any renewal term. As compensation for the services, the Company shall pay the consultant $2,500 per month and is obligated to issue 50,000 shares of the Company common stock upon execution of the agreement and 10,000 shares of the Company common stock at the beginning of each three month period for the term of the agreement and any renewal periods thereafter. The Company may terminate this agreement by providing 5 days advance written notice in the first 60 days of entering into this agreement and with 30 days advance written notice thereafter for the duration of the agreement. The Company has recorded compensation expense relating to the equity portion of the agreement of $11,000 and $22,000 during the three and six months ended June 30, 2016, respectively.

 

In February 2015, the Company reached an agreement with a consulting firm to provide non-exclusive sales services with an effective date of February 10, 2015 (the “Effective Date”). The agreement expires on December 31, 2017 and automatically renews for successive one year terms unless either party notifies the other, in writing, of its intention not to renew at least 15 days before the end of the initial term of this agreement or any renewal term. As compensation for the services, the consultant will receive (i) 5% commissions on sales of products or services other than turf referred to the Company; (ii) commission based on square footage of turf sold to certain parties as outlined in the agreement; (iii) 100,000 shares of the Company common stock (the “Payment Shares”) upon execution of the agreement, which shall be subject to certain Clawback provisions. “Clawback” means (i) if this agreement is terminated by the Company prior to December 31, 2016, then 50,000 of the Payment Shares shall be forfeited, and cancelled by the Company; and (i) if this Agreement is terminated by the Company prior to December 31, 2017, then 25,000 of the Payment Shares shall be forfeited, and cancelled by the Company. No equity compensation will be owed in connection with any renewal term. The Company has recorded compensation expense relating to the equity portion of the agreement of $9,057 and $18,114 during the three and six months ended June 30, 2016, respectively.

 

In February 2015, the Company reached an agreement with an individual to provide non-exclusive sales services with an effective date of January 1, 2015 (the “Effective Date”). The individual will receive up to 5% commissions on sales referred to the Company. The term of the agreement is for 18 months from the date of execution, and automatically renews for successive one year terms unless either party notifies the other, in writing, of its intention not to renew at least 90 days before the end of the initial term of this agreement or any renewal term. As compensation for the services, the Company shall pay the consultant $5,000 per month and is obligated to issue 25,000 shares of the Company common stock within 30 days of execution of the agreement, 25,000 shares of the Company common stock within 15 days of the date of execution and delivery of a certain synthetic turf contract and 20,000 shares of the Company common stock upon reaching certain sales milestones. The Company has recorded compensation expense relating to the equity portion of the agreement of $4,166 and $8,333 during the three and six months ended June 30, 2016, respectively.

 

In November 2015, the Company reached an agreement with an individual to provide non-exclusive sales services with an effective date of January 1, 2015 (the “Effective Date”). The term of the agreement is for 3 years from the date of execution, and automatically renews for successive one year terms unless either party notifies the other, in writing, of its intention not to renew at least 90 days before the end of the initial term of this agreement or any renewal term. As compensation for the services, the Company is obligated to issue 75,000 shares of the Company common stock (the “Payment Shares”) within 30 days of execution of the agreement, which shall be subject to certain Clawback provisions. “Clawback” means (i) if this agreement is terminated by the Company prior to September 30, 2016, then 50,000 of the Payment Shares shall be forfeited, and cancelled by the Company; and (i) if this Agreement is terminated by the Company prior to June 30, 2017, then 25,000 of the Payment Shares shall be forfeited, and cancelled by the Company. No equity compensation will be owed in connection with any renewal term. The Company has recorded compensation expense relating to the equity portion of the agreement of $6,850 and $13,700 during the three and six months ended June 30, 2016, respectively.

 

 

In December 2015, the Company reached an agreement with an individual to provide non-exclusive sales services. The individual will receive up to 5% commissions on sales referred to the Company. The term of the agreement is for 18 months from the date of execution, and automatically renews for successive one year terms unless either party notifies the other, in writing, of its intention not to renew at least 90 days before the end of the initial term of this agreement or any renewal term. As compensation for the services, the Company is obligated to issue 25,000 shares of the Company common stock within 30 days of execution of the agreement, 125,000 shares of the Company common stock which shall vest at the rate of 25,000 shares per quarter, effective beginning as of the quarter ending March 31, 2016 and 20,000 shares of the Company common stock upon reaching certain sales milestones. No equity compensation will be owed in connection with any renewal term. The Company has recorded compensation expense relating to the equity portion of the agreement of $27,399 and $54,799 during the three and six months ended June 30, 2016, respectively.

 

In March 2016, the Company reached an agreement with an individual to provide non-exclusive sales services with an effective date of March 15, 2016 (the “Effective Date”). The individual will receive up to 1% commissions on sales referred to the Company. The term of the agreement is for one year, and automatically renews for successive one year terms unless either party notifies the other, in writing, of its intention not to renew at least 60 days before the end of the initial term of this agreement or any renewal term. As compensation for the services, the Company is obligated to issue 4,000 shares of the Company common stock on the 15^th day of each month for the first 4 months of this agreement; and (ii) 10,000 shares of the Company common stock for every $1 million in gross revenue earned by the Company attributable to projects sold by the individual. The Company has recorded compensation expense relating to the equity portion of the agreement of $4,387 and $5,159 during the three and six months ended June 30, 2016, respectively.

