| Use of Proceeds: | | The Company will not receive any proceeds from the sale of the country, the Company intends to seek to leverage those client relationships and successful projects to aggressively market to all potential clients in these regions.Broaden our relationships with strategic partners to increase sales and drive revenues. In addition to installing a new football/lacrosse field, we have recently entered into a four-year marketing agreement with IMG Academy in Bradenton, Florida (“IMG”), a world renowned school and athletic training destination. IMG’s nationally recognized sports programs attract premier athletes from all over the globe. Our official supplier agreement with IMG allows us to utilize their logo in our marketing materials, perform unlimited site visits with clients to see our products as well as allow space for our 14,000 square foot research and development installation. In addition, we are allowed to utilize IMG athletes to conduct product testing to ensure performance and safety for up to four times each year.
The campus at IMG attracts many students, athletes, university administrators and recruiters and coaches every season for training. Our showcase facility can be viewed by all of these visitors and our relationship with IMG brings national credibility to the Company. It also allows us to conduct research in an effort to consistently update our product offerings to make sure we are always doing our best to put out the safest and highest performing products in the market.
Recently, the National Council of Youth Sports (“NCYS”) has approved the Company’s products as a “Recommended Provider” of PrimePlay™ Replicated Grass™ turf systems. The NCYS membership includes over 200 member organizations that serve more than 60,000,000 registered youth participants. The NCYS leads the youth sports industry in offering its members exceptional value, and quality resources and services that are relevant, reliable, meaningful and purposeful. As NCYS’s preferred synthetic turf provider, we believe we will benefit from improved access to decision-makers within the national youth sports scene, introductions to fellow members, and unique educational opportunities regarding the Company’s advanced synthetic turf products.
We hope to continue to develop high profile strategic partnerships that will allow for greater awareness of our products and services with institutions that are focused on athlete safety and athletic performance.
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Drive adoption and awareness of our eco-friendly turf and infill products among coaches, athletic directors, administrators, and athletes. We intend to educate coaches, athletic directors, administrators and athletes on the compelling case for our infill matrix called Organite™, an eco-safe infill alternative that contains only components that are either inert or biodegradable. Organite™ infills are free from lead, chromium and all other potential cancer causing agents that are commonly found in fields all across the U.S. Our PrimePlay™ synthetic turf products are free from the polyurethane backing, which cannot be recycled, that is commonly present in the majority of turf installations today.
Environmentally friendly, ecologically-safe, recyclable products and coating materials are available and we are using them in our current products. We believe our products perform, in all respects, as well or better than the ecologically-challenged products traditionally considered and currently used by many of our competitors. Due to our turn-key design-build process, we are able to offer our customers fields with ecologically friendly materials at a price that is competitive with the traditional products that are cheap and contain materials that are not safe. We believe that increased awareness of the benefits of our eco-friendly infill will favorably impact our sales.
Develop new technology products and services. Since inception, we have been in pursuit of developing a turf system that is comprised of synthetic fiber, turf backing, infill and shock/drainage pad that would allow us to market a product that virtually eliminates all of the current problems plaguing the industry. To date, we have studied and developed a high performing infill product that is free from any potential carcinogens and is capable of reducing field temperatures, designed a turf stitch pattern that will reduce infill migration to prevent injury, removed polyurethane from our backing to allow for recycling, tested and are provided a shock pad system that will allow for high performance while reducing impact injuries due to lower Gmax and engineered drainage design plans that allow the system to be free from standing water even in the event of major downpours. All of the improvements to the system are continuously being challenged and tested at our research and development site on campus at IMG in Bradenton, Florida.
Our next goal is to permanently staff a research and development office with development staff so that we can use everything we have learned about existing products and continue to create new products that will continue to improve performance while remaining safe for the players and the environment.
Pursue opportunities to enhance our product offerings. We may also opportunistically pursue the licensing or acquisition of complementary products and technologies to strengthen our market position or improve product margins. We believe that the licensing or acquisition of products would only strengthen our existing portfolio.
Lessen our dependency on third party manufacturers. As part of our long-term plans, we are exploring the possibility of reducing our reliance on third party manufacturers by bringing certain manufacturing, service and research and development functions in-house, which could include the acquisition of equipment and other fixed assets or the acquisition or lease of a manufacturing facility.
Operational Strengths
Highly Experienced Management and Key Personnel. We have assembled a senior management team and key personnel which includes Jeromy Olson, our CEO, Scott Allen, our Director of Architecture & Engineering, John Rombold, our Director of Project Management, and Kort Wickenheiser, our Director of Sales. This current leadership team is comprised of individuals with significant experience in sales, design, architecture, engineering and construction industry.
Diversified Project Classes. The diversity of project types that are within our capabilities is a strength that we can exploit if there is an economic slowdown on any one particular sector. Our architectural design, engineering and construction expertise along with our surfacing product sales can support the company revenue streams in two discrete ways.
Specialized Market Approach. By targeting and maintaining expertise in athletic facilities the Company is more insulated from general economic downturn than general construction companies otherwise would be. This specialization is less susceptible to customers driving normal price points lower through mass competition.
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Infrastructure built for growth. Current staffing levels have positioned the Company with excess operational capacity capable of doubling project execution without a significant impact on overhead.
Our Risks and Challenges
An investment in our securities involves a high degree of risk including risks related to the following:
• We are not yet profitable and may never be profitable.
• We have received a going concern opinion from our auditors.
• We have a limited operating history.
• We recently completed a debt financing which is secured by the grant of a security interest in all of our assets and upon a default the lender may foreclose on all of our assets.
• The installation of synthetic turf is highly competitive industry.
• Accounting for our revenues and costs involves significant estimates.
• If we are unable to obtain raw materials in a timely manner of if the price of raw materials increases significantly, production time and product costs could increase, which may adversely affect our business.
• Failure to maintain safe work sites could result in significant losses.
• An inability to obtain bonding could have a negative impact on our operations and results.
• Design-build contracts subject us to the risk of design errors and omissions.
• Many of our contracts have penalties for late completion.
• Strikes or work stoppages could have a negative impact on our operations and results.
Failure of our subcontractors to perform as anticipated could have a negative impact on our results.
• We must anticipate and respond to rapid technological change.
• We rely upon third-party manufacturers and suppliers, which puts us at risk for third-party business interruptions.
• We may be subject to the risk of substantial environmental liability and limitations on our operations brought about by the requirements of environmental laws and regulations.
We are subject to a number of additional risks which you should be aware of before you buy our securities in this Offering. These risks are discussed more fully in the section entitled “Risk Factors” following this prospectus summary.
RECENT DEVELOPMENTS
On July 18, 2016, the Company closed a Business Loan Agreement (the “Loan Agreement”) with Genlink Capital, LLC (“Genlink”), pursuant to which Genlink made available to the Company a revolving line of credit in a principal amount not to exceed $1,000,000 (the “Revolving Loan”). Amounts under the Revolving Loan may be advanced to the Company from time to time in accordance with the provisions of the Loan Agreement.
On July 18, 2016 and pursuant to the Loan Agreement, the Company issued a promissory note to Genlink (“the Note”), up to an aggregate principal amount of $1,000,000. All unpaid principal and interest outstanding under the Note is due on or before December 20, 2017 (the “Maturity Date”). The Note bears interest at a rate of 15% per annum, and the Company shall make monthly interest payments. The Company may pay, without penalty, all or a portion or any amount owed under the Note earlier than the date by which it is due. The Note includes customary provisions regarding events of default and other terms.
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Additionally, on July 18, 2016 and pursuant to the Loan Agreement, the Company and Genlink entered into a security agreement (the “Security Agreement”), pursuant to which the Company granted Genlink a senior security interest in substantially all of the Company’s assets as security for repayment of the Revolving Loan.
As of the date hereof, the Company has drawn down $750,000 from the Revolving Loan.
Our Corporate History
We were incorporated on February 8, 2011, as Anglesea Enterprises, Inc. Initially our activities consisted of providing marketing and web-related services to small businesses including the design and development of original websites, creative writing and graphics, virtual tours, audio/visual services, marketing analysis and search engine optimization. On June 16, 2014, Anglesea Enterprises, Inc. (“Anglesea”), Anglesea Enterprises Acquisition Corp, a wholly owned subsidiary of Anglesea (“Merger Sub”), Sports Field Holdings, Inc., a privately-held Nevada corporation headquartered in Illinois (“Sports Field Private Co”), Leslie Toups and Edward Mass Jr., as individuals (the “Majority Shareholders”), entered into an Acquisition Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which the Merger Sub was merged with and into Sports Field Private Co, with Sports Field Private Co surviving as a wholly-owned subsidiary of Anglesea (the “Merger”). Anglesea acquired, through a reverse triangular merger, all of the outstanding capital stock of Sports Field Private Co in exchange for issuing Sports Field Private Co’s shareholders 11,914,275 shares of Anglesea’s common stock.
Upon completion of the Merger, on June 16, 2014, Anglesea merged with Sports Field Private Co in a short-form merger transaction (the “Short Form Merger”) under Nevada law. Upon completion of the Short Form Merger, the Company became the parent company of the Sport Field Private Co’s wholly owned subsidiaries, Sports Field Contractors LLC, SportsField Engineering, Inc. and Athletic Construction Enterprises, Inc. Sports Field Contractors, LLC and Athletic Construction Enterprises, Inc. were subsequently dissolved on January 9, 2015 and September 22, 2015, respectively. SportsField Engineering, Inc. changed its name to FirstForm, Inc on April 5, 2016. In connection with the Short Form Merger, Anglesea changed its name to Sports Field Holdings, Inc. on June 16, 2014.
Where You Can Find More Information
Our website address iswww.firstform.com. We do not intend for our website address to be an active link or to otherwise incorporate by reference the contents of the website into this prospectus. The public may read and copy any materials the Company files with the U.S. Securities and Exchange Commission (the “SEC”) at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0030. The SEC maintains an Internet website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
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THE OFFERING
Securities offered by us:
| | ________ shares of our common stock by the selling stockholder. However, we will receive proceeds from our initial sale of shares to GHS pursuant to the Financing Agreement. The proceeds from the initial sale of shares will be used for the purpose of providing the company working capital.
| | | | | OTC Markets Symbol: | | SFHI | | | | | Risk Factors: | | See “Risk Factors” beginning on page 2 and warrantsthe other information in this prospectus for a discussion of the factors you should consider before deciding to purchase ______invest in shares of our common stock. Each warrant will have a per share exercise price of $___ per share, is exercisable immediately and will expire five years from the date of issuance. | | | | Common stock outstanding before the offering
| | 16,343,573 Shares(1)
| | | | Common stock to be outstanding after the offering
| | Shares(1)
| | | | Option to purchase additional shares
| | We have granted the underwriters a 45 day option to purchase up to additional shares of our common stock plus warrants to purchase_____ additional shares to cover allotments, if any.
| | | | Use of proceeds
| | We intend to use the net proceeds of this offering for the repayment of certain indebtedness, research and development activities; sales and marketing, and for general working capital purposes. See “Use of Proceeds.”
| | | | Risk factors
| | Investing in our securities is highly speculative and involves a high degree of risk. You should carefully consider the information set forth in the “Risk Factors” section beginning on page 9 before deciding to invest in our securities.
| | | | Trading Symbol
| | Our common stock is currently quoted on the OTCQB under the trading symbol “SFHI”. We intend to apply to the NASDAQ Capital Market to list our common stock under the symbol “SFHI” and our warrants under the symbol “SFHIW” and expect such listing to occur concurrently with this offering.” However, there is no guarantee that our application will be granted.
| | | | Lock-up
| | We and our directors, officers and principal stockholders have agreed with the underwriters not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our common stock or securities convertible into common stock for a period of 180 days after the date of this prospectus, in the case of our officers and directors, and 90 days after the date of this prospectus, in the case of our principal stockholders. See “Underwriting” section on page 57.
|
NASDAQ listing requirements include, among
RISK FACTORS This investment has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described below and the other things, a stock price threshold. As a result, prior to effectiveness, the Company may need to take necessary steps to meet NASDAQ listing requirements, including but not limited to a reverse split of our common stock. (1) The common stock to be outstanding before and after this offering is based on 16,343,573 shares outstanding as of August 24, 2016, and excludes the following as of such date:
• 622,500 shares issuable upon exercise of outstanding options with a weighted average exercise price of $1.02
• 667,543 shares issuable upon exercise of outstanding warrants with a weighted average exercise price of $1.03;
• 1,898,307 shares issuable upon the conversion of outstanding convertible notes; and
• shares of common stock underlying the warrants to be issued to the underwriters in connection with this offering.
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following summary consolidated statements of operations data for the years ended December 31, 2015 and 2014 have been derived from our audited consolidated financial statements included elsewhereinformation in this prospectus. The summary consolidated statements of operations data for the six month periods ended June 30, 2016 and 2015 and the consolidated balance sheets data as of June 30, 2016 are derived from our unaudited consolidated financial statements that are included elsewhere in this prospectus. The historical financial data presented below is not necessarily indicative of our financial results in future periods, and the results for the six month period ended June 30, 2016 are not necessarily indicative of our operating results to be expected for the full fiscal year ending December 31, 2016 orIf any other period. You should read the summary consolidated financial data in conjunction with those financial statements and the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our consolidated financial statements are prepared and presented in accordance with United States generally accepted accounting principles, or U.S. GAAP. Our unaudited consolidated financial statements have been prepared on a basis consistent with our audited financial statements and include all adjustments, consisting of normal and recurring adjustments that we consider necessary for a fair presentation of the financial position and results of operations as of and for such periods.
SUMMARY OPERATING DATA
| | For the Six Months
Ended June 30, | | Fiscal Years Ended | | | | | | | | | | | | | | | | | Total Revenues | | $ | 1,278,558 | | | $ | 1,413,894 | | | $ | 3,941,833 | | | $ | 1,228,188 | | Cost of Sales | | | 1,289,080 | | | | 1,471,090 | | | | 4,519,997 | | | | 1,716,511 | | Gross Profit (Loss) | | | (10,522 | ) | | | (57,196 | ) | | | (578,164 | ) | | | (488,323 | ) | Selling, general and administrative expenses | | | 1,771,603 | | | | 1,214,598 | | | | 2,677,524 | | | | 3,007,510 | | Research and Development expenses | | | 88,447 | | | | — | | | | — | | | | — | | Depreciation | | | 2,028 | | | | 14,451 | | | | 28,044 | | | | 67,212 | | Separation expense | | | — | | | | — | | | | — | | | | 228,414 | | Other income (expense) net | | | (272,362 | ) | | | (11,927 | ) | | | (54,425 | ) | | | (41,397 | ) | Net (Loss) Income | | | (2,144,962 | ) | | | (1,298,172 | ) | | | (3,338,157 | ) | | | (3,832,856 | ) | Net (Loss) Income available to common shareholders | | $ | (2,144,962 | ) | | $ | (1,298,172 | ) | | $ | (3,338,157 | ) | | $ | (3,832,856 | ) | Basic & Diluted Net Income (Loss) per share: | | $ | (0.14 | ) | | $ | (0.10 | ) | | $ | (0.24 | ) | | $ | (0.29 | ) | Weighted Average shares outstanding | | | 15,622,456 | | | | 13,552,568 | | | | 13,698,354 | | | | 13,194,055 | |
The following table presents consolidated balance sheets data as of June 30, 2016 on:
• an actual basis;
• an as adjusted basis, giving effect to the issuance of a promissory note in the amount of $750,000, pursuant to the Revolving Loan and $187,498 of gross proceeds from the private sale of our common stock in July 2016; and
• a pro forma, as adjusted basis, giving effect to (i) the issuance of a promissory note in the amount of $750,000 pursuant to the Revolving Loan, (ii) $187,498 of gross proceeds for the private sale of our common stock in July 2016 and (iii) the pro forma sale by us of shares of common stock and warrants in this offering at an assumed public offering price of $ per share and $_____ per warrant after deducting underwriting discounts and commissions and estimated offering expenses.
The pro forma as adjusted information set forth below is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.
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| | | | | | | | | | Consolidated Balance Sheets Data: | | | | | | | | | | | | Cash and cash equivalents | | $ | — | | | $ | 840,856 | | | $ | | Working Capital (deficit) | | | (2,257,979 | ) | | | (1,427,916 | ) | | | | Total assets | | | 477,440 | | | | 1,318,296 | | | | | Total liabilities | | | 2,735,419 | | | | 3,413,151 | | | | | Total stockholders’ equity (deficit) | | | (2,257,979 | ) | | | (2,094,855 | ) | | | |
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RISK FACTORS
Investing in our securities involves a great deal of risk. Careful consideration should be made of the following factors as well as other information includedrisks actually occur, our business, operating results and financial condition could be harmed and the value of our stock could go down. This means you could lose all or a part of your investment.
Special Information Regarding Forward-Looking Statements Some of the statements in this prospectus before decidingare “forward-looking statements.” These forward-looking statements involve certain known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to purchase our securities. There are many risks that affect our business and results of operations, some of which are beyond our control. Our business, financial condition or operating results could be materially harmeddifferent from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, among others, the factors set forth herein under “Risk Factors.” The words “believe,” “expect,” “anticipate,” “intend,” “plan,” and similar expressions identify forward-looking statements. We caution you not to place undue reliance on these forward-looking statements. We undertake no obligation to update and revise any forward-looking statements or to publicly announce the result of any revisions to any of these risks. This could cause the trading price of our securitiesforward-looking statements in this document to decline, and you may lose allreflect any future or part of your investment. Additional risks that we do not yet know of or that we currently think are immaterial may also affect our business and results of operations.developments. Risks Related To OurRISKS RELATED TO OUR COMPANY
WE ARE NOT YET PROFITABLE AND MAY NEVER BE PROFITABLE. Since inception through June 30, 2016,December 31, 2018, Sports Field has raised approximately $7,000,000$10,900,611 in capital. During this same period, we have recorded net accumulated losses totaling $12,414,480.$19,566,530. As of June 30, 2016,December 31, 2018, we had a working capital deficit of $2,257,979.$(7,756,792) Our net losses for the two most recent fiscal years ended December 31, 20152018 and 20142017 have been $3,338,157$(3,743,434) and $3,832,856,($1,865,516), respectively. Our ability to achieve profitability depends upon many factors, including the ability to develop and commercialize products. There can be no assurance that we will ever achieve profitable operations. WE HAVE RECEIVEDSUBSTANTIAL DOUBT RELATED TO THE COMPANY’S ABILITY TO CONTINUE AS A GOING CONCERN OPINION FROM OUR AUDITORS.CONCERN. Our historical operating results indicate substantial doubt exists related to the Company’s ability to continue as a going concern. As reflected in the accompanying consolidated financial statements, we have received a going concern opinion from our auditors. Asas of June 30, 2016,December 31, 2018, the Company hashad a cash overdraft of $3,518 and working capital deficit of $2,257,979. Furthermore,$(7,756,792). As of December 31, 2018, the Company had ahas cash of $247 and net loss and net cash used in operationsoperating activities of $2,144,962$(3,743,434) and $1,393,016,$(510,086), respectively, for the six monthsyear ended June 30, 2016December 31, 2018, and an accumulated deficit totaling $12,414,480. Accordingly, these$(19,566,530). Substantially all of our accumulated deficit has resulted from losses incurred on construction projects, costs incurred in connection with our research and development and general and administrative costs associated with our operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.concernthrough July 31, 2020. We expect that for the next 12 months, our operating cash burn will be approximately $2 million, excluding repayments of existing debts at December 31, 2018, in the aggregate amount of approximately $1.8 million. Our cash requirements relate primarily to working capital needed to operate and grow our business, including funding operating expenses and continued development and expansion of our products/services. Our ability to achieve profitability and meet future liquidity needs and capital requirements will depend upon numerous factors, including the timing and size of awarded contracts; operating expenses; working capital needs; expanding our sales team and business development opportunities; developing a marketing program; warranty and other post-implementation services; and hiring and training construction and administrative staff; as well as the extent to which our brand and construction services gain market acceptance and our ongoing and any new research and development programs; and changes in our strategy or our planned activities. We have experienced and continue to experience negative cash flows from operations and we expect to continue to incur net losses in the foreseeable future. The abilityCompany 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. If we are not able to continue itsobtain financing when needed, we may be unable to carry out our business plan. As a result, we may have to significantly limit our operations as a going concern is dependent on management’s plans, which include the raisingand our business, financial condition and results of capitaloperations would be materially harmed. To date, we have funded our operational short-fall primarily through debt and/or equity markets with some additional funding from other traditionalprivate offerings of common stock, convertible notes and promissory notes, billings in excess of costs, our line of credit and factoring of receivables. The Company believes it has potential financing sources including term notes, until such time that funds provided by operations are sufficientin order to raise the capital necessary to fund working capital requirements.operations through June 30, 2020. WE HAVE A LIMITED OPERATING HISTORY. We have been in existence for approximately fourfive years. Our limited operating history means that there is a high degree of uncertainty in our ability to: (i) develop and commercialize our products; (ii) achieve market acceptance of our products; or (iii) respond to competition. Additionally, even if we do implement our business plan, we may not be successful. No assurances can be given as to exactly when, if at all, we will be able to recognize profits high enough to sustain our business. We face all the risks inherent in a new business, including the expenses, difficulties, complications, and delays frequently encountered in connection with conducting operations, including capital requirements. Given our limited operating history, we may be unable to effectively implement our business plan which could materially harm our business or cause us to cease operations. WE MAY SUFFER LOSSES IF OUR REPUTATION IS HARMED. Our ability to attract and retain customers and employees may be adversely affected to the extent our reputation is damaged. If we fail, or appear to fail, to deal with various issues that may give rise to reputational risk, we could harm our business prospects. These issues include, but are not limited to, appropriately dealing with potential conflicts of interest, legal and regulatory requirements, ethical issues, money-laundering, privacy, record-keeping, sales and trading practices, and the proper identification of the legal, reputational, credit, liquidity, and market risks inherent in our business. Failure to appropriately address these issues could also give rise to additional legal risk to us, which could, in turn, increase the size and number of claims and damages asserted against us or subject us to regulatory enforcement actions, fines, and penalties. 9
WE DEPEND ON OUR CHIEF EXECUTIVE OFFICER AND THE LOSS OF HIS SERVICES COULD ADVERSELY AFFECT OUR BUSINESS. We place substantial reliance upon the efforts and abilities of Jeromy Olson, our Chief Executive Officer. Though no individual is indispensable, the loss of the services of Mr. Olson could have a material adverse effect on our business, operations, revenues or prospects. We do not maintain key man life insurance on the life of Mr. Olson. Our success depends on attracting and retaining qualified personnel and subcontractors in a competitive environment. The success of our business is dependent on our ability to attract, develop and retain qualified personnel advisors and subcontractors. Changes in general or local economic conditions and the resulting impact on the labor market may make it difficult to attract or retain qualified individuals in the geographic areas where we perform our work. If we are unable to provide competitive compensation packages, high-quality training programs and attractive work environments or to establish and maintain successful partnerships, our ability to profitably execute our work could be adversely impacted. Accounting for our revenues and costs involves significant estimates. Accounting for our contract-related revenues and costs, as well as other expenses, requires management to make a variety of significant estimates and assumptions. Although we believe we have sufficient experience and processes to enable us to formulate appropriate assumptions and produce reasonably dependable estimates, these assumptions and estimates may change significantly in the future and could result in the reversal of previously recognized revenue and profit. Such changes could have a material adverse effect on our financial position and results of operations. WE RECENTLY COMPLETED A DEBT FINANCING WHICH IS secured by the grant of a security interest in all of our assets and upon a default the lender may foreclose on all of our assets. As further described in “Recent Developments” above, in
In July 2016, we entered into the Loan Agreement with Genlink, pursuant to which Genlink made available to the Company a Revolving Loan. Pursuant to the Loan Agreement, the Company issued the Genlink Note up to an aggregate principal amount of One Million Dollars ($1,000,000)., of which the Company has borrowed $1,000,000 to date, which was payable on December 20, 2017. Additionally, pursuant to the Loan Agreement, the Company and Genlink entered into the Security Agreement, pursuant to which the Company granted Genlink a senior security interest in substantially all of the Company’s assets as security for repayment of the Revolving Loan. In the event of the Company’s failure to make payments or to otherwise comply with the terms of the Revolving Loan under the Security Agreement or the Genlink Note, Genlink can declare a default and seek to foreclose on the Company’s assets. If the Company is unable to repay or refinance such indebtedness it may be forced to cease operations and the holders of the Company’s securities may lose their entire investment. In December 2017, this Loan Agreement was extended through January 25, 2019, and converted to a term loan bearing interest at 15% with monthly payments of $20,833 in principal plus interest with a balloon payment of $729,167 due on the maturity date. The Company incurred $10,000 in debt issuance costs as part of the modification which are recorded as debt discount and amortized over the agreement. In November 2018, this Loan Agreement was amended in order to increase the principal amount to $1,125,000, with the maturity extended through November 25, 2020, with interest at 15% requiring monthly payments of $26,650 in principal (scheduled to start in March 2019) plus interest with a balloon payment of $592,000 due on the maturity date. As additional security for the term loan, the Company placed 970,000 shares of common stock into reserve. The Company has not yet begun making payments. Our contract backlog is subject to unexpected adjustments and cancellations and could be an uncertain indicator of our future earnings. We cannot guarantee that the revenues projected in our contract backlog will be realized or, if realized, will be profitable. Projects reflected in our contract backlog may be affected by project cancellations, scope adjustments, time extensions or other changes. Such changes may adversely affect the revenue and profit we ultimately realize on these projects. IF WE FAIL TO ESTABLISH AND MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROL, WE MAY NOT BE ABLE TO REPORT OUR FINANCIAL RESULTS ACCURATELY OR TO PREVENT FRAUD. ANY INABILITY TO REPORT AND FILE OUR FINANCIAL RESULTS ACCURATELY AND TIMELY COULD HARM OUR REPUTATION AND ADVERSELY IMPACT THE TRADING PRICE OF OUR SECURITIES. Effective internal controls isare necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation 10
with investors may be harmed. As a result of our small size, any current internal control deficiencies may adversely affect our financial condition, results of operation and access to capital. We currently have insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements. Additionally, there is a lack of formal process and timeline for closing the books and records at the end of each reporting period and such weaknesses restrict the Company’s ability to timely gather, analyze and report information relative to the financial statements. As a result, our management has concluded that as of December 31, 2015,2018, we have material weaknesses in our internal control procedures and our internal control over financial reporting was ineffective. Because of the Company’s limited resources, there are limited controls over information processing. There is inadequate segregation of duties consistent with control objectives. Our Company’s management is composed of a small number of individuals resulting in a situation where limitations on segregation of duties exist. In order to remedy this situation, we would need to hire additional staff. Currently, PENDING AND THREATENED CLAIMS. Claims have been brought or threatened against the Company, and additional legal claims may arise from time to time. The Company may not be successful in the defense or prosecution of our current or future legal proceedings, which could result in settlement or damages that could significantly impact the Company’s business, financial conditions, results of operations and reputation. Please see the further discussion in “Legal Proceedings” section below. PENDING AND THREATENED CLAIMS RELATING TO DEFAULT UNDER THE COMPANY’S OUTSTANDING NOTES. As described in the notes to the Company’s consolidated financial statements, the Company was not compliant with the repayment terms of some of its notes. The Company is currently conducting good faith negotiations with the relevant note holders to further extend the maturity dates, however, there can be no assurance that any such extensions will be granted. At this time, no further action has begunbeen taken by the respective note holders in connection with the Company’s noncompliance with the repayment terms of the notes. It is possible that the Company’s results of operations, cash flows or financial position could be materially adversely affected by any unfavorable outcome or settlement of this matter. Additionally, resolution of this matter, through litigation or otherwise, may require significant expenditures of time and other resources. To the extent that litigation is pursued as a means of resolving this matter, litigation is inherently uncertain, and the Company could experience significant adverse results, including but not limited to hire additional staff to facilitate greater segregation of duties. Management intends to begin documentingadverse publicity surrounding the litigation and formalizing controls and procedures.significant reputational harm. RISKS RELATING TO OUR INDUSTRY THE INSTALLATION OF SYNTHETIC TURF IS A HIGHLY COMPETITIVE INDUSTRY. The installation of synthetic turf is a highly competitive and highly fragmented industry. Competing companies may be able to beat our bids for the more desirable projects. As a result, we may be forced to lower bids on projects to compete effectively, which would then lower the fees we can generate. We may compete for the management and installation of synthetic turf with many entities, including nationally recognized companies. Many competitors may have substantially greater financial resources than we do. In addition, certain competitors may be willing to accept lower fees for their services. THE SUCCESS OF OUR BUSINESS IS SIGNIFICANTLY RELATED TO GENERAL ECONOMIC CONDITIONS AND, ACCORDINGLY, OUR BUSINESS COULD BE HARMED BY THE ECONOMIC SLOWDOWN AND DOWNTURN IN FINANCING OF PUBLIC WORKS CONTRACTS. Our business is closely tied to general economic conditions. As a result, our economic performance and the ability to implement our business strategies may be affected by changes in national and local economic conditions. During an economic downturn funding for public contracts tends to decrease significantly thereby limiting the growth and opportunities available for new and established businesses in the synthetic turf industry. An economic downturn may limit the number of projects that we are able to bid on and limit the opportunities we have to penetrate the synthetic turf industry, stunting the Company’s growth prospects and having a material adverse effect on our business. THE COMPANY’S BUSINESS MAY BE SUBJECT TO THE EFFECTS OF ADVERSE PUBLICITY AND NEGATIVE PUBLIC PERCEPTION RELATED TO SYNTHETIC TURF PRODUCTS. Negative public perception regarding our industry resulting from, among other things, concerns raised by advocacy groups or the public in general about synthetic turf fields and the potential impact on human health related to certain chemical compounds found in the infill of such fields may negatively impact the sales of synthetic turf products. Despite not using any toxic or known harmful materials in our products, there can be no assurance that the Company will not be subject to adverse publicity or negative public perception surrounding the impact on human health of synthetic turf and related products in the future or that such negative public perception would not have an adverse or material negative impact on its financial position, results of operations or cash flows. IF WE ARE UNABLE TO OBTAIN RAW MATERIALS IN A TIMELY MANNER OR IF THE PRICE OF RAW MATERIALS INCREASES SIGNIFICANTLY, PRODUCTION TIME AND PRODUCT COSTS COULD INCREASE, WHICH MAY ADVERSELY AFFECT OUR BUSINESS. The third party
Synthetic turf made to our specifications can be purchased from a variety of manufacturers, there are several sources of all of our infill products depend onand two manufacturers from which we can purchase expanded polypropylene shock and drainage pads. We do not anticipate any supply issues due to the fact that the raw materials derivedto develop these products are readily available and currently not scarce. We do not have any exclusive supplier contracts for our products. We buy our pad, infill components and turf from petrochemicals such asmanufacturers at the best price we can negotiate based on volume discounts but if the prices of the raw materials necessary to make these products, including the yarn, backing and infill. If the prices of these raw materialsinfill in our products, rise significantly, we may be unable to pass on the increased cost to our customers. Our results of operations could be adversely affected if we are unable to obtain adequate supplies of raw materials in a timely manner or at reasonable cost. In addition, from time to time, we may need to reject raw materials that do not meet our specifications, resulting in potential delays or declines in output. Furthermore, problems with our raw materials may give rise to compatibility or performance issues in our products, which could lead to an increase in customer returns or product warranty claims. Errors or defects may arise from raw materials supplied by third parties that are beyond our detection or control, which could lead to additional customer returns or product warranty claims that may adversely affect our business and results of operations. 11
Failure to maintain safe work sites could result in significant losses. Construction and maintenance sites are potentially dangerous workplaces and often put our employees and others in close proximity with mechanized equipment, moving vehicles, chemical and manufacturing processes, and highly regulated materials. On many sites, we are responsible for safety and, accordingly, must implement safety procedures. If we fail to implement these procedures or if the procedures we implement are ineffective, we may suffer the loss of or injury to our employees, as well as expose ourselves to possible litigation. Our failure to maintain adequate safety standards could result in reduced profitability or the loss of projects or clients, and could have a material adverse impact on our financial position, results of operations, cash flows and liquidity. An inability to obtain bonding could have a negative impact on our operations and results. We may be required to provide surety bonds securing our performance for some of our public and private sector contracts. Our inability to obtain reasonably priced surety bonds in the future could significantly affect our ability to be awarded new contracts, which could have a material adverse effect on our financial position, results of operations, cash flows and liquidity. Design-build contracts subject us to the risk of design errors and omissions. Design-build is increasingly being used as a method of project delivery as it provides the owner with a single point of responsibility for both design and construction. We generally do notmay subcontract design responsibility as we have our ownto outside architects and engineers in-house.engineers. In the event of a design error or omission causing damages, there is risk that the subcontractor or their errors and omissions insurance would not be able to absorb the liability. In this case, we may be responsible, resulting in a potentially material adverse effect on our financial position, results of operations, cash flows and liquidity. Manysome of our contracts have penalties for late completion.
In some instances, including many of our fixed price contracts, we guarantee that we will complete a project by a certain date. If we subsequently fail to complete the project as scheduled, we may be held responsible for costs resulting from the delay, generally in the form of contractually agreed-upon liquidated damages. To the extent these events occur, the total cost of the project could exceed our original estimate and we could experience reduced profits or a loss on that project. Strikes or work stoppages could have a negative impact on our operations and results. Some of our projects require union labor and although we have not experienced strikes or work stoppages in the past, such labor actions could have a significant impact on our operations and results if they occur in the future. Failure of our subcontractors to perform as anticipated could have a negative impact on our results. We subcontract portions of many of our contracts to specialty subcontractors, but we are ultimately responsible for the successful completion of their work. Although we seek to require bonding or other forms of guarantees, we are not always successful in obtaining those bonds or guarantees from our higher-risk subcontractors. In this case we may be responsible for the failures on the part of our subcontractors to perform as anticipated, resulting in a potentially adverse impact on our cash flows and liquidity. In addition, the total costs of a project could exceed our original estimates and we could experience reduced profits or a loss for that project, which could have an adverse impact on our financial position, results of operations, cash flows and liquidity. WE MUST ANTICIPATE AND RESPOND TO RAPID TECHNOLOGICAL CHANGE. The market for our products and services is characterized by technological developments and evolving industry standards. These factors will require us to continually improve the performance and features of our products and services and to introduce new products and services, particularly in response to offerings 12
from our competitors, as quickly as possible. As a result, we might be required to expend substantial funds for and commit significant resources to the conduct of continuing product development. We may not be successful in developing and marketing new products and services that respond to competitive and technological developments, customer requirements, or new design and production techniques. Any significant delays in product development or introduction could have a material adverse effect on our operations. FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY OR TECHNOLOGY OR OBTAIN RIGHTS TO USE OTHERS’ INTELLECTUAL PROPERTY OR TECHNOLOGY COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS. We take steps to protect our intellectual property rights such as filing for patent protection where we deem appropriate. However, there is no guarantee that any technology we seek to protect will, in fact, be granted patent protection or any other form of intellectual property protection. Consequently, if we are unable to secure exclusive rights in such technology, our competitors may be free to use such technology as well. We may at times also be subject to the risks of claims and litigation alleging infringement of the intellectual property rights of others. There is no guarantee that we will be able to resolve such claims or litigations favorably, and may, as a result, be exposed to adverse decisions in such litigations which may require us to pay damages, cease using certain technologies or products, or license certain technology, which licenses may not be available to us on commercially reasonable terms or at all. Moreover, intellectual property litigation, regardless of the ultimate outcomes, is time-consuming and expensive and can result in the distraction of management personnel and expenditure of consider resources in defending against any such infringement claims. WE RELY UPON THIRD-PARTY MANUFACTURERS AND SUPPLIERS, WHICH PUTS US AT RISK FOR THIRD-PARTY BUSINESS INTERRUPTIONS. Success
We rely on third-party manufactures and suppliers for the individual products that we use to create our system which we then sell to owners. We have dozens of tufting companies to choose from in manufacturing our specific design for turf and bid them out often. We also have multiple suppliers for all of our infill contents as well as several shock pad suppliers of which we have used two to three of each historically. The success for our business depends in part on our ability to retain third partysuch third-party manufacturers and suppliers to provide subparts for our products and materials for the services we provide. If manufacturers and suppliers fail to perform, our ability to market products and to generate revenue would be adversely affected. Our failure to deliver products and services in a timely manner could lead to customer dissatisfaction and damage to our reputation, cause customers to cancel contracts and to stop doing business with us. LOWER THAN EXPECTED DEMAND FOR OUR PRODUCTS AND SERVICES WILL IMPAIR OUR BUSINESS AND COULD MATERIALLY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION. Currently, there are approximately 11,00012,000-13,000 synthetic turf fields installed in the U.S. and approximately 1,0001,200-1,500 new fields installed every year, according to the Synthetic Turf Council. Given that there are approximately 50,000 colleges and high schools in the U.S. with athletic programs, in so far as athletic fields are concerned, at some point in the future, saturation will slow the growth of the industry. If we meet a lower demand for our products and services than we are expecting, our business results ofand operations and financial condition are likely to be materially adversely affected. Moreover, overall demand for synthetic turf products and services in general may grow slowly or decrease in upcoming quarters and years because of unfavorable general economic conditions, decreased spending by schools and municipalities in need of synthetic turf products or otherwise. This may reflect a saturation of the market for synthetic turf. To the extent that there is a slowdown in the overall market for synthetic turf, our business, results of operations and financial condition are likely to be materially adversely affected. WE MAY BE SUBJECT TO THE RISK OF SUBSTANTIAL ENVIRONMENTAL LIABILITY AND LIMITATIONS ON OUR OPERATIONS BROUGHT ABOUT BY THE REQUIREMENTS OF ENVIRONMENTAL LAWS AND REGULATIONS. We may be subject to various federal, state and local environmental, health and safety laws and regulations concerning issues such as, wastewater discharges, solid and hazardous materials and waste handling and disposal, landfill operation and closure. There have been a number of ecological concerns that have arisen from the creation of synthetic turf and the evolution of the synthetic turf industry. One of the biggest concerns to surface most recently is the amount of lead in some of the products used in the manufacture 13
and installation of synthetic turf and synthetic turf systems such as crumb rubber. Crumb rubber is rubber used from recycled tires and used as an infill product in most synthetic turf athletic fields in the U.S. and has shown to contain levels of lead that many argue could potentially be harmful to humans. In addition, many of the yarns used to make synthetic turf blades contain levels of lead that are also coming into question as to potential health hazards. Due to the many concerns that are now arising regarding the levels of lead contained in many synthetic turf products, the disposal of old synthetic turf fields may become an issue with municipal land-fills and could in fact add significant costs to the disposal of these worn out fields. It is possible that these old fields could be declared hazardous materials in the future by municipal land-fills, which would add enormous costs to the disposal of such products and the cost to dispose of these materials could in fact be as much as the original cost to purchase and install such fields. While Sports Field believes that it is and will continue to manufacture products in compliance with all applicable environmental laws and regulations, the risks of substantial additional costs and liabilities related to compliance with such laws and regulations are an inherent part of our business.
Risks Relating to Ownership of our SECURITIES WE CURRENTLY DO NOT INTEND TO PAY DIVIDENDS ON OUR COMMON STOCK. AS A RESULT, YOUR ONLY OPPORTUNITY TO ACHIEVE A RETURN ON YOUR INVESTMENT IS IF THE PRICE OF OUR COMMON STOCK APPRECIATES. We currently do not expect to declare or pay dividends on our common stock. In addition, our Revolving Loan with Genlink restricts our ability to declare or pay dividends on our common stock so long as it remains outstanding. As a result, your only opportunity to achieve a return on your investment will be if the market price of our common stock appreciates and you sell your shares and shares underlying your warrants at a profit. YOU MAY EXPERIENCE DILUTION OF YOUR OWNERSHIP INTEREST DUE TO THE FUTURE ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK. We are in a capital intensivehighly competitive business and we domight not have sufficient funds to finance the growth of our business or to support our projected capital expenditures. As a result, we will require additional funds from future equity or debt financings, including potential sales of preferred shares or convertible debt, to complete the development of new projects and pay the general and administrative costs of our business. We may in the future issue our previously authorized and unissued securities, resulting in the dilution of the ownership interests of holders of our common stock. We are currently authorized to issue 250,000,000 shares of common stock and 20,000,000 shares of preferred stock. We may also issue additional shares of common stock or other securities that are convertible into or exercisable for common stock in future public offerings or private placements for capital raising purposes or for other business purposes. The future issuance of a substantial numberquantity of common stock into the public market, or the perception that such issuance could occur, could adversely affect the prevailing market price of our common shares. A decline in the price of our common stock could make it more difficult to raise funds through future offerings of our common stock or securities convertible into common stock. Our Certificate of Incorporation allows for our board of directors to create new series of preferred stock without further approval by our stockholders, which could have an anti-takeover effect and could adversely affect holders of our common stock AND WARRANTS.stock. Our authorized capital includes preferred stock issuable in one or more series. Our board of directors has the authority to issue preferred stock and determine the price, designation, rights, preferences, privileges, restrictions and conditions, including voting and dividend rights, of those shares without any further vote or action by stockholders. The rights of the holders of common stock and warrants will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future. The issuance of additional preferred stock, while providing desirable flexibility in connection with possible financings and acquisitions and other corporate purposes, could make it more difficult for a third party to acquire a majority of the voting power of our outstanding voting securities, which could deprive our holders of common stock and warrants to purchase common stock at a premium that they might otherwise realize in connection with a proposed acquisition of our company. 14
There can be no assurances that our shares AND/OR WARRANTS WILL BE LISTED ON THE NASDAQ AND, IF THEY ARE, OUR SHARES WILL BE SUBJECT TO POTENTIAL DELISTING IF WE DO NOT MEET OR CONTINUE TO MAINTAIN THE LISTING REQUIREMENTS OF THE NASDAQ.
We intend to apply to list the shares of our common stock on the NASDAQ. An approval of our listing application by NASDAQ will be subject to, among other things, our fulfilling all of the listing requirements of NASDAQ. In addition, NASDAQ has rules for continued listing, including, without limitation, minimum market capitalization and other requirements. Failure to maintain our listing, or de-listing from NASDAQ, would make it more difficult for shareholders to dispose of our common stock and more difficult to obtain accurate price quotations on our common stock. This could have an adverse effect on the price of our common stock. Our ability to issue additional securities for financing or other purposes, or otherwise to arrange for any financing we may need in the future, may also be materially and adversely affected if our common stock is not traded on a national securities exchange.
THERE IS CURRENTLY ONLY A LIMITED PUBLIC MARKET FOR OUR COMMON STOCK AND NO PUBLIC MARKET FOR OUR WARRANTS. FAILURE TO DEVELOP OR MAINTAIN A TRADING MARKET COULD NEGATIVELY AFFECT ITS VALUE AND MAKE IT DIFFICULT OR IMPOSSIBLE FOR YOU TO SELL YOUR SHARES AND WARRANTS.
There is currently only a limited public market for our common stock and an active public market for our common stock and warrants may not develop or be sustained. Failure to develop or maintain an active trading market could make it difficult for you to sell your shares or warrants without depressing the market price for such shares or recover any part of your investment in us. Even if an active market for our common stock or warrants does develop, the market price of our common stock and warrants may be highly volatile. In addition to the uncertainties relating to future operating performance and the profitability of operations, factors such as variations in interim financial results or various, as yet unpredictable, factors, many of which are beyond our control, may have a negative effect on the market price of our securities.
IF AND WHEN A LARGER TRADING MARKET FOR OUR SECURITIES DEVELOPS, THE MARKET PRICE OF SUCH SECURITIES IS STILL LIKELY TO BE HIGHLY VOLATILE AND SUBJECT TO WIDE FLUCTUATIONS, AND YOU MAY BE UNABLE TO RESELL YOUR SECURITIES AT OR ABOVE THE PRICE AT WHICH YOU ACQUIRED THEM. The stock market in general has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your securities that you purchase in this offering at or above the price you paid for such securities. The market price for our securities may be influenced by many factors that are beyond our control, including, but not limited to: • variations in our revenue and operating expenses;
• market conditions in our industry and the economy as a whole;
• actual or expected changes in our growth rates or our competitors’ growth rates;
• developments in the financial markets and worldwide or regional economies;
• variations in our financial results or those of companies that are perceived to be similar to us;
• �� announcements by the government relating to regulations that govern our industry;
• sales of our common stock or other securities by us or in the open market;
• changes in the market valuations of other comparable companies;
• general economic, industry and market conditions; and
•
| ● | variations in our revenue and operating expenses; | | | | | ● | market conditions in our industry and the economy as a whole; | | | | | ● | actual or expected changes in our growth rates or our competitors’ growth rates; | | | | | ● | developments in the financial markets and worldwide or regional economies; | | | | | ● | variations in our financial results or those of companies that are perceived to be similar to us; | | | | | ● | announcements by the government relating to regulations that govern our industry; | | | | | ● | sales of our common stock or other securities by us or in the open market; | | | | | ● | changes in the market valuations of other comparable companies; | | | | | ● | general economic, industry and market conditions; and | | | | | ● | the other factors described in this “Risk Factors” section. |
The trading price of our shares might also decline in reaction to events that affect other companies in our industry, even if these events do not directly affect us. Each of these factors, among others, could harm the value of your investment in our securities. In the past, following periods of volatility in the market, 15
securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business, operating results and financial condition. In the event that our common stock AND WARRANTS ARE listed on the NASDAQ our stock price could fall and we could be delisted in which case broker-dealers may be discouraged from effecting transactions in shares of our common stock AND WARRANTS because they may be considered penny stocks and thus be subject to the penny stock rules.
The SEC has adopted a number of rules to regulate “penny stock” that restricts transactions involving stock which is deemed to be penny stock. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended. These rules may have the effect of reducing the liquidity of penny stocks. “Penny stocks” generally are equity securities with a price of less than $5.00 per share (other than securities registered on certain national securities exchanges or quoted on the NASDAQ Stock Market if current price and volume information with respect to transactions in such securities is provided by the exchange or system). Our securities have in the past constituted, and may again in the future constitute, “penny stock” within the meaning of the rules. The additional sales practice and disclosure requirements imposed upon U.S. broker-dealers may discourage such broker-dealers from effecting transactions in shares of our common stock and warrants, which could severely limit the market liquidity of such shares and warrants and impede their sale in the secondary market.
A U.S. broker-dealer selling penny stock to anyone other than an established customer or “accredited investor” (generally, an individual with net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the “penny stock” regulations require the U.S. broker-dealer to deliver, prior to any transaction involving a “penny stock”, a disclosure schedule prepared in accordance with SEC standards relating to the “penny stock” market, unless the broker-dealer or the transaction is otherwise exempt. A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered representative and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements disclosing recent price information with respect to the “penny stock” held in a customer’s account and information with respect to the limited market in “penny stocks”.
Stockholders should be aware that, according to SEC, the market for “penny stocks” has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) “boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline. The trading market for our common stock and warrants will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, our securities price would likely decline. 16
If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Risks RelatedRISKS RELATED TO THE OFFERING
OUR EXISTING STOCKHOLDERS MAY EXPERIENCE SIGNIFICANT DILUTION FROM THE SALE OF OUR COMMON STOCK PURSUANT TO THE GHS FINANCING AGREEMENT. The sale of our common stock to GHS Investments LLC (“GHS”) in accordance with the GHS Equity Financing Agreement (“Financing Agreement”) may have a dilutive impact on our shareholders. As a result, the market price of our common stock could decline. In addition, the lower our stock price is at the time we exercise our put options, the more shares of our common stock we will have to issue to GHS in order to exercise a put under the Financing Agreement. If our stock price decreases, then our existing shareholders would experience greater dilution for any given dollar amount raised through the offering. The perceived risk of dilution may cause our stockholders to sell their shares, which may cause a decline in the price of our common stock. Moreover, the perceived risk of dilution and the resulting downward pressure on our stock price could encourage investors to engage in short sales of our common stock. By increasing the number of shares offered for sale, material amounts of short selling could further contribute to progressive price declines in our common stock. GHS is not permitted to engage in short sales involving our common stock, or to engage in other activities that could manipulate the market for our common stock, during the period commencing May 1, 2019, and continuing through the termination of the Financing Agreement. THE ISSUANCE OF SHARES PURSUANT TO THE GHS FINANCING AGREEMENT MAY HAVE A SIGNIFICANT DILUTIVE EFFECT. The number of shares we issue pursuant to the OfferingFinancing Agreement with GHS could have a significant dilutive effect upon our existing shareholders. Although the number of shares that we may issue pursuant to the Financing Agreement will vary based on our stock price (the higher our stock price, the fewer shares we have to issue), there may be a significant potential dilutive effect to our shareholders, based on different potential future stock prices, if the full amount of the Financing Agreement is realized. Dilution is impacted by the number of shares of common stock put to GHS, and the stock price which GHS is bound to pay for such shares, which is discounted to reflect an effective purchase price of approximately 83.33% of the lowest closing price during the pricing period as described below. GHS WILL EFFECTIVELY BE PAYING LESS THAN THE THEN-PREVAILING MARKET PRICE OF OUR COMMON STOCK WHICH COULD CAUSE THE PRICE OF OUR COMMON STOCK TO DECLINE. Our common stock to be issued under the GHS Financing Agreement will be purchased at an effective 16.67% discount. Stated more precisely, GHS will pay 100% of the lowest closing price during the ten consecutive trading days immediately preceding each notice to GHS of an election to exercise our “put” right (the “Market Price”), but GHS is entitled to receive a 20% share premium with each put notice sale of shares. For example, if we delivered a put notice to GHS for $50,000, we would be obligated to issue GHS $60,000 of our common stock based on the Market Price, or 300,000 shares. The 20% share premium GHS will receive with each put notice means that GHS will effectively be purchasing our shares at a 16.67% discount to the Market Price. GHS has a financial incentive to sell our shares immediately upon receiving them, to realize the profit between the effective discounted price and the then-current market price. If GHS sells our shares, the price of our common stock may decrease. If our stock price decreases, GHS may have further incentive to sell its shares to maximize the proceeds of its sales. Accordingly, the effective discounted sales price of our shares pursuant to the Financing Agreement may cause the price of our common stock to decline. WE MAY NOT HAVE ACCESS TO THE FULL AMOUNT UNDER THE FINANCING AGREEMENT. On July 11, 2019, the lowest closing price of the Company’s common stock during the preceding ten consecutive trading day period was $0.20/share. At that price, we would effectively sell shares to GHS under the Financing Agreement at the discounted price of approximately $0.166667/share. At that discounted price, the 7,000,000 shares registered for issuance to GHS under the Financing Agreement would, if sold by us to GHS, result in aggregate proceeds to the Company of approximately $1,166,667. There is no assurance the price of our common stock will remain the same as the current market price or increase. UNLESS AN ACTIVE TRADING MARKET DEVELOPS FOR OUR SECURITIES, INVESTORS MAY NOT BE ABLE TO SELL THEIR SHARES. We are a reporting company, and our common shares are quoted on the OTC Link, LLC quotation system operated by OTC Markets Group, Inc. under the symbol “SFHI”. However, there is not currently an active trading market for our common stock; an active trading market may never develop, or, if it does develop, it may not be maintained. Failure to develop or maintain an active trading market will have a generally negative effect on the price of our common stock, and you may be unable to sell your common stock, or any attempted sale of our common stock may have the effect of lowering the market price of our common stock, and therefore, your investment may be partially or completely lost.
SINCE OUR COMMON STOCK IS THINLY TRADED IT IS MORE SUSCEPTIBLE TO EXTREME RISES OR DECLINES IN PRICE, AND YOU MAY NOT BE ABLE TO SELL YOUR SHARES AT OR ABOVE THE PRICE PAID. Since our common stock is thinly traded, its trading price is likely to be highly volatile and could be subject to extreme fluctuations in response to various factors, many of which are beyond our control, including (but not necessarily limited to): | ● | the trading volume of our shares; | | ● | the number of securities analysts, market-makers and brokers following our common stock; | | ● | new products or services introduced or announced by us or our competitors; | | ● | actual or anticipated variations in quarterly operating results; | | ● | conditions or trends in our business industries; | | ● | announcements by us of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; | | ● | additions or departures of key personnel; | | ● | sales of our common stock; and | | ● | general stock market price and volume fluctuations of publicly-traded, and particularly microcap, companies. |
Investors may have difficulty reselling shares of our common stock, either at or above the price they paid for our stock, or even at fair market value. The stock markets often experience significant price and volume changes that are not related to the operating performance of individual companies, and because our common stock is thinly traded it is particularly susceptible to such changes. These broad market changes may cause the market price of our common stock to decline regardless of how well we perform as a company. In addition, there is a history of securities class action litigation following periods of volatility in the market price of a company’s securities. Although there is no such litigation currently pending or threatened against us, such a suit against us could result in the incursion of substantial legal fees, potential liabilities and the diversion of management’s attention and resources from our business. Moreover, and as noted below, our shares are currently traded on the OTC Link (OTC Pink tier) and, further, are subject to the penny stock regulations. Price fluctuations in such shares are particularly volatile and subject to potential manipulation by market-makers, short-sellers and option traders.
USE OF PROCEEDS The Company will use the proceeds from the sale of the shares of common stock sold to GHS, for general corporate and working capital purposes, and continued business operations, or for other purposes that the Board of Directors, in good faith, deems to be in the best interest of the Company. DETERMINATION OF OFFERING PRICE We have not set an offering price for the shares registered hereunder, as the only shares being registered are those sold pursuant to the Financing Agreement with GHS. GHS may sell all or a portion of the shares being offered pursuant to this prospectus at fixed prices, at prevailing market prices at the time of sale, at varying prices, or at negotiated prices. DILUTION Not applicable. The shares registered under this registration statement are not being offered for purchase. The shares are being registered on behalf of the selling shareholder, GHS, pursuant to the GHS Financing Agreement. SELLING SECURITY HOLDER The selling stockholder identified in this offering will experience immediateprospectus, GHS, may offer and substantial dilution in net tangible book value. The public offering price willsell up to 7,000,000 shares of our common stock, which consists of shares of common stock to be substantially higher thaninitially purchased by GHS pursuant to the net tangible book value per shareFinancing Agreement. If issued presently, the shares of common stock registered for resale by GHS would represent approximately 23.1% of our issued and outstanding shares of common stock. As a result, investors in this offering will incur immediate dilution of $ per share,stock, based on the assumed public offering pricenumber of $ _____ per share. Investorsissued and outstanding shares as of July 11, 2019 (23,318,980 shares).
We may require the selling stockholder to suspend the sales of the shares of our common stock being offered pursuant to this prospectus upon the occurrence of any event that makes any statement in this prospectus or the related registration statement untrue in any material respect or that requires the changing of statements in those documents in order to make statements in those documents not misleading. The selling stockholder identified in the table below may from time to time offer and sell under this prospectus any or all of the shares of common stock described under the column “Shares of Common Stock Being Offered” in the table below. GHS will be deemed to be an underwriter within the meaning of the Securities Act. Any profits realized by the selling stockholder may be deemed to be underwriting commissions. We cannot give an estimate as to the number of shares of common stock that will actually be held by the selling stockholder upon termination of this offering, because the selling stockholder may offer some or all of the common stock under the offering contemplated by this prospectus or acquire additional shares of common stock. The total number of shares that may be sold hereunder will pay a price per share that substantially exceedsnot exceed the book valuenumber of shares offered hereby. Please read the section entitled “Plan of Distribution” in this prospectus. The manner in which the selling stockholder acquired or will acquire shares of our assets after subtracting our liabilities. See “Dilution” for a more complete description of howcommon stock is discussed below under “The Offering.” The following table sets forth the value of your investment will be diluted upon the completion of this offering. We may need additional capital, and the sale of additional shares or equity or debt securities could result in additional dilution to our stockholders.
We believe that our current cash and cash used in operations, together with the net proceeds from this offering, will be sufficient to meet our anticipated cash needs for the next 24 months. We may, however, require additional cash resources due to changed business conditions or other future developments. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain one or more credit facilities. The sale of additional equity securities could result in additional dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. It is uncertain whether financing will be available in amounts or on terms acceptable to us, if at all.
We have broad discretion in the usename of the net proceeds from this offering and may not use them effectively.
Our management will have broad discretion inselling stockholder, the application of the net proceeds, including for any of the purposes described in the section of this prospectus entitled “Use of Proceeds.” The failure by our management to apply these funds effectively could harm our business.
Sales of a substantial number of shares of our common stock followingbeneficially owned by such stockholder before this offering, the number of shares to be offered for such stockholder’s account and the number and (if one percent or more) the percentage of the class to be beneficially owned by such stockholder after completion of the offering. The number of shares owned are those beneficially owned, as determined under the rules of the SEC, and such information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares of our common stock as to which a person has sole or shared voting power or investment power and any shares of common stock which the person has the right to acquire within 60 days of July 11, 2019, through the exercise of any option, warrant or right, through conversion of any security or pursuant to the automatic termination of a power of attorney or revocation of a trust, discretionary account or similar arrangement, and such shares are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the person holding such options, warrants or other rights, but are not deemed outstanding for computing the percentage of any other person. Beneficial ownership percentages are calculated based on 23,318,980 shares of our common stock outstanding as of July 11, 2019.
Unless otherwise set forth below, (a) the persons and entities named in the table below have sole voting and sole investment power with respect to the shares set forth opposite the selling stockholder’s name, subject to community property laws, where applicable, and (b) no selling stockholder had any position, office or other material relationship within the past three years, with us or with any of our predecessors or affiliates. The number of shares of common stock shown as beneficially owned before the offering is based on information furnished to us or otherwise based on information available to us at the timing of the filing of the registration statement of which this prospectus forms a part. | | | Shares Owned by the Selling Stockholder before the | | | Shares of Common Stock Being | | | Number of Shares to be Owned by Selling Stockholder After the Offering and Percent of Total Issued and Outstanding Shares | | | Name of Selling Stockholder | | Offering (1) | | | Offered | | | # of Shares(2) | | | % of Class (2) | | | GHS Investments LLC (3) | | | 0 | | | | 7,000,000 | (4) | | | 0 | | | | 0 | % |
Notes: | (1) | Beneficial ownership is determined in accordance with Securities and Exchange Commission rules and generally includes voting or investment power with respect to shares of common stock. Shares of common stock subject to options, warrants and convertible debentures currently exercisable or convertible, or exercisable or convertible within 60 days, are counted as outstanding. The actual number of shares of common stock issuable upon the conversion of the convertible debentures is subject to adjustment depending on, among other factors, the future market price of our common stock, and could be materially less or more than the number estimated in the table. |
| (2) | Because the selling stockholder may offer and sell all or only some portion of the 7,000,000 shares of our common stock being offered pursuant to this prospectus and may acquire additional shares of our common stock in the future, we can only estimate the number and percentage of shares of our common stock that the selling stockholder will hold upon termination of the offering. |
| (3) | Mark Grober exercises voting and dispositive power with respect to the shares of our common stock that are beneficially owned by GHS. |
| (4) | Consists of up to 7,000,000 shares of common stock to be sold by GHS pursuant to the Financing Agreement. |
THE OFFERING On May 1, 2019, we entered into an Equity Financing Agreement (the “Financing Agreement”) with GHS Investments LLC (“GHS”) for an equity line. Although we are not required to sell shares under the Financing Agreement, the Financing Agreement gives us the option to sell to GHS up to $4,000,000 worth of our common stock, in increments, over the period ending on the earlier of (i) the date GHS has purchased an aggregate of $4,000,000 of our common stock pursuant to the Financing Agreement, or (ii) the date that this registration statement is no longer in effect (the “Open Period”). $4,000,000 was stated to be the total amount of available funding in the Financing Agreement, because this was the maximum amount that GHS agreed to offer us in funding. There is no assurance the market price of our common stock will increase in the future, or that we will ever sell (i) $4,000,000 of our common stock to GHS, or (ii) all 7,000,000 shares being registered hereunder. The number of common shares that remain issuable may adversely affectnot be sufficient, dependent upon the share price, to allow us to access the full amount contemplated under the Financing Agreement. If the closing prices of our common stock remains the same and does not materially increase, we will not be able to place puts for the full commitment amount under the Financing Agreement. Based on the lowest closing price of our common stock during the ten (10) consecutive trading day period preceding July 11, 2019, the registration statement covers the offer and possible sale of only approximately $1,166,667 worth of our shares. We have not paid, and are not obligated to pay, GHS any amounts (in cash, shares of stock, or otherwise) as a commitment fee. During the Open Period, the Company may, in its sole discretion, deliver a put notice (“Put Notice”) to GHS which shall state the dollar amount the Company intends to sell to GHS on a designated closing date (the “Put Amount”). The purchase price of the common stock pursuant to a Put Notice will be set at the lowest closing price of the common stock during the ten consecutive trading day period immediately preceding the date on which the Company delivers the Put Notice to GHS (the “Market Price”). We are obligated to deliver a number of shares to GHS equal to Put Amount divided by the Market Price, along with an additional 20% share premium (15% as “Issuance Discount” shares and 5% as “Transaction Costs” shares pursuant to the Financing Agreement terms). For example, if we delivered a put notice to GHS for $50,000, we would be obligated to issue GHS $60,000 of our common stock (120% of the Put Amount) based on the Market Price. The 20% share premium GHS will receive with each put sale means that GHS will effectively be purchasing our shares at an approximate 16.67% discount to the Market Price (i.e., for each issuance of $100,000 of stock, the Put Amount paid by GHS to the Company would only be $83,333.33). In addition, the Financing Agreement (i) imposes an ownership limitation on GHS of 4.99% (i.e., GHS has no obligation to purchase shares if it beneficially owns more than 4.99% of our common stock), (ii) requires a minimum of ten (10) trading days between put notices, and (iii) prohibits any single Put Amount from exceeding $350,000. In order for the Company to be eligible to deliver put notices to GHS, the following conditions must be met: (i) a registration statement shall be declared effective and remain effective; (ii) at all times during the period beginning on the related put notice date and ending on and including the related closing date of the put, the Company’s common stock shall have been listed or quoted for trading on OTC Markets or its equivalent and shall not have been suspended from trading thereon for a period of two (2) consecutive trading days during the open period; (iii) the Company has not defaulted or be in breach of the Financing Agreement; (iv) no injunction shall be issued or remain in force in connection with the purchase of the Company’s shares; and (v) the issuance of the shares will not violate any shareholder approval requirements of OTC Markets. If any of the events described above occurs during a pricing period, then GHS shall have not obligation to purchase the shares delivered in the Put Notice. Further the terms of the Financing Agreement require that the Company take all steps necessary to have this registration statement be declared effective no more than 90 days following the date this registration statement was originally filed. GHS is not permitted to engage in short sales involving our common stock, or to engage in other activities that could manipulate the market for our common stock, during the period commencing May 1, 2019, and continuing through the termination of the Financing Agreement. In accordance with Regulation SHO, however, sales of our common stock by GHS after delivery of a put notice of such number of shares reasonably expected to be purchased by GHS under a put will not be deemed short sales. In order for the Company’s exercise of a put to be effective, we must deliver the documents, instruments and writings required under the Financing Agreement. GHS is not required to purchase the put shares unless: | ● | Our registration statement with respect to the resale of the shares of common stock delivered in connection with the applicable put shall have been declared effective; |
| ● | we shall have obtained all material permits and qualifications required by any applicable state for the offer and sale of the registrable securities; and |
| ● | we shall have filed all requisite reports, notices, and other documents with the SEC in a timely manner. |
As we draw down on the equity line of credit reflected in the Financing Agreement, shares of our common stock will be sold into the market by GHS. The sale of these shares could cause our stock price to decline. In turn, if our stock price declines and we issue more puts, more shares will come into the market, which could cause a further drop in our stock price. The Company determines when and whether to issue a put to GHS, so the Company will know precisely both the stock price used as the reference point, and the number of shares issuable to GHS upon such exercise. You should be aware that there is an inverse relationship between the market price of our common stock and the issuancenumber of additional shares will dilute allto be issued under the equity line of credit. We have no obligation to utilize the full amount available under the equity line of credit. Neither the Financing Agreement nor any of our rights or GHS’s rights thereunder may be assigned to any other stockholders.person. PLAN OF DISTRIBUTION Sales
The selling stockholder may, from time to time, sell any or all of a substantial numberits shares of Company common stock through the OTC Link or any other stock exchange, quotation board, market or trading facility on which the shares of our common stock are quoted or traded, or in private transactions. These sales may be at fixed prices, prevailing market prices at the time of sale, at varying prices, or at negotiated prices. The selling stockholder may use any one or more of the following methods when selling shares: | ● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; | | ● | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; | | ● | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; | | ● | privately negotiated transactions; | | ● | broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; or | | ● | a combination of any such methods of sale. |
Additionally, broker-dealers engaged by the selling stockholder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholder (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the public marketcase of an agency transaction not in excess of a customary brokerage commissions in compliance with FINRA Rule 2440; and in the case of a principal transaction, a markup or otherwise following this offering,markdown in compliance with FINRA IM-2440. GHS is an underwriter within the meaning of the Securities Act of 1933, and any broker-dealers or agents that are involved in selling the perceptionshares may be deemed to be “underwriters” within the meaning of the Securities Act of 1933 in connection with such sales. Any commissions received by such broker-dealers or agents, and any profit on the resale of the shares purchased by them, may be deemed to be underwriting commissions or discounts under the Securities Act of 1933. GHS has informed us that such sales could occur, could adversely affectit does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the market price of ourCompany’s common stock. After completion of this offering at an assumed offering price of $ per share, our existing stockholders will own approximately % of our common stock assuming there is no exercisePursuant to a requirement by FINRA, the maximum commission or discount to be received by any FINRA member or independent broker-dealer may not be greater than 8% of the underwriters’ over-allotment option.gross proceeds received by us for the sale of any securities being registered pursuant to Rule 415 promulgated under the Securities Act of 1933. After completion
Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of this offering at an assumed offering price of $ per share thereshares will be borne by the selling stockholder. The selling stockholder may agree to indemnify any agent, dealer, or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act of 1933. We are required to pay certain fees and expenses incurred by us incident to the registration of the shares covered by this prospectus. We have agreed to indemnify the selling stockholder against certain losses, claims, damages and liabilities, including liabilities under the Securities Act of 1933. We will not receive any proceeds from the resale of any of the shares of our common stock outstanding. In addition,by the selling stockholder. We will receive proceeds from the sale of our certificatecommon stock to GHS under the Financing Agreement. Neither the Financing Agreement with GHS nor any rights of incorporation, as amended, permits the issuanceparties under the Financing Agreement with GHS may be assigned or delegated to any other person. We have entered into an agreement with GHS to keep this prospectus effective until GHS (i) has sold all of upthe common shares purchased by it under the Financing Agreement and (ii) has no further right to approximatelyacquire any additional shares of common stock afterunder the completion of this offering. Thus, weFinancing Agreement. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have the ability to issue substantial amounts of common stockbeen registered or qualified for sale in the future, which would diluteapplicable state or an exemption from the percentage ownership held byregistration or qualification requirement is available and is complied with. Under applicable rules and regulations under the investors who purchase sharesSecurities Exchange Act of our common stock1934, any person engaged in this offering. We and our officers, directors and certain stockholders have agreed, subject to customary exceptions, not to, without the prior written consent of Joseph Gunnar & Co., LLC, the representativedistribution of the underwriters, during the period ending 180 days from the date of this offeringresale shares may not simultaneously engage in the case of our directors and officers and 90 days from the date of this offering in the case of us and our stockholders who beneficially own more than 5% of our common stock, directly or indirectly, offer to sell, sell, pledge or otherwise transfer or dispose of any of shares of our common stock, enter into any swap or other derivatives transaction that transfers to another any of the economic benefits or risks of ownership of shares of our common stock, make any demand for or exercise any right or cause to be filed a registration statement, including any amendments
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thereto,market making activities with respect to the registration of any shares of common stock or securities convertible into or exercisable or exchangeable for common stock or any other securitiesthe applicable restricted period, as defined in Regulation M, prior to the commencement of the Company or publicly disclosedistribution. In addition, the intentionselling stockholders will be subject to do anyapplicable provisions of the foregoing.
AfterSecurities Exchange Act of 1934 and the lock-up agreements with our principal stockholders pertaining to this offering expire 90 days fromrules and regulations thereunder, including Regulation M, which may limit the datetiming of this offering unless waived earlier by the representative, up topurchases and sales of the shares that had been locked up will be eligible for future sale in the public market. After the lock-up agreements with our directors and officers pertaining to this offering expire 180 days from the date of this offering unless waived earlier by the managing underwriter, up to [•] of the shares (net of any shares also restricted by lock-up agreements with our principal stockholders) that had been locked up will be eligible for future sale in the public market. Sales of a significant number of these shares of common stock in the public market could reduce the market price of the common stock.
The foregoing list is not all-inclusive. There can be no assurance that we have correctly identified and appropriately assessed all factors affecting our business or that the publicly available and other information with respect to these matters is complete and correct. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect us. These developments could have material adverse effects on our business, financial condition, results of operations and liquidity. For these reasons, the reader is cautioned not to place undue reliance on our forward-looking statements.
following this offering, the market value of the warrants is uncertain and there can be no assurance that the market value of the warrants will equal or exceed their public offering price.
The warrants offered in this offering do not confer any rights of common stock ownership on their holders, such as voting rights or the right to receive dividends, but rather merely represent the right to acquire shares of our common stock at a fixed price for a limited period of time. Specifically, commencing on the date of issuance, holders of the warrants may exercise their right to acquire the common stock and pay an exercise price of 125% of the public offering price of our common stock in this offering, prior to five years from the date of issuance, after which date any unexercised warrants will expire and have no further value. Moreover, following this offering, the market value of the warrants is uncertain and there can be no assurance that the market value of the warrants will equal or exceed their public offering price. There can be no assurance that the market price of the common stock by the selling stockholder or any other person. We will ever equal or exceedmake copies of this prospectus available to the exercise priceselling stockholder.
DESCRIPTION OF SECURITIES TO BE REGISTERED In the discussion that follows, we have summarized selected provisions of our certificate of incorporation, bylaws and the warrants,Nevada General Corporation Law relating to our capital stock. This summary is not complete. This discussion is subject to the relevant provisions of Nevada law and consequently, whether it will everis qualified by reference to our certificate of incorporation and our bylaws. You should read the provisions of our certificate of incorporation and our bylaws as currently in effect for provisions that may be profitable for holders of the warrantsimportant to exercise the warrants.you. 18
USE OF PROCEEDSGeneral
We estimate that the net proceeds from the sale
The Company is authorized to issue an aggregate number of the270,000,000 shares of capital stock, of which 20,000,000 shares are blank check preferred stock, $0.00001 par value per share, and 250,000,000 shares are common stock, and warrants in the offering will be approximately $ million, after deducting the underwriting discounts and commissions and estimated offering expenses, or $ million if the underwriters exercise their over-allotment option in full.$0.00001 par value per share. We currently expect to use the net proceeds of this offering primarily for the following purposes:
•Preferred Stock approximately $2,487,500 for the repayment of certain debt and other obligations.
• approximately $500,000 for research and development for new products and improvements to existing products including but not limited to hiring of key personnel, leasing of facilities and material costs for research activities;
• approximately $500,000 to upgrade sales and marketing capabilities including but not limited to professional relations, advertising, software implementation and adding additional staff; and
• the remainder for working capital and other general corporate purposes.
We believe that the expected net proceeds from this offering and our existing cash and cash equivalents, together with interest thereon, will be sufficient to fund our operations for at least the next 24 months, although we cannot assure you that this will occur.
The amount and timingCompany is authorized to issue 20,000,000 shares of our actual expenditures will depend on numerous factors, including the status of our development efforts, sales and marketing activities and the amount of cash generated or used by our operations. We may find it necessary or advisable to use portions of the proceeds for other purposes, andblank check preferred stock, $0.00001 par value per share. Currently we will have broad discretion and flexibility in the application of the net proceeds. Pending these uses, the proceeds will be invested in short-term bank deposits. 19
MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market and Other Information
Our common stock is quoted on the OTC Markets Group Inc.’s OTCQB Link quotation platform (the “OTCQB”) under the trading symbol “SFHI”. We intend to apply to the NASDAQ Capital Market to list our common stock under the symbol “SFHI” and our warrants under the symbol “SFHIW.”
Immediately following the offering, we expect to have one class of common stock outstanding and no shares of preferred stock issued or outstanding.
Common Stock The Company is authorized to issue 250,000,000 shares of common stock, $0.00001 par value per share. As of August 26, 2016, there were approximately 234 holdersJuly 11, 2019, we have 23,318,980 shares of record of our common stock issued and the last reported sale priceoutstanding. Each share of our common stock on the OTCQB was $0.51shall have one (1) vote per share. share for all purpose. Our common stock was initially quoted on the OTCQB in 2014does not provide a preemptive, subscription or conversion rights and the following table sets forth the high and low sales price of ourthere are no redemption or sinking fund provisions or rights. Our common stock on the OTCQBholders are not entitled to cumulative voting for the last two fiscal years and for the current fiscal year through the most recent fiscal quarter. These prices are based on inter-dealer bid and asked prices, without markup, markdown, commissions, or adjustments and may not represent actual transactions.purposes of electing members to our board of directors. | | | | | Fiscal Year Ending December 31, 2016: | | | | | | | Quarter Ended September 30, 2016 (through August 26, 2016) | | $ | 0.75 | | $ | 0.33 | Quarter Ended June 30, 2016 | | $ | 1.45 | | $ | 0.35 | Quarter Ended March 31, 2016 | | $ | 1.48 | | $ | 0.11 | Fiscal Year Ending December 31, 2015: | | | | | | | Quarter Ended December 31, 2015 | | $ | 1.50 | | $ | 0.51 | Quarter Ended September 30, 2015 | | $ | 1.50 | | $ | 1.50 | Quarter Ended June 30, 2015 | | $ | 1.50 | | $ | 1.50 | Quarter Ended March 31, 2015 | | $ | 1.50 | | $ | 1.50 | Fiscal Year Ending December 31, 2014: | | | | | | | Quarter Ended December 31, 2014 | | $ | 1.50 | | $ | 1.50 | Quarter Ended September 30, 2014 | | | N/A | | | N/A | Quarter Ended June 30, 2014 | | | N/A | | | N/A | Quarter Ended March 31, 2014 | | | N/A | | | N/A |
Dividend PolicyDividends
To date, we
We have not paid any cash dividends onto our common stock and do not anticipate paying any such dividends in the foreseeable future.shareholders. The declaration and payment of any future cash dividends on the common stock is at the discretion of our board of directors and will dependdepends upon our earnings, if any, our capital requirements and financial position, our general economic conditions, and other pertinent conditions. It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations. Warrants As of March 31, 2019, there are 183,338 outstanding warrants to purchase our common shares. The warrants are exercisable for a term ranging from 1 to 1.5 years with an exercise price of $1.10/share. Options As of March 31, 2019, there are 1,947,500 outstanding options to purchase our securities with exercise prices ranging from $0.10/share to $1.75/share. Market for our Securities While there is no established public trading market for our Common Stock, our Common Stock is quoted on among other things,the OTC Link, LLC system operated by OTC Markets Group, Inc., at the “OTCQB” level under the symbol “SFHI”. The market price of our Common Stock is subject to significant fluctuations in response to variations in our quarterly operating results, financial condition, capital requirements, contractual restrictions or suchgeneral trends in the market and other factors, over many of which we have little or no control. In addition, broad market fluctuations, as well as general economic, business and political conditions, may adversely affect the market for our Common Stock, regardless of our actual or projected performance. Anti-Takeover Provisions Our charter and bylaws contain provisions that may make it more difficult for a third party to acquire or may discourage acquisition bids for us. Our Board may, without action of our stockholders, issue authorized but unissued shares of preferred stock. The existence of unissued preferred stock may enable the Board, without further action by the stockholders, to issue such stock to persons friendly to current management or to issue such stock with terms that could render more difficult or discourage an attempt to obtain control of us, thereby protecting the continuity of our management. Our shares of preferred stock could therefore be issued quickly with terms that could delay, defer, or prevent a change in control of us, or make removal of management more difficult. Securities Authorized for Issuance under Equity Compensation Plans Below is a description of the Company’s compensation plan adopted in 2016. 2016 Plan The purpose of awards under the 2016 Plan is to attract and retain talented employees and the services of select non-employees, further align employee and stockholder interests and closely link employee compensation with Company performance. Eligible participants under the 2016 Plan will be such full or part-time officers and other employees, directors, consultants and key persons of the Company and any Company subsidiary who are selected from time to time by the Board or committee of the Board authorized to administer the 2016 Plan, as applicable, in its sole discretion. The Plan provides for the issuance of up to 2,500,000 shares of common stock of the Company through the grant of non-qualified options (the “Non-qualified Options”), incentive options (the “Incentive Options” and together with the Non-qualified Options, the “Options”) and restricted stock (the “Restricted Stock”) and unrestricted stock (the “Unrestricted Stock”) to directors, officers, consultants, attorneys, advisors and employees. The 2,500,000 shares available under the 2016 Plan represent approximately 15% of the Company’s issued and outstanding common stock as of October 4, 2016. The Board believes the 2,500,000 shares that may be awarded under the 2016 Plan should be sufficient to cover grants through at least the end of the fiscal year 2019. The 2016 Plan shall be administered by a committee consisting of two or more independent, non-employee and outside directors (the “Committee”). In the absence of such a Committee, the Board shall administer the 2016 Plan. The 2016 Plan is currently being administered by the Board but it is intended for the Compensation Committee to administer the 2016 Plan as soon as practicable. Options are subject to the following conditions: (i) The Committee determines the strike price of Incentive Options at the time the Incentive Options are granted. The assigned strike price must be no less than 100% of the Fair Market Value (as defined in the Plan) of the Company’s Common Stock. In the event that the recipient is a Ten Percent Owner (as defined in the Plan), the strike price must be no less than 110% of the Fair Market Value of the Company. (ii) The strike price of each Non-qualified Option will be at least 100% of the Fair Market Value of such share of the Company’s Common Stock on the date the Non-qualified Option is granted. (iii) The Committee fixes the term of Options, provided that Options may not be exercisable more than ten years from the date the Option is granted and provided further that Incentive Options granted to a Ten Percent Owner may not be exercisable more than five years from the date the Incentive Option is granted. (iv) The Committee may designate the vesting period of Options. In the event that the Committee does not designate a vesting period for Options, the Options will vest in equal amounts on each fiscal quarter of the Company through the five (5) year anniversary of the date on which the Options were granted. The vesting period accelerates upon the consummation of a Sale Event (as defined in the Plan). (v) Options are not transferable, and Options are exercisable only by the Options’ recipient, except upon the recipient’s death. (vi) Incentive Options may not be issued in an amount or manner where the amount of Incentive Options exercisable in one year entitles the holder to Common Stock of the Company with an aggregate Fair Market value of greater than $100,000. Awards of Restricted Stock are subject to the following conditions: (i) The Committee grants Restricted Stock Options and determines the restrictions on each Restricted Stock Award (as defined in the Plan). Upon the grant of a Restricted Stock Award and the payment of any applicable purchase price, grantee is considered the record owner of the Restricted Stock and entitled to vote the Restricted Stock if such Restricted Stock is entitled to voting rights. (ii) Restricted Stock may not be delivered to the grantee until the Restricted Stock has vested. (iii) Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as provided in the Plan or in the Award Agreement (as defined in the Plan). As of December 31, 2018, the Company issued the following stock options and grants under the Plan: Equity Compensation Plan Information | Plan category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights and number of shares of restricted stock | | | Weighted average exercise price of outstanding options, warrants and rights (1) | | | Number of securities remaining available for future issuance | | | Equity compensation plans approved by security holders under the Plan | | | 287,500 | | | $ | 1.62 | | | | 1,825,000 | | | | | | | | | | | | | | | | | Equity compensation plans not approved by security holders | | | 630,000 | | | $ | 1.02 | | | | - | | | | | | | | | | | | | | | | | Total | | | 917,500 | | | $ | 1.21 | | | | 1,825,000 | |
| (1) | Excludes shares of restricted stock issued under the Plan. |
INTERESTS OF NAMED EXPERTS AND COUNSEL No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed for such purpose on a contingency basis or had, or is to receive, in connection with the offering, a substantial interest, directly or indirectly, in the Company or its subsidiary. Nor was any such person connected with the Company or any of its parents, or subsidiaries, as a promoter, managing or principal underwriter, voting trustee, director, officer or employee. The audited financial statements for the Company for the years ended December 31, 2018 and 2017 included in this prospectus have been audited byRosenberg Rich Baker Berman, P.A., an independent registered public accounting firm, to the extent and for the periods set forth in our report and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting. The legality of the shares offered under this registration statement is being passed upon by Brunson Chandler, & Jones, PLLC. INFORMATION WITH RESPECT TO THE REGISTRANT DESCRIPTION OF BUSINESS Our Corporate History We were incorporated on February 8, 2011, as Anglesea Enterprises, Inc (“Anglesea”). Initially, our activities consisted of providing marketing and web-related services to small businesses, including the design and development of original websites, creative writing and graphics, virtual tours, audio/visual services, marketing analysis and search engine optimization. On June 16, 2014, Anglesea, its merger subsidiary (“Merger Sub”), Sports Field Holdings, Inc. (then a private Nevada corporation, “Sports Field Private Co”), and its majority shareholders, entered into a Merger Agreement pursuant to which the Merger Sub was merged with and into Sports Field Private Co, with Sports Field Private Co surviving as a wholly-owned subsidiary of Anglesea. Anglesea acquired, through the reverse triangular merger, all of the outstanding capital stock of Sports Field Private Co in exchange for issuing Sports Field Private Co’s shareholders 11,914,275 shares of Anglesea’s common stock. Upon completion of the merger on June 16, 2014, Anglesea merged with Sports Field Private Co in a short-form merger transaction. Upon completion of the short-form merger, the Company became the parent company of Sport Field Private Co’s then wholly owned subsidiaries, Sports Field Contractors LLC, FirstForm, Inc. (“FirstForm”), and Athletic Construction Enterprises, Inc. In connection with the short-form merger, Anglesea changed its name to Sports Field Holdings, Inc. (“Sports Field”). Overview Sports Field, through its wholly owned subsidiary, FirstForm, is an innovative product development company engaged in the design, engineering and construction of athletic fields and 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 square feet per project. According to Acute Market Reports, the synthetic turf market was valued at $3.25 billion and is estimated to reach $8.56 billion by 2026. 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 choice 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 over the past several years, 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, and G-max levels (the measure of how much force the surface absorbs and, in return, how much is deflected back to the athlete) as well drainage issues related to the base construction of turf installation. In addition to the 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 projects include indoor fields, bleachers, press boxes, lighting and 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 increased demand because we are able to compete for the sale of turf as well as the design and construction on such projects, whereas our competitors can typically only compete for the turf components or the construction, but not both. According to an IBIS report, there are no national firms competing in these sectors that have a 5% market share. Through our strategic operations design, we have the ability to operate throughout the U.S., providing high quality synthetic turf systems focused on player safety and performance and construct those facilities for our clients using local subcontracted labor. 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 competitive 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. Members of our management team have also designed, engineered and installed baseball stadiums, soccer and lacrosse fields, indoor soccer facilities, softball fields and running tracks for private sports venues, public and private high schools and public and private universities. In addition, members of our team have designed, 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. Lines of Business Sports Field, through its wholly owned subsidiary, FirstForm, has two primary lines of business which are all integral parts of the organization’s overall business model. Our primary revenue generation comes from the sale and installation of our PrimePlay® line of synthetic turf products. Our secondary source of revenue is generated as a result of the design, engineering and construction management of athletic facilities and sports complexes. We bid all work done on each site to at least 3 subcontracted labor companies that meet our high standard of quality. The combination of these two business units allow for the business to operate as a Turn-Key Athletic Facilities provider for a truly “one-stop-shop” simplified customer experience. Target Markets Our main target market is the more than 60,000 colleges, universities, high schools and primary schools in the United States with athletic programs, both public and private. Municipal parks and recreations departments, commercial and residential landscaping as well as golf and golf related activities also represent significant market opportunities for the Company. Additionally, we target private club sports associations and independent athletic training facilities, including all major sports, such as football, soccer, baseball, softball, lacrosse, field hockey, rugby, and track and field. We also intend to market our unique design-build services to public youth sports leagues and all semi-professional and professional sports leagues. Growth Strategy Our primary goal is to be a leading provider of unique turn-key services that combine our strengths in safe and high-performance synthetic turf systems, athletic facilities design, engineering and construction expertise. The key elements of our strategy include: Expand our sales organization and increase marketing. Our sales structure is comprised of three discrete units: direct sales representatives, deal finders and sports ambassadors. We currently have three sales territories within the U.S.: East, Central, and West, with each territory containing its own dedicated sales professional. We are currently contracted with fifteen commission only deal finders who have extensive contacts in the sports industry and are making introductions for our direct sales team members to key decision makers around the U.S. Once a project lead is established, our distribution partners and deal finders bring in the local territory representative and drive the sales to close together as a team. We intend to continue to expand our highly-trained direct sales organization to secure contracts in every major region of the United States. By securing contracts and establishing Sports Field in all major regions of the country, the Company intends to seek to leverage those client relationships and successful projects to aggressively market to all potential clients in these regions. Develop and broaden high profile relationships to increase sales and drive revenues. In addition to installing a football/lacrosse field, in December 2015, we entered into a four-year marketing agreement with IMG Academy in Bradenton, Florida (“IMG”), a world renowned school and athletic training destination. IMG’s nationally recognized sports programs attract premier athletes from all over the globe. Our official supplier agreement with IMG allows us to utilize their logo in our marketing materials, perform site visits with clients to see our products as well as allow space for our 14,000 square foot research and development installation, which has allowed us to conduct research in an effort to consistently update our product offerings and to make sure we put out what we believe to be the safest and highest performing products in the market. In addition, we are allowed to utilize IMG athletes to conduct product testing to ensure performance and safety for up to four times each year. We have opened discussions to renew and extend our arrangement with IMG, but there is no guarantee that we will be able to do so. We hope to continue to develop high profile strategic relationships that will allow for greater awareness of our products and services with institutions that are focused on athlete safety and athletic performance. Drive adoption and awareness of our eco-friendly turf and infill products among coaches, athletic directors, administrators, and athletes. We intend to educate coaches, athletic directors, administrators and athletes on the compelling case for our two infill products. The Company currently offers two infill products, OrganiteTM and TerraSportTM. Organite is our eco-friendly infill product that consists of Zeolite, Walnut Shell (Non-Allergenic Organic Shells) and ethylene propylene diene monomer (EPDM) rubber. EPDM is a virgin rubber that contains no metals of any kind or known carcinogens in any color except black. On occasion, Organite contains minimal levels of Black EPDM which is sometimes known to contain carbon black, a potential inhalation hazard during manufacturing; however, we are not aware of any data showing any health hazards related to ingestion and therefore we strongly believe that EPDM is a much safer alternative to SBR crumb rubber. TerraSportTM is eco-friendly and has absolutely no rubber at all and contains a proprietary mix of materials that are completely inert or biodegradable. Due to pricing competition, we keep Organite available for clients more concerned with cost, but we believe that our “rubberless” product will resonate amongst owners and drive additional demand for our products. Our infills are free from lead, chromium and all other potential cancer causing agents that are commonly found in fields all across the U.S. Our PrimePlay® synthetic turf products are free from the polyurethane backing, which cannot be recycled, that is commonly present in the majority of turf installations today. Environmentally friendly, ecologically-safe, recyclable products and coating materials are available and we are using them in our current products. We believe our products perform, in all respects, as well or better than the ecologically-challenged products traditionally considered and currently used by many of our competitors. Due to our turn-key design-build process, we are able to offer our customers fields with ecologically friendly and safer materials at a price that is competitive with the traditional products. We believe that increased awareness of the benefits of our eco-friendly infill will favorably impact our sales. Develop new technology products and services. Since inception, we have been in pursuit of developing a turf system that is comprised of synthetic fiber, turf backing, infill and shock/drainage pad that would allow us to market a product that virtually eliminates all of the current problems plaguing the industry. To date, we have studied and developed a high performing infill product that is free from any potential carcinogens and is capable of reducing field temperatures, designed a turf stitch pattern that will both reduce infill migration and prevent injury, removed polyurethane from our backing to allow for recycling, tested and provided a shock pad system from a third party supplier which will allow for high performance while reducing impact injuries due to lower G-max, and engineered drainage design plans that allow the system to be free from standing water even in the event of major downpours. All of these improvements to the system are being continuously challenged and tested at our research and development site located on the campus at IMG in Bradenton, Florida. Our goal is to permanently staff a research and development office so that we can use everything we have learned about existing products and continue to create new products that will continue to improve performance while remaining safe for the players and the environment. Pursue opportunities to enhance our product offerings. We may also opportunistically pursue the licensing or acquisition of complementary products and technologies to strengthen our market position or improve product margins. We believe that the licensing or acquisition of products would only strengthen our existing portfolio. Lessen our dependency on third party manufacturers. As part of our long-term plans, we are exploring the possibility of reducing our reliance on third party manufacturers by bringing certain manufacturing, service and research and development functions in-house, which could include the acquisition of equipment and other fixed assets or the acquisition or lease of a manufacturing facility. Operational Strengths Highly Experienced Management and Key Personnel. We have assembled a senior management team and key personnel which includes Jeromy Olson, CEO; Scott Allen, Director of Architecture & Engineering; and Jacques Roman, Director of Sales. This current leadership team is comprised of individuals with significant experience in sales, design, architecture, engineering and construction industry. Diversified Project Classes. The diversity of project types that are within our capabilities is a strength that we can exploit if there is an economic slowdown on any one particular sector. Our architectural design, engineering and construction expertise along with our surfacing product sales can support the company revenue streams in two discrete ways. Specialized Market Approach. We are currently winning project bids at prices above our competitors that use crumb rubber due to customer demand for safer products. When other companies are forced to offer solutions similar to ours, we are already competitively priced. Much of the reason for our success is that we save money by employing our own project management, architecture and engineering, which ultimately lowers our overhead as compared to other companies that are not turn-key. We believe that, by targeting and maintaining this type of expertise in athletic facilities, the Company is more insulated from general economic downturn than general construction companies. This specialization is less susceptible to customers driving normal price points lower through mass competition. Infrastructure built for growth. Current staffing levels have positioned the Company with excess operational capacity capable of doubling project execution without a significant impact on overhead. Featured Products and Services PrimePlay® Synthetic Turf Systems. All synthetic turf systems and products are marketed as our boardPrimePlay® line of directors may deem relevant.products to service the athletic facilities market. Within this line are the synthetic turf and track products, infill materials and shock/drainage pads. 