 

In April 2016, the Company reached an agreement with an individual to provide non-exclusive sales services with an effective date of April 20, 2016 (the “Effective Date”). The individual will receive up to 4% commissions on sales referred to the Company. The term of the agreement is for one year, and automatically renews for successive one year terms. The Company may terminate this agreement by providing 60 days advance written notice for the duration of the agreement. As compensation for the services, the Company is obligated to issue 4,000 shares of the Company common stock on the 15^th day of each month for the first 6 months of this agreement; and (ii) 10,000 shares of the Company common stock for every $1 million in gross revenue earned by the Company attributable to projects sold by the individual. The Company has recorded compensation expense relating to the equity portion of the agreement of $4,387 and $5,159 during the three and six months ended June 30, 2016, respectively.

 

Employment Agreements

 

In September 2014, Jeromy Olson entered into a 40 month employment agreement to serve in the capacity of CEO, with subsequent one year renewal periods. The CEO will receive a monthly salary of $10,000 that (1) will increase to $13,000 upon the Company achieving gross revenues of at least $10,000,000, as amended, and an operating margin of at least 15%, and (2) will increase to $16,000 per month upon the Company achieving gross revenues of at least $15,000,000 and an operating margin of at least 15%. The agreement provides for cash bonuses of 15% of the annual Adjusted EBITDA between $1 and $1,000,000, 10% of the annual Adjusted EBITDA between $1,000,001 and $2,000,000 and 5% of the annual Adjusted EBITDA greater than $2,000,000. For purposes of the agreement, Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization less share based payments, gains or losses on derivative instruments and other non-cash items approved by the Board of Directors. The CEO was issued 250,000 shares of common stock on the date of the agreement and will receive 250,000 shares of common stock on January 1, 2016 provided the agreement is still in effect. Lastly, the CEO will be issued qualified stock options as follows:

 

●

100,000 stock options at an exercise price of $1.50 per share that vest on December 31, 2015

 

●

100,000 stock options at an exercise price of $1.75 per share that vest on December 31, 2016

 

 

●

100,000 stock options at an exercise price of $2.50 per share that vest on December 31, 2017

 

The options will be issued after the Company adopts a formal option plan that is approved by the Board of Directors. 

 

Director Agreements

 

On January 4, 2016, the Company entered into a director agreement with Glenn Tilley, concurrent with Mr. Tilley’s appointment to the Board of Directors of the Company (the “Board”) effective January 4, 2016. The director agreement may, at the option of the Board, be automatically renewed on such date that Mr. Tilley is re-elected to the Board. Pursuant to the director agreement, Mr. Tilley is to be paid a stipend of One Thousand Dollars ($1,000) per meeting of the Board, which shall be contingent upon his attendance at the meetings being in person, rather than via telephone or some other electronic medium. Additionally, Mr. Tilley shall receive non-qualified stock options (the “Options”) to purchase Two Hundred Thousand (200,000) shares of the Company’s common stock. The exercise price of the Options shall be One Dollar ($1.00) per share. The Options shall vest in equal amounts over a period of two (2) years at the rate of Twenty Five Thousand (25,000) shares per fiscal quarter on the last day of each such quarter, commencing January 4, 2016. The total grant date value of the options was $97,535 which shall be expensed over the vesting period.

 

Advisory Board Agreements

 

On February 11, 2016, the Company entered into an advisory board agreement with John Brenkus, effective June 1, 2016 (the (“Effective Date”). The term of the agreement is for a period of 24 months commencing on the Effective Date. Pursuant to the agreement, Mr. Brenkus is to be issued 25,000 shares of the Company common stock at the beginning of each quarter starting on the Effective Date through the term of the agreement. The Company has recorded compensation expense relating to the agreement of $8,740 and $8,740 during the three and six months ended June 30, 2016, respectively.

 

Supply Agreement

 

On December 2, 2015, IMG Academy LLC (“IMG”) and the Company entered into an Official Supplier Agreement (the “Agreement”). The term of the Agreement is January 1, 2016 through December 31, 2019. The Agreement grants SFE certain defined promotional opportunities and supplier benefits. For the exclusive rights given to SFE in the Agreement, SFE will pay IMG $626,000. The payment terms are 1/3 after completion and acceptance of the lacrosse field built by SFE, 1/3 fifteen (15) months later and 1/3 30 months later plus IMG is capped on the price per square ft it will pay for future turf fields. If the Agreement is terminated at any time, the unpaid balance on the $626,000 owed to IMG still remains payable. As of June 30, 2016 the Company has accrued a liability of $78,250 related to the Agreement and is included in accounts payable and accrued expenses at June 30, 2016.

 

Placement Agent and Finders Agreements

 

The Company entered into a non-exclusive agreement with GP Nurmenkari, Inc. (“GP”) effective June 28, 2016 (the “GP Agreement”) and ending on August 31, 2016 (the “GP Term”), pursuant to which GP will introduce the Company to one or more investors (“Investors”) in connection with providing the Company with equity and/or debt financing.

 

GP will be compensated for its services under the agreement as follows:

 

(A)

The Company shall pay consideration to GP at each closing, in cash, a fee in an amount equal to 4.5% of the aggregate gross proceeds raised from (i) each sale of securities pursuant to a financing.

 

(B)

The Company shall grant and deliver to GP at each closing of a Financing warrants to purchase common stock of the Company (the “GP Warrants”) in the amount equal to (i) in the case of an equity financing, the amount that is 5.5% of the securities sold pursuant to such equity financing and (ii) in the case of a debt financing, the number of shares of common stock of the Company that can be purchased with 5.5% of the amount of cash funded pursuant to such debt financing, based on the highest trading price of the Company’s common stock as of the trading date immediately preceding the date of such closing. The GP Warrants shall (i) be exercisable commencing on the date of issuance at a price equal to the lower of (x) $0.70 per share and (y) the market price equal to the trailing volume weighted average price (VWAP) for the seven trading days immediately preceding the date of such closing, (ii) expire seven years after the date of issuance, and (iii) include the most favorable anti-dilution protection contained in the Company’s current securities or included in any security issued by the Company during the term of the Warrants, a cashless and automatic exercise provision, customary registration rights, and shall be non-redeemable.