| * | Represents our turf system from the stone base under the field, shockpad, turf, and infill |
PrimePlay® Replicated Grass™. Our flagship synthetic turf system, Replicated Grass™, is designed with a shorter tuft-height and higher face-weight which combine to produce a surface with almost three times the blade-density of leading competitors. The result is a surface with increased infill stability. Because our infill is so stable and does not displace under normal use, there is no change in performance characteristics over time and the infill does not require replacement on as regular a basis as some of our competitor’s products that use crumb rubber. This increased density also offers athletes natural “ball-action”, or “ball roll”, and “natural foot-feel”, or “foot action” so it feels like they are playing on a real, lush grass surface. Replicated Grass™ also contains our “rubberless” TerraSportTM, which is composed entirely of naturally occurring materials. These infill materials offer no risk of cancer or other related health risks as well as many other valuable characteristics. Product Features Safe Alternative to Crumb Rubber. In February of 2016, four federal agencies — the U.S. Environmental Protection Agency (EPA), the Centers for Disease Control and Prevention (CDC), Agency for Toxic Substances and Disease Registry (ATSDR), and the U.S. Consumer Product Safety Commission (CPSC) — launched a joint initiative to study key safety and environmental human health questions related to the use of SBR crumb rubber in synthetic turf athletic fields, and any potential link to cancer. Sports Field has never used crumb rubber since its inception. The Company currently offers two infill products, Organite and our TerraSportTM. Organite is our eco-friendly infill product that consists of Zeolite, Walnut Shell (Non-Allergenic Organic Shells) and ethylene propylene diene monomer (EPDM) rubber. EPDM is a virgin rubber that contains no metals of any kind or known carcinogens in any color except black. On occasion, Organite contains minimal levels of Black EPDM, which is sometimes known to contain carbon black, a potential inhalation hazard during manufacturing; however, we are not aware of any data showing any health hazards related to ingestion and, therefore, we strongly believe that EPDM is a much safer alternative to SBR crumb rubber. TerraSportTMis eco-friendly and has absolutely no rubber at all and contains a proprietary mix of materials that are completely inert or biodegradable. Due to pricing competition, we keep Organite available for clients more concerned with cost but we believe that our “rubberless” product will resonate amongst owners and drive additional demand for our products. Heat Reduction. An often overlooked health risk associated with artificial turf is the extremely high temperatures that can exist above the playing surface due to absorption of heat from the sun. When using rubber infills, the reflectivity of an artificial turf system is generally lower than natural grass (darker colors absorb more electromagnetic radiation) due to the exposure of dark infill. Further, artificial turf and rubber infill do not naturally contain and hold moisture, which provide evaporative cooling such as natural grass and soils do. Our product uses zeolite, which is light in color to absorb less heat and is a porous material capable of holding up to 55% of its weight in water. This moisture is released as temperatures rise to create an evaporative cooling effect on the field. Our internal data and testing has shown that our surfaces on average are 30 to 50 degrees cooler than that of most competitors. Shock Attenuation. Rubber infills all have the same inherent problem: they break down and compact after prolonged exposure to UV light. As this breakdown happens over time, the surfaces get harder and harder as the rubber loses its elasticity. This process increases the risk of impact injuries for athletes. The National Football League’s (the “NFL”) recent attention to head injuries is reflected in its adoption of new standards for impact forces. New NFL guidelines require that NFL fields have a G-Max value (G-Max is a measurement of how much force the surface will absorb, the higher the G-Max rating the less absorption of force by the surface) that is not greater than 100 (based on the “Clegg” method of calculating G-Max). We believe that this criterion will eventually trickle-down and apply to all sports surfaces. We believe that eventually all artificial turf fields will have to maintain a G-Max below 115 (indoor) and 125 (outdoor) (Clegg) for the life of the product. Therefore, we developed a system and a TerraSportTMwith no rubber and integrated the use of a third-party manufactured proprietary shock/drainage pad to be utilized under the playing surface. As a result, our system produces G-Max scores under 90 for the life of the product, which is well below the NFL minimum and the average new installation of sand and crumb rubber fields, which average around G-max of 110. Base Construction. One of the key elements of any reliable turf athletic facility is the base construction. Conventional free-draining stone bases incorporate an inherent engineering conflict – drainage capacity vs. grade stability. In addition, the infiltration rate of the stone base cannot be accurately measured or predicted and degrades over time. To help eliminate these issues, we customize our drainage methodologies to meet specific project requirements and then we lay down our Replicated Grass products over the customized base. Our drainage methodology virtually eliminates engineering conflicts, practically eliminates invasive excavation, greatly reducing material import and export. Below is an illustration of a typical installation design: 
Warranty The Company generally provides a warranty on products installed for up to 8 years with certain limitations and exclusions based upon the manufacturer’s product warranty. Sales and Marketing Our current sales structure is comprised of three (3) discrete units: our direct sales representatives, deal finders and our sports ambassadors. We are currently contracted with fifteen (15) commission only deal finders who have extensive contacts in the sports industry and are making introductions for our direct sales team members to key decision makers around the U.S. Once a project lead is established, our deal finders bring in the local territory rep and drive the sales to close together as a team. We intend to continue to expand our direct sales organization in an effort to secure contracts in every major region of the United States. By securing contracts and establishing FirstForm® in all major regions of the country, the Company will seek to leverage those client relationships and successful projects to aggressively market to all potential clients in these regions. We have initiated an ambassador program that includes current and former professional athletes from the sports in which they played. We currently expecthave agreements with Thurman Thomas, future Hall of Fame retired NFL player, Rick Honeycutt, former MLB pitcher and current pitching coach of the Los Angeles Dodgers and Chris Wingert, current 12-year veteran Major League Soccer player who most recently played with the Real Salt Lake (collectively our “Sports Ambassadors”). These professionals maintain high level contacts with the NFL, Major League Baseball, professional soccer leagues, and major universities and colleges. These contacts have introduced the Company to use all available fundsNFL owners, professional athletes, college presidents and athletic directors, head coaches and other important industry contacts. Our complete sales team, including our Sports Ambassadors, are active through the United States and will continue to financecall on relationships with their contacts. The efforts of this group of twenty-two (22) professionals comprise a major component of the future developmentCompany’s sales and marketing initiatives and these contacts in the professional and collegiate sports industries represent a significant asset as the Company looks to continue its growth. The Company has also engaged in targeted and innovative direct marketing to athletic directors, school business managers, college and high school athletic programs, high school football coaches, landscape architects, engineering firms, and municipal parks and recreation departments. This plan has its focus on our innovative products and construction methodologies. We intend continued expansion of our businesshighly-trained direct sales organization to secure contracts in every major region of the United States. By securing contracts and establishing Sports Field in all major regions of the country, the Company will seek to leverage those client relationships and successful projects to aggressively market to all potential clients in these regions. Competition The competitive landscape with respect to manufacturing is very well-established, with seven companies selling the majority of synthetic turf products. Based on management’s experience and knowledge of the synthetic turf industry, Field Turf is the leading manufacturer of synthetic turf athletic fields and synthetic turf products, with what we believe is roughly 45% of the overall market and is one of the only companies operating in this space that we characterize as a true manufacturer. Shaw Sports, Astroturf, Sprint Turf and Hellas Construction are all purveyors of synthetic turf athletic fields with varying degrees of manufacturing and assembly. We estimate that these four companies account for approximately 20% of synthetic turf athletic field sales. There remains over 20 other distributors and to varying degrees, manufacturers and assemblers of synthetic turf products that account for the remaining 35% of the synthetic turf athletic fields market. These applications run the entire gamut of synthetic turf from residential and commercial landscaping, to golf applications, parks and recreation, private parks, airports, highway medians, downhill skiing, and other applications. The competitive landscape from an installation and construction perspective looks very different when compared to the landscape of the manufacturing side of the industry. In regard to installation and construction of artificial turf fields and athletic facilities, the industry is very much fragmented. There are no clear national leaders from the perspective of facilities construction. The bulk of the construction is provided by local or regional general contracting firms that specialize in certain phases of synthetic turf athletic fields and facility construction, but, to our knowledge, no competitors with significant market share offer a true turn-key operation or include their own in-house engineering staff. Sports Field offers full service design and engineering services with forensic studies of athletic facilities to properly prepare and recommend custom specifications based on specific circumstances unique to every facility. In addition, the Company will provide full service turn-key construction services for the facility depending on a client’s needs, or simply provide project management services for a particular project. Trademarks We have two registered trademarks and one pending trademark with the United States Patent and Trademark Office, which include FirstForm®, PrimePlay® and TerraSportTMrespectively. Since TerraSportTM has been released and is currently being marketed, the Company is seeking a registered trademark for this product. We also believe we have certain common law rights with respect to the prior and continued usage of the names “Replicated Grass” and “Organite”. Replicated Grass is our signature synthetic turf product. Service Mark The Company’s service mark is “Building the Best Comes First”, which stands for the Company’s commitment to research and development as well as quality workmanship. Patents The Company has filed a process patent application (application no. 16/417,247) for its products. Employees We have 5 full time employees. Additionally, the Company employs 22 independent contractors, including 19 contract employees for sales and 3 for accounting and investor relations services. None of our employees are represented by a labor union. Where You Can Find More Information Our website addresses arewww.firstform.com andhttps://sportsfieldholdingsinc.com. We do not anticipate paying dividendsintend our website address to be an active link or to otherwise incorporate by reference the contents of the website into this Report. The public may read and copy any materials the Company files with the U.S. Securities and Exchange Commission (the “SEC”) at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549 or athttps://sportsfieldholdingsinc.com/investors. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0030. The SEC maintains an Internet website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. DESCRIPTION OF PROPERTY Our principal office is located at 1020 Cedar Avenue, Suite 230 St. Charles, Illinois, 60174. This office has approximately 1,400 sq. ft. office space rented at a rate of $1,367 per month. This space is utilized for office purposes and it is our belief that the space is adequate for our immediate needs. Additional space may be required as we expand our business activities. We do not foresee any significant difficulties in obtaining additional facilities if deemed necessary. LEGAL PROCEEDINGS From time to time, we are a party to or otherwise involved in legal proceedings, claims and other legal matters, arising in the ordinary course of our business or otherwise. Except as set forth below, there are no material proceedings to which any director or officer, or any associate of any such director or officer, is a party that is adverse to the Company or any of our subsidiaries or has a material interest adverse to the Company or any of our subsidiaries. No director or executive officer has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it during the past ten years. On January 26, 2018, the Company and one of its historical clients executed a Settlement Agreement, pursuant to which the Company was obligated to remediate a track which was improperly installed by one of the Company’s subcontractors. No later the July 15, 2018, the Company was obligated to complete installment of a replacement track which was of the same or comparable specifications as in the original contract. Upon completion of the installation, the client was obligated to release from escrow a retainage amount of $110,000. During construction, the Company’s insurance company was obligated to release from escrow funds to cover the expected construction costs of $370,000; the remediation was entirely funded with insurance proceeds. This remediation work has been completed. On July 25, 2018, two note holders filed suit against the Company in the New York State Supreme Court, County of New York. The suit alleges that, as of July 24, 2018, the Company owed the plaintiffs a total amount of $466,177, which was inclusive of principal and interest. The plaintiffs filed a Motion for Summary Judgment in Lieu of Complaint and asked that judgment be entered against the Company. As of November 8, 2018, the outstanding principal was $351,810 and accrued unpaid interest as $124,524, totaling $476,334. On November 8, 2018, the Note Holder Plaintiffs and the Company executed a Settlement Agreement pursuant to which the Note Holder Plaintiffs agreed to a full release and wavier of their claims, including but not limited to, dismissal with prejudice of the suit in exchange for (a) an initial payment of $250,000, and (b) promissory notes in the total amount of $150,000, payable over twenty-four (24) months, with interest at nine percent (9%) per annum. As security for the two promissory notes, the Company will place 850,000 shares of common stock into an escrow account (“Escrow”). In the event the Company does not make timely payments under the promissory notes, upon written notice and after expiration of a cure period, the escrow agent shall release from Escrow shares of common stock with a value equal to the missed installment payment or payments plus accrued interest on that payment or payments. The number of shares so issued shall be determined by dividing the amount of the past due installment payment by the volume-weighted average price of the Company’s common stock for the last five trading days preceding the due date of the installment payment. With respect to the common stock held in Escrow, Note Holder Plaintiffs do not have any shareholder rights, including but not limited to voting, dividend or ownership rights. Upon full performance of the promissory notes, all shares of common stock still remaining in Escrow shall revert back to the Company as treasury shares. Given that the Company is experiencing financial difficulties and the Note Holder Plaintiffs granted a concession by accepting total payments of $400,000 for the remaining balance of the principal and interest due, the Company accounted for such transactions as a troubled debt restructuring and recognized a total gain of $76,336 from the debt settlement. The gain on troubled debt restructuring was $0.00 per share. On March 27, 2019 the Company entered into a mutual general release and settlement agreement (the “Settlement Agreement”) with a former employee. Pursuant to the Settlement Agreement, the Company agreed to pay the former employee $69,000, payable in three equal installments of $23,000 on March 31, June 28 and September 30, 2019 (the “Settlement Amount”). The Settlement Agreement also contains a general release by the former employee of the Company relating to the Claim, such release however is predicated on the Company making payments pursuant to the Settlement Agreement. As of March 31, 2019, the outstanding balance on this obligation was $46,000. On or about April 5, 2019, Spartan Capital Securities, LLC, the Company’s broker-dealer (“Spartan”) filed an arbitration claim against the Company before the American Arbitration Association (New York, New York, Case No. 01-19-0001-0700), seeking an award of fees and other damages related to Spartan’s Investment Banking Agreement with the Company. On or about May 14, 2019, the Company filed a counterclaim against Spartan for breach of fiduciary duties, fraud, unjust enrichment, breach of contract, fraudulent inducement and tortious interference, seeking compensatory and punitive damages. On or about May 16, 2019, Spartan amended its claim to include breach of fiduciary duty and civil conspiracy causes of action against some of the Company’s directors, former directors and employees, which the Company and its directors, former directors and employees answered and denied. Upon information and belief, in October 2016, a high school student was injured while playing a school-sanctioned football game on a field installed by the Company. On or about April 17, 2019, the student filed suit in the foreseeable future.Circuit Court for Baltimore City,Tyree Henry, et al. v. Sports Field Holdings, Inc., et al. (Case No. 24-C-19-002374), and the Company was served on July 17, 2019. The Company disputes that its installation was in any way related to plaintiff’s football injury and has engaged legal counsel to defend the matter. 20
MARKET PRICE OF THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS CAPITALIZATIONMarket Information
Our shares of Common Stock are quoted on the OTC Link system at the “OTCQB” level under the symbol “SFHI.” The OTC Link is a quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter (“OTC”) equity securities. An OTCQB equity security is not listed or traded on a national securities exchange. The following table sets forth our consolidated cashthe high and cash equivalents and capitalization as of June 30, 2016. Such information is set forth on the following basis: •an actual basis;
•an as adjusted basis, giving effect to the issuance of a promissory note in the amount of $750,000, pursuant to the Revolving Loan and $187,498 of gross proceeds from the private sale oflow bid price for our common stock for each quarter during the 2018 and 2017 fiscal years. The prices reflect inter-dealer quotations, do not include retail mark-ups, markdowns or commissions and do not necessarily reflect actual transactions.
| Fiscal 2018 | | High | | | Low | | | First Quarter (January 1 – March 31) | | $ | 0.30 | | | $ | 0.10 | | | Second Quarter (April 1 – June 30) | | $ | 0.47 | | | $ | 0.28 | | | Third Quarter (July 1 – September 30) | | $ | 0.39 | | | $ | 0.14 | | | Fourth Quarter (October 1 – December 31) | | $ | 0.60 | | | $ | 0.16 | |
| Fiscal 2017 | | High | | | Low | | | First Quarter (January 1 – March 31) | | $ | 0.70 | | | $ | 0.26 | | | Second Quarter (April 1 – June 30) | | $ | 0.50 | | | $ | 0.25 | | | Third Quarter (July 1 – September 30) | | $ | 0.50 | | | $ | 0.30 | | | Fourth Quarter (October 1 – December 31) | | $ | 0.50 | | | $ | 0.30 | |
Holders of Common Equity As of July 11, 2019, there were 244 stockholders of record. An additional number of stockholders are beneficial holders of our Common Stock in July 2016;“street name” through banks, brokers and other financial institutions that are the record holders.
•Dividend Informationa pro forma, as adjusted basis, giving effect
We have not paid any cash dividends to (i)our shareholders. The declaration of any future cash dividends is at the issuancediscretion of a promissory noteour board of directors and depends upon our earnings, if any, our capital requirements and financial position, our general economic conditions, and other pertinent conditions. It is our present intention not to pay any cash dividends in the amountforeseeable future, but rather to reinvest earnings, if any, in our business operations. Rule 10B-18 Transactions During the year ended December 31, 2018, there were no repurchases of $750,000, pursuant to the Revolving Loan, (ii) $187,498 of gross proceeds for the private sale of ourCompany’s common stock in July 2016 and (iii)by the pro forma sale by us of shares of common stock and warrants in this offering at an assumed public offering price of $ per share and $_____ per warrant after deducting underwriting discounts and commissions and estimated offering expenses.Company. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Forward-Looking Statements The pro forma as adjusted information below is illustrative only and our capitalization following the completion of this offering will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. You should read this table together with “Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations”Operations (“MD&A”) is intended to help you understand our historical results of operations during the periods presented and our audited and unaudited consolidated financial statements and the related notes appearing elsewhere in this prospectus. | | | | | | | | | | Current assets: | | | | | | | | | | Cash | | $ | — | | $ | 840,856 | | $ | | Accounts receivable | | | 187,202 | | | 187,202 | | | | Costs and estimated earnings in excess of billings | | | 97,796 | | | 97,796 | | | | Prepaid expenses and other current assets | | | 178,131 | | | 178,131 | | | | Total current assets | | | 463,129 | | | 1,303,985 | | | | Property, plant and equipment, net | | | 12,221 | | | 12,221 | | | | Deposits | | | 2,090 | | | 2,090 | | | | Total assets | | $ | 477,440 | | | 1,318,296 | | $ | | | | | | | | | | | | Current liabilities: | | | | | | | | | | Cash overdraft | | $ | 3,518 | | | — | | $ | | Accounts payable and accrued expenses | | | 1,720,633 | | | 1,720,633 | | | | Due to factor | | | 58,788 | | | 58,788 | | | | Billings in excess of costs and estimated earnings | | | 82,322 | | | 82,322 | | | | Provision for estimated losses on uncompleted
contracts | | | 59,315 | | | 59,315 | | | | Promissory notes | | | 205,775 | | | 205,775 | | | | Convertible notes payable, net of debt discount
of $55,432 | | | 605,068 | | | 605,068 | | | | Total current liabilities | | | 2,735,419 | | | 2,731,901 | | | | | | | | | | | | | | Long term liabilities | | | | | | | | | | Promissory notes, net of debt issue costs of $106,416 | | | — | | | 643,584 | | | | Derivative liabilities, warrants | | | — | | | 37,666 | | | | Total long term liabilities | | | — | | | 681,250 | | | | | | | | | | | | | | Total liabilities | | | — | | | 3,413,151 | | | |
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| | | | | | | | | | Stockholders’ equity (deficit): | | | | | | | | | | | | Preferred Stock, $0.00001 par value; 20,000,000 shares authorized; 0 shares issued and outstanding actual,
0 shares issued and outstanding pro forma, | | | — | | | | — | | | | | Common Stock, $0.00001 par value; 250,000,000 shares authorized; 16,281,571 shares issued and outstanding actual, shares issued and outstanding pro forma | | | 163 | | | | 165 | | | | | Additional paid-in capital | | | 10,160,838 | | | | 10,323,960 | | | | | Common stock subscription receivable | | | (4,500 | ) | | | (4,500 | ) | | | | Accumulated deficit | | | (12,414,480 | ) | | | (12,414,480) | | | | | Total stockholders’ equity (deficit) | | | (2,257,979 | ) | | | (2,094,855 | ) | | | | Total liabilities and stockholders’ equity (deficit) | | $ | 477,440 | | | $ | 1,318,296 | | | $ | |
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DILUTION
The historical net tangible book value of our common stock as of June 30, 2016 was approximately $ million, or $ per share based upon shares of common stock outstanding on such date. Historical net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities, divided by the total number of shares of common stock outstanding.
If you invest in shares in our common stock, your interest will be diluted to the extent of the difference between the offering price per share of the shares in our common stock and the as adjusted net tangible book value per share of our common stock immediately after completion of this offering. After giving effect to the receipt of the net proceeds from our sale in this offering of shares of common stock at an assumed initial public offering price of $ per share, applying proceeds as set forth in Use of Proceeds and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The following table illustrates this dilution on a per share basis to new investors:
Assumed public offering price of common stock
| | $
| | Historical net tangible book value per share as of June 30, 2016
| | $
| | Increase in net tangible book value per share attributable to this offering
| | $
| | As adjusted net tangible book value per share after giving effect to this offering
| | $
| | Dilution to new investors
| | $
| |
If the underwriter’s over-allotment option is exercised in full, the as adjusted net tangible book value per share of our common stock after giving effect to this offering would be $ per share, which amount represents an immediate increase in net tangible book value of $ per share of our common stock to existing shareholders and an immediate dilution in net tangible book value of $ per share of our common stock to new investors purchasing shares in this offering.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
condition. This prospectus contains forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements involve risks and uncertainties and include statements regarding, among other things, our projected revenue growth and profitability, our growth strategies and opportunity, anticipated trends in our market and our anticipated needs for working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plans,” “potential,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” or the negative of these words or other variations on these words or comparable terminology. These statements may be found under the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” as well as in this prospectus generally. In particular, these include statements relating to future actions, prospective products, market acceptance, future performance or results of current and anticipated products, sales efforts, expenses, and the outcome of contingencies such as legal proceedings and financial results. Examples of forward-looking statements in this prospectus include, but are not limited to, our expectations regarding our business strategy, business prospects, operating results, operating expenses, working capital, liquidity and capital expenditure requirements. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the cost, terms and availability of components, pricing levels, the timing and cost of capital expenditures, competitive conditions and general economic conditions. These statements are based on our management’s expectations, beliefs and assumptions concerning future events affecting us, which in turn are based on currently available information. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect.
Important factors that could cause actual results to differ materially from the results and events anticipated or implied by such forward-looking statements include, but are not limited to:
• changes in the market acceptance of our products;
• increased levels of competition;
• changes in political, economic or regulatory conditions generally and in the markets in which we operate;
• our relationships with our key customers;
• our ability to retain and attract senior management and other key employees;
• our ability to quickly and effectively respond to new technological developments;
• our ability to protect our trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on the proprietary rights of the Company; and
• other risks, including those described in the “Risk Factors” discussion of this prospectus.
We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all of those risks, nor can we assess the impact of all of those risks on our business or the extent to which any factor may cause actual results to differ materially from those contained in any forward-looking statement. The forward-looking statements in this prospectus are based on assumptions management believes are reasonable. However, due to the uncertainties associated with forward-looking statements, you should not place undue reliance on any forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and unless required by law, we expressly disclaim any obligation or undertaking to publicly update any of them in light of new information, future events, or otherwise.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results of our operationsMD&A should be read in conjunction with our consolidated financial statements and the accompanying notes to those statements appearing elsewhere in this prospectus. This discussion and analysis contains forward-looking statements reflecting our management’s current expectations that involve risks and uncertainties and assumptions. Ourassumptions that could cause our actual results and the timing of events mayto differ materially from those described in or implied by these forward-looking statements due to a number of factors, including those discussed below and elsewhere in this prospectus, particularly on page 9management’s expectations. See the sections entitled “Risk Factors”. below.
Plan of Operations Business Overview
The Company,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. According to Acute Market Reports, the synthetic turf market was valued at $3.25 billion and is estimated to reach $8.56 billion by 2026. 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 an IBIS report, there were 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., providing 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. Members of our managementOur team havehas 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, members of our teamwe 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,Results of Operations for the Company has completed some very important projects and initiatives includingthree months ended March 31, 2019, compared to the completion of a lacrosse/soccer field at 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.three months ended March 31, 2018
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, we expect 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, 2016March 31, 2019 and 2015:2018: | | | | | | | | 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 | ) |
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| | | Three Months Ended | | | | | March 31, 2019 | | | March 31, 2018 | | | | | | | | | | | Revenue | | $ | 2,448,258 | | | $ | 762,546 | | | Gross profit | | $ | 531,010 | | | $ | 150,982 | | | Operating expenses | | $ | 508,619 | | | $ | 609,577 | | | Income (Loss) from operations | | $ | 22,391 | | | $ | (485,595 | ) | | Other income (expense) | | $ | (34,583 | ) | | $ | (113,255 | ) | | Net loss | | $ | (12,192 | ) | | $ | (571,850 | ) | | Loss per common share - basic and diluted | | $ | (0.00 | ) | | $ | (0.03 | ) |
Revenue Revenue was $467,483$2,448,258 for the three months ended June 30, 2016,March 31, 2019, as compared to $896,034$762,546 for the three months ended June 30, 2015,March 31, 2018, an increase of $1,685,712, or a decrease of $428,551. The substantial decrease221% increase from prior period last year. This increase 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 secondfourth quarter have been delayed and we expect will commenceof 2018 entering in the third quarter.construction phase in the first quarter of 2019. Gross Profit (Loss)
The Company generated a gross profit (loss) of $(57,737),$531,010, resulting in a gross profit margin of (12.35%)21.7%, during the three months ended June 30, 2016March 31, 2019 as compared to a gross profit (loss) of $(173,318)$150,982 and a gross profit margin of (19.34%)19.8%, during the three months ended June 30, 2015. Negative grossMarch 31, 2018. Gross profit percentage decreasedincreased from (19.34%)19.8% for the three months ended June 30, 2015March 31, 2018 to (12.35%)21.7% for the three months ended June 30, 2016March 31, 2019, due to an increase in overall estimated profit margins on jobs entered into subsequent to June 30, 2015.improved project management. 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 afor the purpose of marketing tool in the future.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 increaseddecreased by 8%16.6% during the three months ended June 30, 2016,March 31, 2019, as compared to the three months ended June 30, 2015.March 31, 2018. The overall $65,986 increase$100,958 decrease 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.
| ● | Decrease in insurance expense of approximately $67,000 | | | | | ● | Decrease in employee compensation expense of approximately $36,000 |
• 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, amortization of debt issuance costs and discounts related to the Company’s notes payable.payable partly offset by a gain on a derivative. Other income (expenses), net for the three months ended June 30, 2016,March 31, 2019, were $(113,364),($34,583) as compared to $(15,042)$(113,255) for the three months ended June 30, 2015.March 31, 2018. For the three months ended March 31, 2019 other income (expenses) consisted of $76,922 in interest expense partly offset by a gain on the change in valuation of a derivative of $15,000, gain on debt extinguishment of $2,317 and miscellaneous income of $25,022. For the three months ended March 31, 2018 other income (expenses) consisted of approximately $65,000 in interest expense and a $50,300 loss on change in value of derivative. 26
Net Loss The net loss for the three months ended June 30, 2016March 31, 2019 was $(1,017,188),$12,192, or a basic and diluted loss per share of $(0.06),$0.00, as compared to a net loss of $(968,461),$571,850, or a basic and diluted loss per share of $(0.07)$(0.03), for the three months ended June 30, 2015.March 31, 2018. The increasedecrease 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:
| | | | | | | | 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.
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• 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.
Summary of Statements of Operations for the Year Ended December 31, 2015Liquidity and 2014:
| | | | | | | | Revenue | | $ | 3,941,833 | | | $ | 1,228,188 | | Gross profit (loss) | | $ | (578,164 | ) | | $ | (488,323 | ) | Operating expenses | | $ | (2,705,568 | ) | | $ | (3,303,136 | ) | Loss from operations | | $ | (3,283,732 | ) | | $ | (3,791,459 | ) | Other income (expense) | | $ | (54,425 | ) | | $ | (41,397 | ) | Net loss | | $ | (3,338,157 | ) | | $ | (3,832,856 | ) | Loss per common share – basic and diluted | | $ | (0.24 | ) | | $ | (0.29 | ) |
RevenueCapital Resources
Revenue was $3,941,833 for the year ended December 31, 2015, as compared to $1,228,188 for the year ended December 31, 2014, an increase of $2,713,645. The increase in revenue is primarily attributable to the Company’s execution of its 2014/2015 sales and marketing initiatives including the hiring a professional sales team in April 2014. The substantial increase in revenue was due to the award of several large sales contracts during 2015 of which substantial work was completed on each contract during the year ended December 31, 2015.
Gross Profit (Loss)
The Company generated a gross profit (loss) of $(578,164), resulting in a negative gross profit margin of (14.7%), during the year ended December 31, 2015 as compared to a gross profit (loss) of $(488,323) and a negative gross profit margin of (39.8%) during the year ended December 31, 2014. Negative gross profit percentage decreased from (39.8%) for the year ended December 31, 2014 to (14.7%) for the year
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ended December 31, 2015. The Company recorded losses on three projects started during the 1st and 2nd quarters of 2015 of approximately $(654,000) during the year ended December 31, 2015. In-addition the Company recorded losses on a project starting during 2014 of approximately $(41,000) during the year ended December 31, 2015. The losses were primarily a result of historical projects that 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. The Company has carefully reviewed its policies and procedures to ensure all future bids are submitted at acceptable profit margins. In-addition the Company recorded a loss on write-off of obsolete inventory of $69,166 during the year ended December 31, 2015.
Operating Expenses
Operating expenses for the year ended December 31, 2015, were $2,705,568, compared to $3,303,136 for the year ended December 31, 2014, a decrease of $597,568. In the current year the Company incurred warranty costs which the Company believes will not be recurring, marketing costs and commission costs that were not incurred in the prior comparable year. In addition, during the current year, the Company incurred increases in travel and travel related expenses; marketing and marketing related expenses; and investor relations expenses. In the prior year, the Company incurred substantial costs in conjunction with the Company becoming a publicly traded company that were not incurred in the current comparable year. In-addition the Company realized a substantial decrease in stock based compensation expense during the current year as compared to the prior comparable year.
Other Income (Expenses)
Other income (expenses), net for the year ended December 31, 2015, were $(54,425), as compared to $(41,397) for the year ended December 31, 2014. For the year ended December 31, 2015 other income (expenses) consisted of $(91,759) in interest expense, miscellaneous income of $4,328, a loss on abandonment of furniture, fixtures and equipment of $(11,826) and a gain on sale of fabrication molds of $44,832. For the year ended December 31, 2014 other income (expenses) consisted of $(16,397) in interest expense and a $(25,000) expense for the forfeiture on a deposit related to prior management’s decision to purchase land during the year ended December 31, 2014.
Net Loss
The net loss for the year ended December 31, 2015 was $(3,338,157), or a basic and diluted loss per share of $(0.24), as compared to a net loss of $(3,832,856), or a basic and diluted loss per share of $(0.29), for the year ended December 31, 2014.
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes total current assets, liabilities and working capital at June 30, 2016,March 31, 2019, compared to December 31, 2015:2018: | | | | | | | 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 | ) |
| | | March 31, 2019 | | | December 31, 2018 | | | Increase/ (Decrease) | | | Current Assets | | $ | 2,010,500 | | | $ | 770,095 | | | $ | 1,240,405 | | | Current Liabilities | | $ | 9,308,573 | | | $ | 8,526,887 | | | $ | (781,686 | ) | | Working Capital (Deficit) | | $ | (7,298,073 | ) | | $ | (7,756,792 | ) | | $ | 458,719 | |
At June 30, 2016,March 31, 2019, we had a working capital deficit of $(2,272,290)$7,298,073 as compared to working capital deficit of $(2,517,035)$7,756,792 at December 31, 2015,2018, a working capital deficit decrease of $244,745.$458,719. During the sixthree months ended June 30, 2016March 31, 2019, the Company received approximately $1,478,000$134,000 in net proceeds from thepromissory notes and $410,000 in proceeds from a 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.stock. 29
Summary Cash flows for the sixthree months ended June 30, 2016March 31, 2019 and 2015:2018: | | | | | | | | 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 | |
| | | Three Months Ended | | | | | March 31, 2019 | | | March 31, 2018 | | | Net cash used in operating activities | | $ | (353,581 | ) | | $ | (433,899 | ) | | Net cash provided by financing activities | | $ | 364,044 | | | $ | 159,580 | |
Cash Used inFrom 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 sixthree months ended June 30, 2015March 31, 2018 to the sixthree months ended June 30, 2016March 31, 2019 due primarily to an increase in equity-based compensation and the amortization of debt discount on debt agreements entered into during the first 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 first 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 first and second quarters of 2016.options issued to consultants and employees and gain on derivatives therefrom. Cash Used inFrom Financing Activities Net cash provided by (used in) financing activities for the sixthree months ended June 30, 2016March 31, 2019 and 20152018 was $1,331,616$364,044 and $405,000,$159,580 respectively. During the sixthree months ended June 30, 2016,March 31, 2019, the Company hadrepaid $45,956 in promissory notes. During the following financing transactions: i)three months ended March 31, 2019, the Company received $150,000$410,000 in gross proceeds from the issuancea private placement 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; and iv) net proceeds/repayments from/to the factor amounted to $56,256.stock. During the sixthree months ended June 30, 2015,March 31, 2018, the Company hadreceived loan proceeds of $250,000 and made note payments of $90,420 during the following financing transactions: received $450,000 in gross proceeds from the issuancefirst three months of convertible notes and paid $45,000 in debt issuance costs.2018. Going Concern Our historical operating results indicate substantial doubt exists related to the Company’s ability to continue as a going concern. As reflected in the accompanying condensed consolidated financial statements, as of June 30, 2016March 31, 2019 the Company had a cash deficit of $(3,518) and a working capital deficit of $(2,272,290). Furthermore, the$7,298,073. The Company had a net loss and net cash used in operationslosses of $(2,144,962) and $(1,393,016), respectively,$12,192 for the sixthree months ended June 30, 2016March 31, 2019 and $571,850 for the three months ended March 31, 2018, and had an accumulated deficit totaling $(12,414,480).of $19,578,722 at March 31, 2019. Substantially all of our accumulated deficit has resulted from losses incurred on construction projects, costs incurred in connection with our research and development and general and administrative costs associated with our operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.concern through May 20, 2020. The
We expect that for the next 12 months, our operating cash burn will be approximately $2.3 million, excluding repayments of existing debts in the aggregate amount of $1.1 million. Our cash requirements relate primarily to working capital needed to operate and grow our business, including funding operating expenses and continued development and expansion of our products/services. Our ability to achieve profitability and meet future liquidity needs and capital requirements will depend upon numerous factors, including the timing and size of awarded contracts; the Companytiming and amount of our operating expenses; the timing and costs of working capital needs; the timing and costs of expanding our sales team and business development opportunities; the timing and costs of developing a marketing program; the timing and costs of warranty and other post-implementation services; the timing and costs of hiring and training construction and administrative staff; the extent to which our brand and construction services gain market acceptance; the extent of our ongoing and any new research and development programs; and changes in our strategy or our planned activities. We have experienced and continue to experience negative cash flows from operations, and we expect to continue its operations as a going concern is dependent on Management’s plans, which includeto incur net losses in 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.foreseeable future. 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. If we are not able to obtain financing when needed, we may be unable to carry out our business plan. As a result, we may have to significantly limit our operations and our business, financial condition and results of operations would be materially harmed. 30
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 effortsTo date, we have funded our operational short-fall primarily through 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.
From December 28, 2015 through July 22, 2016, the Company sold 1,833,375 shares common stock to accredited investors in exchange for $2,016,712 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 sharesofferings of common stock, convertible notes and promissory notes, our line of the Company that can be purchased with 5.5%credit and factoring 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.receivables.
(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 FirstForm 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
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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 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 March 31, 2019, and December 31, 2018, 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.” RevenueRevenues and Cost Recognition
Revenues
Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue. The Company generates revenue from fixed-price contracts, where revenue is recognized over time as work is completed because of the continuous transfer of control to the customer (typically using an input measure such as costs incurred to date relative to total estimated costs at completion to measure progress). Costs to obtain contracts are generally not significant and are expensed in the period incurred. The Company has determined that these construction projects provide a distinct service and therefore qualify as one performance obligation. Revenue from fixed-price contracts provide for a fixed amount of revenue for the entire project, and any changes to the scope of the project is addressed in a change order, which is treated as a modification of the original contract. To determine the proper revenue recognition method for contracts, the Company evaluates whether two or more contracts should be combined and accounted for as one single performance obligation and whether a single contract should be accounted for as more than one performance obligation. ASU 2014-09 defines a performance obligation as a contractual promise to transfer a distinct good or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s evaluation requires judgment and the decision to combine a group of contracts or separate a contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period. To date, all of the Company’s contracts have a single performance obligation, as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contract and, therefore, is not distinct. However, if in the future the Company has contracts with multiple performance obligations, then the Company will allocate the contract’s transaction price to each performance obligation using the observable standalone selling price, if available, or alternatively the Company’s best estimate of the standalone selling price of each distinct performance obligation in the contract. Accounting for contracts involves the use of various techniques to estimate total transaction price and costs. For such contracts, transaction price, estimated cost at completion and total costs incurred to date are used to calculate revenue earned. Unforeseen events and circumstances can alter the estimate of the costs and potential profit associated with a particular contract. Total estimated costs, and thus contract revenue and income, can be impacted by changes in productivity, scheduling, the unit cost of labor, subcontracts, materials and equipment. Additionally, external factors such as weather, client needs, client delays in providing permits and approvals, labor availability, governmental regulation and politics may affect the progress of a project’s completion and thus the timing of revenue recognition. To the extent that original cost estimates are modified, estimated costs to complete increase, delivery schedules are delayed, or progress under a contract is otherwise impeded, cash flow, revenue recognition and profitability from a particular contract may be adversely affected. The nature of the Company’s contracts do not have variable consideration, such as liquidated damages, volume discounts, performance bonuses, incentive fees, and other terms that can either increase or decrease the transaction price. In contrast, the contracts are often modified to account for changes in contract specifications or requirements. Costs associated with contract modifications are included in contract revenue in the condensed consolidated statements of operationsestimated costs to complete the contracts and are recognized undertreated as project costs when incurred. In most instances, contract modifications are for goods or services that are not distinct, and, therefore, are accounted for as part of the percentage-of-completion accounting method.existing contract. The percent complete is measured byeffect of a contract modification on the cost incurred to date compared totransaction price, and the estimated total cost of each project. This method is used as management considers expended cost to be the best available measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue on a cumulative catch-up basis. In some cases, settlement of contract modifications may not occur until after completion of work under the contract. As a significant change in one or more of these estimates could affect the profitability of its contracts, the majority of which are completed within one year, but may occasionally extend beyond one year. Inherent uncertaintiesCompany reviews and updates its contract-related estimates regularly. The Company recognizes adjustments in estimating costs make it at least reasonably possible thatestimated profit on contracts under the estimates used will change withincumulative catch-up method. Under this method, the near term and over the lifecumulative impact 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 areprofit adjustment is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on a contract, the projected loss is recognized in full in the period it is identified and recognized as an “Provision for Estimated Losses on Uncompleted Contracts” which they are determined.
Costs and estimated earningsis included in excess of billings are comprised principally of“Contract liabilities” on the Condensed Consolidated Balance Sheets. For contract revenue recognized over time, the Provision for Estimated Losses on contracts (onUncompleted Contracts is adjusted so that the percentage-of-completion method)gross profit for which billings had not been presented to customers because the amounts were not billable under the contract termsremains zero in future periods.
The Company estimates the collectability of contract amounts at the balance sheet date. In accordancesame time that it estimates project costs. If the Company anticipates that there may be issues associated with the contractcollectability of the full amount calculated as the transaction price, the Company may reduce the amount recognized as revenue to reflect the uncertainty associated with realization of the eventual cash collection. The timing of when the Company bills its customers is generally dependent upon agreed-upon contractual terms, any unbilled receivables at period end will be billed subsequently. Amounts are billedmilestone billings based on contractual terms. Billingsthe completion of certain phases of the work, or when services are provided. Sometimes, billing occurs subsequent to revenue recognition, resulting in excessunbilled revenue, which is a contract asset. However, the Company sometimes receives advances or deposits from its customers before revenue is recognized, resulting in deferred revenue, which is a contract liability. For the three-months ended March 31, 2019 and 2018, revenues from contracts with customers is summarized by product category were as follows: | | | March 31, | | | | | 2019 | | | 2018 | | | Product Category | | | | | | | | | | | | | | | | | | | | Athletic fields and tracks | | $ | 1,900,413 | | | $ | 466,386 | | | Vertical construction | | | 547,845 | | | | 296,160 | | | Totals | | $ | 2,448,258 | | | $ | 762,546 | |
“Athletic fields and tracks” relates to the design, engineering and construction of costsoutdoor playing fields, running tracks and estimated earnings represent billings in excessrelated works, stadiums, scoreboards, dug outs, base and drainage work, and similar projects, while “Vertical construction” relates to the design, engineering and construction of revenues recognized.an entire facility such as a dormitory, athletics facility, gymnasium, or a similar general construction project. UseInventory
Inventory is stated at the lower of Estimatescost (first-in, first out) or net realizable value and consists primarily of construction materials. Property, Plant and Equipment The preparation
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 condensed consolidated financial statementsthe assets, which generally range from 3 to 5 years. Leasehold improvements are amortized over the remaining life of the lease. Gains and losses from the retirement or disposition of property and equipment are included in conformity with accounting principles generally acceptedoperations in the United Statesperiod incurred. Maintenance and repairs are expensed as incurred. Income Taxes Deferred income tax assets and liabilities are determined based on the estimated future tax effects of America requires management to make estimatesnet operating loss and assumptions that affectcredit carry-forwards and temporary differences between the reported amountstax basis of assets and liabilities and disclosure of contingent liabilitiestheir respective financial reporting amounts measured at the current enacted tax rates. The differences relate primarily to net operating loss carryforward from date of acquisition and to the condenseduse of the cash basis of accounting for income tax purposes. The Company records an estimated valuation allowance on its deferred income tax assets if it is more likely than not that these deferred income tax assets will not be realized. The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements andfrom such a position are measured based on the reported amountslargest benefit that has a greater than 50% likelihood of revenue andbeing realized upon ultimate settlement. The Company has not recorded any unrecognized tax benefits. 32
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 three months ended March 31, 2019, 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 interim financial statements as and for the three months ended March 31, 2019 and 2018. Results of Operations for the year ended December 31, 2018, compared to the year ended December 31, 2017 Summary of Statements of Operations for the Years Ended December 31, 2018 and 2017: | | | Year Ended | | | | | December 31, 2018 | | | December 31, 2017 | | | | | | | | | | | Revenue | | $ | 6,599,464 | | | $ | 7,045,892 | | | Gross profit (loss) | | $ | (1,117,456 | ) | | $ | 1,091,962 | | | Operating expenses | | $ | (2,385,565 | ) | | $ | (2,821,994 | ) | | Loss from operations | | $ | (3,503,021 | ) | | $ | (1,730,032 | ) | | Other income (expense) | | $ | (240,413 | ) | | $ | (135,484 | ) | | Net loss | | $ | (3,743,434 | ) | | $ | (1,865,516 | ) | | Loss per common share - basic and diluted | | $ | (0.19 | ) | | $ | (0.11 | ) |
Revenue Revenue was $6,599,464 for the year ended December 31, 2018, as compared to $7,045,892 for the year ended December 31, 2017, a decrease of $446,428. This decrease in revenue was primarily attributable to unanticipated prolongated construction timelines and delays in projects starts. Gross Profit The Company generated a negative gross profit margin of $(1,117,456), or (16.9%), during the year ended December 31, 2018 as compared to a gross profit of $1,091,962 and a positive gross profit margin of 15.5% during the year ended December 31, 2017. The gross profit percentage became negative for the year ended December 31, 2018 due to cost overruns and substandard project management on a single, large project in New York. 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, accounting, financial services, audit, marketing, investor relations and outsourcing services. Operating expenses decreased by 15.5% during the year ended December 31, 2018, as compared to the year ended December 31, 2017. The overall $436,429 decrease in operating expenses is primarily attributable to the following approximate net increases (decreases) in operating expenses: | ● | A $126,500 decrease in advertising cost; | | | | | ● | A $192,800 decrease in payroll costs; | | | | | ● | A $133,200 decrease in stock compensation costs | | | | | ● | A $70,300 decrease in commissions. | | | |
These operating expense decreases were partially offset by the following expense increases: | ● | A $105,550 increase in professional fees. |
Other Income (Expenses) Other income (expense) consists primarily of interest expense related to the Company’s notes payable and the gain or loss on the derivative. Other income (expenses), net for the year ended December 31, 2018, were $(240,413), as compared to $(135,484) for the year ended December 31, 2017. For the year ended December 31, 2018 other income (expenses) consisted of $286,882 in interest expense, a loss on the change in the value of the derivative of $46,900, legal settlement cost of $59,648, a gain on the restructuring of troubled debt of $76,334, a gain from an insurance settlement of $73,561 and miscellaneous income of $3,122. For the year ended December 31, 2017 other income (expenses) consisted of $(284,740) in interest expense, a gain on the change in the value of the derivative of $120,100 and miscellaneous income of $29,516. Net Loss The net loss for the year ended December 31, 2018 was $(3,743,434) or a basic and diluted loss per share of $(0.19) as compared to a net loss of $(1,865,516), or a basic and diluted loss per share of $(0.11), for the year ended December 31, 2017. The increase in the loss compared to the prior year is primarily attributable to underestimated project costs and substandard project management on a single, larger project in New York. Liquidity and Capital Resources The following table summarizes total current assets, liabilities and working capital at December 31, 2018, compared to December 31, 2017: | | | December 31, 2018 | | | December 31, 2017 | | | Increase/
(Decrease) | | | Current Assets | | $ | 770,095 | | | $ | 893,508 | | | $ | (123,413 | ) | | Current Liabilities | | $ | 8,526,887 | | | $ | 5,385,423 | | | $ | (3,141,464 | ) | | Working Capital (Deficit) | | $ | (7,756,792 | ) | | $ | (4,491,915 | ) | | $ | (3,264,877 | ) |
At December 31, 2018, we had a working capital deficit of $(7,756,792) as compared to working capital deficit of $(4,491,915) at December 31, 2017, a working capital deficit increase of $(3,264,877). Summary Cash flows for the years ended December 31, 2018 and 2017: | | | Year Ended | | | | | December 31, 2018 | | | December 31, 2017 | | | Net cash provided by (used in) operating activities | | $ | (510,086 | ) | | $ | 444,406 | | | Net cash used in investing activities | | $ | (24,292 | ) | | $ | - | | | Net cash provided by (used in) financing activities | | $ | 334,649 | | | $ | (178,132 | ) |
Cash Provided by (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, loss on extinguishment of debt, 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 decreased from the year ended December 31, 2017 to the year ended December 31, 2018 due primarily to a reduction in both equity-based compensation expense and loss on extinguishment of debt. In addition, the net decrease in cash from changes in working capital activities from the year ended December 31, 2017 to the year ended December 31, 2018 primarily consisted of operational expenses and cost overruns. Cash Provided by (Used in) Financing Activities Net cash provided by (used in) financing activities for the year ended December 31, 2018 and 2017 was $334,649 and $(178,132), respectively. During the year ended December 31, 2018, the Company had the following financing transactions: (i) proceeds from private placement of $239,000, proceeds form promissory notes of $628,349 and (ii) repayment promissory notes of $532,700. During the year ended December 31, 2017, the Company had the following financing transactions: (i) debt issuance costs of ($10,000); and (ii) repayment promissory notes of ($168,132). Going Concern Our historical operating results indicate substantial doubt exists related to the Company’s ability to continue as a going concern. As reflected in the accompanying consolidated financial statements, as of December 31, 2018, the Company had a working capital deficit of $(7,756,792). Furthermore, the Company incurred net losses of approximately $3.74 million for the year ended December 31, 2018 and $1.87 million for year ended December 31, 2017 and had an accumulated deficit of $19.6 million at December 31, 2018. Substantially all of our accumulated deficit has resulted from losses incurred on construction projects, costs incurred in connection with our research and development and general and administrative costs associated with our operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern through April 15, 2020. We expect that for the next 12 months, our operating cash burn will be approximately $2 million, excluding repayments of existing debts in the aggregate amount of $1.8 million. Our cash requirements relate primarily to working capital needed to operate and grow our business, including funding operating expenses and continued development and expansion of our products/services. Our ability to achieve profitability and meet future liquidity needs and capital requirements will depend upon numerous factors, including the timing and size of awarded contracts; operating expenses; working capital needs; expanding our sales team and business development opportunities; developing a marketing program; warranty and other post-implementation services; and hiring and training construction and administrative staff; as well as the extent to which our brand and construction services gain market acceptance and our ongoing and any new research and development programs; and changes in our strategy or our planned activities. We have experienced and continue to experience negative cash flows from operations, and we expect to continue to incur net losses in the foreseeable future. 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. If we are not able to obtain financing when needed, we may be unable to carry out our business plan. As a result, we may have to significantly limit our operations and our business, financial condition and results of operations would be materially harmed. To date, we have funded our operational short-fall primarily through private offerings of common stock, convertible notes and promissory notes, billings in excess of costs, our line of credit and factoring of receivables. The Company believes it has potential financing sources in order to raise the capital necessary to fund operations through fiscal year end 2018. 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 acted as the Company’s financial advisor and placement agent and assisted 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. The 2015 Spartan Advisory Agreement expired on January 1, 2019, although payment obligations continue through August 1, 2019. On July 14, 2016, the Company closed a Credit Agreement (the “Credit Agreement”) by and among the Company and FirstForm 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 Company 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 Company 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 $44,500 for entering into the Credit Agreement. 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 hereof is $1,000,000. In December 2017, this Credit Agreement was extended through January 25, 2019 and converted to a term loan bearing interest at 15% with monthly payments of $20,833 in principal plus interest and a balloon payment of $729,167 due at maturity on January 25, 2019. The Company incurred $10,000 in debt issuance costs as part of the modification which are recorded as debt discount and amortized over the agreement. Debt discount at December 31, 2017 is $10,000. In November 2018, this Loan Agreement was amended in order to increase the principal amount to $1,125,000 and extended through November 25, 2020 with interest at 15% requiring monthly payments of $26,650 in principal (starting in March 2019) plus interest with a balloon payment of $592,000 due on the maturity date. As additional security for the term loan, the Company has placed 970,000 shares of common stock into reserve. In addition to the aforementioned current sources of capital that will provide additional short term liquidity, the Company is currently exploring various other alternatives, including debt and equity financing vehicles, strategic partnerships, government programs that may be available to the Company, as well as trying to generate additional sales and increase margins. However, at this time the Company has no commitments to obtain any additional funds, and there can be no assurance such funds will be available on acceptable terms or at all. If the Company is unable to obtain additional funding and improve its operations, the Company’s financial condition and results of operations may be materially adversely affected, and the Company may not be able to continue operations. Additionally, even if we raise sufficient capital through additional equity or debt financing, strategic alternatives or otherwise, there can be no assurances that the revenue or capital infusion will be sufficient to enable us to develop our business to a level where it will be profitable or generate positive cash flow. The Company continues to work on its currently contracted jobs and anticipates recognizing that revenue and increasing its gross margin on these current projects, however, there can be no assurance that higher sales volume and increasing margins will indefinitely continue into the foreseeable future. If we incur additional debt, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, thus limiting funds available for our business activities. The terms of any debt securities issued could also impose significant restrictions on our operations. Broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance, and may adversely impact our ability to raise additional funds. The accompanying 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. The ability of the Company to meet its total liabilities of $9,457,479 at December 31, 2018, and to continue as a going concern is dependent upon the availability of future funding, continued growth in sales along with increased profitability on sales. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. Off-Balance Sheet Arrangements As of June 30, 2016, we did not have anyDecember 31, 2018, and December 31, 2017, the Company had no off-balance sheet arrangements. 33
BUSINESSCritical Accounting Policies
Our Corporate History
We were incorporatedbelieve 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 Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Sales, value add, and other taxes collected on February 8, 2011,behalf of third parties are excluded from revenue. The Company generates revenue from fixed-price contracts, where revenue is recognized over time as Anglesea Enterprises, Inc. Initially our activities consistedwork is completed because of providing marketingthe continuous transfer of control to the customer (typically using an input measure such as costs incurred to date relative to total estimated costs at completion to measure progress). Costs to obtain contracts are generally not significant and web-related servicesare expensed in the period incurred. The Company has determined that these construction projects provide a distinct service and therefore qualify as one performance obligation. Revenue from fixed-price contracts provide for a fixed amount of revenue for the entire project, and any changes to small businesses including the designscope of the project is addressed in a change order, which is treated as a modification of the original contract. To determine the proper revenue recognition method for contracts, the Company evaluates whether two or more contracts should be combined and development of original websites, creative writingaccounted for as one single performance obligation and graphics, virtual tours, audio/visual services, marketing analysiswhether a single contract should be accounted for as more than one performance obligation. ASU 2014-09 defines a performance obligation as a contractual promise to transfer a distinct good or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation and search engine optimization. On June 16, 2014, Anglesea, Merger Sub, Sports Field Private Co,recognized as revenue when, or as, the performance obligation is satisfied. The Company’s evaluation requires judgment and the Majority Shareholders, entereddecision to combine a group of contracts or separate a contract into multiple performance obligations could change the Merger Agreement pursuant to which the Merger Sub was merged withamount of revenue and into Sports Field Private Co, with Sports Field Private Co surviving asprofit recorded in a wholly-owned subsidiary of Anglesea. Anglesea acquired, through a reverse triangular merger,given period. To date, all of the outstanding capital stockCompany’s contracts have a single performance obligation, as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contract and, therefore, is not distinct. However, if in the future the Company has contracts with multiple performance obligations, then the Company will allocate the contract’s transaction price to each performance obligation using the observable standalone selling price, if available, or alternatively the Company’s best estimate of Sports Field Private Cothe standalone selling price of each distinct performance obligation in exchangethe contract. Accounting for issuing Sports Field Private Co’s shareholders 11,914,275 sharescontracts involves the use of Anglesea’s common stock.various techniques to estimate total transaction price and costs. For such contracts, transaction price, estimated cost at completion and total costs incurred to date are used to calculate revenue earned. Unforeseen events and circumstances can alter the estimate of the costs and potential profit associated with a particular contract. Total estimated costs, and thus contract revenue and income, can be impacted by changes in productivity, scheduling, the unit cost of labor, subcontracts, materials and equipment. Additionally, external factors such as weather, client needs, client delays in providing permits and approvals, labor availability, governmental regulation and politics may affect the progress of a project’s completion and thus the timing of revenue recognition. To the extent that original cost estimates are modified, estimated costs to complete increase, delivery schedules are delayed, or progress under a contract is otherwise impeded, cash flow, revenue recognition and profitability from a particular contract may be adversely affected. Upon
The nature of the Company’s contracts do not have variable consideration, such as liquidated damages, volume discounts, performance bonuses, incentive fees, and other terms that can either increase or decrease the transaction price. In contrast, the contracts are often modified to account for changes in contract specifications or requirements. Costs associated with contract modifications are included in the estimated costs to complete the contracts and are treated as project costs when incurred. In most instances, contract modifications are for goods or services that are not distinct, and, therefore, are accounted for as part of the existing contract. The effect of a contract modification on the transaction price, and the measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue on a cumulative catch-up basis. In some cases, settlement of contract modifications may not occur until after completion of work under the Merger,contract. As a significant change in one or more of these estimates could affect the profitability of its contracts, the Company reviews and updates its contract-related estimates regularly. The Company recognizes adjustments in estimated profit on June 16, 2014, Anglesea mergedcontracts under the cumulative catch-up method. Under this method, the cumulative impact of the profit adjustment is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on a contract, the projected loss is recognized in full in the period it is identified and recognized as an “Provision for Estimated Losses on Uncompleted Contracts” which is included in “Contract liabilities” on the Condensed Consolidated Balance Sheets. For contract revenue recognized over time, the Provision for Estimated Losses on Uncompleted Contracts is adjusted so that the gross profit for the contract remains zero in future periods. The Company estimates the collectability of contract amounts at the same time that it estimates project costs. If the Company anticipates that there may be issues associated with Sports Field Private Co in a short-form merger transaction. Uponthe collectability of the full amount calculated as the transaction price, the Company may reduce the amount recognized as revenue to reflect the uncertainty associated with realization of the eventual cash collection. The timing of when the Company bills its customers is generally dependent upon agreed-upon contractual terms, milestone billings based on the completion of certain phases of the Short Form Merger,work, or when services are provided. Sometimes, billing occurs subsequent to revenue recognition, resulting in unbilled revenue, which is a contract asset. However, the Company becamesometimes receives advances or deposits from its customers before revenue is recognized, resulting in deferred revenue, which is a contract liability. For the parent company of the Sport Field Private Co’s then wholly owned subsidiaries, Sports Field Contractors LLC, FirstForm, Inc. (formerly SportsField Engineering, Inc.)years ended December 31, 2018 and 2017, revenues from contracts with customers is summarized by product category were as follows: | | | December 31, | | | | | 2018 | | | 2017 | | | Product Category | | | | | | | | | | Athletic fields and tracks | | $ | 5,016,929 | | | $ | 4,889,657 | | | Vertical construction | | | 1,582,534 | | | | 2,156,235 | | | Totals | | $ | 6,599,463 | | | $ | 7,045,892 | |
“Athletic Construction Enterprises, Inc. In connection with the Short Form Merger, Anglesea changed its namefields and tracks” relates to Sports Field Holdings, Inc. on June 16, 2014. Overview
Sports Field, through its wholly owned subsidiary FirstForm, is an innovative product development company engaged in the design, engineering and construction of athleticoutdoor playing fields, running tracks and facilitiesrelated works, stadiums, scoreboards, dug outs, base and sports complexesdrainage work, and the sale of customized synthetic turf products and synthetic track systems.
Accordingsimilar projects, while “Vertical construction” relates 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 square feet 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 over the past several years, 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, and 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 turf installation).
In addition to the 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 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 increased demand because we are able to compete for the sale of turf as well as the design and construction on such projects, whereas our competitors can typically only compete for the turf components or the construction, but not both. In fact, according to a current IBIS report, there are no national firms competing in these sectors that have even 5% market share.
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Through our strategic operations design, we have the ability to operate throughout the U.S., providing 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 buildconstruction of an entire football stadiumsfacility such as a dormitory, athletics facility, gymnasium, or a similar general construction project.
Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP 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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. The Company’s significant estimates and assumptions include the accounts receivable allowance for doubtful accounts, warranty reserve, percentage of completion revenue recognition method, the useful life of fixed assets, assumptions used in the fair value of stock-based compensation and the valuation allowance relating to the installation of a specialized turf track systems. Members of our management team have also designed, engineered and installed baseball stadiums, soccer and lacrosse fields, indoor soccer facilities, softball fields and running tracks for private sports venues, public and private high schools and public and private universities. In addition, members of our team 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.Company’s deferred tax assets. Lines of BusinessStock-Based Compensation
Sports Field, through its wholly owned subsidiary, FirstForm, has two primary lines of business which are all integral parts of the organization’s overall business model. Our primary revenue generation comes from the sale and installation of our PrimePlay™ line of synthetic turf products. Our secondary source of revenue is generated as a result of the design, engineering, constructing, and construction management of athletic facilities and sports complexes. The combination of these two business units allow for the business to operate as a Turn-Key Athletic Facilities provider for a truly “one-stop-shop” simplified customer experience.
Historically, approximately 80% of the Company’s gross revenues are from synthetic turf surfacing products and systems sales. Sports facilities design, engineering, construction and construction management have represented approximately 20% of the Company’s gross revenue. Projecting forward in the current year, the percentage of turf systems sales to construction related revenues should be approximately 70% to 30% respectively. Our goal is to continue to increase construction revenues in order to create a more even mix between revenue streams in order to insulate the total revenue from fluctuations in the turf sales or construction markets.
Target Markets
Our main target market is the more than 60,000 colleges, universities, high schools and primary schools in the United States with athletic programs, both public and private. Municipal parks and recreations departments, commercial and residential landscaping as well as golf and golf related activities also represent significant market opportunities for the Company.
Additionally, we target private club sports associations and independent athletic training facilities inclusive of all major sports, including; football, soccer, baseball, softball, lacrosse, field hockey, rugby, as well as track and field.
We also intend to market our unique design-build services to public youth sports leagues and all semi-professional and professional sports leagues.
Growth Strategy
Our primary goal is to be a leading provider of unique turn-key services that combine our strengths in safe and high performance synthetic turf systems, athletic facilities design, engineering and construction expertise. The key elements of our strategy include:
Expand our sales organization and increase marketing. Our sales structure is comprised of four discrete units: direct sales representatives, distribution group partners, deal finders and sports ambassadors. We currently have six fully staffed sales territories within the U.S.: the Northeast, Southeast, Northcentral, Southcentral, Northwest and Southwest, with each territory containing its own dedicated sales professional. Our four distribution group partners represent a total of nine sales people around the U.S. We are currently contracted with eight commission only deal finders who have extensive contacts in the sports industry and are making introductions for our direct sales team members to key decision makers around the U.S. Once a project lead is established, our distribution partners and deal finders bring in the local territory representative
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and drive the sales to close together as a team. We intend to continue to expand our highly-trained direct sales organization to secure contracts in every major region of the United States. By securing contracts and establishing Sports Field in all major regions of the country, the Company intends to seek to leverage those client relationships and successful projects to aggressively market to all potential clients in these regions.
Broaden our relationships with strategic partners to increase sales and drive revenues. In addition to installing a new football/lacrosse field, we have recently entered into a four-year marketing agreement with IMG Academy in Bradenton, Florida (“IMG”), a world renowned school and athletic training destination. IMG’s nationally recognized sports programs attract premier athletes from all over the globe. Our official supplier agreement with IMG allows us to utilize their logo in our marketing materials, perform unlimited site visits with clients to see our products as well as allow space for our 14,000 square foot research and development installation. In addition, we are allowed to utilize IMG athletes to conduct product testing to ensure performance and safety for up to four times each year.
The campus at IMG attracts many students, athletes, university administrators and recruiters and coaches every season for training. Our showcase facility can be viewed by all of these visitors and our relationship with IMG brings national credibility to the Company. It also allows us to conduct research in an effort to consistently update our product offerings to make sure we are always doing our best to put out the safest and highest performing products in the market.
Recently, the National Council of Youth Sports (“NCYS”) has approved the Company’s products as a “Recommended Provider” of PrimePlay™ Replicated Grass™ turf systems. The NCYS membership includes over 200 member organizations that serve more than 60,000,000 registered youth participants. The NCYS leads the youth sports industry in offering its members exceptional value, and quality resources and services that are relevant, reliable, meaningful and purposeful. As NCYS’s preferred synthetic turf provider, we believe we will benefit from improved access to decision-makers within the national youth sports scene, introductions to fellow members, and unique educational opportunities regarding the Company’s advanced synthetic turf products.
We hope to continue to develop high profile strategic partnerships that will allow for greater awareness of our products and services with institutions that are focused on athlete safety and athletic performance.
Drive adoption and awareness of our eco-friendly turf and infill products among coaches, athletic directors, administrators, and athletes. We intend to educate coaches, athletic directors, administrators and athletes on the compelling case for our infill matrix called Organite™, an eco-safe infill alternative that contains only components that are either inert or biodegradable. Organite™ infills are free from lead, chromium and all other potential cancer causing agents that are commonly found in fields all across the U.S. Our PrimePlay™ synthetic turf products are free from the polyurethane backing, which cannot be recycled, that is commonly present in the majority of turf installations today.
Environmentally friendly, ecologically-safe, recyclable products and coating materials are available and we are using them in our current products. We believe our products perform, in all respects, as well or better than the ecologically-challenged products traditionally considered and currently used by many of our competitors. Due to our turn-key design-build process, we are able to offer our customers fields with ecologically friendly materials at a price that is competitive with the traditional products that are cheap and contain materials that are not safe. We believe that increased awareness of the benefits of our eco-friendly infill will favorably impact our sales.
Develop new technology products and services. Since inception, we have been in pursuit of developing a turf system that is comprised of synthetic fiber, turf backing, infill and shock/drainage pad that would allow us to market a product that virtually eliminates all of the current problems plaguing the industry. To date, we have studied and developed a high performing infill product that is free from any potential carcinogens and is capable of reducing field temperatures, designed a turf stitch pattern that will reduce infill migration to prevent injury, removed polyurethane from our backing to allow for recycling, tested and are provided a shock pad system that will allow for high performance while reducing impact injuries due to lower Gmax and engineered drainage design plans that allow the system to be free from standing water even in the event of major downpours. All of the improvements to the system are continuously being challenged and tested at our research and development site on campus at IMG in Bradenton, Florida.
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Our next goal is to permanently staff an research and development office with development staff so that we can use everything we have learned about existing products and continue to create new products that will continue to improve performance while remaining safe for the players and the environment.
Pursue opportunities to enhance our product offerings. We may also opportunistically pursue the licensing or acquisition of complementary products and technologies to strengthen our market position or improve product margins. We believe that the licensing or acquisition of products would only strengthen our existing portfolio.
Lessen our dependency on third party manufacturers. As part of our long-term plans, we are exploring the possibility of reducing our reliance on third party manufacturers by bringing certain manufacturing, service and research and development functions in-house, which could include the acquisition of equipment and other fixed assets or the acquisition or lease of a manufacturing facility.
Operational Strengths
Highly Experienced Management and Key Personnel. We have assembled a senior management team and key personnel which includes Jeromy Olson, our CEO, Scott Allen, our Director of Architecture & Engineering, John Rombold, our Director of Project Management, and Kort Wickenheiser, our Director of Sales. This current leadership team is comprised of individuals with significant experience in sales, design, architecture, engineering and construction industry.
Diversified Project Classes. The diversity of project types that are within our capabilities is a strength that we can exploit if there is an economic slowdown on any one particular sector. Our architectural design, engineering and construction expertise along with our surfacing product sales can support the company revenue streams in two discrete ways.
Specialized Market Approach. By targeting and maintaining expertise in athletic facilities the Company is more insulated from general economic downturn than general construction companies otherwise would be. This specialization is less susceptible to customers driving normal price points lower through mass competition.
Infrastructure built for growth. Current staffing levels have positioned the Company with excess operational capacity capable of doubling project execution without a significant impact on overhead.
Featured Products and Services
PrimePlay™ Synthetic Turf Systems. All synthetic turf systems and products are marketed as our PrimePlay™ line of products to service the athletic facilities market. Within this line are the synthetic turf and track products, infill materials and shock/drainage pads.
PrimePlay™ Replicated Grass™. Our flagship synthetic turf system, Replicated Grass™, is designed with a shorter tuft-height and higher face-weight which combine to produce a surface with almost three times the blade-density of leading competitors. The result is a surface with increased infill stability because
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if the infill can be displaced, there is no way to maintain consistent performance characteristics. Because our infill is so stable and does not displace under normal use, there is no change in performance characteristics over time and the infill does not require replacement on a regular basis as some of our competitor’s products that use crumb rubber. This increased density also offers athletes natural “ball-action”, or “ball roll”, and “natural foot-feel”, or “foot action” so it feels like they are playing on a real, lush grass surface. Replicated Grass™ also contains our “rubberless” infill which is composed primarily of organic shell husk and zeolite. These infill materials offer no risk of cancer or other related health risks as well as many other valuable characteristics.
Product Features
Eco safe infill. In February of 2016, three federal agencies — the U.S. Environmental Protection Agency (EPA), the Centers for Disease Control and Prevention (CDC) /Agency for Toxic Substances and Disease Registry (ATSDR), and the U.S. Consumer Product Safety Commission (CPSC) — launched a joint initiative to study key safety and environmental human health questions related to the use of crumb rubber in synthetic turf athletic fields, and any potential link to cancer. Sports Field has never used crumb rubber since its inception and now offers a product that is completely free of rubber of any kind. We feel that our “rubberless” product is resonating amongst owners and driving additional demand for our products.
Heat Reduction. An often overlooked health risk associate with artificial turf is the extremely high temperatures that can exist above the playing surface due to absorption of heat from the sun. When using rubber infills, the reflectivity of an artificial turf system is generally lower than natural grass (darker colors absorb more electromagnetic radiation) due to the exposure of dark infill. Further, artificial turf and rubber infill do not naturally contain and hold moisture, to provide evaporative cooling, as natural grass and soils do. Our product uses zeolite, which is light in color to absorb less heat and is a porous material that is capable of holding up to 55% of its weight in water. This moisture is released as temperatures rise to create an evaporative cooling effect on the field. Our surfaces on average are 30% cooler that most competitors.
Shock Attenuation. Rubber infills all have the same inherent problem, they break down and compact after prolonged exposure to UV light. As this happens over time the surfaces get harder and harder as the rubber loses its elasticity. This process increases the risk of impact injuries for athletes.
The National Football League’s (the “NFL”) recent attention to head injuries is reflected in its adoption of new standards for impact forces. New NFL guidelines require that NFL fields have a G-Max (G-Max is a measurement of how much force the surface will absorb, the higher the G-Max rating the less absorption of force by the surface) value that is not greater than 100 (based on the “Clegg” method of calculating G-Max). We believe that this criterion will eventually trickle-down and apply to all sports surfaces, and all artificial turf fields will have to maintain a G-Max below 115 (indoor) and 125 (outdoor) (Clegg) for the life of the product.
Therefore, we developed a system with no rubber in the infill and integrated the use of a third-party manufactured proprietary shock/drainage pad to be utilized under the playing surface. This pad allows for our system to produce Gmax scores under 80(need units) for the life of the product, which is well below the NFL minimum and the average new installation of sand and crumb rubber fields which average around Gmax of 110.
Base Construction. One of the key elements of any reliable turf athletic facility is the base construction. Conventional free-draining stone bases incorporate an inherent engineering conflict – drainage capacity vs. grade stability. In addition, the infiltration rate of the stone base cannot be accurately measured or predicted and degrades over time. To help eliminate these issues, we customize our drainage methodologies to meet specific project requirements and then we lay down our Replicated Grass products over the customized base. Our drainage methodology virtually eliminates engineering conflicts, practically eliminates invasive excavation, greatly reducing material import and export.
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Below is an illustration of a typical installation design:
Warranty
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 provides a warrantyre-measured on products installedvesting 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 upthe award, usually the vesting period. Awards granted to 8 years with certain limitations and exclusions based upondirectors are treated on the manufacturer’s product warranty.same basis as awards granted to employees. SalesFair 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 Marketing Our current sales structure is comprisedcash equivalents, accounts payable and accrued liabilities, and short-term borrowings, as reflected in the balance sheets, approximate fair value because of four (4) discrete units, our direct sales representatives, distribution group partners, deal findersthe short-term maturity of these instruments. All other significant financial assets, financial liabilities and our sports ambassadors. We currently have six (6) fully staffed sales territories; the Northeast, Southeast, Northcentral, Southcentral, Northwest and Southwest with each territory containing its own dedicated sales professional. Our four (4) distribution group partners representing a totalequity instruments of nice (9) sales people around the U.S. are also representing the Company every single day. We are currently contracted with eight (8) commission only deal finders who have extensive contactseither recognized or disclosed in the sports industryfinancial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and are making introductionscredit 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 year ended December 31, 2018, see the “Recently Adopted Accounting Guidance” and “Recent Accounting Guidance Not Yet Adopted” sections of Note 2, “Significant Accounting Policies” to our audited consolidated financial statements as of and for the three months ended December 31, 2018 and 2017. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS The Board of Directors elects our direct sales team members to key decision makers around the U.S. Once a project lead is established, our distribution partners and deal finders bring in the local territory rep and drive the sales to close together as a team. We intend to continue to expand our direct sales organization in an effort to secure contracts in every major regionexecutive officers annually. A majority vote of the United States. By securing contracts and establishing Sports Fielddirectors who are in all major regions of the country, the Company will seekoffice is required to leverage those client relationships and successful projects to aggressively market to all potential clients in these regions. We have initiated an ambassador program that includes current and former professional athletes from the sports in which they played. We currently have agreements with Ray Lewis, a future Hall of Fame retired NFL player, Rick Honeycutt, former MLB pitcher and current pitching coach of the Los Angeles Dodgers and Chris Wingert, current 12-year veteran Major League Soccer player who is currently playing with the Salt Lake City Real (collectively our “Sports Ambassadors”). These professionals maintain high level contacts with the NFL, Major League Baseball, professional soccer leagues, and major universities and colleges. These contacts have introduced the Company to NFL owners, professional athletes, college presidents and athletic directors, head coaches and other important industry contacts.
Our complete sales team, including our Sports Ambassadors, are active through the United States and will continue to call on relationships with their contacts. The efforts of this group of twenty-seven (27) professionals comprise a major component of the Company’s sales and marketing initiatives and these contacts in the professional and collegiate sports industries represent a significant asset as the Company looks to continue its growth.
The Company has also engaged in targeted and innovative direct marketing to athletic directors, school business managers, college and high school athletic programs, high school football coaches, landscape
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architects, engineering firms, and municipal parks and recreation departments. This plan has its focus on our innovative products and construction methodologies.