 

 

(C)

If within twenty-four months from the date of the agreement, the Company completes any financing of equity or debt with any Investors who participated in a financing, the Company will pay to GP upon the closing of such financing all compensation set forth in the GP Agreement.

 

(D)

If at any time within the twelve months following the expiration of the GP Agreement, the Company completes a transaction or receives consideration from any person (i) who has issued a term sheet to the Company through GP during the GP Term; (ii) with whom the Company or GP had discussions during the GP Term, then, the Company shall pay GP the cash fee described above.

 

Litigation

 

The Company is engaged in an administrative proceeding against a former employee who was terminated from his positions with the Company for cause on May 12, 2014. The former employee has claimed he is due between $24,000 and $48,000 in unpaid wages. The Company believes this claim to be unfounded and is in the process of settling the matter while continuing to vigorously defend itself.

 

Operating Leases

 

On September 23, 2015, the Company entered into a new lease agreement for its office space in Illinois. The lease commences on January 1, 2016 and expires on December 31, 2016. The lease has minimum monthly payments of $1,045. The rents for the first and seventh months of 2016 are free. The lease automatically renews for periods of 12 months unless a three month notice is provided by either the Company or the landlord. The Company was required to pay a security deposit to the lessor totaling $2,090. Deferred rent at June 30, 2016 and December 31, 2015 was immaterial.

 

For the three months ended June 30, 2016 and 2015, the Company incurred rent expense of $2,854 and $1,906, respectively. For the six months ended June 30, 2016 and 2015, the Company incurred rent expense of $6,471 and $12,017, respectively.

 

NOTE 11 – SUBSEQUENT EVENTS

 

Subsequent to June 30, 2016, the Company sold 170,453 shares of common stock to investors in exchange for $187,498 in gross proceeds in connection with the private placement of the Company’s stock.

 

In connection with the private placement the Company incurred fees of $24,375. In addition, 17,045 five year warrants with an exercise price of $1.10 were issued to the placement agent. The Company valued the warrants on the commitment date using a Black-Scholes-Merton option pricing model. The value of the warrants was a direct cost of the private placement and has been recorded as a reduction in additional paid in capital.

 

Subsequent to June 30, 2016, 62,000 shares of common stock were issued to a consultant for professional services provided to the Company.

 

On July 14, 2016, the Company closed a Credit Agreement (the “Credit Agreement”) by and among the Company and First Form, Inc. (the “Borrowers”) and Genlink Capital, LLC, as lender (“Genlink”). Pursuant to the Credit Agreement, Genlink agreed to loan the Company up to a maximum of $1 million for general operating expenses. An initial amount of $670,000 was funded by Genlink at the closing of the Credit Agreement. Any increase in the amount extended to the Borrowers shall be at the discretion of Genlink.

 

The amounts borrowed pursuant to the Credit Agreement are evidenced by a Revolving Note (the “Revolving Note”) and the repayment of the Revolving Note is secured by a first position security interest in substantially all of the Company’s assets in favor of Genlink, as evidenced by a Security Agreement by and among the Borrowers and Genlink (the “Security Agreement”). The Revolving Note is due and payable, along with interest thereon, on December 20, 2017, and bears interest at the rate of 15% per annum, increasing to 19% upon the occurrence of an event of default. The Company incurred loan fees of approximately $35,000 for entering into the Credit Agreement. In addition, as per the terms of the GP Finders Agreement (See Note 10), the Company is obligated to pay a fee of $30,150 to GP and issue GP 51,395 common stock purchase warrants. The Company must pay a minimum of $75,000 in interest over the life of the loan. The principal balance on the note as of the date of this filing was $670,000.

  

On August 3, 2016, the Company entered into a sponsorship agreement with the National Council of Youth Sports (NCYS).  NCYS agreed to provide marketing support services to the Company for a period of 12 months. The term of the agreement is for one year, and automatically renews for successive one year terms unless either party notifies the other, in writing, of its intention not to renew at least 60 days before the end of the initial term of this agreement or any renewal term. The Company will compensate NCYS an annual non-refundable sponsorship fee of $20,000 per year, with $5,000 due upon signing of the agreement and three (3) additional $5,000 payments made every 4 weeks successively, and $20,000 per year thereafter due on the anniversary renewal date for the term of the agreement. Furthermore, the Company will compensate NCYS an additional commission fee for each referral/introduction that results in a business transaction. The amount of commission fee due is 2.0% of the Total Invoice Price of the Project. “Total Invoice Price” shall mean the total contract price at which a Project is invoiced to the customer. No fee shall be due or payable until the Company has entered into the business transaction with those that NCYS has introduced. The fee shall be paid as follows: (i) on the 10th day following the date on which construction begins, half (50%) will be due and payable and (ii) upon the Company’s receipt of payment in full the remaining half (50%) shall be due and payable.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

  

This quarterly report on Form 10-Q and other reports filed by Sports Field Holdings, Inc. (the “Company”) from time to time with the SEC (collectively, the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company’s business, industry, and the Company’s operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

 

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.

 

Overview

 

Sports Field Holdings, Inc. (the “Company” or “Sports Field”), through its wholly owned subsidiary FirstForm, Inc. (formerly SportsField Engineering, Inc., “FirstForm”), is an innovative product development company engaged in the design, engineering and construction of athletic fields, facilities and sports complexes and the sale of customized synthetic turf products and synthetic track systems.