Over a year ago, in advance of a full scale marketing campaign, we began an effort to completely rebrand the company. This rebranding included a renaming that would allow us to market to our strengths in the industry and speak more directly to the values we represent. Effective April 4, 2016, Sports Field Engineering, Inc., our wholly-owned subsidiary, changed its name to FirstForm, Inc. This name change along with a new iconic logo and branding campaign includes a new brand development phase and roll out through every form of market communication.
Since April 4, 2016, we have created new tools as part of a comprehensive marketing plan that includes a brand new website with a focused SEO plan, creation of our new trade show booth exhibit materials, professional collateral sales literature and Power Point. It also includes the automation of our sales process through the adoption of a new customer relationship management software and mobile sales tools, engaging the market with the use of technology in concert with our high level professional sales team.
We intend continued expansion of our highly-trained direct sales organization to secure contracts in every major region of the United States. By securing contracts and establishing Sports Field in all major regions of the country, the Company will seek to leverage those client relationships and successful projects to aggressively market to all potential clients in these regions.
Competition
The competitive landscape with respect to manufacturing is very well-established, with seven companies selling the majority of synthetic turf products. Based on management’s experience and knowledge of the synthetic turf industry, Field Turf is the leading manufacturer of synthetic turf athletic fields and synthetic turf products, with what we believe is roughly 45% of the overall market and is one of the only companies operating in this space that we characterize as a true manufacturer. Shaw Sports, Astroturf, LLC, Sprint Turf, Pro Grass, A-Turf, and Hellas Construction are all purveyors of synthetic turf athletic fields with varying degrees of manufacturing and assembly. We estimate that these six companies account for approximately 20% of synthetic turf athletic field sales. There remains over 20 other distributors, and to varying degrees manufacturers and assemblers, of synthetic turf products that accountfill vacancies. Each director shall be elected for the remaining 35%term of the synthetic turf athletic fields market. These applications run the entire gamut of synthetic turf from residential and commercial landscaping, to golf applications, parks and recreation, private parks, airports, highway medians, downhill skiing, and other applications.
The competitive landscape from an installation and construction perspective looks very different when compared to the landscape of the manufacturing side of the industry. In regard to installation and construction of artificial turf fields and athletic facilities, the industry is very much fragmented. There are no clear national leaders from the perspective of facilities construction. The bulk of the construction is provided by local or regional general contracting firms that specialize in certain phases of synthetic turf athletic fields and facility construction, but, to our knowledge, no competitors with significant market share offer a true turn-key operation, to include their own in-house engineering staff. Sports Field offers full service design and engineering services, with forensic studies of athletic facilities to properly prepare and recommend custom specifications based on specific circumstances unique to every facility. In addition, the Company will provide full service turn-key construction services for the facility depending on a client’s needs, or simply provide project management services for a particular project.
Trademarks
We have filed applications with the U.S. Patent & Trademark Office (“USPTO”) to register the marks FirstForm and PrimePlay. The applications are pending and have been allowed by the USPTO and we anticipate that registrations for these marks should issue in due course following our filing of evidence of use of each mark with the USPTO.
We also believe we have certain common law rights with respect to the prior and continued usage of the names “Replicated Grass” and “Organite”.
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Replicated Grass is our signature synthetic turf product.
Organite is our Eco-Friendly infill product that consists of Zeolite, Walnut Shell (Non-Allergenic Organic Shells and ethylene propylene diene monomer (M-class) rubber.
We also have created a new eco-friendly infill system that has absolutely no rubber at all as the materials are completely inert or biodegradable which we are currently going through the trademark process with.
Service Mark
The Company’s service mark is “Building the Best Comes First” which stands for the Company’s commitment to research and development. We have not yet applied to register this mark, but plan to do so.
Employees
We have 3 full time employees. Additionally, the Company employs 23 independent contractors, including 21 contract employees for sales and two for accounting and investor relations services. None of our employees are represented by a labor union.
Properties
Our principal office is located at 4320 Winfield Road, Suite 200, Warrenville, IL 60555. This office has approximately 500 sq. ft. office space rented at a rate of $1,100 per month. This space is utilized for office purposes and it is our belief that the space is adequate for our immediate needs. Additional space may be required as we expand our business activities. We do not foresee any significant difficulties in obtaining additional facilities if deemed necessary.
Legal Proceedings.
Except as set forth below, there are no material proceedings to which any director or officer, or any associate of any such director or officer, is a party that is adverse to our Company or any of our subsidiaries or has a material interest adverse to our Company or any of our subsidiaries. No director or executive officer has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it during the past ten years.
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 continuing to vigorously defend itself.
The Company has been put on notice by Brock USA, LLC d/b/a Brock International LLC (“Brock”) of patent infringement relating to certain products acquired by the Company from NexxField, Inc. (“NexxField”), namely, NexxField’s NexxPad turf underlayment panels. In July 2016, Brock commenced a patent infringement lawsuit against NexxField alleging that NexxField’s NexxPad panels infringe certain patents owned by Brock. The Company has not been named as a defendant in Brock’s patent infringement action. The Company believes it will be able to resolve this matter without being named as a defendant in the lawsuit and will be able to find alternative products if necessary.
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DIRECTORS AND EXECUTIVE OFFICERS
As of the date of this prospectus, our directors, executive officers are as follows:
| | | | | | Officer and/or
Director Since
| Jeromy Olson
| | 46
| | Chairman and Chief Executive Officer
| | September 2014
| Tracy Burzycki
| | 45
| | Director
| | January 2015
| Glenn Appel
| | 44
| | Director
| | August 2015
| Glenn Tilley
| | 54
| | Director
| | January 2016
|
Each director serves for a one year, term, orand until his successor is duly elected and qualified, or until the earlier of his earlier resignation removal or disqualification. The business experienceremoval. Information on our Board of eachDirectors and executive officers is included below. Our executive officers are appointed annually by our Board of ourDirectors. Our executive officers hold their offices until they resign, are removed by the Board, or their successor is elected and qualified.
Set forth below is certain information regarding the persons who currently are directors and executive officers forof the following:Company. | Name | | Age | | Position | | Officer and/or Director Since | | | | | | | | | | Jeromy Olson | | 49 | | Chairman, Chief Executive Officer and Director | | 2014 | | John Tuntland | | 43 | | Director | | 2018 | | Glenn Tilley | | 57 | | Director | | 2016 | | Tom Minichiello | | 60 | | Director | | 2017 |
Jeromy Olson, Chief Executive Officer, and Chairman, Director Mr. Jeromy Olson, age 46,49, combines over 1920 years in senior management as well sales and sales training. Mr. Olson is currently an owner of NexPhase Global, a sales management and consulting firm that he founded in 2013. From 2012 to 2013, Mr. Olson was Vice President of Sales and Marketing for Precision Plating Inc., a company involved in precious metal fabrication. From 2007 to 2012, Mr. Olson was Area Sales Manager for Beckman Coulter, a Clinical Diagnostic company that focused on hospital laboratory equipment manufacturing. Mr. Olson has an undergraduate degree from Northern Illinois University. The Board believes that Mr. Olson’s extensive experience in management, talent acquisition and development, sales strategy and implementation and market analysis will be critical in supporting the Company’s growth plans. Additionally, the Board believes that Mr. Olson’s combination of financial reporting, predictive modeling and complex forecasting experience will be of great value to the Company as it continues to grow. Tracy Burzycki, Director
Ms. Tracy Burzycki, age 45, brings over 14 years of experience in sales management, strategic planning, market evaluation and market penetration, following an eight-year career as a scientist. From 2000 through the present, Ms. Burzycki has held various positions with Beckman Coulter, a company that develops, manufactures and markets products that simplify, automate and innovate complex biomedical testing, where she has been the Director, National Sales and Global Accounts from July 2011 through December 2014 and is currently the Director, Americas Sales-Life Sciences.
Ms. Burzycki has an undergraduate degree from the University of Connecticut and an MBA from Columbia University — Columbia Business School.
The Board believes that Ms. Burzycki’s extensive experience in sales management, strategic planning, market evaluation and market penetration will enable the Company to accelerate its growth in several key areas.
Glenn Appel, Director
Mr. Appel, age 44, is the current Chief Executive Officer and President of Campania International, Inc. (“Campania”), one of the preeminent suppliers of garden elements in North America. For the last eleven years, as the Chief Executive Officer and President of Campania, Mr. Appel has fostered exceptional sales growth and constructed a highly effective management team. Prior to joining Campania, Mr. Appel held various management positions with Crayola, LLC.
Mr. Appel has an undergraduate degree from Lehigh University and an MBA from Columbia University.
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In evaluating Mr. Appel’s specific experience, qualifications, attributes and skills in connection with his appointment as a member of the Board of the Company, the Board considered his expertise in human resources and business execution, as well as his extensive experience as Chief Executive Officer and President of Campania International.
Glenn Tilley, Director Mr. Tilley, age 54,57, combines over 30 years of experience in Sports Management and Sports and Entertainment Marketing leadership roles. Currently, Mr. Tilley is the Founder and CEO of The Champions Network, a business acceleration firm with a focus in the sports and health and wellness space. Previously, he was CEO of Ripken Baseball from 2010 to 2014, a baseball management and sports marketing firm where he established and expanded The Ripken Brand on a national level. Previous to his role at Ripken Baseball, Mr. Tilley, as President and CEO of Becker Group from 2001 to 2009, led the transformation of the firm into an international success as a leading entertainment and experiential marketing firm with clients such as The Walt Disney Company, Warner Brothers, The Discovery Channel, The Taubman Company, Simon Properties, and Westfield Properties. Before being promoted to President and CEO, Mr. Tilley was Vice President of Sales for Becker Group from 1992 through 2000. Previous to his role at Becker Group, Mr. Tilley was an executive at Sports Management firms Shapiro and Robinson and Eastern Athletic Services that represented and managed professional athletes in professional baseball and professional football. Mr. Tilley graduated from Princeton University in 1984 with a bachelor’s degree in Political Science, where he was an All-Ivy League football player. In
In evaluating Mr. Tilley’s specific experience, qualifications, attributes and skills in connection with his appointment as a member of the Board of the Company, the Board considered his expertise and many roles within the sports industry, as well as his extensive management experience at different sports related companies. Key Employees
John Rombold,Tom Minichiello, Director
Tom Minichiello, age 60, is currently Senior Vice President, Chief Financial Officer, Treasurer, and Secretary for Westell Technologies, positions he has held since July, 2013. He is responsible for finance, information technology, human resources, legal, contract administration, real estate, and corporate communications. Prior to Westell, Mr. Minichiello was interim Chief Financial Officer for Tellabs and served in various other positions including Vice President of Finance and Chief Accounting Officer, Vice President of Financial Operations, Vice President of Finance for North America, Director of Project ManagementFinance for all product divisions, and Controller for the Optical Networking Group from March 2001 to July, 2013. Minichiello also served in leadership roles at Andrew Corporation and held financial management and audit positions at Phelps Dodge, Otis Elevator, and United Technologies. He began his career at Sterling Drug. Mr. Minichiello serves on the Governing Body for the Evanta Chicago CFO Executive Summit. He was a Panelist for the 2016 Finance Transformation Summit in Dallas, and previously was an Advisory Board Member for Back on My Feet Chicago and a Board Member for the Tellabs Foundation. Mr. John Rombold, age 46, combines over 20 yearsMinichiello holds a Master of experienceBusiness Administration degree in ConstructionEntrepreneurship and Operations Management includingfrom DePaul University, a 10 year careerMaster of Science in Athletic Field Construction. Previously, he had been involved in 4 companies inAccounting from the Commercial Construction Industry holding positions including DirectorUniversity of Construction, Project Manager, Operations Manager, and Sales Engineer. From 2014 through 2016, Mr. Rombold was the Operations Manager for Northeast Turf, a Synthetic Turf Installation company. From 2007 to 2012, he held roles of Director of Construction and Project Manager for ProGrass LLC, a company involved in the construction of Athletic Facilities. From 2002 to 2006, he was a Construction Manager for the 84 Lumber Company, a Retail Company that focused on Building Materials. Previously, he held several positions of increasing responsibility with the General Electric Company. Mr. Rombold is currently an ASBA Certified Field Builder for Synthetic Turf, a LEED Green Associate,Hartford, and a Licensed Pennsylvania Real Estate Agent.Bachelor of Arts in Economics from Villanova University. He is alsoa Certified Public Accountant. In evaluating Mr. Minichiello’s specific experience, qualifications, attributes and skills in connection with his appointment as a member of the Pittsburgh Green Building Alliance. He has an undergraduate degree in Business Administration from Clarion UniversityBoard of Pennsylvania.the Company, the Board considered his experience as a Chief Financial Officer, Treasurer and Secretary and his financial knowledge and expertise. Scott Douglas Allen,John Tuntland, Director of Architecture & Engineering
Mr. Scott Douglas Allen, AIA NCARB, Age 45, combines over 23 years of experienceJohn Tuntland, age 43, is currently the Global Product Manager, Large Track Type Tractors for Caterpillar, Inc (NYSE: CAT)), which position he had held since June 2017. Previously, he held various other positions within the Caterpillar organization, including but not limited to Global Product Manager for SEM and Regional Product Manager for the Medium Wheel Loader Products (based in China), Global Product Manager for SEM and Regional Product Manager for the Architecture / Engineering / Construction Industry, including 10 years in senior management positions.Medium Wheel Loader Products, and World Wide New Product Introduction Manager for Medium Wheel Loaders and has held acquisition and 6-Sigma responsibilities within Caterpillar. In addition, toMr. Tuntland is the primary owner and executive of numerous ventures outside of his current, Director of Architecture & Engineering for FirstForm Inc., Mr. Allen has been Managing Principal at S|D|A Architects from 2005 to 2016Fortune 100 related experiences, including farming, commercial real estate and is also currently a partner at SDA/3 Properties Realty Group. Concurrent to that experience, Mr. Allen performed as an Engineering Instructor for 5 years at Pennsylvania State University. Previous to his position with S|D|A Architects & Penn State University, Mr. Allen worked as an Architectural Project Manager for various A/E companies from 1996–2005, most notably, the world renownedautomotive and awarding winning firm of Bohlin Cywinski Jackson. Mr. Allen complemented his design and engineering background with onsite construction experience from 1988–1995.service companies. Mr. Allen has an Associate of Specialized Technology Degree from Johnson College and a Professional Bachelor or Architecture DegreeTuntland graduated from the University of Kansas.Illinois in 1999 with a B.S. in Agricultural Engineering and an MBA from Benedictine University in 2003. 43
Key Consultant
Kort Wickenheiser, Director of Sales
Mr. Kort Wickenheiser, Director of Sales & Marketing, age 44, combines over 10 years of experience in professional sales and marketing, following 10 years of success in collegiate and high school athletics. Mr. Wickenheiser is a founder and owner of NexPhase Global, Inc. since 2013 through the present. Previously, he had been involved in 3 companies holding positions including regional sales manager, territory development and product specialist. In 2013, Mr. Wickenheiser was the East Zone Sales Manager for Precision a renowned engineering firm located in Chicago, IL. From 2010 to 2013, Mr. Wikenheiser was an award winning capital equipment sales specialist for Beckman Coulter, Brea, CA. Prior to that he was award winning territory development representative for GlaxoSmithKline, Philadelphia, PA where he worked from 2005 to 2010. Mr. Wickenheiser has successfully overseen the growth of 5 separate sales territories; ranging from single states, to the east coast of the U.S., to the entire United States, instituting key strategic initiatives that drove revenue and profitability.
Mr. Wikenheiser is a graduate of Muhlenberg College in Allentown, PA, magna cum laude, where he was captain of their Men’s Basketball Championship Team.
Family Relationships There are no family relationships among any of our directors or executive officers. Board Composition and Director Independence As of the date of this prospectus, our
Our board of directors consists of four members: Jeromy Olson, Tracy Burzycki,John Tuntland, Glenn Appel,Tilley and Glenn Tilley.Tom Minichiello. The directors will serve until our next annual meeting and until their successors are duly elected and qualified. The Company defines “independent” as that term is defined in Rule 5605(a)(2) of the NASDAQ listing standards. In making the determination of whether a member of the board is independent, our board considers, among other things, transactions and relationships between each director and his immediate family and the Company, including those reported under the caption “Related Party Transactions”“Certain Relationships and Related-Party Transactions”. The purpose of this review is to determine whether any such relationships or transactions are material and, therefore, inconsistent with a determination that the directors are independent. On the basis of such review and its understanding of such relationships and transactions, our board affirmatively determined that Tracy Burzycki, GlennMr. Appel, Mr. Minichiello and Glenn TilleyMr. Tuntland are qualified as independent and that none of themthey have anyno material relationship with us that might interfere with his or her exercise of independent judgment. Board CommitteesCommittees; Audit Committee Financial Expert; Stockholder Nominations We have
At the present time, the board of directors has not established an audit, committee, a compensation committee andor a nominating and corporate governance committee. The Board intends for each committee to have its own charter prior tofunctions of those committees are being undertaken by the effectivenessboard of directors as a whole. In addition, none of the registration statement of which this prospectus forms a part. Upon effectiveness of the registration statement of which this prospectus forms a part, each of the board committees will have the composition and responsibilities described below. Audit Committee
Our Audit Committee was established in accordance with Section 3(a)(58)(A) of the Exchange Act of 1934, as amended (the “Exchange Act”). The members of our Audit Committee are Glenn Appel, Tracy Burzycki and Glenn Tilley. Each of these Committee membersCompany’s directors is “independent” within the meaning of Rule 10A-3 under the Exchange Act and the NASDAQ Stock Market Rules. Our board has determined that no one is currently an “audit committee financial expert”, as such term. It is defined in Item 407(d)(5) of Regulation S-K. The Board intends to appoint an audit committee financial expert to its audit committee prior to the effectiveness of the registration statement of which this prospectus forms a part.
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The Audit Committee will oversee our accounting and financial reporting processes and oversee the audit of our financial statements and the effectiveness of our internal control over financial reporting. The specific functions of this Committee include, but are not limited to:
• selecting and recommending to our board of directors the appointment of an independent registered public accounting firm and overseeing the engagement of such firm;
• approving the fees to be paid to the independent registered public accounting firm;
• helping to ensure the independence of the independent registered public accounting firm;
• overseeing the integrity of our financial statements;
• preparing an audit committee report as required by the SEC to be included in our annual proxy statement;
• resolve any disagreements between management and the auditors regarding financial reporting;
• reviewing with management and the independent auditors any correspondence with regulators and any published reports that raise material issues regarding the Company’s accounting policies;
• reviewing and approving all related party transactions; and
• overseeing compliance with legal and regulatory requirements.
Compensation Committee
The members of our Compensation Committee are Glenn Appel, Tracy Burzycki and Glenn Tilley. Each such member is “independent” within the meaning of the NASDAQ Stock Market Rules. In addition, each member of our Compensation Committee qualifies as a “non-employee director” under Rule 16b-3 of the Exchange Act. Our Compensation Committee assists the board of directors in the discharge of its responsibilities relatingdirectors’ desire and intent to the compensation of the board of directors and our executive officers. Tracy Burzycki will serveestablish such committees as Chairman of our Compensation Committee.soon as practicable.
The Committee’s compensation-related responsibilities include, but areCompany does not limited to: • reviewing and approving on an annual basishave a policy regarding the corporate goals and objectives with respect to compensation for our Chief Executive Officer;
• reviewing, approving and recommending to our boardconsideration of directors on an annual basis the evaluation process and compensation structure for our other executive officers;
• determining the need for an the appropriateness of employment agreements and change in control agreements for each of our executive officers and any other officersdirector candidates which may be recommended by the Chief Executive Officer or boardCompany’s stockholders.
Code of directors;Ethics • providing oversight
The Company does not currently maintain a Code of management’s decisions concerning the performance and compensation of other company officers, employees, consultants and advisors; • reviewing our incentive compensation and other equity-based plans and recommending changes in suchEthics but plans to our board of directors as needed, and exercising all the authority of our board of directors with respect to the administration of such plans;
• reviewing and recommending to our board of directors the compensation of independent directors, including incentive and equity-based compensation; and
• selecting, retaining and terminating such compensation consultants, outside counsel or other advisors as it deems necessary or appropriate.
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Nominating and Corporate Governance Committee
The members of our Nominating and Corporate Governance Committee will be Glenn Appel, Tracy Burzycki and Glenn Tilley. Each such member is “independent” within the meaning of the NASDAQ Stock Market Rules. The purpose of the Nominating and Corporate Governance Committee is to recommend to the board nominees for election as directors and persons to be elected to fill any vacancies on the board, develop and recommend a set of corporate governance principles and oversee the performance of the board. Glenn Tilley will serve as Chairman of our Nominating and Corporate Governance Committee.
The Committee’s responsibilities include:
• recommending to the board of directors nominees for election as directors at any meeting of stockholders and nominees to fill vacancies on the board;
• considering candidates proposed by stockholders in accordance with the requirementsadopt one in the Committee charter;near future.
• overseeing the administration of the Company’s Code of Ethics;
• reviewing with the entire board of directors, on an annual basis, the requisite skills and criteria for board candidates and the composition of the board as a whole;
• the authority to retain search firms to assist in identifying board candidates, approve the terms of the search firm’s engagement, and cause the Company to pay the engaged search firm’s engagement fee;
• recommending to the board of directors on an annual basis the directors to be appointed to each committee of the board of directors;
• overseeing an annual self-evaluation of the board of directors and its committees to determine whether it and its committees are functioning effectively;
• developing and recommending to the board a set of corporate governance guidelines applicable to the Company.
The Nominating and Corporate Governance Committee may delegate any of its responsibilities to subcommittees as it deems appropriate. The Nominating and Corporate Governance Committee is authorized to retain independent legal and other advisors, and conduct or authorize investigations into any matter within the scope of its duties.
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EXECUTIVE COMPENSATION The following table provides each element of compensation paid or granted to eachour sole Executive officer, and director, for service rendered during the fiscal years ended December 31, 20152018 and 2014. Name and Principal Position | | | | | | | | | | | | Non-Equity Incentive Plan Compensation ($) | | Non-Qualified Deferred Compensation Earnings
($) | | All Other Compensation ($) | | | Jeromy Olson | | 2015 | | $ | 120,000 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | $ | 120,000 | Chief Executive Officer(1) | | 2014 | | $ | 37,000 | | 0 | | 280,000 | | 0 | | 0 | | 0 | | 0 | | $ | 317,000 |
1. Mr. Olson was appointed Chief Executive Officer of the Company on September 18, 2014. NexPhase Global, a consulting firm owned in part by Mr. Olson, invoices the Company $20,000 per month, $10,000 of which pertains to consulting services, and the other $10,000 pertains to Mr. Olson’s services as the Chief Executive Officer of the Company.
Compensation-Setting Process/Role of OurSummary Compensation CommitteeTable
During 2015 we had not yet established our compensation committee and our board of directors was responsible for overseeing our executive compensation program, establishing our executive compensation philosophy and programs, and determining specific executive compensation, including cash and equity. These responsibilities will be handled by our compensation committee moving forward. Unless otherwise stated, the discussion and analysis below is based on decisions by the board of directors.
| Name and Principal Position | | Year | | Salary
($)(2) | | | Bonus
($) | | | Stock
Awards
($)(3)(4) | | | Option
Awards ($)(5) | | | Non-Equity
Incentive
Plan
Compensation ($) | | | Non-
Qualified
Deferred
Compensation
Earnings
($) | | | All Other
Compensation
($)(6) | | | Totals
($) | | | Jeromy Olson | | 2018 | | $ | 156,000 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 41,442 | | | $ | 202,942 | | | Chief Executive Officer(1) | | 2017 | | $ | 147,000 | | | $ | 0 | | | $ | 8,500 | | | $ | 33 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 155,533 | |
During 2015, our board of directors considered one or more of the following factors when setting executive compensation, as further explained in the discussions of each compensation element below:
| 1. | Mr. Olson was appointed Chief Executive Officer of the Company on September 18, 2014. | | | | 2. | Pursuant to Mr. Olson’s employment agreement with the Company, the Company was originally obligated to pay Mr. Olson a salary at a rate of $10,000 per month that increased to $13,000/month upon the Company achieving gross revenues of at least $10,000,000 and an operating margin of at least 15%. In March 2017, this condition was satisfied. However, the increase in salary was not immediately implemented. For 2017, “Salary” includes the $141,500 in base salary earned and received by Mr. Olson in 2017, as well as the $5,500 in deferred unpaid salary earned by Mr. Olson, which deferred amount was paid to Mr. Olson during 2018. For 2018, “Salary” consists of the $156,000 in base salary earned by Mr. Olson in 2018. As of December 31, 2017, the remaining deferred unpaid salary owed to Mr. Olson totaled $5,500, and as of December 31, 2018, the remaining deferred unpaid salary owed to Mr. Olson was $0. | | | | 3. | Represents the fair value as of the grant dates of (i) 20,000 shares of the Company’s Common Stock issued during the year ended December 31, 2017, pursuant to the NexPhase Global consulting agreement; and (ii) 250,000 shares of the Company’s Common Stock issued on January 1, 2016, each computed in accordance with FASB ASC Topic 718. | | | | 4. | Represents the grant date fair value computed in accordance with FASB ASC Topic 718. NexPhase Global was issued 50,000 shares of common stock at the onset of the consulting agreement and will receive 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 NexPhase consulting agreement was terminated on October 1, 2017. | | | | 5. | Represents the grant date fair value of (i) fully vested qualified options to purchase 25,000 shares of the Company’s Common Stock at a price of $1.75 issued in March 2017; (ii) fully vested qualified options to purchase 100,000 shares of the Company’s Common Stock at a price of $1.50 issued in November, 2016; and (iii) qualified options to purchase 75,000 shares of the Company’s Common Stock at a price of $1.75 in November, 2016, which vested on December 31, 2016, each computed in accordance with FASB Topic ASC 718. | | | | 6. | Includes pretax medical insurance coverage benefits of $5,527, and $35,915 in payments to Mr. Olsen’s entity (see Item 13 herein) for accrued sales commissions from prior years. As of December 31, 2017, the accrued sales commissions owed to Mr. Olsen’s entity totaled $154,090, and as of December 31, 2018, the accrued sales commissions owed to Mr. Olsen’s entity totaled $118,175. |
• the experiences and individual knowledge of the members of our board of directors regarding executive compensation, as we believe this approach helps us to compete in hiring and retaining the best possible talent while at the same time maintaining a reasonable and responsible cost structure;
• corporate and/or individual performance, as we believe this encourages our executive officers to focus on achieving our business objectives;
• the executive’s existing equity award and stock holdings;
• internal pay equity of the compensation paid to one executive officer as compared to another — that is, that the compensation paid to each executive should reflect the importance of his or her role to the company as compared to the roles of the other executive officers, while at the same time providing a certain amount of parity to promote teamwork; and
With our transition to being a company listed on NASDAQ, our compensation program following this offering may, over time, vary significantly from our historical practices. For example, we expect that following this offering, in setting executive compensation, the new compensation committee may review and consider, in addition to the items above, factors such as the achievement of predefined milestones, tax deductibility of compensation, the total compensation that may become payable to executive officers in various hypothetical scenarios, the performance of our common stock and compensation levels at public peer companies.
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Executive Compensation Program Components Base Salary We provide base salary as a fixed source of compensation for our executive officers,officer, allowing themhim a degree of certainty when having a meaningful portion of theirhis compensation “at risk” in the form of equity awards covering the shares of a company for whose shares there hashave been limited liquidity to date. TheWe plan to hire additional officers and the board of directors recognizes the importance of base salaries as an element of compensation that helps to attract highly qualified executive talent. Base salariesThe base salary for our executive officers wereofficer was established primarily based on individual negotiations with the executive officersofficer when they joined us and reflect the scope of theirhis anticipated responsibilities, the individual experience they bring,he brings, the board members’ experiences and knowledge in compensating similarly situated individuals at other companies, and our then-current cash constraints, and a general sense of internal pay equity among our executive officers.constraints.
The board does not apply specific formulas in determining base salary increases. In determining base salaries for 20152018 for our continuing named executive officers,officer, no adjustments were made to the base salaries of anysalary of our named executive officersofficer as the board determined, in theirits independent judgment and without reliance on any survey data, that existing base salaries, taken together with other elements of compensation,salary for our executive officer, provided sufficient fixed compensation for retention purposes. Outstanding Equity Awards at December 31, 20152018 The Company had no outstanding equityfollowing table provides information on the holdings of stock awards by Mr. Olson at the end of the most recent completed fiscal year, but the Company intends to implement a 2016 Employee Stock Option Incentive Plan during the 2016 fiscal year.year-end 2018, including unexercised stock options. Outstanding Equity Awards at Fiscal Year-End 2018 | Name | | Number of
securities
underlying
unexercised
options (#)
exercisable | | | Number of securities
underlying
unexercised
options (#)
unexercisable | | | Equity incentive
plan awards; Number of
securities underlying unexercised
unearned
options (#) | | | Option
exercise
price ($) | | | Option
exercise
date | | Jeromy Olson(1) | | | 287,500 | | | | 0 | | | | 0 | | | $ | 1.50 to $1.75 | | | October 2021 |
| 1. | Represents 200,000 stock options issued and outstanding to Mr. Olson that are scheduled to vest in October 2021. Also represents one-half of 175,000 stock options issued to NexPhase Global pursuant to the NexPhase Global arrangement. NexPhase Global is a consulting firm owned in part by Mr. Olson. |
Director Compensation The following table provides information regarding the compensation of the Company’s non-employee directors for the year ended December 31, 2015: | | Fees
Earned or Paid in Cash
($) | | | | | | Non-Equity Incentive Plan Compensation ($) | | Non-Qualified Deferred Compensation Earnings
($) | | All Other Compensation ($) | | | Tracy Burzycki(1) | | — | | — | | 41,072 | | — | | — | | — | | 41,072 | Glenn Appel(2) | | — | | — | | 15,250 | | — | | — | | — | | 15,250 | Glenn Tilley(3) | | — | | — | | — | | — | | — | | — | | — |
1. Tracy Burzycki was appointed as a director on January 29, 2015. Mrs. Burzycki received non-qualified stock 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 in the first fiscal quarter of 2015.
2. Glenn Appel was appointed as a director on August 27, 2015. Mr. Appel received non-qualified stock 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 ($1.00) per share. The Options shall vest in equal amounts over a period of Two (2) years at the rate of Twenty Five Thousand (25,000) shares per fiscal quarter on the last day of each such quarter, commencing in the third fiscal quarter of 2015.Director Compensation
3. Glenn Tilley was appointed as a director on January 4, 2016.
| Name | | Fees
Earned or
Paid in
Cash
($)(1) | | | Stock
Awards
($) | | | Option
Awards
($) | | | Non-Equity
Incentive Plan
Compensation
($) | | | Non-Qualified
Deferred
Compensation
Earnings
($) | | | All Other
Compensation
($) | | | Total
($) | | | | | | | | | | | | | | | | | | | | | | | | | | Glenn Tilley | | $ | 0 | | | | — | | | $ | 0 | | | | — | | | | — | | | | — | | | $ | 0 | | | John Tuntland(2) | | | | | | | | | | | 10,169 | | | | | | | | | | | | | | | | 10,169 | | | Tom Minichiello | | | 0 | | | | — | | | $ | 0 | | | | — | | | | — | | | | — | | | $ | 0 | |
| 1. | This column reports the amount of cash compensation earned in 2018 for board service. | | 2. | John Tuntland was appointed as a director on May 7, 2018. Mr. Tuntland received non-qualified stock 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 a rate of Twenty-Five Thousand (25,000) shares per fiscal quarter on the last day of each such quarter, commencing in the third fiscal quarter 2018. |
Director Agreements On January 29, 2015, the Company entered into a director agreement (the “Burzycki Director Agreement”) with Tracy Burzycki, concurrent with Ms. Burzycki’s appointment to the Board effective January 29, 2015. Pursuant to the Burzycki Director Agreement, Ms. Burzycki is to be paid a stipend of one thousand dollars ($1,000) per meeting of the Board, which shall be contingent upon her attendance at the meetings being in person, rather than via telephone or some other electronic medium. Additionally, Ms. Burzycki shall receive
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options (the “Burzycki Options”) to purchase two hundred thousand (200,000) shares of the Company’s common stock provided she continues to serve on the board through December 31, 2016. The exercise price of the Burzycki Options shall be one dollar ($1.00) per share and will be exercisable for 5 years from the date of grant. The Burzycki 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 in the first fiscal quarter of 2015.
On August 27, 2015, the Company entered into a director agreement (the “Appel Director Agreement”) with Glenn Appel, concurrent with Mr. Appel’s appointment to the Board effective August 27, 2015. Pursuant to the Appel Director Agreement, Mr. Appel 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. Appel shall receive non-qualified stock options (the “Appel Options”) to purchase Two Hundred Thousand (200,000) shares of the Company’s common stock provided he continues to serve on the board through June 30, 2017. The exercise price of the Appel Options shall be One Dollar ($1.00) per share and will be exercisable for 5 years from the date of grant. The Appel 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 in the third fiscal quarter of 2015.
On January 4, 2016, the Company entered into a director agreement (the “Tilley Director Agreement”) with Glenn Tilley, concurrent with Mr. Tilley’s appointment to the Board effective January 4, 2016. Pursuant to the Tilley 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 receivereceived non-qualified stock options (the “Tilley Options”) to purchase Two Hundred Thousand (200,000) shares of the Company’s common stock, provided he continues to serve on the board through September 30, 2017.which options are now fully vested. The exercise price of the Tilley Options shall be One Dollar ($1.00) per share and are exercisable for 5 years. On May 15, 2017, the Company entered into a director agreement (the “Minichiello Director Agreement”) with Tom Minichiello, concurrent with Mr. Minichiello’s appointment to the Board of Directors of the Company (the “Board”) effective May 15, 2017. The TilleyMinichiello Director Agreement may, at the option of the Board, be automatically renewed on such date that Mr. Minichiello is re-elected to the Board. Pursuant to the Director Agreement, Mr. Minichiello 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. Minichiello shall receive non-qualified stock options (the “Options”) to purchase up to 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 in the fourthfirst full fiscal quarter in which Mr. Minichiello serves in his capacity as Director in 2017. On May 7, 2018, the Company entered into a director agreement (the “Tuntland Director Agreement”) with John Tuntland, concurrent with Mr. Tuntland’s appointment to the Board of Directors of the Company (the “Board”) effective May 7, 2018. The Tuntland Director Agreement may, at the option of the Board, be automatically renewed on such date that Mr. Tuntland is re-elected to the Board. Pursuant to the Director Agreement, Mr. Tuntland 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. Tuntland shall receive non-qualified stock options (the “Options”) to purchase up to 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 in the third fiscal quarter of 2015.2018. Employment AgreementAgreements Jeromy Olson, Chief Executive Officer On September 18, 2014, Sports Field Holdings, Inc. (the “Company”) entered into an employment agreement (the “Olson Employment“Employment Agreement”) with Mr. Jeromy Olson pursuant to which Mr. Olson will serve as the Company’s Chief Executive Officer, effective September 19, 2014. Under the terms of the Employment Agreement, Mr. Olson shall have such duties, responsibilities and authority as are commensurate and consistent with the position of Chief Executive Officer of a public company. The term of the Employment Agreement is for forty months (the “Initial Term”), provided however, that in the event that neither party has provided the other party with written notice by the date that is sixty days prior to the last day of the Initial Term or, if applicable, the Renewal Term (as hereinafter defined), of such party’s intent that the Employment Agreement terminate immediately upon expiration of such term, then the Employment Agreement shall be extended for subsequent one-yeartwelve-month terms (each a “Renewal Term”). The Company shall pay Mr. Olson a salary at a rate of Ten Thousand and 00/100 Dollars ($10,000) per month 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%. In addition, Mr. Olson will be eligible to earn an annual bonus (the “Bonus”) equal to the following, calculated cumulatively: (i) when the Company achieves annual Adjusted EBITDA (as defined below) of between $1.00 and $1,000,000, the Mr. Olson shall receive a cash bonus of 15.0% of such annual Adjusted EBITDA; (ii) when the Company achieves annual Adjusted EBITDA of between $1,000,001 and $2,000,000, Mr. Olson shall receive an additional cash bonus of 10.0% of such annual Adjusted EBITDA which exceeds $1,000,000; and (iii) when the Company achieves annual Adjusted EBITDA greater than $2,000,000, Mr. Olson shall receive an additional cash bonus of 5.0% of such annual Adjusted EBITDA which exceeds 49
$2,000,000. $2,000,000. “Adjusted EBITDA” shall mean earnings before interest, taxes, depreciation and amortization, the components of which shall be calculated in accordance with generally accepted accounting principles and as such components traditionally appear on the Company’s audited financial statements, excluding any and all expenses associated with (i) any share-based payment; (ii) any gain or loss related to derivative instruments; and (iii) any other non-cash expenses reasonably approved by the Board of Directors of the Company.Company (the “Board”).
As further inducement for Mr. Olson to enter into the Olson Employment Agreement, the Company shall issue Mr. Olson (i) 250,000 shares of the Company’s common stock of the Company, par value $0.00001 per share (the “Common Stock”) upon the execution of the Olson Employment Agreement; (ii) an additional 250,000 shares of Common Stock on January 1, 2016, provided the Olson Employment Agreement has not been terminated; (iii) qualified options to purchase 100,000 shares of Common Stock at $1.50 per share, which shall vest on December 31, 2015, under the employee qualified incentive option plan that will be established by the Company (the “Plan”), (iv) qualified options to purchase 100,000 shares of Common Stock at $1.75 per share, which shall vest on December 31, 2016, pursuant to the Plan and (v) qualified options to purchase 100,000 shares of Common Stock at $2.50 per share, which shall vest on December 31, 2017, pursuant to the Plan. On November 3, 2016, the Board, pursuant to the Olson Employment Agreement, approved the issuance of (i) qualified options to purchase 100,000 shares of the Company’s Common Stock at a price of $1.50 vesting immediately with a grant date of November 3, 2016, (ii) qualified options to purchase 75,000 shares of the Company’s Common Stock at a price of $1.75 vesting on December 31, 2016 and (iii) qualified options to purchase 25,000 shares of the Company’s Common Stock at a price of $1.75 vesting on December 31, 2016, which options were to have been issued in the first quarter of 2017. Pursuant to the merger clause set forth in Section 13(a) of the Employment Agreement, all prior agreements between Mr. Olson and the Company, including that certain Consulting Agreement dated August 29, 2014, are superseded by the Employment Agreement and are of no further effect. Pursuant to section 3 of the Employment Agreement, Mr. Olson’s employment term was automatically renewed and will expire on January 19, 2020. Termination and Change of Control Provisions. Pursuant to the Olson Employment Agreement, upon a Change of Control (as defined in the Olson Employment Agreement), in addition to the accrued but unpaid compensation and vacation pay through the date of termination and any other benefits accrued to him under any benefit plans outstanding at such time and the reimbursement of documented, unreimbursed expenses incurred prior to such date, Mr. Olson shall be entitled to the following severance benefits: (i) the greater of twelve (12) months’ Base Salary (as defined in the Olson Employment Agreement) at the then current rate or the remainder of the Base Salary due under Olson Employment Agreement, to be paid in equal bi-weekly installments, less withholding of all applicable taxes, at such times he would have received them if there was no termination; (ii) continued provision for a period of twelve (12) months after the date of termination of the benefits under any benefit plans extended from time to time by the Company to its senior executives; and (iii) payment on a pro-rated basis of any bonus or other payments earned in connection with any bonus plan to which Executive was a participant as of the date of Executive’s termination of employment. 50
Corporate Governance We do not have any standing audit, nominating and compensation committees of the board of directors, or committees performing similar functions. We do not currently have a Code of Ethics applicable to our principal executive, financial or accounting officers. All Board actions have been taken by written action rather than formal meeting. All executive officers and employees have executed non-compete agreements as well as Foreign Corruption Practices Act (FCPA) pledges. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information regarding the beneficial ownership of our common stockCommon Stock as of August 24, 2016July 11, 2019, by (a) each stockholder who is known to us to own beneficially 5% or more of our outstanding common stock;Common Stock; (b) all directors; (c) our executive officers, and (d) all executive officers and directors as a group. Except as otherwise indicated, all persons listed below have (i) sole voting power and investment power with respect to their shares of common stock,Common Stock, except to the extent that authority is shared by spouses under applicable law, and (ii) record and beneficial ownership with respect to their shares of common stock.Common Stock. For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stockCommon Stock that such person has the right to acquire within 60 days of August 24, 2016.July 11, 2019. For purposes of computing the percentage of outstanding shares of our common stockCommon Stock held by each person or group of persons named above, any shares that such person or persons has the right to acquire within 60 days of August 24, 2016July 11, 2019, is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership. Unless otherwise identified, the address of our directors and officers is c/o Sports Field Holdings, Inc., at 4320 Winfield Road,1020 Cedar Ave, Suite 200, Warrenville, IL 60555. Name and Address of Beneficial Owner | | | | Percentage of Ownership of Common
Stock | 5% Beneficial Shareholders | | — | | | — | | | None | | | | | | | | Officers and Directors | | | | | | | | Jeromy Olson | | 530,000 | | | 3.2 | % | | Tracy Burzycki | | 150,000 | (1) | | * | % | | Glenn Appel | | 100,000 | (2) | | * | % | | Glenn Tilley | | 370,159 | (3) | | 2.2 | % | | | | | | | | | | Officers and Directors as a Group (4 persons) | | 1,150,159 | | | 6.9 | % | |
* denotes less than 1%
1. Represents 150,000The following table assumes 23,318,980 shares are outstanding as of common stock underlying vested options with an exercise price of $1.00 per share.July 11, 2019.