 

According to Applied Market Information (AMI), over 2,000 athletic field projects were constructed in the U.S. in 2015, creating a $1.8 billion synthetic turf market. These statistics are supported by the number of square meters of synthetic turf manufactured and installed in the U.S. in 2015 based on an average size of 80,000 sqft per project. We believe synthetic turf fields have become the field of choice for public and private schools, municipal parks and recreation departments, non-profit and for profit sports venue businesses, residential and commercial landscaping and golf related venues. We believe this is due to the spiraling costs associated with maintaining natural grass athletic fields and the demand for increased playing time, durability of the playing surface and the ability to play on that surface in any weather conditions.

 

Although synthetic turf athletic fields and synthetic turf have become a viable alternative to natural grass fields, there are a number of technical and environmental issues that have arisen through the evolution of the development of turf and the systems designed around its installation. Sports Field has focused on addressing the main technical issues that still remain with synthetic turf athletic fields and synthetic turf including but not limited to environmental and safety concerns related to infill used in synthetic turf fields as well the reduction of surface heat, Gmax levels (the measure of how much force the surface absorbs and in return, how much is returned to the athlete) as well drainage issues related to the base construction of a turf installation.

 

In addition to increased need for available playing space, collegiate athletic facilities have become an attractive recruiting tool for many institutions. The competition for athletes and recruiting has resulted in a multitude of projects to build new or upgrade existing facilities. These facilities projects include indoor fields, bleachers, press boxes, lighting, concession stands as well as locker rooms and gymnasiums. We believe that our position in the sports facilities design, construction and turf sales industry allows us to benefit from this spending because we are able to compete for sale of the turf as well as the design and construction revenue on such projects, whereas our competitors can typically only compete for the turf components or the construction revenue, but not all three. In fact, according to a current IBIS report, there are no national firms competing in these sectors that have even 5% market share.

 

 

Through our strategic operations design, we have the ability to operate throughout the U.S. and provide high quality synthetic turf systems focused on player safety and performance and construct those facilities for our clients using a single partner. Due to our ability to design, estimate, engineer, general contract and install our solutions, we can spend more of every owner dollar on product rather than margin and overhead, thereby delivering a premium product at market rates for our customers. Since inception we have completed a variety of projects from the design, engineering and build of entire football stadiums to the installation of a specialized turf track systems. Our team has also designed, engineered and installed baseball stadiums, soccer and lacrosse fields, indoor soccer facilities, softball fields and running tracks and for private sports venues, public and private high schools and public and private universities. In addition, we have designed and engineered and constructed concession stands with full kitchen facilities, restroom structures, press boxes, baseball dugouts, bleacher seating, ticket booths, locker room facilities and gymnasium expansion projects.

 

During fiscal 2016, the Company has completed some very important projects and initiatives including the completion of a lacrosse/soccer field at IMG Academy in Bradenton, FL (“IMG”).  In addition to creating a very important reference site, we have also built out a series of research and development plots to allow for continuous product trials and development opportunities at IMG. 

Additionally, our largest facilities design build project to date is currently underway at St. Josephs by-the-Sea High School in Staten Island, NY. With the design and engineering portions of the project completed we will be moving into phase two construction during the third quarter of 2016.  We believe that this project will represent a new benchmark for our facilities construction capabilities.

Furthermore, we maintain a number of contracts for projects that were originally slated to commence in the second quarter of 2016. However, due to mobilization delays, these projects and revenue related to such projects, will be realized beginning in the third quarter.  

Summary of Statements of Operations for the Three Months Ended June 30, 2016 and 2015:

 

		Three Months Ended
		June 30, 2016				June 30, 2015
Revenue		$	467,483			$	896,034
Gross profit (loss)		$	(57,737	)		$	(173,318	)
Operating expenses		$	(846,087	)		$	(780,101	)
Loss from operations		$	(903,824	)		$	(953,419	)
Other income (expense)		$	(113,364	)		$	(15,042	)
Net loss		$	(1,017,188	)		$	(968,461	)
Loss per common share - basic and diluted		$	(0.06	)		$	(0.07	)

 

Revenue

 

Revenue was $467,483 for the three months ended June 30, 2016, as compared to $896,034 for the three months ended June 30, 2015, a decrease of $428,551. The substantial decrease in revenue was primarily due to contracts entered into during prior quarters winding down during the current quarter. Contracted projects with expected start dates in second quarter have been delayed and will commence in the third quarter.

 

Gross Profit (Loss)

 

The Company generated a gross profit (loss) of $(57,737), resulting in a gross profit margin of (12.35%), during the three months ended June 30, 2016 as compared to a gross profit (loss) of $(173,318) and a gross profit margin of (19.34%), during the three months ended June 30, 2015. Negative gross profit percentage decreased from (19.34%) for the three months ended June 30, 2015 to (12.35%) for the three months ended June 30, 2016 due to an increase in overall estimated profit margins on jobs entered into subsequent to June 30, 2015. During the prior period projects were bid at lower than current acceptable margins in order to place fields in certain strategic geographic locations that the Company believed could be used as a marketing tool in the future.

 

Operating Expenses

 

Operating expenses consist primarily of compensation and related costs for personnel and facilities, and include costs related to our facilities, finance, human resources, and fees for professional services. Professional services are principally comprised of outside legal, audit, marketing, investor relations and outsourcing services.

 

Operating expenses increased by 8% during the three months ended June 30, 2016, as compared to the three months ended March 31, 2015. The overall $65,986 increase in operating expenses is primarily attributable to the following approximate net increases (decreases) in operating expenses:

 

●	An increase in stock based compensation expense of $240,500. The increase was primarily due to an increase in stock based awards issued subsequent to June 30, 2015 which are being expensed over the term of the contract.
●	An increase of research and development expenses of $28,674. Research and development expenses consist primarily of costs incurred at our field testing sites. We expense research and development costs as incurred.
●	A decrease in professional fees of $21,000 (excluding stock based compensation). In the current period the Company incurred a decrease in legal fees, fees for investor relations and financial advisory service fees. These increases were partially offset by an increase in consulting fees related to business development and sales consultants along with increases in accounting and auditing fees.
●	A decrease in travel and travel related expenses of $35,000 as a result of decreased sales and project management travel expenses.
●	A decrease in warranty expenses of $198,000. During the prior period the Company incurred warranty costs relating to the faulty installation of materials by a subcontractor that has been released from the Company.
●	An increase in advertising, marketing and marketing related expenses of $48,000. The Company is focusing on building name   recognition in the industry.

 

 

Other Income (Expenses)

 

Other income (expense) consists primarily of interest expense related to the Company’s notes payable.

 

Other income (expenses), net for the three months ended June 30, 2016, were $(113,364), as compared to $(15,042) for the three months ended June 30, 2015. For the three months ended June 30, 2016 other income (expenses) consisted of $(113,364) in interest expense. For the three months ended June 30, 2015 other income (expenses) consisted of $(15,042) in interest expense.

 

Net Loss

 

The net loss for the three months ended June 30, 2016 was $(1,017,188), or a basic and diluted loss per share of $(0.06), as compared to a net loss of $(968,461), or a basic and diluted loss per share of $(0.07), for the three months ended June 30, 2015. The increase in the loss compared to the prior period is primarily attributable to the increase in operating expenses and increase in other income (expense) items discussed above.

 

Summary of Statements of Operations for the Six Months Ended June 30, 2016 and 2015:

 

		Six Months Ended
		June 30, 2016				June 30, 2015
Revenue		$	1,278,558			$	1,413,894
Gross profit (loss)		$	(10,522	)		$	(57,196	)
Operating expenses		$	(1,862,078	)		$	(1,229,049	)
Loss from operations		$	(1,872,600	)		$	(1,286,245	)
Other income (expense)		$	(272,362	)		$	(11,927	)
Net loss		$	(2,144,962	)		$	(1,298,172	)
Loss per common share - basic and diluted		$	(0.14	)		$	(0.10	)

 

Revenue

 

Revenue was $1,278,558 for the six months ended June 30, 2016, as compared to $1,413,894 for the six months ended June 30, 2015, a decrease of $135,336. The decrease in revenue was primarily due to contracts entered into during prior quarters winding down during the current quarter.

 

Gross Profit (Loss)

 

The Company generated a gross profit (loss) of $(10,522), resulting in a gross profit margin of (0.82%), during the six months ended June 30, 2016 as compared to a gross profit (loss) of $(57,196) and a gross profit margin of (4.05%), during the six months ended June 30, 2015. Negative gross profit percentage decreased from (4.05%) for the six months ended June 30, 2015 to (0.82%) for the six months ended June 30, 2016 due to an increase in overall estimated profit margins on jobs entered into subsequent to June 30, 2015. During the prior period projects were bid at lower than current acceptable margins in order to place fields in certain strategic geographic locations that the Company believed could be used for the purpose of marketing its products.

 

Operating Expenses

 

Operating expenses consist primarily of compensation and related costs for personnel and facilities, and include costs related to our facilities, finance, human resources, and fees for professional services. Professional services are principally comprised of outside legal, audit, marketing, investor relations and outsourcing services.

 

Operating expenses increased by 52% during the six months ended June 30, 2016, as compared to the six months ended June 30, 2015. The overall $633,029 increase in operating expenses is primarily attributable to the following approximate net increases (decreases) in operating expenses:

 

●	An increase in stock based compensation expense of $713,000. The increase was primarily due to an increase in stock based awards issued subsequent to June 30, 2015 which are being expensed over the term of the contract.
●	An increase of research and development expenses of $88,447. Research and development expenses consist primarily of costs incurred at our field testing sites. We expense research and development costs as incurred.

  

 

●	An increase in professional fees of $10,000 (excluding stock based compensation). In the current period the Company incurred an increase in consulting fees related to business development, sales consultants and investor relations. These increases were partially offset by a decrease in legal fees and financial advisory service fees.
●	A decrease in travel and travel related expenses of $29,000 as a result of decreased sales and project management travel expenses.
●	A decrease in warranty expenses of $189,000. During the prior period the Company incurred warranty costs relating to the faulty installation of materials by a subcontractor that has been released from the Company.
●	An increase in advertising, marketing and marketing related expenses of $27,500. The Company is focusing on building name   recognition in the industry.

 

Other Income (Expenses)

 

Other income (expense) consists primarily of interest expense related to the Company’s notes payable.

 

Other income (expenses), net for the six months ended June 30, 2016, were $(272,362), as compared to $(11,927) for the six months ended June 30, 2015. For the six months ended June 30, 2016 other income (expenses) consisted of $(272,603) in interest expense and miscellaneous income of $241. For the six months ended June 30, 2015 other income (expenses) consisted of $(11,927) in interest expense.

 

Net Loss

 

The net loss for the six months ended June 30, 2016 was $(2,144,962), or a basic and diluted loss per share of $(0.14), as compared to a net loss of $(1,298,172), or a basic and diluted loss per share of $(0.10), for the six months ended June 30, 2015. The increase in the loss compared to the prior period is primarily attributable to the increase in operating expenses and increase in other income (expense) items discussed above.