2. Represents 100,000 shares of common stock underlying vested options with an exercise price of $1.00 per share.
| Name and Address of Beneficial Owner | | Outstanding
Common Stock | | | Percentage of
Ownership of
Common Stock | | | Officers and Directors | | | | | | | | | | Jeromy Olson(1) | | | 1,270,000 | | | | 5.3 | % | | Glenn Tilley(2) | | | 285,000 | | | | 1.2 | % | | Tom Minichiello(3) | | | 200,000 | | | | 0.9 | % | | John Tuntland(4) | | | 575,000 | | | | 2.5 | % | | Officers and Directors as a Group (4 persons) | | | 2,330,000 | | | | 9.9 | % |
3. Represents (i) 55,000 shares of common stock, (ii) 240,159 shares of common stock upon the conversion of notes held by such holder and (iii) 75,000 shares of common stock underlying vested options with an exercise price of $1.00 per share.
| * | denotes less than 1%. | | | | (1) | Includes (i) 500,000 shares of common stock, (ii) 200,000 shares of common stock underlying vested options with an exercise price of $1.50 per share, (iii) 300,000 shares of common stock underlying vested options with an exercise price of $1.75 per share | | | | (2) | Includes 200,000 shares of common stock underlying vested options with an exercise price of $1.00 per share. | | | | (3) | Includes 200,000 shares of common stock underlying vested options with an exercise price of $1.00 per share. | | | | (4) | Includes 75,000 shares of common stock underlying vested options with an exercise price of $1.00 per share. |
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Changes in Control The Company is not aware of any contract or other arrangement the operation of which may at a subsequent date result in a change of control of the Company. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE. Jeromy
Transactions with Related Persons, Promoters and Certain Control Persons Except as set forth below, none of the Company’s directors or officers, nor any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to the Company’s shares, nor any relative or spouse of any of the foregoing persons, has had any material interest, direct or indirect, in any transaction to which the Company was a party, and in which the amount involved exceeds the lesser of (i) $120,000 or (ii) one percent of the average of the Company’s total assets at year-end for the last two completed fiscal years. Jeromy Olson, the CEOChief Executive Officer of the Company, owns 33.3% of a sales management and consulting firm, NexPhase Global, which providesLLC (“NexPhase”) that provided sales services to the Company. These services included 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 $161,000$270,000 for the year ended December 31, 2015, of which $41,000 was stock based compensation2017. Included in consulting expense for the year ended December 31, 2015. On May 7, 2015,2017 were 30,000 shares of common stock valued at $12,100, issued to NexPhase. The NexPhase consulting agreement was terminated on October 1, 2017. For years ended December 31, 2018 and 2017, NexPhase earned sales commissions of $0 and $74,517, respectively, and had accounts payable from the Company issued an unsecured promissory note in the principal amount of $150,000 (the “Tilley Note”) to $149,090 and $149,090 as of March 31, 2019, and December 31, 2018, respectively.
Glenn Tilley. The Tilley, Note pays interest equal to 9%a director of the Company, is the holder of $170,857 of principal amountas of December 31, 2018 of the Tilley Note, payable in one lump sum. Onaforementioned Note. As of March 31, 2016, Mr. Tilley entered into a letter agreement whereby, effective as of February 1, 2016, Mr. Tilley waived any and all defaults that may or may not have occurred prior to the date thereof (the “Waiver”). As consideration for the Waiver,2019, the Company issued Mr. Tilley an additional 15,000was not compliant with the repayment terms of the Notes but no defaults under the note have been called by the note holder. The Company is currently conducting good faith negotiations with the note holder to further extend the maturity date, however, there can be no assurance that a further extension will be granted. The Company is currently accruing interest on the Note at the default interest rate of 15% per annum. The Note is convertible into shares of the Company’s common stock. The principal amount of the Tilley Note increased from $150,000 to $163,500 as the initial interest amount, $13,500 as of February 1, 2016, was addedstock at a conversion price equal to the principal amountlower of i) $1.00 per share and ii) the Tilley Note.volume-weighted average price for the last five trading days preceding the conversion date. On March 30, 2018, the Company entered into an eighteen-month loan agreement with an investor. Pursuant to the Waiver,agreement, the investor agreed to loan the Company $250,000 for general operating expenses. During the first six months, the Company will pay interest only at 8% per annum. Thereafter, the Company shall pay principal and interest through maturity dateon December 31, 2019. At March 31, 2019, the outstanding balance related to this finance agreement was $208,333. On April 9, 2018, the Company entered into an eighteen-month loan agreement with a director. Pursuant to the agreement, the director agreed to loan the Company $50,000 for general operating expenses. During the first six months, the Company will pay interest only at 8% per annum. Thereafter, the Company shall pay principal and interest through maturity on October 30, 2019. At March 31, 2019, the outstanding balance was $45,833. On or about March 30, 2019, Mr. Olson advanced to the Company $11,500, which amount was used in partial satisfaction of the Tilley Note was extendedamount to July 1, 2016, and the Tilley Note shall pay interest as of February 1, 2016, atbe paid to a rate of 9% per annum, payable in one lump sum on July 1, 2016 (the “Maturity Date”). Mr. Tilley and the Company are currently engaged in good faith negotiations to amend the Maturity Date of the Tilley Note.former employee under a settlement agreement. This demand note carries no interest. Mr. Tilley was appointed as a director of the Company on January 4, 2016.
Policy on FutureApproving Related Party Transactions All future transactions between us
At present, there is no written policy on approving Related Party Transactions, which is a material weakness in our internal controls. Director Independence The common stock of the Company is currently quoted on the OTCQB, quotation system which currently do not have director independence requirements. On an annual basis, each director and our officers, directors, principal stockholders and their affiliatesexecutive officer will be approved byobligated to disclose any transactions with the audit committee, or a similar committee consisting of entirely independent directors, according to the terms of our Code of Business Conduct and committee charters. 52
DESCRIPTION OF CAPITAL STOCK
In the discussion that follows, we have summarized selected provisions of our certificate of incorporation, bylaws and the Nevada General Corporation Law relating to our capital stock. This summary is not complete. This discussion is subject to the relevant provisions of Nevada law and is qualified by reference to our certificate of incorporation and our bylaws. You should read the provisions of our certificate of incorporation and our bylaws as currently in effect for provisions that may be important to you.
General
The Company is authorized to issue an aggregate number of 270,000,000 shares of capital stock, of which 20,000,000 shares are blank check preferred stock, $0.00001 par value per share and 250,000,000 shares are common stock, $0.00001 par value per share.
Preferred Stock
The Company is authorized to issue 20,000,000 shares of blank check preferred stock, $0.00001 par value per share. Currently we have no shares of preferred stock issued and outstanding.
Common Stock
The Company is authorized to issue 250,000,000 shares of common stock, $0.00001 par value per share. We currently have [•] shares of common stock issued and outstanding.
Each share of common stock shall have one (1) vote per share for all purpose. Our common stock does not provide a preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights. Our common stock holders are not entitled to cumulative voting for purposes of electing members to our board of directors.
Dividends
We have not paid any cash dividends to our shareholders. The declaration of any future cash dividends is at the discretion of our board of directors and depends upon our earnings, if any, our capital requirements and financial position, our general economic conditions, and other pertinent conditions. It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.
Warrants
As of August , 2016, there are 667,542 outstanding warrants to purchase our common shares. The warrants are exercisable for a term of five years with an exercise price range of $1.00 – $1.10.
Warrants to Be Issued in the Offering
The following summary of certain terms and provisions of the warrants offered hereby is not complete and is subject to, and qualified in its entirety by the provisions of the form of warrant, which is filed as an exhibit to the registration statement of which this prospectus is a part. Prospective investors should carefully review the terms and provisions set forth in the form of warrant.
Exercisability. The warrants are exercisable at any time after their original issuance, expected to be [ ], 2016, and at any time up to the date that is five years after their original issuance. The warrants will be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice and, at any time a registration statement registering the issuance of the shares of common stock underlying the warrants under the Securities Act is effective and available for the issuance of such shares, or an exemption from registration under the Securities Act is available for the issuance of such shares, by payment in full in immediately available funds for the number of shares of common stock purchased upon such exercise. If a registration statement registering the issuance of the shares of common stock underlying the warrants under the Securities Act is not effective or available and an exemption from registration under the Securities Act is not available for the issuance of such shares, the holder may, in its sole discretion,
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elect to exercise the warrant through a cashless exercise, in which case the holder would receive upon such exercise the net numbera director or executive officer, or any member of shares of common stock determined according to the formula set forth in the warrant. No fractional shares of common stock will be issued in connection with the exercise ofhis or her immediate family, have a warrant. In lieu of fractional shares, we will pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price.
Exercise Limitation. A holder will not have the right to exercise any portion of the warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99% of the number of shares of our common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determineddirect or indirect material interest in accordance with Item 407(a) of Regulation S-K. Following completion of these disclosures, the terms of the warrants. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99% upon at least 61 days’ prior notice from the holder to us.
Exercise Price. The exercise price per whole share of common stock purchasable upon exercise of the warrants is expected to be $[ ] per share or 125% of public offering price of common stock. The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our common stock and also upon any distributions of assets, including cash, stock or other property to our stockholders.
Transferability. Subject to applicable laws, the warrants may be offered for sale, sold, transferred or assigned without our consent.
Exchange Listing. We intend to apply for the listing of the warrants offered in this offering on The NASDAQ Capital Market under the symbol “SFHIW”. No assurance can be given that such listingBoard will be approved or that a trading market will develop.
Fundamental Transactions. In the event of a fundamental transaction,make an annual determination as described in the warrants and generally including any reorganization, recapitalization or reclassification of our common stock, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding common stock, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding common stock, the holders of the warrants will be entitled to receive upon exercise of the warrants the kind and amount of securities, cash or other property that the holders would have received had they exercised the warrants immediately prior to such fundamental transaction.
Rights as a Stockholder. Except as otherwise provided in the warrants or by virtue of such holder’s ownership of shares of our common stock, the holder of a warrant does not have the rights or privileges of a holder of our common stock, including any voting rights, until the holder exercises the warrant.
Representatives’ Warrants
The representative’s warrants will be exercisable at any time, and from time to time, in whole or in part, during the four-year period commencing one year from the effective date of the registration statement at a per share exercise price equal to 125% of the public offering price per share of common stock in the offering.
The exercise price and number of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or our recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances of shares of common stock at a price below the warrant exercise price.
Options
There are 622,500 outstanding options to purchase our common stock.
Transfer Agent
The transfer agent and registrar for our Common Stock is VStock Transfer, LLC, 18 Lafayette Place, Woodmere, NY 11598.
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Nevada Anti-Takeover Law and Certain Charter and Bylaw Provisions
Certain provisions of Nevada law and our Charter and bylaws could make it more difficult to acquire us by means of a tender offer, a proxy contest or otherwise, or to remove incumbent officers and directors. These provisions, summarized below, may discourage certain types of takeover practices and takeover bids, and encourage persons seeking to acquire control of our company to first negotiate with us. We believe that the potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging such proposals because, among other things, negotiation of such proposals could result in an improvement of their terms.
Nevada General Corporation Law. The Nevada General Corporation Law (NGCL) generally provides that a “resident domestic corporation” shall not engage in any “business combination” with an “interested stockholder” for a period of three years following the date that such stockholder became an interested stockholder unless prior to such date the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder. After three years, a “resident domestic corporation” is only authorized to engage in a combination which was either authorized by the board prior to the three years, authorized by a majorityindependence of disinterested stockholders or meets various fair price criteria.
For purposes of this statute, a “resident domestic corporation” is a domestic corporationeach director using the current standards for “independence” that has 200 or more stockholders of record. An “interested stockholder” generally means any person that (i) issatisfy the beneficial owner, either directly or indirectly, of 10% or more of the voting power of the outstanding voting stock of the corporation or (ii) is an affiliate or associate of the corporation and was the beneficial owner, either directly or indirectly, of 10% or more of the voting power of the outstanding stock of the corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an interested stockholder. For purposes of this statute, an affiliate and associate of an interested stockholder is likewise considered to be an interested stockholder. The term “business combination” is broadly defined to include a wide variety of transactions, including mergers, consolidations, sales of 5% or more of a corporation’s assets and various other transactions that may benefit an interested stockholder.
The NGCL also prohibits an acquirer, under certain circumstances, from voting shares of a target corporation’s stock after crossing certain threshold ownership percentages, unless the acquirer obtains the approval of the target corporation’s stockholders. The relevant threshold ownership percentages of the voting power of the corporation in the election of directors are: one-fifth or more but less than one-third, one-third or more but less than a majority, and a majority or more. Once an acquirer crosses one of these thresholds, those shares acquired in an offer or acquisition and those shares acquired within the preceding ninety days become control shares and such control shares are deprived of the right to vote until disinterested stockholders restore the right. This provision will not apply if the articles of incorporation or bylaws of the target corporation in effect on the tenth day following the acquisition of a controlling interest provides that this provision does not apply.
The NGCL also provides that, unless otherwise provided in the corporation’s articles or bylaws in effect on the tenth day following the acquisition of a controlling interest, in the event control shares are accorded full voting rights and the acquirer has acquired a majority or more of all voting power, all other stockholders who do not vote in favor of authorizing voting rights for the control shares may dissent, in accordance with the Nevada statutory procedures dealing with dissenters’ rights, and obtain payment of the fair value of their shares.
This statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us.
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SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of our common stock in the public market, including shares issued upon exercise of outstanding options and warrants, or the anticipation of these sales, could adversely affect prevailing market prices from time to time and could impair our ability to raise equity capital in the future.
Based on the number of shares of common stock outstanding as of , 2016, after giving pro forma effect to the closing of this offering we will have shares of common stock outstanding, assuming (1) no exercise of the underwriters’ option to purchase additional shares of common stock and (2) no exercise of outstanding options or warrants. Of those shares, all of the shares sold in this offering will be freely tradable, except that any shares held by our “affiliates,”criteria as that term is defined in Rule 144 under the Securities Act, or Rule 144, may only be sold in compliance with the limitations described below.
Rule 144
In general, under Rule 144, any person who is not our affiliate and has held their shares for at least six months, including the holding period of any prior owner other than one of our affiliates, may sell shares without restriction, subject to the availability of current public information about us. In addition, under Rule 144, any person who is not an affiliate of ours and has held their shares for at least one year, including the holding period of any prior owner other than one of our affiliates, would be entitled to sell an unlimited number of shares without regard to whether current public information about us is available. A person who is our affiliate or who was our affiliate at any time during the preceding three months, and who has beneficially owned restricted securities for at least six months, including the holding period of any prior owner other than one of our affiliates, is entitled to sell a number of shares within any three-month period that does not exceed the greater of:
• 1%5605(a)(2) of the number of shares of our common stock then outstanding, which will equal approximately [•] shares immediately after this offering; orNASDAQ listing standards.
• the average weekly trading volume of our common stock on the NASDAQ Capital Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.
Sales under Rule 144 by our affiliates are also subject to manner of sale provisions and notice requirements, and to the availability of current public information about us.
Options and Warrants
As of August 29, 2016, options to purchase a total of 622,500 shares of common stock were outstanding, of which were vested. OfMarch 31, 2019, the total number of shares of our common stock issuableBoard determined that the following directors are independent under these options, all are subject to contractual lock-up agreements with the underwriters described below, and will become eligible for sale subject to Rule 144 at the expiration of those agreements.standards: As of August 29, 2016, warrants to purchase a total of 667,542 shares of common stock were outstanding. Upon the exercise of outstanding warrants, shares will become eligible for sale subject to Rule 144.
John Tuntland Tom Minichiello Lock-Up Agreements
Our directors and executive officers and certain stockholders have agreed with the underwriters that for a period of 180 days after the date of this prospectus in the case of directors and executive officers, and 90 days after the date of this prospectus in the case of our principal stockholders, except with the prior written consent of the representatives and subject to specified exceptions, we or they will not offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock, or enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock. Following the expiration of the lock-up agreements, shares will become eligible for sale subject to Rule 144.
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UNDERWRITING
Joseph Gunnar & Co., LLC is acting as representative of the underwriters (the “Representative”). Subject to the terms and conditions of an underwriting agreement between us and the Representative, we have agreed to sell to each underwriter named below, and each underwriter named below has severally agreed to purchase, at the public offering price less the underwriting discounts set forth on the cover page of this prospectus, the number of shares of common stock and warrants listed next to its name in the following table:
| | | | | Joseph Gunnar & Co., LLC
| | | | | Total
| | | | |
The underwriters are committed to purchase all the shares of common stock and warrants offered by us if they purchase any shares of common stock and warrants. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated. The underwriters are not obligated to purchase the shares of common stock and/or warrants covered by the underwriters’ over-allotment option described below. The underwriters are offering the shares of common stock and warrants, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer’s certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
Discounts and Commissions
The underwriters propose initially to offer the shares of common stock and warrants to the public at the public offering price set forth on the cover page of this prospectus and to dealers at those prices less a concession not in excess of $[ ] per share of common stock and warrant. If all of the shares of common stock and warrants offered by us are not sold at the public offering price, the underwriters may change the offering price and other selling terms by means of a supplement to this prospectus.
The following table shows the public offering price, underwriting discounts and commissions and proceeds before expenses to us. The information assumes either no exercise or full exercise of the over-allotment option we granted to the representatives of the underwriters.
| | Per Combined Share and Warrant
| | Total Without Over-Allotment Option
| | Total With Full Over-Allotment Option
| Public offering price
| | $
| | | $
| | | $
| | Underwriting discount
| | $
| | | $
| | | $
| | Proceeds, before expenses, to us
| | $
| | | $
| | | $
| |
We have agreed to pay a non-accountable expense allowance to the representative of the underwriters equal to 1% of the gross proceeds received at the closing of the offering. We have paid an expense deposit of $30,000 to the representative, which will be applied against the out-of-pocket accountable expenses that will be paid by us to the underwriters in connection with this offering, and will be reimbursed to us to the extent not actually incurred in compliance with FINRA Rule 5110(f)(2)(C).
We have also agreed to pay the representative’s expenses relating to the offering, including (a) all actual filing fees incurred in connection with the review of this offering by the Financial Industry Regulatory Authority, or FINRA; (b) all fees, expenses and disbursements relating to background checks of our officers and directors in an amount not to exceed $15,000 in the aggregate; (c) the costs associated with bound volumes of the public offering materials as well as commemorative mementos and lucite tombstones; (d) the fees and expenses of the representative’s legal counsel not to exceed $75,000; (e) $29,500 for the underwriters’ use of Ipreo’s book-building, prospectus tracking and compliance software for this offering; and (f) up to $20,000 of the representative’s actual accountable road show expenses for the offering.
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The total estimated expenses of the offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding underwriting discounts, commissions and expenses, are approximately $_______and are payable by us.
Over-Allotment Option
We have granted a 45-day option to the representative of the underwriters to purchase up to _____ additional shares of our common stock at a public offering price of $___ per share and/or warrants to purchase _______ shares of our common stock at a public offering price of $______ per warrant, solely to cover over-allotments, if any.
The underwriters may exercise this option for 45 days from the date of this prospectus solely to cover sales of shares of common stock and/or warrants by the underwriters in excess of the total number of shares of common stock and/or warrants set forth in the table above. If any of these additional shares and/or warrants are purchased, the underwriters will offer the additional shares and/or warrants on the same terms as those on which the shares and warrants are being offered. We will pay the expenses associated with the exercise of the over-allotment option.
Representatives’ Warrants
We have agreed to issue to the representative the representative’s warrants to purchase up to ______ shares of common stock (5% of the shares of common stock and shares of common stock underlying warrants sold in this offering, plus 5% of any shares of common stock and/or warrants sold upon exercise of the over-allotment option, if any). We are registering hereby the issuance of the representative’s warrants and the shares of common stock issuable upon exercise of the warrants. The representative’s warrants will be exercisable at any time, and from time to time, in whole or in part, during the four-year period commencing one year from the effective date of the registration statement at a per share exercise price equal to 125% of the public offering price per share of common stock in the offering. The representative’s warrants and the shares of common stock underlying the warrants have been deemed compensation by FINRA and are, therefore, subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. The representatives (or permitted assignees under the Rule) will not sell, transfer, assign, pledge or hypothecate these warrants or the securities underlying these warrants, nor will it engage in any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of these warrants or the underlying securities for a period of 180 days after the effective date. The exercise price and number of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or our recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances of shares of common stock at a price below the warrant exercise price.
Lock-Up Agreements
Pursuant to “lock-up” agreements, we, our executive officers and directors, and certain of our stockholders, have agreed, without the prior written consent of the Representative not to directly or indirectly, offer to sell, sell, pledge or otherwise transfer or dispose of any of shares of (or enter into any transaction or device that is designed to, or could be expected to, result in the transfer or disposition by any person at any time in the future of) our common stock, enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of shares of our common stock, make any demand for or exercise any right or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any shares of common stock or securities convertible into or exercisable or exchangeable for common stock or any other securities of the Company or publicly disclose the intention to do any of the foregoing, subject to customary exceptions, for a period of 180 days from the date of this prospectus, in the case of our directors and officers, and 90 days from the date of this prospectus, in the case of our principal stockholders.
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Right of First Refusal
We have granted the representatives a right of first refusal, for a period of twenty four months from the commencement of sales of the offering, to act as sole and exclusive investment banker, book-runner, financial advisor, underwriter and/or placement agent, at the Representative’s sole and exclusive discretion, for each and every future public and private equity and debt offering, including all equity linked financings (each, a “Subject Transaction”), during such twenty-four (24) month period, of the Company, or any successor to or subsidiary of the Company, on terms and conditions customary to the Representative for such Subject Transactions.
Indemnification
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make for these liabilities.
OTCQB and NASDAQ
Our shares of common are quoted on the OTCQB under the symbol “SFHI.” We intend to apply to list our common stock and warrants on The NASDAQ under the symbol “SFHI” and “SFHIW,” respectively, prior to the completion of this offering. No assurance can be given that such listings will be approved; however, it is a condition of the underwriters’ obligation that our shares of common stock and warrants have been approved for listing on The NASDAQ.
Price Stabilization, Short Positions and Penalty Bids
In order to facilitate the offering of our securities, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our securities. In connection with the offering, the underwriters may purchase and sell our securities in the open market. These transactions may include short sales, purchases on the open market to cover positions created by short sales and stabilizing transactions. Short sales involve the sale by the underwriters of a greater number of shares of securities than they are required to purchase in the offering. “Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional shares of securities in the offering. The underwriters may close out any covered short position by either exercising the over-allotment option or purchasing shares of securities in the open market. In determining the source of shares of securities to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. “Naked” short sales are sales in excess of the over-allotment option. The underwriters must close out any naked short position by purchasing securities in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of our securities in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of shares of securities made by the underwriters in the open market before the completion of the offering.
Similar to other purchase transactions, the underwriters’ purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our securities or preventing or retarding a decline in the market price of our securities. As result, the price of our securities may be higher than the price that might otherwise exist in the open market.
The underwriters have advised us that, pursuant to Regulation M under the Exchange Act, they may also engage in other activities that stabilize, maintain or otherwise affect the price of our securities, including the imposition of penalty bids. This means that if the representative of the underwriters purchases securities in the open market in stabilizing transactions or to cover short sales, the representative can require the underwriters that sold those shares as part of this offering to repay the underwriting discount received by them.
The underwriters make no representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our securities. In addition, neither we nor the
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underwriters make any representation that the underwriters will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
Electronic Offer, Sale and Distribution of Shares
A prospectus in electronic format may be made available on the websites maintained by one or more underwriters or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares of securities to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representative to underwriters and selling group members that may make internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on the underwriters’ websites and any information contained in any other website maintained by the underwriters is not part of this prospectus or the registration statement of which this prospectus forms a part.
Other Relationships
From time to time, certain of the underwriters and their affiliates have provided, and may provide in the future, various advisory, investment and commercial banking and other services to us in the ordinary course of business, for which they have received and may continue to receive customary fees and commissions. However, except as disclosed in this prospectus, we have no present arrangements with any of the underwriters for any further services.
Offer Restrictions Outside the United States
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
Australia
This prospectus is not a disclosure document under Chapter 6D of the Australian Corporations Act, has not been lodged with the Australian Securities and Investments Commission and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian Corporations Act. Accordingly, (i) the offer of the securities under this prospectus is only made to persons to whom it is lawful to offer the securities without disclosure under Chapter 6D of the Australian Corporations Act under one or more exemptions set out in section 708 of the Australian Corporations Act, (ii) this prospectus is made available in Australia only to those persons as set forth in clause (i) above, and (iii) the offeree must be sent a notice stating in substance that by accepting this offer, the offeree represents that the offeree is such a person as set forth in clause (i) above, and, unless permitted under the Australian Corporations Act, agrees not to sell or offer for sale within Australia any of the securities sold to the offeree within 12 months after its transfer to the offeree under this prospectus.
Canada
The securities may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws. Securities legislation in certain provinces or
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territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor. Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
China
The information in this document does not constitute a public offer of the securities, whether by way of sale or subscription, in the People’s Republic of China (excluding, for purposes of this paragraph, Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan). The securities may not be offered or sold directly or indirectly in the PRC to legal or natural persons other than directly to “qualified domestic institutional investors.”
European Economic Area — Belgium, Germany, Luxembourg and Netherlands
The information in this document has been prepared on the basis that all offers of securities will be made pursuant to an exemption under the Directive 2003/71/EC (“Prospectus Directive”), as implemented in Member States of the European Economic Area (each, a “Relevant Member State”), from the requirement to produce a prospectus for offers of securities.
An offer to the public of securities has not been made, and may not be made, in a Relevant Member State except pursuant to one of the following exemptions under the Prospectus Directive as implemented in that Relevant Member State:
(a) to legal entities that are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;
(b) to any legal entity that has two or more of (i) an average of at least 250 employees during its last fiscal year; (ii) a total balance sheet of more than €43,000,000 (as shown on its last annual unconsolidated or consolidated financial statements) and (iii) an annual net turnover of more than €50,000,000 (as shown on its last annual unconsolidated or consolidated financial statements);
(c) to fewer than 100 natural or legal persons (other than qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive) subject to obtaining the prior consent of the Company or any underwriter for any such offer; or
(d) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of securities shall result in a requirement for the publication by the Company of a prospectus pursuant to Article 3 of the Prospectus Directive.
France
This document is not being distributed in the context of a public offering of financial securities (offre au public de titres financiers) in France within the meaning of Article L.411-1 of the French Monetary and Financial Code (Code monétaire et financier) and Articles 211-1 et seq. of the General Regulation of the French Autorité des marchés financiers (“AMF”). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France.
This document and any other offering material relating to the securities have not been, and will not be, submitted to the AMF for approval in France and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in France.
Such offers, sales and distributions have been and shall only be made in France to (i) qualified investors (investisseurs qualifiés) acting for their own account, as defined in and in accordance with
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Articles L.411-2-II-2° and D.411-1 to D.411-3, D. 744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation and/or (ii) a restricted number of non-qualified investors (cercle restreint d’investisseurs) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-4, D.744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation.
Pursuant to Article 211-3 of the General Regulation of the AMF, investors in France are informed that the securities cannot be distributed (directly or indirectly) to the public by the investors otherwise than in accordance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the French Monetary and Financial Code.
Ireland
The information in this document does not constitute a prospectus under any Irish laws or regulations and this document has not been filed with or approved by any Irish regulatory authority as the information has not been prepared in the context of a public offering of securities in Ireland within the meaning of the Irish Prospectus (Directive 2003/71/EC) Regulations 2005 (the “Prospectus Regulations”). The securities have not been offered or sold, and will not be offered, sold or delivered directly or indirectly in Ireland by way of a public offering, except to (i) qualified investors as defined in Regulation 2(l) of the Prospectus Regulations and (ii) fewer than 100 natural or legal persons who are not qualified investors.
Israel
The securities offered by this prospectus have not been approved or disapproved by the Israeli Securities Authority (the ISA), nor have such securities been registered for sale in Israel. The shares may not be offered or sold, directly or indirectly, to the public in Israel, absent the publication of a prospectus. The ISA has not issued permits, approvals or licenses in connection with the offering or publishing the prospectus; nor has it authenticated the details included herein, confirmed their reliability or completeness, or rendered an opinion as to the quality of the securities being offered. Any resale in Israel, directly or indirectly, to the public of the securities offered by this prospectus is subject to restrictions on transferability and must be effected only in compliance with the Israeli securities laws and regulations.
Italy
The offering of the securities in the Republic of Italy has not been authorized by the Italian Securities and Exchange Commission (Commissione Nazionale per le Societ—$$—Aga e la Borsa, “CONSOB” pursuant to the Italian securities legislation and, accordingly, no offering material relating to the securities may be distributed in Italy and such securities may not be offered or sold in Italy in a public offer within the meaning of Article 1.1(t) of Legislative Decree No. 58 of 24 February 1998 (“Decree No. 58”), other than:
• to Italian qualified investors, as defined in Article 100 of Decree no.58 by reference to Article 34-ter of CONSOB Regulation no. 11971 of 14 May 1999 (“Regulation no. 1197l”) as amended (“Qualified Investors”); and
• in other circumstances that are exempt from the rules on public offer pursuant to Article 100 of Decree No. 58 and Article 34-ter of Regulation No. 11971 as amended.
Any offer, sale or delivery of the securities or distribution of any offer document relating to the securities in Italy (excluding placements where a Qualified Investor solicits an offer from the issuer) under the paragraphs above must be:
• made by investment firms, banks or financial intermediaries permitted to conduct such activities in Italy in accordance with Legislative Decree No. 385 of 1 September 1993 (as amended), Decree No. 58, CONSOB Regulation No. 16190 of 29 October 2007 and any other applicable laws; and
• in compliance with all relevant Italian securities, tax and exchange controls and any other applicable laws.
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Any subsequent distribution of the securities in Italy must be made in compliance with the public offer and prospectus requirement rules provided under Decree No. 58 and the Regulation No. 11971 as amended, unless an exception from those rules applies. Failure to comply with such rules may result in the sale of such securities being declared null and void and in the liability of the entity transferring the securities for any damages suffered by the investors.
Japan
The securities have not been and will not be registered under Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948), as amended (the “FIEL”) pursuant to an exemption from the registration requirements applicable to a private placement of securities to Qualified Institutional Investors (as defined in and in accordance with Article 2, paragraph 3 of the FIEL and the regulations promulgated thereunder). Accordingly, the securities may not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan other than Qualified Institutional Investors. Any Qualified Institutional Investor who acquires securities may not resell them to any person in Japan that is not a Qualified Institutional Investor, and acquisition by any such person of securities is conditional upon the execution of an agreement to that effect.
Portugal
This document is not being distributed in the context of a public offer of financial securities (oferta pública de valores mobiliários) in Portugal, within the meaning of Article 109 of the Portuguese Securities Code (Código dos Valores Mobiliários). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in Portugal. This document and any other offering material relating to the securities have not been, and will not be, submitted to the Portuguese Securities Market Commission (Comissão do Mercado de Valores Mobiliários) for approval in Portugal and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in Portugal, other than under circumstances that are deemed not to qualify as a public offer under the Portuguese Securities Code. Such offers, sales and distributions of securities in Portugal are limited to persons who are “qualified investors” (as defined in the Portuguese Securities Code). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.
Sweden
This document has not been, and will not be, registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this document may not be made available, nor may the securities be offered for sale in Sweden, other than under circumstances that are deemed not to require a prospectus under the Swedish Financial Instruments Trading Act (1991:980) (Sw. lag (1991:980) om handel med finansiella instrument). Any offering of securities in Sweden is limited to persons who are “qualified investors” (as defined in the Financial Instruments Trading Act). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.
Switzerland
The securities may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering material relating to the securities may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering material relating to the securities have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market Supervisory Authority (FINMA).
This document is personal to the recipient only and not for general circulation in Switzerland.
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United Arab Emirates
Neither this document nor the securities have been approved, disapproved or passed on in any way by the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates, nor has the Company received authorization or licensing from the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates to market or sell the securities within the United Arab Emirates. This document does not constitute and may not be used for the purpose of an offer or invitation. No services relating to the securities, including the receipt of applications and/or the allotment or redemption of such shares, may be rendered within the United Arab Emirates by the Company.
No offer or invitation to subscribe for securities is valid or permitted in the Dubai International Financial Centre.
United Kingdom
Neither the information in this document nor any other document relating to the offer has been delivered for approval to the Financial Services Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended (“FSMA”)) has been published or is intended to be published in respect of the securities. This document is issued on a confidential basis to “qualified investors” (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the securities may not be offered or sold in the United Kingdom by means of this document, any accompanying letter or any other document, except in circumstances which do not require the publication of a prospectus pursuant to section 86(1) FSMA. This document should not be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person in the United Kingdom.
Any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received in connection with the issue or sale of the securities has only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United Kingdom in circumstances in which section 21(1) of FSMA does not apply to the Company.
In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (“FPO”), (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (together “relevant persons”). The investments to which this document relates are available only to, and any invitation, offer or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.
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LEGAL MATTERS
The validity of the securities offered hereby has been passed upon for us by Lucosky Brookman LLP. Certain legal matters in connection with this offering have been passed upon for the underwriters by Ellenoff Grossman & Schole LLP, New York, New York.
EXPERTS
Our consolidated balance sheet as of December 31, 2015 and December 31, 2014, respectively, and the related consolidated statements of operations, comprehensive loss, statements of stockholders’ equity (deficit), and statements of cash flows for the periods ended December 31, 2015 and December 31, 2014, respectively, have been audited by Rosenberg Rich Baker Berman & Company, an independent registered public accounting firm, as set forth in its report appearing herein and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the securities offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information in the registration statement and the exhibits of the registration statement. For further information with respect to us and the securities being offered under this prospectus, we refer you to the registration statement, including the exhibits and schedules thereto.
You may read and copy the registration statement of which this prospectus is a part at the SEC’s Public Reference Room, which is located at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of the registration statement by writing to the SEC and paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for more information about the operation of the SEC’s Public Reference Room. In addition, the SEC maintains an Internet web site, which is located atwww.sec.gov, which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. You may access the registration statement of which this prospectus is a part at the SEC’s Internet web site. We are subject to the information reporting requirements of the Exchange Act, and we will file reports, proxy statements and other information with the SEC.
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SPORTS FIELD HOLDINGS, INC
CONDENSED CONSOLIDATEDINDEX TO FINANCIAL STATEMENTS
| | Page No. | | | | | Condensed Consolidated Interim Financial Statements: | | | Condensed Consolidated Balance Sheets as of June 30, 2016March 31, 2019 (Unaudited) and
December 31, 20152018 | | F-2 | Unaudited Condensed Consolidated Statement of Operations – For the Three Months Ended March 31, 2019 and 2018 | | F-3 | Unaudited Condensed Consolidated Statements of Operations forStockholders’ Deficit – For the Three Months Ended March 31, 2019 and Six Months ended June 30, 2016 and 20152018 | | F-3
F-4 | Unaudited Condensed Consolidated Statements of Cash Flows for– For the SixThree Months ended June 30, 2016Ended March 31, 2019 and 2015 2018 | | F-4
F-5 | Notes to the Unaudited Condensed Consolidated Financial Statements | | F-5
F-6 | | | | Audited Financial Statements: | | | | Report of Independent Registered Public Accounting Firm | | F-25
F-24 | Consolidated Balance Sheets as of December 31, 20152018 and 2014 2017 | | F-26
F-25 | Consolidated Statements of Operations for– For the Year endedYears Ended December 31, 20152018 and 2014 2017 | | F-27
F-26 | Consolidated Statements of Stockholders’ Equity (Deficit) forDeficit – For the Years endedEnded December 31, 20152018 and 2014 2017 | | F-28
F-27 | Consolidated Statements of Cash Flows for– For the Years endedEnded December 31, 20152018 and 2014 2017 | | F-29
F-28 | Notes to Consolidated Financial Statements | | F-31
F-29 |
F-1PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. SPORTS FIELD HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS | | | | | | | (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 | |
| | | March 31, 2019 | | | December 31, 2018 | | | | | Unaudited | | | | | | ASSETS | | | | | | | | | | Current Assets | | | | | | | | | | Cash | | $ | 92,396 | | | $ | 247 | | | Restricted Cash | | | - | | | | 81,686 | | | Accounts Receivable | | | 109,501 | | | | 244,801 | | | Contract Assets | | | 1,670,361 | | | | 363,396 | | | Prepaid Expenses and Other Current Assets | | | 138,242 | | | | 79,965 | | | Total Current Assets | | | 2,010,500 | | | | 770,095 | | | Property, Plant and Equipment, net | | | 14,837 | | | | 19,567 | | | Deposits | | | 2,090 | | | | 2,090 | | | TOTAL ASSETS | | $ | 2,027,427 | | | $ | 791,752 | | | | | | | | | | | | | LIABILITIES & STOCKHOLDERS’ DEFICIT | | | | | | | | | | Liabilities | | | | | | | | | | Current Liabilities | | | | | | | | | | Accounts Payable and Accrued Expenses | | $ | 5,695,560 | | | $ | 5,521,325 | | | Contract liabilities | | | 2,382,050 | | | | 2,212,258 | | | Promissory Notes | | | 775,505 | | | | 592,846 | | | Derivative Liability | | | 116,100 | | | | 131,100 | | | Convertible Notes | | | 339,358 | | | | 339,358 | | | Total Current Liabilities | | | 9,308,573 | | | | 8,526,887 | | | Promissory notes, net of current portion | | | 965,739 | | | | 930,592 | | | Total Liabilities | | | 10,274,312 | | | | 9,457,479 | | | | | | | | | | | | | Commitment and Contingencies | | | | | | | | | | | | | | | | | | | | Stockholders’ Deficit | | | | | | | | | | 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, 23,313,173 and 19,180,063 issued and outstanding as of March 31, 2019 and December 31, 2018, respectively | | | 233 | | | | 192 | | | Paid in Capital | | | 11,331,604 | | | | 10,900,611 | | | Accumulated Deficit | | | (19,578,722 | ) | | | (19,566,530 | ) | | Total Stockholders’ Deficit | | | (8,246,885 | ) | | | (8,665,727 | ) | | TOTAL LIABILITIES & STOCKHOLDERS’ DEFICIT | | $ | 2,027,427 | | | $ | 791,752 | |
See the accompanying notes to these condensed consolidated financial statements F-2statements.