 

Liquidity and Capital Resources

 

The following table summarizes total current assets, liabilities and working capital at June 30, 2016, compared to December 31, 2015:

 

		June 30, 2016				December 31, 2015				Increase/ (Decrease)
Current Assets		$	463,129			$	359,930			$	103,199
Current Liabilities		$	2,735,419			$	2,876,965			$	(141,546	)
Working Capital (Deficit)		$	(2,272,290	)		$	(2,517,035	)		$	(244,745	)

 

At June 30, 2016, we had a working capital deficit of $(2,272,290) as compared to working capital deficit of $(2,517,035) at December 31, 2015, a working capital deficit decrease of $244,745. During the six months ended June 30, 2016 the Company received approximately $1,478,000 in net proceeds from the private placement of common stock through Spartan Capital. The Company used the proceeds to pay down debt and vendor liabilities and to fund operations due to the Company’s continued operating losses during the six months ended June 30, 2016.

 

Summary Cash flows for the six months ended June 30, 2016 and 2015:

 

		Six Months Ended
		June 30, 2016				June 30, 2015
Net cash used in operating activities		$	(1,393,016	)		$	(667,194	)
Net cash used in investing activities		$	–				–
Net cash provided by financing activities		$	1,331,616			$	405,000

 

Cash Used in Operating Activities

 

Our primary uses of cash from operating activities include payments to contractors for project costs, consultants, legal and professional fees, marketing expenses and other general corporate expenditures.

 

Cash used in operating activities consist of net loss adjusted for certain non-cash items, primarily equity-based compensation expense, depreciation expense, gains and losses on dispositions of fixed assets, amortization of debt issuance costs and amortization of debt discount, as well as the effect of changes in working capital and other activities.

 

The adjustments for the non-cash items increased from the six months ended June 30, 2015 to the six months ended June 30, 2016 due primarily to an increase in equity-based compensation and the amortization of debt discount on debt agreements entered into during the 1st quarter of 2016. In addition, the net decrease in cash from changes in working capital activities from the six months ended June 30, 2015 to the six months ended June 30, 2016 primarily consisted of an increase in accounts receivable due primarily due to a large contract entered into during the 1st quarter of 2016, an increase in prepaid expenses and a decrease in accounts payable and accrued expenses primarily due to the Company paying down vendor liabilities with the proceeds received from the private placement of the Company’s common stock during the 1^st and 2^nd quarters of 2016.

 

  

Cash Used in Financing Activities

 

Net cash provided by financing activities for the six months ended June 30, 2016 and 2015 was $1,331,616 and $405,000, respectively. During the six months ended June 30, 2016, the Company had the following financing transactions: i) received $150,000 in gross proceeds from the issuance of convertible notes and repaid $(150,000) towards convertible notes ; ii) repaid $202,924 in promissory notes; iii) received $1,478,284 in net proceeds from common stock subscriptions; iv) net proceeds/repayments from/to the factor amounted to $56,256. During the six months ended June 30, 2015, the Company had the following financing transactions: i) received $450,000 in gross proceeds from the issuance of convertible notes and paid $45,000 in debt issuance costs.

 

Going Concern

 

As reflected in the accompanying condensed consolidated financial statements, as of June 30, 2016 the Company had a cash deficit of $(3,518) and a working capital deficit of $(2,272,290). Furthermore, the Company had a net loss and net cash used in operations of $(2,144,962) and $(1,393,016), respectively, for the six months ended June 30, 2016 and an accumulated deficit totaling $(12,414,480). These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The ability of the Company to continue its operations as a going concern is dependent on Management's plans, which include the raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements.

 

The Company will require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives. The Company believes its current available cash along with anticipated revenues may be insufficient to meet its cash needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all.

 

The Company entered into an exclusive Financial Advisory and Investment Banking Agreement with Spartan Capital Securities, LLC (“Spartan”) effective October 1, 2015 (the “2015 Spartan Advisory Agreement”). Pursuant to the 2015 Spartan Advisory Agreement, Spartan will act as the Company’s exclusive financial advisor and placement agent to assist the Company in connection with a best efforts private placement (the “2015 Financing”) of up to $3.5 million or 3,181,819 shares (the “Shares”) of the common stock of the Company at $1.10 per Share. Spartan shall have the right to place up to an additional $700,000 or 636,364 Shares in the 2015 Financing to cover over-allotments at the same price and on the same terms as the other Shares sold in the 2015 Financing. The 2015 Spartan Advisory Agreement expires on January 1, 2019.

 

Subsequent to June 30, 2016, the Company sold 170,453 shares of common stock to investors in exchange for $187,498 in gross proceeds in connection with the private placement of the Company’s stock.

 

In connection with the private placement the Company incurred fees of $24,375. In addition, 17,045 five year warrants with an exercise price of $1.10 were issued to the placement agent. The Company valued the warrants on the commitment date using a Black-Scholes-Merton option pricing model. The value of the warrants was a direct cost of the private placement and has been recorded as a reduction in additional paid in capital.

 

The Company entered into a non-exclusive agreement with GP Nurmenkari, Inc. (“GP”) effective June 28, 2016 (the “GP Agreement”) and ending on August 31, 2016 (the “GP Term”), pursuant to which GP will introduce the Company to one or more investors (“Investors”) in connection with providing the Company with equity and/or debt financing.

 

GP will be compensated for its services under the agreement as follows:

 

(A)

The Company shall pay consideration to GP at each closing, in cash, a fee in an amount equal to 4.5% of the aggregate gross proceeds raised from (i) each sale of securities pursuant to a financing.