SPORTS FIELD HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTSSTATEMENT OF OPERATIONS
(Unaudited) | | Three Months Ended
June 30, | | | | | | | | | | | | 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 | |
| | | Three Months Ended
March 31, 2019 | | | Three Months Ended
March 31, 2018 | | | Revenue | | | | | | | | Contract revenue | | $ | 2,448,258 | | | $ | 762,546 | | | Total revenue | | | 2,448,258 | | | | 762,546 | | | | | | | | | | | | | Cost of Sales | | | | | | | | | | Contract cost of sales | | | 1,917,248 | | | | 611,564 | | | Total cost of sales | | | 1,917,248 | | | | 611,564 | | | | | | | | | | | | | Gross Profit | | | 531,010 | | | | 150,982 | | | | | | | | | | | | | Operating expenses | | | | | | | | | | Selling, general and administrative | | | 503,889 | | | | 608,374 | | | Research and development | | | - | | | | 189 | | | Depreciation | | | 4,730 | | | | 1,014 | | | Total operating expenses | | | 508,619 | | | | 609,577 | | | | | | | | | | | | | Income (loss) from operations | | | 22,391 | | | | (458,595 | ) | | | | | | | | | | | | Other income (expense) | | | | | | | | | | Interest | | | (76,922 | ) | | | (64,995 | ) | | Gain from change in value of derivative | | | 15,000 | | | | (50,300 | ) | | Miscellaneous income | | | 27,339 | | | | 2,000 | | | Total other income (expense) | | | (34,583 | ) | | | (113,255 | ) | | | | | | | | | | | | Loss before income taxes | | | (12,192 | ) | | | (571,850 | ) | | | | | | | | | | | | Provision for income taxes | | | - | | | | - | | | | | | | | | | | | | Net loss | | $ | (12,192 | ) | | $ | (571,850 | ) | | | | | | | | | | | | Net loss per common share, basic and diluted | | $ | (0.00 | ) | | $ | (0.03 | ) | | | | | | | | | | | | Weighted average common shares, basic and diluted | | | 20,964,511 | | | | 17,419,536 | |
See the accompanying notes to these condensed consolidated financial statementsstatements. SPORTS FIELD HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)STOCKHOLDERS’ DEFICIT | | | | | | | | 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 | | | $ | — | |
FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND MARCH 31, 2018
(UNAUDITED) | | | | | | | | | | | | | | | Additional | | | Common | | | | | | | | | | | Preferred stock | | | Common stock | | | Paid in | | | Stock | | | Accumulated | | | | | | | | Shares | | | Par Value | | | Shares | | | Par Value | | | Capital | | | Subscription | | | Deficit | | | Total | | | Balance, December 31, 2017 | | | - | | | $ | - | | | | 17,403,527 | | | $ | 174 | | | | 10,593,735 | | | $ | (4,500 | ) | | $ | (15,823,096 | ) | | $ | (5,233,687 | ) | | Shares issued for services | | | - | | | | - | | | | 52,932 | | | | 1 | | | | 15,086 | | | | - | | | | - | | | | 15,086 | | | Stock compensation | | | - | | | | - | | | | - | | | | - | | | | 483 | | | | - | | | | - | | | | 483 | | | Write Off Subscription | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | Shares issued in a private offering- net proceeds | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (571,850 | ) | | | (571,850 | ) | | Balance, March 31, 2018 | | | | | | | | | | | 17,456,459 | | | | 175 | | | | 10,609,304 | | | | (4,500 | ) | | | (16,394,946 | ) | | | (5,789,968 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2018 | | | - | | | | - | | | | 19,180,063 | | | | 192 | | | | 10,900,611 | | | | - | | | | (19,566,530 | ) | | | (8,665,727 | ) | | Shares issued for services | | | - | | | | - | | | | 33,110 | | | | 0 | | | | 12,616 | | | | - | | | | - | | | | 12,616 | | Stock
compensation | | | - | | | | - | | | | - | | | | - | | | | 8,418 | | | | - | | | | - | | | | 8,418 | | | Shares issued in a private offering- net proceeds | | | - | | | | - | | | | 4,100,000 | | | | 41 | | | | 409,959 | | | | - | | | | - | | | | 410,000 | | | Net loss | | | - | | | | - | | | | | | | | - | | | | - | | | | - | | | | (12,192 | ) | | | (12,192 | ) | | Balance, March 31, 2019 | | | - | | | $ | - | | | | 23,313,173 | | | $ | 233 | | | $ | 11,331,604 | | | $ | - | | | $ | (19,578,722 | ) | | $ | (8,246,885 | ) |
See the accompanying notes to these condensed consolidated financial statementsstatements. SPORTS FIELD HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited | | | Three Months Ended
March 31, 2019 | | | Three Months Ended
March 31, 2018 | | | CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | | | Net loss | | $ | (12,192 | ) | | $ | (571,850 | ) | | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | Depreciation | | | 4,730 | | | | 1,014 | | | Amortization of debt discount | | | - | | | | 2,308 | | | Share based compensation | | | 21,034 | | | | 15,569 | | | Loss (gain) on derivative | | | (15,000 | ) | | | 50,300 | | | Changes in Operating Assets and Liabilities: | | | | | | | | | | Accounts receivable | | | 135,300 | | | | (182,732 | ) | | Prepaid expense and other current assets | | | 71,484 | | | | 47,950 | | | Accounts payable and accrued expenses | | | 578,236 | | | | 123,312 | | | Contract assets | | | (1,306,965 | ) | | | 211,695 | | | Contract liabilities | | | 169,792 | | | | (131,465 | ) | | | | | | | | | | | | Net cash used in operating activities | | | (353,581 | ) | | | (433,899 | ) | | | | | | | | | | | | CASH FLOWS FORM FINANCING ACTIVITIES | | | | | | | | | | Repayments of promissory notes | | | (45,956 | ) | | | (90,420 | ) | | Proceeds of convertible notes | | | - | | | | 250,000 | | | Proceeds from private placement | | | 410,000 | | | | - | | | Net cash provided by financing activities | | | 364,044 | | | | 159,580 | | | | | | | | | | | | | | | | | | | | | | | Increase (decrease) in cash and restricted cash | | | 10,463 | | | | (274,319 | ) | | Cash and restricted cash, beginning of period | | | 81,933 | | | | 281,662 | | | Cash and restricted cash, end of period | | $ | 92,396 | | | $ | 7,343 | | | | | | | | | | | | | Supplemental disclosures of cash flow information: | | | | | | | | | | Cash paid during the period for: | | | | | | | | | | Interest | | $ | 76,922 | | | $ | 38,829 | | | Taxes | | $ | - | | | $ | - | | | | | | | | | | | | | Non-cash Investing and financing activities: | | | | | | | | | | Notes issued for insurance premiums | | $ | 129,761 | | | $ | 78,349 | | | Payables converted to promissory note | | $ | 134,000 | | | $ | - | |
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”(“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 Company is headquartered at 1020 Cedar Ave, Suite 200, St. Charles, IL 60174. NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation 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, 2016March 31, 2019, 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.March 31, 2019. The results of operations for the three and six months ended June 30, 2016March 31, 2019 are not necessarily indicative of the operating results for the full year ending December 31, 20162019 or any other period. The condensed consolidated balance sheet as of December 31, 2018, has been derived from audited financial statements but does not include all information required by GAAP for complete financial statements. 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, 20152018 and for the year then ended, which were filed with the Securities and Exchange Commission (“SEC”) on Form 10-K on April 12, 2016.16, 2019. 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 AmericaU.S. GAAP 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 reporting periods. Actual results could differ from those estimates. The Company’s significant estimates and assumptions include the accounts receivable allowance for doubtful accounts, warranty reserve, percentage of completion revenue recognition method, the useful life of fixed assets and assumptions used in the fair value of stock-based compensation.compensation, valuation of derivative liabilities and the valuation allowance relating to the Company’s deferred tax assets. Revenues and Cost Recognition Revenues
Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue. The Company generates revenue from fixed-price contracts, where revenue is recognized over time as work is completed because of the continuous transfer of control to the customer (typically using an input measure such as costs incurred to date relative to total estimated costs at completion to measure progress). Costs to obtain contracts are generally not significant and are expensed in the period incurred. The Company has determined that these construction projects provide a distinct service and therefore qualify as one performance obligation. Revenue from fixed-price contracts provide for a fixed amount of revenue for the entire project, and any changes to the scope of the project is addressed in a change order, which is treated as a modification of the original contract. To determine the proper revenue recognition method for contracts, the Company evaluates whether two or more contracts should be combined and accounted for as one single performance obligation and whether a single contract should be accounted for as more than one performance obligation. ASU 2014-09 defines a performance obligation as a contractual promise to transfer a distinct good or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s evaluation requires judgment and the decision to combine a group of contracts or separate a contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period. To date, all of the Company’s contracts have a single performance obligation, as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contract and, therefore, is not distinct. However, if in the future the Company has contracts with multiple performance obligations, then the Company will allocate the contract’s transaction price to each performance obligation using the observable standalone selling price, if available, or alternatively the Company’s best estimate of the standalone selling price of each distinct performance obligation in the contract. Accounting for contracts involves the use of various techniques to estimate total transaction price and costs. For such contracts, transaction price, estimated cost at completion and total costs incurred to date are used to calculate revenue earned. Unforeseen events and circumstances can alter the estimate of the costs and potential profit associated with a particular contract. Total estimated costs, and thus contract revenue and income, can be impacted by changes in productivity, scheduling, the unit cost of labor, subcontracts, materials and equipment. Additionally, external factors such as weather, client needs, client delays in providing permits and approvals, labor availability, governmental regulation and politics may affect the progress of a project’s completion and thus the timing of revenue recognition. To the extent that original cost estimates are modified, estimated costs to complete increase, delivery schedules are delayed, or progress under a contract is otherwise impeded, cash flow, revenue recognition and profitability from a particular contract may be adversely affected. The nature of the Company’s contracts do not have variable consideration, such as liquidated damages, volume discounts, performance bonuses, incentive fees, and other terms that can either increase or decrease the transaction price. In contrast, the contracts are often modified to account for changes in contract specifications or requirements. Costs associated with contract modifications are included in contract revenue in the condensed consolidated statements of operationsestimated costs to complete the contracts and are recognized undertreated as project costs when incurred. In most instances, contract modifications are for goods or services that are not distinct, and, therefore, are accounted for as part of the percentage-of-completion accounting method.existing contract. The percent complete is measured byeffect of a contract modification on the cost incurred to date compared totransaction price, and the estimated total cost of each project. This method is used as management considers expended cost to be the best available measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue on a cumulative catch-up basis. In some cases, settlement of contract modifications may not occur until after completion of work under the contract. As a significant change in one or more of these estimates could affect the profitability of its contracts, the majority of which are completed within one year, but may occasionally extend beyond one year. Inherent uncertaintiesCompany reviews and updates its contract-related estimates regularly. The Company recognizes adjustments in estimating costs make it at least reasonably possible thatestimated profit on contracts under the estimates used will change withincumulative catch-up method. Under this method, the near term and over the lifecumulative impact 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.
F-5
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES(cont.)
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 areprofit adjustment is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on a contract, the projected loss is recognized in full in the period it is identified and recognized as an “Provision for Estimated Losses on Uncompleted Contracts” which they are determined.
Costs and estimated earningsis included in excess of billings are comprised principally of“Contract liabilities” on the Condensed Consolidated Balance Sheets. For contract revenue recognized over time, the Provision for Estimated Losses on contracts (onUncompleted Contracts is adjusted so that the percentage-of-completion method)gross profit 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. Billingsremains zero in excess of costs and estimated earnings represent billings in excess of revenues recognized.future periods.
Cash and Cash Equivalents
The Company considers all short-term highly liquid investments with a remaining maturityestimates the collectability of contract amounts at the datesame time that it estimates project costs. If the Company anticipates that there may be issues associated with the collectability of purchasethe full amount calculated as the transaction price, the Company may reduce the amount recognized as revenue to reflect the uncertainty associated with realization of three monthsthe eventual cash collection. The timing of when the Company bills its customers is generally dependent upon agreed-upon contractual terms, milestone billings based on the completion of certain phases of the work, or lesswhen services are provided. Sometimes, billing occurs subsequent to be cash equivalents. Asrevenue recognition, resulting in unbilled revenue, which is a contract asset. However, the Company sometimes receives advances or deposits from its customers before revenue is recognized, resulting in deferred revenue, which is a contract liability. For the three-months ended March 31, 2019 and 2018, revenues from contracts with customers is summarized by product category were as follows: | | | March 31, | | | | | 2019 | | | 2018 | | | Product Category | | | | | | | | | | Athletic fields and tracks | | $ | 1,900,413 | | | $ | 466,386 | | | Vertical construction | | | 547,845 | | | | 296,160 | | | Totals | | $ | 2,448,258 | | | $ | 762,546 | |
“Athletic fields and tracks” relates to the design, engineering and construction of June 30, 2016outdoor playing fields, running tracks and December 31, 2015related works, stadiums, scoreboards, dug outs, base and drainage work, and similar projects, while “Vertical construction” relates to the company did not have any cash equivalents.design, engineering and construction of an entire facility such as a dormitory, athletics facility, gymnasium, or a similar general construction project. Inventory Inventory is stated at the lower of cost (first-in, first out) or net realizable value and consists primarily of construction materials. 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. Leasehold improvements are amortized over the remaining life of the lease. 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. Leases The Company has elected not to value the ROU asset or liability due to the immaterial amount of the lease and the expense will be recorded on a straight-line basis until the end of the lease. Income Taxes Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss and credit carry-forwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. The differences relate primarily to net operating loss carryforward from date of acquisition and to the use of the cash basis of accounting for income tax purposes. The Company records an estimated valuation allowance on its deferred income tax assets if it is more likely than not that these deferred income tax assets will not be realized. The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company has not recorded any unrecognized tax benefits. 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. There were no concentrations of credit risk as March 31, 2019 and December 31, 2018. 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, 2016At March 31, 2019 and December 31, 2015, the Company’s accounts receivable balance was $187,202 and $151,168, respectively, and2018, the allowance for doubtful accounts iswas $0, in each period.respectively. F-6
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES(cont.)
Research and Development Research and development expenses are charged to operations as incurred. For the three months ended June 30, 2016March 31, 2019 and 2015,2018, the Company incurred research and development expenses of $28,674$0 and $0,$189, 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; thereforewarranty. The Company’s subcontractors provide a one (1) year warranty to the Company does not believeagainst defects in material or workmanship. The Company has accrued a warranty reserve is requiredof $50,000 and $50,000 as of June 30, 2016March 31, 2019 and December 31, 2015.2018, respectively which is included in accounts payable and accrued expenses on the consolidated balance sheets. See Note 4 for warranty expenses incurred during for the three months ended March 31, 2019 and 2018. Fair Value of Financial Instruments The Company follows ASC 820-10 of the FASB Accounting Standards Codification subtopic 825-10, to measure the fair value of its financial instruments and disclosures about fair value of its financial instruments. ASC 820-10 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820-10 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by ASC 820-10 are described below: | Level 1 | | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
| Level 2 | | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. | | | | | Level 3 | | Pricing inputs that are generally unobservable inputs and not corroborated by market data. |
Financial Instruments (“ASC 825-10”) requires disclosureassets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, inventory, prepaid expenses and other current assets, accounts payable and accrued expenses, and certain notes payable approximate their fair values because of the short maturity of these instruments. Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. The Company’s Level 3 financial liabilities consist of the derivative conversion feature on a convertible note issued in 2016. The Company valued the conversion features using a Black Scholes model. These models incorporate transaction details such as the Company’s stock price, contractual terms, maturity, risk free rates, and volatility as of the date of issuance and each balance sheet date. The Company utilized the following management assumptions in valuing the derivative conversion feature at March 31, 2019 and December 31, 2018: | | | March 31,2019 | | | December 31, 2018 | | | Exercise price | | $ | 0.21 | | | $ | 0.38 | | | Expected dividends | | | 0 | % | | | 0 | % | | Expected volatility | | | 39.39 | % | | | 43.06 | % | | Risk fee interest rate | | | 2.4 | % | | | 2.63 | % | | Term | | | 1 year | | | | 1 year | |
Fair Value of Financial Assets and Liabilities Measured on a Recurring Basis The Company uses Level 3 of the fair value hierarchy to measure the fair value of certainthe derivative liabilities and revalues its derivative liability at every reporting period and recognizes gains or losses in the statements of operations that are attributable to the change in the fair value of the derivative liability. Financial assets and liabilities measured at fair value on a recurring basis are summarized below and disclosed on the balance sheets as follows: | | | Carrying | | | Fair Value Measurement Using | | | As of March 31, 2019 | | Value | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Derivative conversion feature on convertible note | | $ | 116,100 | | | $ | - | | | $ | - | | | $ | 116,100 | | | $ | 116,100 | |
| | | Carrying | | | Fair Value Measurement Using | | | As of December 31, 2018 | | Value | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Derivative conversion feature on convertible note | | $ | 131,100 | | | $ | - | | | $ | - | | | $ | 131,100 | | | $ | 131,100 | |
The unobservable level 3 inputs used by the Company was the expected volatility assumption used in the option pricing model. Expected volatility is based on the historical stock price volatility of comparable companies common stock, as our stock does not have sufficient historical trading activity. The table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the period December 31, 2016 through March 31, 2019: | | | Fair Value Measurement
Using Level 3 Inputs | | | | | Derivative conversion feature on convertible note | | | Total | | | | | | | | | | | Balance, December 31, 2016 | | $ | 204,300 | | | $ | 204,300 | | | Change in fair value | | | (120,100 | ) | | | (120,100 | ) | | Balance, December 31, 2017 | | | 84,200 | | | | 84,200 | | | Change in fair value | | | 46,900 | | | | 46,900 | | | Balance, December 31, 2018 | | | 131,100 | | | | 131,100 | | | Change in fair value | | | (15,000 | ) | | | (15,000 | ) | | Balance, March 31, 2019 | | $ | 116,100 | | | $ | 116,100 | |
Changes in the unobservable input values could potentially cause material changes in the fair value of the Company’s Level 3 financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities, and short-term borrowings, as reflectedsignificant unobservable inputs used in the balance sheets, approximate fair value because ofmeasurements is the short-term maturity of these instruments. All otherexpected volatility assumption. A significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosedincrease (decrease) in the financial statements together with other information relevant for makingexpected volatility assumption could potentially result in 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 tohigher (lower) fair value has been disclosed.measurement. 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 fairintrinsic 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. F-7
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES(cont.)
Net Income (Loss)Loss Per Common Share The Company computes basic net income (loss)loss per share by dividing net income (loss)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 sixthree months ended June 30, 2016March 31, 2019 and 2015,March 31, 2018, respectively, are as follows: | | | | | | | | 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
| | | March 31, 2019 | | | March 31, 2018 | | | | | | | | | | | Warrants | | | 183,338 | | | | 679,588 | | | Options | | | 1,947,500 | | | | 1,397,500 | | | Convertible Notes | | | 1,516,112 | | | | 3,134,825 | | | Totals | | | 3,646,950 | | | | 5,211,913 | |
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,March 31, 2019, the Company had three4 customers that in total represented 46%, 16% and 26%99% of the total revenue, the largest was 38% and forthe other three were 22%, 21% and 18% of revenue.For the three months ended June 30, 2015,March 31, 2018, the Company had two2 customers that represented 74%79% and 16%18% 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.
F-8
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)revenues.
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES(cont.)
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 AdoptedPronouncements During
In May 2014, the FASB issued ASUaccounting standard update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”Customers (Topic 606)” (“ASU 2014-09”), which requires entities to. The standard’s core principle is that a company will recognize revenue in a way that depicts the transfer ofwhen it transfers promised goods or services to customers in an amount that reflects the consideration to which the entitycompany expects to be entitled to in exchange for those goods or services. The new guidance also requires additional disclosure aboutIn doing so, companies will need to use more judgment and make more estimates than under previous guidance. This may include identifying performance obligations in the nature,contract, estimating the amount timingof variable consideration to include in the transaction price and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurredallocating the transaction price to obtain or fulfill a contract.each separate performance obligation. In July 2015, the FASB votedapproved the proposal to delaydefer the effective date of ASU 2014-09 standard by one year to the first quarter of 2018 to provide companies sufficient time to implement the standards.year. Early Adoption will beadoption was 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. F-9
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES(cont.)
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 the standard became effective for public entities for annual reporting periods beginning after December 15, 2017 and interim periods thereafter.therein. In 2016, the FASB issued final amendments to clarify the implementation guidance for principal versus agent considerations (ASU No. 2016-08), accounting for licenses of intellectual property and identifying performance obligations (ASU No. 2016-10), narrow-scope improvements and practical expedients (ASU No. 2016-12) and technical corrections and improvements to ASU 2014-09 (ASU No. 2016-20) in its new revenue standard. The Company has performed a review of the requirements of the new revenue standard and is monitoring the activity of the FASB and the transition resource group as it relates to specific interpretive guidance. The Company reviewed customer contracts, applied the five-step model of the new standard to its contracts, and compared the results to its current accounting practices. The Company has included disclosures required by the new standard and the adoption has not had a material impact on the financial statements.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments — Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). The standard addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is not permitted with the exception of certain provisions related to the presentation of other comprehensive income. The adoption of ASU 2014-15 is2016-01 did not expected to have a material impact on ourthe Company’s 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 updateASU 2016-02, Leases (Topic 842), (“ASU 2016-02”) and issued subsequent amendments to increase transparency and comparability among organizations by recognizing lease assetsthe initial guidance. This ASU requires an entity to recognize a right-of-use asset (“ROU”) and lease liabilitiesliability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on the balance sheetclassification as a finance or operating lease. Similar modifications have been made to lessor accounting in-line with revenue recognition guidance. The amendments also require certain quantitative and disclosing key informationqualitative disclosures about leasing arrangements. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The updated guidancenew standard is effective for the Company on January 1, 2019, with early adoption permitted. The Company has a single lease for $ 1,367 per month for office space, which lease expires in 2020. Accordingly, the Company has elected not to value the ROU asset or liability due to the immaterial amount of this lease and the expense will be recorded on a straight-line basis until the end of the lease. In August 2016, FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 clarifies the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. ASU 2016-15 is effective for fiscal years, and interim periods within those years beginning after December 15, 2017. The Company adopted ASU 2016-15 effective January 1, 2018 and it did not have a material impact on its financial statements. In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”) to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under this new guidance, modification accounting is required if the fair value, vesting conditions, or classification of the award changes as a result of the change in terms or conditions. ASU 2017-09 is effective for annual reporting periods beginning after December 15, 2018,2017, including interim reporting periods within those fiscal years. Earlyeach annual reporting period. The Company adopted ASU 2017-09 effective January 1, 2018 and it did not have a material impact on its financial statements. In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (ASC 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 simplifies the accounting for nonemployee share-based payment transactions. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The new standard will become effective for the Company beginning January 1, 2019, with early adoption ofpermitted. The Company adopted ASU 2018-07 effective January 1, 2019 and it did not have a material impact on its financial statements. In August 2018, the update isFASB issue ASU 2018-13, Fair Value Measurement (ASC 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The new standard will become effective for the Company January 1, 2020, with early adoption 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 principalstandard 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
F-10
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES(cont.)
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 condensedits consolidated financial position, results of operations or cash flows.statements and disclosures.
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 Our historical operating results indicate substantial doubt exists related to the Company’s ability to continue as a going concern. As reflected in the accompanying condensed consolidated financial statements, as of June 30, 2016March 31, 2019 the Company had a cash deficit of $(3,518) and a working capital deficit of $(2,272,290). Furthermore, the$7,298,073. The Company had a net loss and net cash used in operationslosses of $(2,144,962) and (1,393,016), respectively,$12,192 for the sixthree months ended June 30, 2016March 31, 2019 and $571,850 for the three months ended March 31, 2018, and had an accumulated deficit totaling $(12,414,480).of $19,578,722 at March 31, 2019. Substantially all of our accumulated deficit has resulted from losses incurred on construction projects, costs incurred in connection with our research and development and general and administrative costs associated with our operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.concern through May 20, 2020. The
We expect that for the next 12 months, our operating cash burn will be approximately $2.3 million, excluding repayments of existing debts in the aggregate amount of $1.1 million. Our cash requirements relate primarily to working capital needed to operate and grow our business, including funding operating expenses and continued development and expansion of our products/services. Our ability to achieve profitability and meet future liquidity needs and capital requirements will depend upon numerous factors, including the timing and size of awarded contracts; the Companytiming and amount of our operating expenses; the timing and costs of working capital needs; the timing and costs of expanding our sales team and business development opportunities; the timing and costs of developing a marketing program; the timing and costs of warranty and other post-implementation services; the timing and costs of hiring and training construction and administrative staff; the extent to which our brand and construction services gain market acceptance; the extent of our ongoing and any new research and development programs; and changes in our strategy or our planned activities. We have experienced and continue to experience negative cash flows from operations and we expect to continue its operations as a going concern is dependent on Management’s plans, which includeto incur net losses in 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.foreseeable future. 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. If we are not able to obtain financing when needed, we may be unable to carry out our business plan. As a result, we may have to significantly limit our operations and our business, financial condition and results of operations would be materially harmed. To date, we have funded our operational short-fall primarily through private offerings of common stock, convertible notes and promissory notes, our line of credit and factoring of receivables. 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, 2016March 31, 2019 and December 31, 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 | |
F-112018:
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| | | March 31, 2019 | | | December 31, 2018 | | | Costs incurred on contracts in progress | | $ | 21,944,769 | | | $ | 19,817,415 | | | Estimated earnings (losses) | | | 177,362 | | | | (378,469 | ) | | | | | 22,122,131 | | | | 19,438,946 | | | Less billings to date | | | (22,833,820 | ) | | | (21,287,808 | ) | | | | $ | (711,689 | ) | | $ | (1,848,862 | ) |
NOTE 4 — COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROCESS(cont.)
The above accounts are shown in the accompanying condensed consolidated balance sheet under these captions at June 30, 2016March 31, 2019 and December 31, 2015:2018: | | | | | 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
Contract assets consist of the following: | | | March 31, 2019 | | | December 31, 2018 | | | Costs and Estimated Earnings in Excess of Billings | | $ | 1,670,361 | | | $ | 363,396 | | | Inventory | | | - | | | | - | | | Contract Assets | | $ | 1,670,361 | | | $ | 363,396 | |
Contract assets increased by $1,306,965 compared to December 31, 2018 due primarily to an increase in project activity during the three months ended March 31, 2019. Contract liabilities consist of the following: | | | March 31, 2019 | | | December 31, 2018 | | | | | | | | | | | Billings in Excess of Costs and Estimated Earnings | | $ | 2,341,479 | | | $ | 1,961,580 | | | Provision for Estimated Losses on Uncompleted Contracts | | | 40,571 | | | | 250,678 | | | Contract Liabilities | | $ | 2,382,050 | | | $ | 2,212,258 | |
Contract liabilities increased $169,792 compared to December 31, 2018 primarily due to higher Billings in Excess of Costs & Estimated Earnings and increased project activity. During the three and six months ended June 30, 2016March 31, 2019 and 2018 the Company incurred costs of approximately $8,300$0 and $17,500,$0, 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,warranty. The Company’s subcontractors provide an 8 year warranty to the Company does not believeagainst defects in material or workmanship. The Company has accrued a warranty reserve is requiredof $50,000 and $50,000 as of June 30, 2016.March 31, 2019 and December 31, 2018, respectively which is included in accounts payable and accrued expenses on the consolidated balance sheets. NOTE 5 —– PROPERTY PLANT AND EQUIPMENT Property, plant and equipment consists of the following: | | | | | 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.
| | | March 31, 2019 | | | December 31, 2018 | | | Furniture and equipment | | $ | 20,278 | | | $ | 20,278 | | | Leasehold improvements | | | 24,292 | | | | 24,292 | | | Total | | | 44,570 | | | | 44,570 | | | Less: accumulated depreciation | | | (29,733 | ) | | | (25,003 | ) | | | | $ | 14,837 | | | $ | 19,567 | |
Depreciation expense for the three and six months ended June 30, 2015March 31, 2019 and 2018 was $7,225$4,730 and $14,451,$1,014, respectively. NOTE 6 —- LEASES On January 1, 2018, the Company entered into a new lease agreement for its office space in Illinois. The lease commenced on January 1, 2018 and expires on December 31, 2020. For 2018, the lease has minimum monthly payments of $1,367; thereafter, the minimum monthly payment shall increase by the lesser of CPI or 5%. Rent expense was $4,306 and $4,101for the three months ended March 31, 2019 and 2018, respectively. Future lease payments for the years ended December 31 are as follows: | 2019 (remaining) | | $ | 12,918 | | | 2020 | | | 18,085 | | | Total | | $ | 31,004 | |
The table above assumes a 5% increase in minimum monthly payment each year. NOTE 7 – DEBT Convertible Notes On May 7, 2015, the Company issued unsecured convertible promissory notes (collectively(each a “Note” and 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 areis 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 bewas amortized to interest expense over the contractual 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 F-12
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 — DEBT(cont.)
costs and shall bewere amortized over the contractual 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”“First Waiver”). As consideration for the First 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 notesNotes 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. Subsequent to the First Waiver, the Notes matured on July 1, 2016. On August 9, 2016, one Note Holder entered into a letter agreement whereby, effective as of August 1, 2016, they waived any and all defaults that may or may not have occurred prior to the date thereof (the “Second Waiver”). As consideration for the Second Waiver, the Company issued the Note Holder an aggregate of 40,000 shares of the Company’s common stock and added $15,000 to the principal amount of the note. The principal amount on the Note increased from $218,000 to $242,810 as the accrued interest amount, $9,810 as of August 1, 2016 and the aforementioned $15,000 of consideration, was added to the principal amount of the Note. The maturity date of the Note was extended to January 1, 2017 and the Note shall pay interest as of August 1, 2016 at a rate of 15% per annum, payable in one lump sum on the maturity date. In addition, on any note conversion date from August 9, 2016 through January 1, 2017, the Note is convertible into shares of the Company’s common stock at a conversion price of $1.00 per share. On any Note conversion after January 1, 2017, the Note is 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 Note remained the same. On October 18, 2017, a letter was sent to the board of directors and the CEO of the Company on behalf of the Note Holder, demanding that the Company repay its outstanding debt in the principal aggregate amount of $200,000, plus accrued interest, issued pursuant to the Note. On July 25, 2018, this Note Holder and another filed (“Note Holder Plaintiffs”) suit against the Company in the New York State Supreme Court, County of New York. The suit alleges that, as of July 24, 2018, the Company owes the plaintiffs a total amount of $466,177, which is inclusive of principal and interest. The plaintiffs filed a Motion for Summary Judgment in Lieu of Complaint and asked that judgment be entered against the Company. As of November 8, 2018, the outstanding principal was $351,810 and accrued unpaid interest as $124,524, totaling $476,334. On November 8, 2018, the Note Holder Plaintiffs and the Company executed a Settlement Agreement pursuant to which the Note Holder Plaintiffs agreed to a full release and wavier of their claims, including but not limited to, dismissal with prejudice of the suit in exchange for (a) an initial payment of $250,000, and (b) promissory notes in the total amount of $150,000, payable over twenty-four (24) months, with interest at nine percent (9%) per annum. As security for the two promissory notes, the Company will place 850,000 shares of common stock into an escrow account (“Escrow”). In the event the Company does not make timely payments under the promissory notes, upon written notice and after expiration of a cure period, the escrow agent shall release from Escrow shares of common stock with a value equal to the missed installment payment or payments plus accrued interest on that payment or payments. The number of shares so issued shall be determined by dividing the amount of the past due installment payment by the volume-weighted average price of the Company’s common stock for the last five trading days preceding the due date of the installment payment. With respect to the common stock held in Escrow, Note Holder Plaintiffs do not have any shareholder rights, including but not limited to voting, dividend or ownership rights. Upon full performance of the promissory notes, all shares of common stock still remaining in Escrow shall revert back to the Company as treasury shares. Given that the Company is experiencing financial difficulties and the Note Holder Plaintiffs granted a concession by accepting total payments of $400,000 for the remaining balance of the principal and interest due, the Company accounted for such transactions as a troubled debt restructuring and recognized a total gain of $76,336 from the debt settlement. The gain on troubled debt restructuring was $0.00 per share.The outstanding principal balance on at March 31, 2019 and December 31, 2018 was $127,004 and $144,272, respectively. Accrued interest on this note was $526 and $653 as of March 31, 2019 and December 31, 2018, respectively. Glenn Tilley, a director of the Company, is the holder of $163,500$170,857 of principal as of March 31, 2019 and December 31, 2018 of the aforementioned Notes. Note. As of July 1, 2016,March 31, 2019, the Company iswas not compliant with the repayment terms of the NotesNote but no defaults under the NotesNote have been called by the Note Holders. As of that date, the outstanding principal balance on the Notes was $450,000.note holder. The Company is currently conducting good faith negotiations with the Note Holdersnote holder 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 Company is currently accruing interest on the present value ofNote at 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 todefault 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%15% 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.annum. 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 InvestorNote is convertible into shares of ourthe Company’s common stock at a conversion price equal to the lower of i) $1.00 per share of $1.00 untiland ii) 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 bidvolume-weighted average price for our common stock during the previous 20last five 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
F-13
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 — DEBT(cont.)
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 assessedpreceding 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.date.
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.investor (the “February 2016 Note”). As of December 31, 2018, the Company was not compliant with the repayment terms of the Note but no defaults under the note have been called by the note holder. The note pays interest atCompany is currently conducting good faith negotiations with the Note Holder to further extend the maturity date, however, there can be no assurance that a rate of 12% per annum and matures on August 19, 2016 (the “Maturity Date”).further extension will be granted. 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,to the lower of i) $1.00 per share or the variable conversion price (as defined in the note). The Company used the proceedsand ii) 65% of the note to pay offvolume-weighted average price for the last twenty trading days preceding the conversion date. The Note holder converted a debenture issued in favorportion of a private investor on August 19, 2015. The debenture was in the principal amount of $150,000$1,500 and as of the date of this filing the investor has been paid all principal andaccrued interest due in full satisfaction thereof.
As additional consideration for issuing the note, on the Effective Date the Company issued$1,748 to the investor 35,000 shares of the Company’s restricted common stock. The Company recorded a $30,637 debt discount relating to the 35,00016,901 shares of common stock issued.during the second quarter ended June 30, 2017. The debt discountoutstanding principal balance on the February 2016 note at March 31, 2019 and December 31, 2018 was $168,500. Accrued interest on this note was $ 42,968 and $ 37,913 as of March 31, 2019 and December 31, 2018, respectively.
Promissory Notes 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 $44,500 for entering into the Credit Agreement. The loan fees 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.
notes. The Company assessed the conversion featuremust pay a minimum 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$75,000 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
F-14
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 — DEBT(cont.)
over the life of the loan. On May 3, 2016,The principal balance on the note as of December 31, 2017 was $1,000,000. In December 2017, in exchange for an extension fee of $10,000, this Loan Agreement was converted into a one-year term loan and extend for one additional year, with monthly payments of $20,833 in principal plus interest at 15% and a balloon payment of $729,167 due at maturity on January 25, 2019. In November 2018, this Loan Agreement was amended in order to increase the principal amount to $1,125,000, and extended through November 25, 2020 with interest at 15% requiring monthly payments of $26,650 in principal (starting in March 2019) plus interest with a balloon payment of $592,000 due on the maturity date. As additional security for the term loan, the Company paid 10,000has placed 970,000 shares of common stock into reserve.Currently, the Company is in arrears on this loan. The outstanding principal balance at March 31, 2019 and December 31, 2018 was $1,125,000. Accrued interest on this note was $91,177 and $35,579 as of March 31, 2019 and December 31, 2018, respectively. As of November 8, 2018, the outstanding principal was $351,810 and $10,000accrued unpaid interest as $124,524, totaling $476,334. On November 8, 2018, the Note Holder Plaintiffs and the Company executed a Settlement Agreement pursuant to which the Note Holder Plaintiffs agreed to a full release and wavier of their claims, including but not limited to, dismissal with prejudice of the suit in exchange for (a) an initial payment of $250,000, and (b) promissory notes in the total amount of $150,000, payable over twenty-four (24) months, with interest at nine percent (9%) per annum. As security for the two promissory notes, the Company will place 850,000 shares of common stock into an escrow account (“Escrow”). In the event the Company does not make timely payments under the promissory notes, upon written notice and after expiration of a cure period, the escrow agent shall release from Escrow shares of common stock with a value equal to the missed installment payment or payments plus accrued interest on that payment or payments. The number of shares so issued shall be determined by dividing the loanamount of the past due installment payment by the volume-weighted average price of the Company’s common stock for the last five trading days preceding the due date of the installment payment. With respect to the common stock held in Escrow, Note Holder Plaintiffs do not have any shareholder rights, including but not limited to voting, dividend or ownership rights. Upon full performance of the promissory notes, all shares of common stock still remaining in Escrow shall revert back to the Company as treasury shares. Given that the Company is experiencing financial difficulties and the Company entered intoNote Holder Plaintiffs granted a promissory note with the lenderconcession by accepting total payments of $400,000 for the remaining principal amount of $190,000. Pursuant to the termsbalance of the promissory note agreement, the note bearsprincipal and interest at a rate of 8% and requiresdue, the Company to make one monthly principal paymentaccounted for such transactions as a troubled debt restructuring and recognized a total gain 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$76,336 from the debt settlement. The gain on June 1, 2016. The note matures on July 1, 2017 and is unsecured.troubled debt restructuring was $0.00 per share. The outstanding principal balance on theat March 31, 2019 and December 31, 2018 was $127,004 and $144,272, respectively. Accrued interest on this note at June 30, 2016 was $170,000.$ 526 and $ 653 as of March 31, 2019 and December 31, 2018, respectively. On September 21, 2015,March 30, 2018, the Company entered into a promissory notean eighteen-month loan agreement 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”).investor. Pursuant to the terms ofagreement, the agreement, IPFS loanedinvestor agreed to loan the Company $250,000 for general operating expenses. During 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 requiresfirst six months, the Company to make nine monthly payments of $7,328.66, includingwill pay interest startingonly at 8% per annum. Thereafter, the Company shall pay principal and interest through maturity on February 27, 2016.
As of June 30, 2016,December 31, 2019. Currently, the Company is in arrears on this loan. At March 31, 2019 and December 31, 2018, the outstanding balance related to this finance agreement was $29,102.$208,333.
On NovemberApril 9, 2018, the Company entered into an eighteen-month loan agreement with a director. Pursuant to the agreement, the director agreed to loan the Company $50,000 for general operating expenses. During the first six months, the Company will pay interest only at 8% per annum. Thereafter, the Company shall pay principal and interest through maturity on October 30, 2015,2019. Currently, the Company is in arrears on this loan. At March 31, 2019 and December 31, 2018, the outstanding balance was $45,833. On March 1, 2019, the Company entered into a financethirty-six -month loan agreement with First Insurance Funding (“FIF”).a consultant. Pursuant to the terms ofagreement, the agreement, FIF loanedconsultant agreed to convert amounts owed by the Company in the principal amount of $29,700, which would accrue$134,000 to a promissory note with interest at 3.8% per annum, to partially fund the10% requiring semi-annual interest payments and a balloon payment of $134,000 due on the premiummaturity date. In event of default on either the Company’s directorsinterest or principal payment, the consultant can convert the defaulted amount times 150% into common stock at the average closing price over the prior 10-days. At March 31, 2019 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,December 31, 2018, the outstanding balance related to this finance agreement was $6,673.$134,000 and $0, respectively.
NOTE 7 — FACTOR AGREEMENTFuture maturities of debt are as follows:
On
For the years ending 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.31 | 2019 | | $ | 1,114,863 | | | 2020 | | | 831,739 | | | 2021 | | | 134,000 | | | Total | | $ | 2,080,602 | |
NOTE 8 — STOCKHOLDERS EQUITY (DEFICIT)– STOCKHOLDERS’ 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.
F-15
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 — STOCKHOLDERS EQUITY (DEFICIT)(cont.)
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, 2016March 31, 2019, and December 31, 2015,2018, 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, 2016March 31, 2019, and December 31, 2015,2018, the Company has 16,281,57123,313,173 and 13,915,33119,180,563 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
During the three months ended March 31, 2016, 1,0002019, 10,000 shares of common stock were granted to a certain employee with a fair value of $1,100. On June 30, 2016, 1,500$3,220. During the year ended December 31, 2018, 46,000 shares of common stock were granted to a certain employeetwo employees with a fair value of $1,650.$17,011.
During the sixthree months ended June 30, 2016, 489,000March 31, 2019, 23,110 shares of common stock valued at $524,150$9,396 were issued to various consultants for professional services provided to the Company. As discussed in Note 10, Jeromy Olson was issued 250,000During the year ended December 31, 2018, 137,204 shares of common stock valued at $275,000 as per$33,548 were issued to a consultant for professional services provided to the terms of his employment agreement with the company as Chief Executive Officer.Company.
Sale of common stock During the six months ended June 30, 2016,
In March 2019, the Company sold 1,544,740an aggregate of 4,100,000 shares of Company common stock for $410,000 in cash. These shares were sold in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, as there was no general solicitation and the transactions did not involve a public offering. During the year ended December 31, 2018, the Company sold 1,593,332 shares of common stock to investors in exchange for $1,699,214$239,000 in gross proceeds in connection with the private placement of the Company’s common stock. In connection
2016 Incentive Stock Option Plan On October 4, 2016, the Board approved the Sports Field 2016 Incentive Stock Option Plan (the “2016 Plan”). The Plan provides for the issuance of up to 2,500,000 shares of common stock of the Company through the grant of non-qualified options (the “Non-qualified Options”), incentive options (the “Incentive Options” and together with the private placementNon-qualified Options, the Company incurred fees of $220,929. In addition, 154,475 five year warrants with an exercise price of $1.10 were issued“Options”) and restricted stock (the “Restricted Stock”) and unrestricted stock (the “Unrestricted Stock”) 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 placementdirectors, officers, consultants, attorneys, advisors and has been recorded as a reduction in additional paid in capital.employees. Stock options issued for services During
On January 11, 2019, the six months ended June 30, 2016,Company issued 100,000 common stock options to a consultant for investor relations services at a fair value of $25,547. The options immediately vested and have a $0.35 strike price. On March 1, 2019, in exchange for retiring 400,000 in previously issued common stock options, the Company’sCompany agreed to issue 550,000 common stock options to a consultant for investor relations services. The options vest ratably in one-half year increments and have a $0.10 strike price. On January 11, 2018, the Company issued 100,000 common stock options to a consultant for investor relations services at a fair value of $3,796. The options immediately vested and have a $0.35 strike price. On May 8, 2018, the Company issued 200,000 common stock options to a board of directors authorized the grant of 200,000 stock options,member for his services, having a total fair value of approximately $97,500, with$10,169. The options vest ratably over a vestingtwo-year period and have a $1 strike price. On July 1, 2018, the Company issued 100,000 common stock options to a consultant for investor relations services at a fair value of 2.00 years. These$11,110. The options expire on January 4, 2021.immediately vested and have a $0.35 strike price. F-16
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 — STOCKHOLDERS EQUITY (DEFICIT)(cont.)