 

(B)

The Company shall grant and deliver to GP at each closing of a Financing warrants to purchase common stock of the Company (the  “GP Warrants”) in the amount equal to (i) in the case of an equity financing, the amount that is 5.5% of the securities sold pursuant to such equity financing and (ii) in the case of a debt financing, the number of shares of common stock of the Company that can be purchased with 5.5% of the amount of cash funded pursuant to such debt financing, based on the highest trading price of the Company’s common stock as of the trading date immediately preceding the date of such closing. The GP Warrants shall (i) be exercisable commencing on the date of issuance at a price equal to the lower of (x) $0.70 per share and (y) the market price equal to the trailing volume weighted average price (VWAP) for the seven trading days immediately preceding the date of such closing, (ii) expire seven years after the date of issuance, and (iii) include the most favorable anti-dilution protection contained in the Company’s current securities or included in any security issued by the Company during the term of the Warrants, a cashless and automatic exercise provision, customary registration rights, and shall be non-redeemable.

 

 

(C)

If within twenty-four months from the date of the agreement, the Company completes any financing of equity or debt with any Investors who participated in a financing, the Company will pay to GP upon the closing of such financing all compensation set forth in the GP Agreement.

 

(D)

If at any time within the twelve months following the expiration of the GP Agreement, the Company completes a transaction or receives consideration from any person (i) who has issued a term sheet to the Company through GP during the GP Term; (ii) with whom the Company or GP had discussions during the GP Term, then, the Company shall pay GP the cash fee described above.

 

On July 14, 2016, the Company closed a Credit Agreement (the “Credit Agreement”) by and among the Company and First Form, Inc. (the “Borrowers”) and Genlink Capital, LLC, as lender (“Genlink”). Pursuant to the Credit Agreement, Genlink agreed to loan the Company up to a maximum of $1 million for general operating expenses. An initial amount of $670,000 was funded by Genlink at the closing of the Credit Agreement. Any increase in the amount extended to the Borrowers shall be at the discretion of Genlink.

 

The amounts borrowed pursuant to the Credit Agreement are evidenced by a Revolving Note (the “Revolving Note”) and the repayment of the Revolving Note is secured by a first position security interest in substantially all of the Company’s assets in favor of Genlink, as evidenced by a Security Agreement by and among the Borrowers and Genlink (the “Security Agreement”). The Revolving Note is due and payable, along with interest thereon, on December 20, 2017, and bears interest at the rate of 15% per annum, increasing to 19% upon the occurrence of an event of default. The Company incurred loan fees of approximately $35,000 for entering into the Credit Agreement. In addition, as per the terms of the GP Finders Agreement (See Note 10 of the condensed consolidated financial statements contained elsewhere in this document), the Company is obligated to pay a fee of $30,150 to GP and issue GP 51,395 common stock purchase warrants. The Company must pay a minimum of $75,000 in interest over the life of the loan. The principal balance on the note as of the date of this filing was $670,000.

 

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Off-Balance Sheet Arrangements

 

As of June 30, 2016 and December 31, 2015, the Company had no off-balance sheet arrangements.

 

Critical Accounting Policies

 

We believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this “Management’s Discussion and Analysis of Financial Condition and Results of Operation.”

   

Revenue and Cost Recognition

 

Revenues from construction contracts are included in contract revenue in the condensed consolidated statements of operations and are recognized under the percentage-of-completion accounting method. The percent complete is measured by the cost incurred to date compared to the estimated total cost of each project. This method is used as management considers expended cost to be the best available measure of progress on these contracts, the majority of which are completed within one year, but may occasionally extend beyond one year. Inherent uncertainties in estimating costs make it at least reasonably possible that the estimates used will change within the near term and over the life of the contracts.

 

Contract costs include all direct material and labor costs and those indirect costs related to contract performance and completion. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. General and administrative costs are charged to expense as incurred.

 

Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income. Such revisions are recognized in the period in which they are determined.

 

Costs and estimated earnings in excess of billings are comprised principally of revenue recognized on contracts (on the percentage-of-completion method) for which billings had not been presented to customers because the amounts were not billable under the contract terms at the balance sheet date. In accordance with the contract terms, any unbilled receivables at period end will be billed subsequently. Amounts are billed based on contractual terms. Billings in excess of costs and estimated earnings represent billings in excess of revenues recognized.

 

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the periods. Actual results could differ from those estimates. The Company’s significant estimates and assumptions include the accounts receivable allowance for doubtful accounts, percentage of completion revenue recognition method, the useful life of fixed assets and assumptions used in the fair value of stock-based compensation.

 

Stock-Based Compensation 

 

The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. Awards granted to directors are treated on the same basis as awards granted to employees. 

  

Fair Value of Financial Instruments

 

Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities, and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.

 

New Accounting Pronouncements

 

For information regarding new accounting pronouncements that were adopted and new accounting pronouncements that were issued during the six months ended June 30, 2016, see the "Recently Adopted Accounting Guidance" and "Recent Accounting Guidance Not Yet Adopted" sections of Note 2, “Significant Accounting Policies” to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We do not hold any derivative instruments and do not engage in any hedging activities.

 

Item 4. Controls and Procedures.

 

(a) Evaluation of Disclosure Controls and Procedures.

 

Pursuant to Rule 13a- 15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s PEO and PFO concluded that the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s PEO and PFO, as appropriate, to allow timely decisions regarding required disclosure.

 

(b) Changes in Internal Control over Financial Reporting.

 

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

Except as set forth below we are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our Company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

The Company is engaged in an administrative proceeding against a former employee who was terminated from his positions with the Company for cause on May 12, 2014. The former employee has claimed he is due between $24,000 and $48,000 in unpaid wages. The Company believes this claim to be unfounded and is in the process of settling the matter while continuing to vigorously defend itself.

 

Item 1A. Risk Factors.

 

We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K, filed with the SEC on April 12, 2016.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

Except as provided below, there were no unregistered sales of equity securities for the quarter ended June 30, 2016 that were not otherwise disclosed or required to be reported on a Current Report on Form 8-K. 

 

Issuance of Common Stock in Exchange for Services

 

On January 1, 2016, the Company issued 250,000 shares of common stock to our Chief Executive Officer for services at a fair value of $275,000. The shares were valued based on the most recent sales of its common stock to independent qualified investors.

 

On March 31, 2016, the Company issued 1,000 shares of common stock to an employee for services at a fair value of $1,100. The shares were valued based on the most recent sales of its common stock to independent qualified investors.

 

On June 30, 2016, the Company issued 1,500 shares of common stock to an employee for services at a fair value of $1,650. The shares were valued based on the most recent sales of its common stock to independent qualified investors.

 

During the period January 1, 2016 through June 30, 2016, the Company issued 339,000 shares of common stock to 9 sales consultants, for services rendered at a fair value of $365,650. The shares were valued based on the most recent sales of its common stock to independent qualified investors.

 

On June 1, 2016 the Company issued 25,000 shares of its common stock at a fair value of $27,500 to an advisory board member pursuant to his agreement with the Company and service in such capacity. The shares were valued based on the most recent sales of its common stock to independent qualified investors.

 

During the period January 1, 2016 through June 30, 2016 the Company issued 125,000 shares of its common stock at a fair value of $131,000 for services related to investor relations. The shares were valued based on the most recent sales of its common stock to independent qualified investors.

 

The foregoing issuances of the shares of common stock was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(a)(2) thereof, as transactions by an issuer not involving a public offering.

 

Issuance of Stock Options for Services

 

On January 4, 2016, the Company issued a board member 100,000 common stock options for services at a fair value of $97,500. The Company valued these issuances at fair value, utilizing a Black-Scholes option valuation model.

 

Issuance of Stock Warrants for Services

 

During the period January 1, 2016 through June 30, 2016, the Company issued an investment banker 154,475 common stock warrants for services at a fair value of $69,147. The Company valued these issuances at fair value, utilizing a Black-Scholes option valuation model.

 

Common Stock Issued in Debt Modification

 

As part of a debt modification entered into on March 31, 2016, we agreed to issue three investors an aggregate of 45,000 shares of our common stock at a fair value of $49,500. The shares were valued based on the most recent sales of its common stock to independent qualified investors.

 

Issuance of Common Stock in Exchange for Cash

 

On June 15, 2016, July 1, 2016 and July 22, 2016, the Company conducted the tenth, eleventh, and twelve closings, respectively (collectively, the “Closings”) of a private placement offering to accredited investors (the “Offering”) of the Company’s common stock.

 

 

In connection with the Closings, the Company entered into definitive subscription agreements with 11 accredited investors and issued 214,635 shares of the Company’s common stock for gross proceeds of $236,098 in connection with the Closings. Proceeds from the Offering were used for general working capital purposes and for advancing the Company’s business plan.

 

To date, the Company has entered into definitive subscription agreements with 39 accredited investors (the “Subscription Agreements”) and issued an aggregate of 1,833,375 shares of the Company’s common stock for aggregate gross proceeds of $2,016,712 in connection with the Offering.

  

Convertible Debt Issuances

 

On February 22, 2016 (the “Effective Date”), the Company issued a convertible note in the principal aggregate amount of $170,000 to a private investor. The note pays interest at a rate of 12% per annum and matures on August 19, 2016 (the “Maturity Date”). The Note is convertible into shares of the Company’s common stock at a conversion price equal to: (i) from the Effective Date through the Maturity Date at $1.00 per share; and (ii) beginning one day after the Maturity Date, or notwithstanding the foregoing, at any time after the Company has registered shares of its common stock underlying the note in a registration statement on Form S-1 or any other form applicable thereto, the lower of $1.00 per share or the variable conversion price (as defined in the note).

 

As additional consideration for issuing the note, on the Effective Date the Company issued to the investor 35,000 shares of the Company’s restricted common stock at a fair value of $38,500. The shares were valued based on the most recent sales of its common stock to independent qualified investors.

 

All of the aforementioned issuances were made in reliance on an exemption from registration set forth in Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Regulation D promulgated thereunder.

 

Item 3. Defaults Upon Senior Securities.

 

There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

There is no other information required to be disclosed under this item which was not previously disclosed. 

 

Item 6. Exhibits.

 

Exhibit No.		Description
31.1		Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). *
31.2		Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). *
32.1		Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
32.2		Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
101.INS		XBRL Instance Document *
101.SCH		XBRL Taxonomy Extension Schema *
101.CAL		XBRL Taxonomy Extension Calculation Linkbase *
101.DEF		XBRL Taxonomy Extension Definition Linkbase *
101.LAB		XBRL Taxonomy Extension Label Linkbase *
101.PRE		XBRL Taxonomy Extension Presentation Linkbase *

 

* Filed herewith 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	SPORTS FIELD HOLDINGS, INC.
Date: August 15, 2016	By:	/s/ Jeromy Olson
	Name:	Jeromy Olson
	Title:	Chief Executive Officer (Principal Executive Officer) (Principal Financial Officer) (Principal Accounting Officer)

 

 

 11