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 Three months Ended March 31, 2019 | | | For the Year Ending December 31, 2018 | | | | | | | | | | | Risk free interest rate | | | 2.52-2.76 | % | | | 2.32-2.75 | % | | Dividend yield | | | 0.00 | % | | | 0.00 | % | | Expected volatility | | | 42-43 | % | | | 41-44 | % | | Expected life in years | | | 5.0-11.0 | | | | 3.5-5.0 | | | Forfeiture Rate | | | 0.00 | % | | | 0.00 | % |
| | 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 thesimplified 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 duringfor the sixyear ended December 31, 2018 and the three months ended June 30, 2016:March 31, 2019: | | | | 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 |
| | | Number of Options | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Life | | | Outstanding – December 31, 2017 | | | 1,297,500 | | | $ | 1.14 | | | | 3.34 | | | Exercisable – December 31, 2017 | | | 1,180,000 | | | | 1.21 | | | | 3.23 | | | Granted | | | 400,000 | | | | 0.86 | | | | 5.00 | | | Exercised | | | - | | | | - | | | | - | | | Forfeited/Cancelled | | | - | | | | - | | | | - | | | Outstanding – December 31, 2018 | | | 1,697,500 | | | | 1.05 | | | | 3.14 | | | Exercisable– December 31, 2018 | | | 1,697,500 | | | | 1.05 | | | | 3.14 | | | Granted | | | 650,000 | | | | 0.14 | | | | 9.98 | | | Exercised | | | - | | | | - | | | | - | | | Forfeited/Cancelled | | | (400,000 | ) | | | 0.35 | | | | - | | | Outstanding - March 31, 2019 | | | 1,947,000 | | | | 0.87 | | | | 4.74 | | | Exercisable - March 31, 2019 | | | 1,222,500 | | | $ | 1.12 | | | | 2.06 | |
At June 30, 2016March 31, 2019 and 2015,December 31, 2018, the total intrinsic value of options outstanding was $60,000$121,000 and $0, respectively. At June 30, 2016March 31, 2019 and 2015,December 31, 2018, the total intrinsic value of options exercisable was $32,500 and $0, respectively.$0. F-17
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 — STOCKHOLDERS EQUITY (DEFICIT)(cont.)
Stock-based compensation for stock options has been recorded in the condensed consolidated statements of operations and totaled $35,150 and $69,721$8,418 for the three and six months ended June 30, 2016, respectively,March 31, 2019, and $12,317 and $23,201$3,990 for the three and six months ended June 30, 2015,March 31, 2018, respectively. As of June 30, 2016,March 31, 2019, the remaining balance of unamortized expense is $134,564$109,962 and is expected to be amortized over a remaining period of 1.25 years.through 2021. Stock Warrants The following is a summary of the Company’s stock warrant activity for the year ended December 31, 2018 and the three months ended March 31, 2019: | | | Number of Warrants | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Life | | | Outstanding – December 31, 2017 | | | 679,588 | | | $ | 1.03 | | | | 2.66 | | | Exercisable - December 31, 2017 | | | 679,588 | | | | 1.03 | | | | 2.66 | | | Granted | | | - | | | | - | | | | - | | | Exercised | | | - | | | | - | | | | - | | | Forfeited/Cancelled | | | - | | | | - | | | | - | | | Outstanding – December 31, 2018 | | | 679,588 | | | | 1.03 | | | | 1.66 | | | Exercisable – December 31, 2018 | | | 679,588 | | | | 1.03 | | | | 1.66 | | | Granted | | | - | | | | - | | | | - | | | Exercised | | | - | | | | - | | | | - | | | Forfeited/Cancelled | | | (496,250 | ) | | | 1.10 | | | | - | | | Outstanding - March 31, 2019 | | | 183,338 | | | | 1.10 | | | | 1.00 | | | Exercisable - March 31, 2019 | | | 183,338 | | | $ | 1.10 | | | | 1.00 | |
At March 31, 2019 and December 31, 2018, the total intrinsic value of warrants outstanding and exercisable was $0 and $0, respectively. NOTE 9 – RELATED PARTY TRANSACTIONS Jeromy Olson, the Chief Executive Officer of the Company, owns 50.0% of a sales management and consulting firm, NexPhase Global, LLC (“NexPhase”) 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. The NexPhase consulting agreement was terminated on October 1, 2017. For three months ended March 31, 2019 and 2018, NexPhase earned sales commissions of $0, and had accounts payable from the Company of $149,090 at March 31, 2019 and December 31, 2018. Glenn Tilley, a director of the Company, is the holder of $170,857 of principal as of March 31, 2019 of the aforementioned Note. As of March 31, 2019, the Company was not compliant with the repayment terms of the Notes but no defaults under the note have been called by the note holder. The Company is currently conducting good faith negotiations with the note holder to further extend the maturity date, however, there can be no assurance that a further extension will be granted. The Company is currently accruing interest on the Note at the default interest rate of 15% per annum. The Note is convertible into shares of the Company’s common stock at a conversion price equal to 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. On March 30, 2018, the Company entered into an eighteen-month loan agreement with an investor. Pursuant to the agreement, the investor agreed to loan the Company $250,000 for general operating expenses. During the first six months, the Company will pay interest only at 8% per annum. Thereafter, the Company shall pay principal and interest through maturity on December 31, 2019. Currently, the Company is in arrears on this loan. At March 31, 2019 and December 31, 2018, the outstanding balance related to this finance agreement was $208,333. On April 9, 2018, the Company entered into an eighteen-month loan agreement with a director. Pursuant to the agreement, the director agreed to loan the Company $50,000 for general operating expenses. During the first six months, the Company will pay interest only at 8% per annum. Currently, the Company is in arrears on this loan. Thereafter, the Company shall pay principal and interest through maturity on October 30, 2019. At March 31, 2019 and December 31, 2018, the outstanding balance was $45,833. On or about March 30, 2019, Mr. Olson advanced to the Company $11,500, which amount was used in partial satisfaction of the amount to be paid to a former employee under a settlement agreement (see Note 10, Employee Separation). This demand note carries no interest. NOTE 10 – EMPLOYEE SEPARATION On March 27, 2019 the Company entered into a mutual general release and settlement agreement (the “Settlement Agreement”) with the former employee. Pursuant to the Settlement Agreement, the Company agreed to pay the former employee $69,000, payable in three equal installments of $23,000 on March 31, June 28 and September 30, 2019 (the “Settlement Amount”). The Settlement Agreement also contains a general release by the former employee of the Company relating to employment and compensation claims, such release however is predicated on the Company making payments pursuant to the Settlement Agreement. As of March 31, 2019, the outstanding balance on this obligation was $46,000. NOTE 11 – COMMITMENTS AND CONTINGENCIES Services Agreements On July 11, 2017 (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 6 months. As compensation for the services, the Company shall pay the consultant $7,500 per month and is obligated to issue options for 100,000 shares of the Company common stock upon execution and, if renewed, at each renewal. The Company may terminate this agreement by providing at least 30 days advance written notice prior to the next renewal date. The Company has recorded compensation expense relating to the equity portion of the agreement of $14,905 during the year ended December 31, 2018. 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 “Olson Employment Agreement”). 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 received 250,000 shares of common stock on January 1, 2016. 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 |
On November 3, 2016, the Board, pursuant to the Olson Employment Agreement (as defined above), approved the issuance of (i) qualified options to purchase 100,000 shares of the Company’s Common Stock at a price of $1.50 vesting immediately with a grant date of November 3, 2016, (ii) qualified options to purchase 75,000 shares of the Company’s Common Stock at a price of $1.75 vesting on December 31, 2016, and (iii) qualified options to purchase 25,000 shares of the Company’s Common Stock at a price of $1.75 vesting on December 31, 2016, which options were issued in the first quarter of 2017. The CEO is due additional option grants pursuant to the consulting agreement, however, those grants were deferred to comply with the terms of the issuance of incentive options in the 2016 Plan. Pursuant to section 3 of the Olson Employment Agreement, Mr. Olson’s employment term was automatically renewed and will expire on January 19, 2020. Director Agreements On August 27, 2015, the Company entered into a director agreement with Glenn Appel, concurrent with Mr. Appel’s appointment to the Board of Directors of the Company effective August 27, 2015. The Director Agreement may, at the option of the Board, be automatically renewed on such date that Mr. Appel is re-elected to the Board. Pursuant to the Director Agreement, Mr. Appel 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. Appel receive non-qualified stock 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 in the third fiscal quarter of 2015. The total grant date value of the options was $80,932 which was expensed over the vesting period. 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 was expensed over the vesting period. On May 15, 2017, the Company entered into a director agreement (“Minichiello Director Agreement”) with Tom Minichiello, concurrent with Mr. Minichiello’s appointment to the Board of Directors of the Company (the “Board”) effective May 15, 2017. The Minichiello Director Agreement may, at the option of the Board, be automatically renewed on such date that Mr. Minichiello is re-elected to the Board. Pursuant to the Director Agreement, Mr. Minichiello 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. Minichiello shall receive non-qualified stock options (the “Options”) to purchase up to 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. The total grant date value of the options was $4,017 which shall be expensed over the vesting period. On May 8, 2018, the Company entered into a director agreement (“Tuntland Director Agreement”) with John Tuntland, concurrent with Mr. Tuntland’s appointment to the Board of Directors of the Company (the “Board”) effective May 8, 2018. The Tuntland Director Agreement may, at the option of the Board, be automatically renewed on such date that Mr. Tuntland is re-elected to the Board. Pursuant to the Director Agreement, Mr. Tuntland 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. Tuntland shall receive non-qualified stock options (the “Options”) to purchase up to 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 beginning in the third quarter of 2018. The total grant date value of the options was $10,169 which shall be expensed over the vesting period. 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 “Term”). Under the Agreement, The Company is to be the “Official Supplier” of IMG in connection with certain of the Company’s products and related services during the Term. Additionally, the Agreement provides the Company with certain promotional opportunities and supplier benefits including but not limited to (i) on-site signage and Company brand exposure (ii) the opportunity to install up to 4 test turf plots (the “Test Plots”) in order for the Company to conduct research on its turf products and the ability to use IMG athletes as participants in such testing (ii) opportunity to schedule site visits of test plots for potential Company customers and (iv) access to IMG’s personnel to include Head Coaches, Athletic Director and Administrators, subject to clearances and applicable rules of governing bodies such as NCAA. As consideration for its designation as IMG’s “Official Supplier” the Company must pay IMG three installments of $208,000 during the Term as specified in the Agreement. For the three months ended March 31, 2019 and 2018, the company has recorded $39,126 of expense related to the agreement. Placement Agent and Finders Agreements The Company entered into an exclusive Financial Advisory and Investment Banking Agreement with Spartan Capital Securities, LLC (“Spartan”) effective November 20, 2013 (the “2013 Spartan Advisory Agreement”). The Company entered into a second exclusive Financial Advisory and Investment Banking Agreement with Spartan Capital Securities, LLC (“Spartan”) effective October 1, 2015, amended August 3, 2016 (the “2015 Spartan Advisory Agreement”), which replaced and superseded the 2013 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 August 1, 2019. The Company, upon closing of the 2015 Financing, shall pay consideration to Spartan, in cash, a fee in an amount equal to 10% of the aggregate gross proceeds raised in the 2015 Financing. The Company shall grant and deliver to Spartan at the closing of the 2015 Financing, for nominal consideration, five year warrants (the “Warrants”) to purchase a number of shares of the Company’s Common Stock equal to 10% of the number of shares of Common Stock (and/or shares of Common Stock issuable upon exercise of securities or upon conversion or exchange of convertible or exchangeable securities) sold at such closing. The Warrants shall be exercisable at any time during the five year period commencing on the closing to which they relate at an exercise price equal to the purchase price per share of Common Stock paid by investors in the 2015 Financing or, in the case of exercisable, convertible, or exchangeable securities, the exercise, conversion or exchange price thereof. If the 2015 Financing is consummated by means of more than one closing, Spartan shall be entitled to the fees provided herein with respect to each such closing. (See Note 8 sale of common stock). Along with the above fees, the Company shall pay (i) $15,000 engagement fees upon execution of the agreement, (ii) 3% of the gross proceeds raised for expenses incurred by Spartan in connection with this Financing, together with cost of background checks on the officers and directors of the Company, (iii) a monthly fee of $10,000 for 4 months for the period commencing October 1, 2015 through January 1, 2016; and contingent upon Spartan successfully raising $2.0 million under the 2015 Financing (iv) a monthly fee of $5,000 for 6 months for the period commencing September 1, 2016 through February 1, 2017; (v) a monthly fee of $7,500 for 6 months for the period commencing March 1, 2017 through August 1, 2017; (vi) a monthly fee of $10,000 for 12 months for the period commencing September 1, 2017 through August 1, 2018; (vii) a monthly fee of $13,700 for 12 months for the period commencing September 1, 2018 through August 1, 2019. The obligation to pay the monthly fee shall survive any termination of this agreement. As of March 31, 2019 and December 31, 2018, Spartan was owed fees of $319,650 and $292,250, respectively. Litigation On January 26, 2018, the Company and one of its historical clients executed a Settlement Agreement, pursuant to which the Company is obligated to remediate a track which was improperly installed by one of the Company’s subcontractors. No later the July 15, 2018, the Company was obligated to complete installment of a replacement track which is of the same or comparable specifications as in the original contract. Upon completion of the installation, the client is obligated to release from escrow a retainage amount of $110,000. During construction, the Company’s insurance company was obligated to release from escrow funds to cover the expected construction costs of $370,000; the remediation will be entirely funded with insurance proceeds. This remediation work has been completed. On July 25, 2018, two note holders filed suit against the Company in the New York State Supreme Court, County of New York. The suit alleges that, as of July 24, 2018, the Company owes the plaintiffs a total amount of $466,177, which is inclusive of principal and interest. The plaintiffs filed a Motion for Summary Judgment in Lieu of Complaint and asked that judgment be entered against the Company. As of November 8, 2018, the outstanding principal was $351,810 and accrued unpaid interest as $124,524, totaling $476,334. On November 8, 2018, the Note Holder Plaintiffs and the Company executed a Settlement Agreement pursuant to which the Note Holder Plaintiffs agreed to a full release and wavier of their claims, including but not limited to, dismissal with prejudice of the suit in exchange for (a) an initial payment of $250,000, and (b) promissory notes in the total amount of $150,000, payable over twenty-four (24) months, with interest at nine percent (9%) per annum. With respect to this Settlement Agreement, the Company recorded forgiveness of indebtedness income of $76,334. As security for the two promissory notes, the Company will place 850,000 shares of common stock into an escrow account (“Escrow”). In the event the Company does not make timely payments under the promissory notes, upon written notice and after expiration of a cure period, the escrow agent shall release from Escrow shares of common stock with a value equal to the missed installment payment or payments plus accrued interest on that payment or payments. The number of shares so issued shall be determined by dividing the amount of the past due installment payment by the volume-weighted average price of the Company’s common stock for the last five trading days preceding the due date of the installment payment. With respect to the common stock held in Escrow, Note Holder Plaintiffs do not have any shareholder rights, including but not limited to voting, dividend or ownership rights. Upon full performance of the promissory notes, all shares of common stock still remaining in Escrow shall revert back to the Company as treasury shares. Given that the Company is experiencing financial difficulties and the Note Holder Plaintiffs granted a concession by accepting total payments of $400,000 for the remaining balance of the principal and interest due, the Company accounted for such transactions as a troubled debt restructuring and recognized a total gain of $76,336 from the debt settlement. The gain on troubled debt restructuring was $0.00 per share. On March 27, 2019 the Company entered into a mutual general release and settlement agreement (the “Settlement Agreement”) with the former employee. Pursuant to the Settlement Agreement, the Company agreed to pay the former employee $69,000, payable in three equal installments of $23,000 on March 31, June 28 and September 30, 2019 (the “Settlement Amount”). The Settlement Agreement also contains a general release by the former employee of the Company relating to the Claim, such release however is predicated on the Company making payments pursuant to the Settlement Agreement. As of March 31, 2019, the outstanding balance on this obligation was $46,000. On April 5, 2019, Spartan Capital Securities, LLC, an investment banker (“Spartan Capital”), filed a Demand for Arbitration with the American Arbitration Association (New York, New York; case no. 01-19-0001-0700). Spartan Capital alleges the Company owes various service fees and commissions, which the Company disputes both to legitimacy and amount. This arbitration is subject to inherent uncertainties, and an adverse result may arise that could harm our business. No assurance can be given that the Company will be able to resolve this matter or the timing of any such resolution. NOTE 12 – SUBSEQUENT EVENTS On May 7, 2019 (the “Effective Date”), the Company issued a 10% secured convertible promissory note (the “Note”) to GHS Investments, LLC (“GHS”) in the amount of $330,000 (inclusive of a 10% original issue discount, with the Company receiving $300,000 on May 7, 2019). The Note is due February 7, 2020. After October 7, 2019, GHS can elect to convert all or a portion of the Note into shares of the Company’s common stock. Such conversion(s) shall be at $0.15 per share so long as no event of default has occurred under the Note, and upon the occurrence of an event of default (including non-payment of the Note at maturity), the conversion(s) shall be at a 30% discount to the lowest traded price of the Company’s common stock during a 20-day look-back period. Between 60 and 180 days from the Effective Date, the Note may be prepaid at a 20% premium; prior to day 60 or after 180 days from the Effective Date (through the maturity date), the Note may be prepaid without penalty. The Note is secured by a second-priority security interest in the Company’s assets. On May 7, 2019, the Company also entered into an equity financing agreement with GHS, with GHS committing to purchase up to $4,000,000 of the Company’s common stock in tranches of up to $350,000, following an effective registration of the shares and subject to restrictions regarding the timing of each sale and total percentage stock ownership held by GHS. The purchase price for the shares will be the lowest trading price during the 10-day period prior to each sale REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Sports Field Holdings, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Sports Field Holdings, Inc. (the Company) as of December 31, 2018 and 2017, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2018, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America. Going Concern Uncertainty These consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a working capital deficiency as of December 31, 2018. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are described in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Rosenberg Rich Baker Berman, P.A. We have served as the Company’s auditor since 2013. Somerset, New Jersey April 15, 2019 SPORTS FIELD HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS | | | December 31, | | | December 31, | | | | | 2018 | | | 2017 | | | ASSETS | | | | | | | | | | Current assets | | | | | | | | | | Cash | | $ | 247 | | | $ | 281,662 | | | Restricted Cash | | | 81,686 | | | | - | | | Accounts receivable | | | 244,801 | | | | 53,229 | | | Contract assets | | | 363,396 | | | | 461,494 | | | Prepaid expenses and other current assets | | | 79,965 | | | | 97,123 | | | Total current assets | | | 770,095 | | | | 893,508 | | | | | | | | | | | | | Property and equipment, net | | | 19,567 | | | | 6,138 | | | Deposits | | | 2,090 | | | | 2,090 | | | | | | | | | | | | | Total assets | | $ | 791,752 | | | $ | 901,736 | | | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | | | | | | Current liabilities | | | | | | | | | | Accounts payable and accrued expenses | | $ | 5,251,325 | | | $ | 3,120,937 | | | Contract liabilities | | | 2,212,258 | | | | 1,221,330 | | | Promissory notes, net of debt discount of $0 and $30,090, respectively | | | 592,846 | | | | 267,788 | | | Derivative liability | | | 131,100 | | | | 84,200 | | | Convertible notes payable | | | 339,358 | | | | 691,168 | | | Total current liabilities | | | 8,526,887 | | | | 5,385,423 | | | Promissory notes, net of current portion | | | 930,592 | | | | 750,000 | | | Total liabilities | | | 9,457,479 | | | | 6,135,423 | | | | | | | | | | | | | Commitments and Contingencies (Note 11) | | | | | | | | | | | | | | | | | | | | Stockholders’ deficit | | | | | | | | | | 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, 19,180,063 and 17,403,527 issued and outstanding as of December 31, 2018 and December 31, 2017, respectively | | | 192 | | | | 174 | | | Additional paid in capital | | | 10,900,611 | | | | 10,593,735 | | | Common stock subscription receivable | | | - | | | | (4,500 | ) | | Accumulated deficit | | | (19,566,530 | ) | | | (15,823,096 | ) | | Total stockholders’ deficit | | | (8,665,727 | ) | | | (5,233,687 | ) | | | | | | | | | | | | Total liabilities and stockholders’ deficit | | $ | 791,752 | | | $ | 901,736 | |
See the accompanying notes to these consolidated financial statements SPORTS FIELD HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS | | | Year Ended
December 31, | | | | | 2018 | | | 2017 | | | Revenue | | | | | | | | | | Contract revenue | | $ | 6,599,464 | | | $ | 7,045,892 | | | Total revenue | | | 6,599,464 | | | | 7,045,892 | | | | | | | | | | | | | Cost of sales | | | | | | | | | | Contract cost of sales | | | 7,716,920 | | | | 5,953,930 | | | Total cost of sales | | | 7,716,920 | | | | 5,953,930 | | | | | | | | | | | | | Gross profit (loss) | | | (1,117,456 | ) | | | 1,091,962 | | | | | | | | | | | | | Operating expenses | | | | | | | | | | Selling, general and administrative | | | 2,373,524 | | | | 2,816,059 | | | Research & development | | | 1,179 | | | | 1,880 | | | Depreciation | | | 10,862 | | | | 4,055 | | | | | | - | | | | | | | Total operating expenses | | | 2,385,565 | | | | 2,821,994 | | | | | | | | | | | | | Loss from operations | | | (3,503,021 | ) | | | (1,730,032 | ) | | | | | | | | | | | | Other income (expense), net | | | | | | | | | | Interest, net | | | (286,882 | ) | | | (284,740 | ) | | Legal settlement costs | | | (59,648 | ) | | | | | | Miscellaneous income | | | 3,122 | | | | 29,156 | | | Gain from insurance proceeds | | | 73,561 | | | | | | | Gain on troubled debt restructuring | | | 76,334 | | | | - | | | Gain (loss) on change in fair value of derivative | | | (46,900 | ) | | | 120,100 | | | Total other income (expense), net | | | (240,413 | ) | | | (135,484 | ) | | | | | | | | | | | | Net Loss before income taxes | | | (3,743,434 | ) | | | (1,865,516 | ) | | | | | | | | | | | | Provision for income taxes | | | - | | | | - | | | | | | | | | | | | | Net loss | | $ | (3,743,434 | ) | | $ | (1,865,516 | ) | | | | | | | | | | | | Net loss per common share, basic and diluted | | $ | (0.19 | ) | | $ | (0.11 | ) | | | | | | | | | | | | Weighted average common shares outstanding, basic and diluted | | | 19,534,291 | | | | 17,417,430 | |
See the accompanying notes to these consolidated financial statements SPORTS FIELD HOLDINGS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 | | | | | | | | | | | | | | | Additional | | | Common | | | | | | | | | | | Preferred stock | | | Common stock | | | Paid in | | | Stock | | | Accumulated | | | | | | | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Subscription | | | Deficit | | | Total | | | Balance, December 31, 2016 | | | - | | | | - | | | | 17,074,470 | | | | 171 | | | | 10,404,451 | | | | (4,500 | ) | | | (13,957,580 | ) | | | (3,557,458 | ) | | Shares issued for services | | | - | | | | - | | | | 312,966 | | | | 3 | | | | 155,430 | | | | - | | | | - | | | | 155,433 | | Stock
compensation | | | - | | | | - | | | | - | | | | - | | | | 30,607 | | | | - | | | | - | | | | 30,607 | | | Conversion of Principal to Common Stock | | | - | | | | - | | | | 16,091 | | | | - | | | | 3,247 | | | | | | | | | | | | 3,247 | | | Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (1,865,516 | ) | | | (1,865,516 | ) | | Balance, December 31, 2017 | | | - | | | | - | | | | 17,403,527 | | | | 174 | | | | 10,593,735 | | | | (4,500 | ) | | | (15,823,096 | ) | | | (5,233,687 | ) | | Shares issued for services | | | - | | | | - | | | | 183,204 | | | | 2 | | | | 50,977 | | | | - | | | | - | | | | 50,979 | | Stock
compensation | | | - | | | | - | | | | - | | | | - | | | | 21,415 | | | | - | | | | - | | | | 21,415 | | | Write Off Subscription | | | - | | | | - | | | | - | | | | - | | | | (4,500 | ) | | | 4,500 | | | | - | | | | - | | | Shares issued in a private offering- net proceeds | | | - | | | | - | | | | 1,593,332 | | | | 16 | | | | 238,984 | | | | - | | | | - | | | | 239,000 | | | Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (3,743,434 | ) | | | (3,743,434 | ) | | Balance, December 31, 2018 | | | - | | | $ | - | | | | 19,180,063 | | | $ | 192 | | | $ | 10,900,611 | | | $ | - | | | $ | (19,566,530 | ) | | $ | (8,665,727 | ) |
See the accompanying notes to these consolidated financial statements SPORTS FIELD HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS | | | Year Ended
December 31, | | | | | 2018 | | | 2017 | | | CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | Net loss | | $ | (3,743,434 | ) | | $ | (1,865,516 | ) | | | | | | | | | | | | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | Depreciation | | | 10,863 | | | | 4,055 | | | Bad debt expense | | | 17,495 | | | | - | | | Loss (gain) on derivative | | | 46,900 | | | | (120,100 | ) | | Proceeds from insurance company | | | 535,612 | | | | - | | | Amortization of debt discount | | | 10,000 | | | | 30,090 | | | Gain on troubled debt restructuring | | | (76,334 | ) | | | - | | | Gain on insurance settlement | | | (73,561 | ) | | | - | | | Common stock and options issued to consultants and employees | | | 72,394 | | | | 173,998 | | | Changes in operating assets and liabilities: | | | | | | | | | | Accounts receivable | | | (209,067 | ) | | | 300,930 | | | Prepaid expenses | | | 17,158 | | | | 166,778 | | | Inventory | | | 256,884 | | | | (146,884 | ) | | Accounts payable and accrued expenses | | | 1,792,862 | | | | 1,249,706 | | | Costs and estimated earnings in excess of billings | | | (158,786 | ) | | | (128,986 | ) | | Billings in excess of costs and estimated earnings | | | 775,018 | | | | 811,646 | | | Provision for estimated losses on uncompleted contracts | | | 215,910 | | | | (31,311 | ) | | Net cash used in operating activities | | | (510,086 | ) | | | 444,406 | | | | | | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | Property additions | | | (24,292 | ) | | | - | | | Net cash used in investing activities | | | (24,292 | ) | | | - | | | | | | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | Debt issuance costs | | | - | | | | (10,000 | ) | | Proceeds of promissory notes | | | 628,349 | | | | - | | | Repayments of promissory notes | | | (532,700 | ) | | | (168,132 | ) | | Proceeds from private placement | | | 239,000 | | | | - | | | Net cash provided by financing activities | | | 334,649 | | | | (178,132 | ) | | | | | | | | | | | | Increase (decrease) in cash, cash equivalents and restricted cash | | | (199,729 | ) | | | 266,274 | | | Cash, cash equivalents and restricted cash beginning of year | | | 281,662 | | | | 15,388 | | | | | | | | | | | | | Cash, cash equivalents and restricted cash end of year | | $ | 81,933 | | | $ | 281,662 | | | | | | | | | | | | | Supplemental disclosures of cash flow information: | | | | | | | | | | Cash paid during the year for: | | | | | | | | | | Interest | | $ | 191,889 | | | $ | 153,647 | | | Taxes | | $ | - | | | $ | - | | | | | | | | | | | | | Non cash investing and financing activities: | | | | | | | | | | Notes issued for insurance premiums | | $ | - | | | $ | 113,420 | | | Common stock issued for prepaid expense | | $ | - | | | $ | 12,039 | | | Stock issued for principal and interest | | $ | - | | | $ | 3,248 | | | Accrued interest converted to debt | | $ | 124,524 | | | $ | - | | | Convertible notes converted to promissory notes | | $ | 351,810 | | | $ | 80,137 | |
See the accompanying notes to these consolidated financial statements SPORTS FIELD HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2018 AND 2017 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 Company is headquartered at 1020 Cedar Ave, Suite 200, St. Charles, IL 60174. NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Principles of Consolidation The accompanying 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 consolidated financial statements in conformity with U.S. GAAP 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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. The Company’s significant estimates and assumptions include the accounts receivable allowance for doubtful accounts, warranty reserve, percentage of completion revenue recognition method, assumptions used in the fair value of stock-based compensation, valuation of derivative liabilities and the valuation allowance relating to the Company’s deferred tax assets. Revenues and Cost Recognition Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue. The Company generates revenue from fixed-price contracts, where revenue is recognized over time as work is completed because of the continuous transfer of control to the customer (typically using an input measure such as costs incurred to date relative to total estimated costs at completion to measure progress). Costs to obtain contracts are generally not significant and are expensed in the period incurred. The Company has determined that these construction projects provide a distinct service and therefore qualify as one performance obligation. Revenue from fixed-price contracts provide for a fixed amount of revenue for the entire project, and any changes to the scope of the project is addressed in a change order, which is treated as a modification of the original contract. To determine the proper revenue recognition method for contracts, the Company evaluates whether two or more contracts should be combined and accounted for as one single performance obligation and whether a single contract should be accounted for as more than one performance obligation. ASU 2014-09 defines a performance obligation as a contractual promise to transfer a distinct good or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s evaluation requires judgment and the decision to combine a group of contracts or separate a contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period. To date, all of the Company’s contracts have a single performance obligation, as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contract and, therefore, is not distinct. However, if in the future the Company has contracts with multiple performance obligations, then the Company will allocate the contract’s transaction price to each performance obligation using the observable standalone selling price, if available, or alternatively the Company’s best estimate of the standalone selling price of each distinct performance obligation in the contract. Accounting for contracts involves the use of various techniques to estimate total transaction price and costs. For such contracts, transaction price, estimated cost at completion and total costs incurred to date are used to calculate revenue earned. Unforeseen events and circumstances can alter the estimate of the costs and potential profit associated with a particular contract. Total estimated costs, and thus contract revenue and income, can be impacted by changes in productivity, scheduling, the unit cost of labor, subcontracts, materials and equipment. Additionally, external factors such as weather, client needs, client delays in providing permits and approvals, labor availability, governmental regulation and politics may affect the progress of a project’s completion and thus the timing of revenue recognition. To the extent that original cost estimates are modified, estimated costs to complete increase, delivery schedules are delayed, or progress under a contract is otherwise impeded, cash flow, revenue recognition and profitability from a particular contract may be adversely affected. The nature of the Company’s contracts do not have variable consideration, such as liquidated damages, volume discounts, performance bonuses, incentive fees, and other terms that can either increase or decrease the transaction price. In contrast, the contracts are often modified to account for changes in contract specifications or requirements. Costs associated with contract modifications are included in the estimated costs to complete the contracts and are treated as project costs when incurred. In most instances, contract modifications are for goods or services that are not distinct, and, therefore, are accounted for as part of the existing contract. The effect of a contract modification on the transaction price, and the measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue on a cumulative catch-up basis. In some cases, settlement of contract modifications may not occur until after completion of work under the contract. As a significant change in one or more of these estimates could affect the profitability of its contracts, the Company reviews and updates its contract-related estimates regularly. The Company recognizes adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the cumulative impact of the profit adjustment is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on a contract, the projected loss is recognized in full in the period it is identified and recognized as an “Provision for Estimated Losses on Uncompleted Contracts” which is included in “Contract liabilities” on the Condensed Consolidated Balance Sheets. For contract revenue recognized over time, the Provision for Estimated Losses on Uncompleted Contracts is adjusted so that the gross profit for the contract remains zero in future periods. The Company estimates the collectability of contract amounts at the same time that it estimates project costs. If the Company anticipates that there may be issues associated with the collectability of the full amount calculated as the transaction price, the Company may reduce the amount recognized as revenue to reflect the uncertainty associated with realization of the eventual cash collection. The timing of when the Company bills its customers is generally dependent upon agreed-upon contractual terms, milestone billings based on the completion of certain phases of the work, or when services are provided. Sometimes, billing occurs subsequent to revenue recognition, resulting in unbilled revenue, which is a contract asset. However, the Company sometimes receives advances or deposits from its customers before revenue is recognized, resulting in deferred revenue, which is a contract liability. For the years ended December 31, 2018 and 2017, revenues from contracts with customers is summarized by product category were as follows: | | | December 31, | | | | | 2018 | | | 2017 | | | Product Category | | | | | | | | | | Athletic fields and tracks | | $ | 5,016,929 | | | $ | 4,889,657 | | | Vertical construction | | | 1,582,534 | | | | 2,156,235 | | | Totals | | $ | 6,599,463 | | | $ | 7,045,892 | |
“Athletic fields and tracks” relates to the design, engineering and construction of outdoor playing fields, running tracks and related works, stadiums, scoreboards, dug outs, base and drainage work, and similar projects, while “Vertical construction” relates to the design, engineering and construction of an entire facility such as a dormitory, athletics facility, gymnasium, or a similar general construction project. Inventory Inventory is stated at the lower of cost (first-in, first out) or net realizable value and consists primarily of construction materials. 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. Leasehold improvements are amortized over the remaining life of the lease. 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. Income Taxes Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss and credit carry-forwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. The differences relate primarily to net operating loss carryforward from date of acquisition and to the use of the cash basis of accounting for income tax purposes. The Company records an estimated valuation allowance on its deferred income tax assets if it is more likely than not that these deferred income tax assets will not be realized. The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company has not recorded any unrecognized tax benefits. 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 December 31, 2018 and 2017, the Company’s accounts receivable balance was $244,801 and $53,229, 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 years ended December 31, 2018 and 2017, the Company incurred research and development expenses of $1,179 and $1,880, 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. The Company’s subcontractors provide a one (1) year warranty to the Company against defects in material or workmanship. The Company has accrued a warranty reserve of $50,000 and $50,000 as of December 31, 2018 and 2017, respectively which is included in accounts payable and accrued expenses on the consolidated balance sheets. See Note 4 for warranty expenses incurred during the year ended December 31, 2018 and 2017. Fair Value of Financial Instruments The Company follows ASC 820-10 of the FASB Accounting Standards Codification to measure the fair value of its financial instruments and disclosures about fair value of its financial instruments. ASC 820-10 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820-10 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by ASC 820-10 are described below: | Level 1 | | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. | | | | | Level 2 | | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. | | | | | Level 3 | | Pricing inputs that are generally unobservable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, inventory, prepaid expenses and other current assets, accounts payable and accrued expenses, and certain notes payable approximate their fair values because of the short maturity of these instruments. Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. The Company’s Level 3 financial liabilities consist of the derivative conversion feature on a convertible note issued in 2016. The Company valued the conversion features using a Black Scholes model. These models incorporate transaction details such as the Company’s stock price, contractual terms, maturity, risk free rates, and volatility as of the date of issuance and each balance sheet date. The Company utilized the following management assumptions in valuing the derivative conversion feature at December 31, 2018 and 2017: | | | 2018 | | | 2017 | | | Exercise price | | $ | 0.38 | | | $ | 0.23 | | | Expected dividends | | | 0% | | | | 0% | | | Expected volatility | | | 43.06% | | | | 45.51% | | | Risk fee interest rate | | | 2.63% | | | | 1.31% | | | Term | | | 1 year | | | | 1 year | |
Fair Value of Financial Assets and Liabilities Measured on a Recurring Basis The Company uses Level 3 of the fair value hierarchy to measure the fair value of the derivative liabilities and revalues its derivative liability at every reporting period and recognizes gains or losses in the statements of operations that are attributable to the change in the fair value of the derivative liability. Financial assets and liabilities measured at fair value on a recurring basis are summarized below and disclosed on the balance sheets as follows: | | | Carrying | | | Fair Value Measurement Using | | | As of December 31, 2018 | | Value | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Derivative conversion feature on convertible note | | $ | 131,100 | | | $ | - | | | $ | - | | | $ | 131,100 | | | $ | 131,100 | |
| | | Carrying | | | Fair Value Measurement Using | | | As of December 31, 2017 | | Value | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Derivative conversion feature on convertible note | | $ | 84,200 | | | $ | - | | | $ | - | | | $ | 84,200 | | | $ | 84,200 | |
The unobservable level 3 inputs used by the Company was the expected volatility assumption used in the option pricing model. Expected volatility is based on the historical stock price volatility of comparable companies common stock, as our stock does not have sufficient historical trading activity. The table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the period December 31, 2017 through December 31, 2018: | | | Fair Value Measurement
Using Level 3 Inputs | | | | | Derivative
conversion feature
on convertible note | | | Total | | | | | | | | | | | Balance, December 31, 2016 | | | 204,300 | | | | 204,300 | | | Purchases, issuances, reassessments and settlements | | | - | | | | - | | | Change in fair value | | | (120,100 | ) | | | (120,100 | ) | | Balance, December 31, 2017 | | $ | 84,200 | | | $ | 84,200 | | | Purchases, issuances, reassessments and settlements | | | - | | | | - | | | Change in fair value | | | 46,900 | | | | 46,900 | | | Balance, December 31, 2018 | | $ | 131,100 | | | $ | 131,100 | |
Changes in the unobservable input values could potentially cause material changes in the fair value of the Company’s Level 3 financial instruments. The significant unobservable inputs used in the fair value measurements is the expected volatility assumption. A significant increase (decrease) in the expected volatility assumption could potentially result in a higher (lower) fair value measurement. 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 intrinsic 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. 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 Loss Per Common Share The Company computes basic net loss per share by dividing net 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 years ended December 31, 2018 and 2017, respectively, are as follows: | | | December 31, | | | | | 2018 | | | 2017 | | | | | | | | | | | Warrants to purchase common stock | | | 679,588 | | | | 679,588 | | | Options to purchase common stock | | | 1,697,500 | | | | 1,297,500 | | | Unvested restricted common shares | | | - | | | | - | | | Convertible Notes | | | 828,233 | | | | 2,693,515 | | | Totals | | | 3,205,321 | | | | 4,670,603 | |
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. For the year ended December 31, 2018, the Company had 3 customers that represented 33%, 31% and 25% of the total revenue; and for the year ended December 31, 2017, the Company had two customers that represented 47 % and 44% of the total revenue. Recent Accounting Pronouncements In May 2014, the FASB issued accounting standard update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under previous guidance. This may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In July 2015, the FASB approved the proposal to defer the effective date of ASU 2014-09 standard by one year. Early adoption was permitted after December 15, 2016, and the standard became effective for public entities for annual reporting periods beginning after December 15, 2017 and interim periods therein. In 2016, the FASB issued final amendments to clarify the implementation guidance for principal versus agent considerations (ASU No. 2016-08), accounting for licenses of intellectual property and identifying performance obligations (ASU No. 2016-10), narrow-scope improvements and practical expedients (ASU No. 2016-12) and technical corrections and improvements to ASU 2014-09 (ASU No. 2016-20) in its new revenue standard. The Company has performed a review of the requirements of the new revenue standard and is monitoring the activity of the FASB and the transition resource group as it relates to specific interpretive guidance. The Company reviewed customer contracts, applied the five-step model of the new standard to its contracts, and compared the results to its current accounting practices. The Company has included disclosures required by the new standard and the adoption has not had a material impact on the financial statements. In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments — Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). The standard addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is not permitted with the exception of certain provisions related to the presentation of other comprehensive income. The adoption of ASU 2016-01 did not have a material impact on the Company’s financial position, results of operations or cash flows. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), (“ASU 2016-02”) and issued subsequent amendments to the initial guidance. This ASU requires an entity to recognize a right-of-use asset (“ROU”) and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. Similar modifications have been made to lessor accounting in-line with revenue recognition guidance. The amendments also require certain quantitative and qualitative disclosures about leasing arrangements. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The new standard is effective for the Company on January 1, 2019, with early adoption permitted. Entities are required to adopt ASC 842 using a modified retrospective transition method. Full retrospective transition is prohibited. The guidance permits an entity to apply the standard’s transition provisions at either the beginning of the earliest comparative period presented in the financial statements or the beginning of the period of adoption (i.e., on the effective date). We expect to adopt the new standard on its effective date. While the Company continues to assess all of the effects of adoption, it currently believes the most significant effects relate to: the recognition of new ROU assets and lease liabilities on its balance sheet for real estate and equipment operating leases; and providing significant new disclosures about its leasing activities. The Company does not expect a significant change in its leasing activities between now and adoption. The new standard provides a number of optional practical expedients in transition. The Company expects to elect the ‘package of practical expedients’, which permits it to not reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company does not expect to elect the use-of hindsight or the practical expedient pertaining to land easements; the latter not being applicable to it. On adoption, the Company currently expects to recognize additional operating lease liabilities with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments for existing operating leases on its consolidated balance sheets. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company currently expects to elect the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company also currently expects to elect the practical expedient to not separate lease and non-lease components for all of its leases, which will mean all consideration that is fixed, or in-substance fixed, relating to the non-lease components will be captured as part of its lease components for balance sheet purposes. In August 2016, FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 clarifies the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. ASU 2016-15 is effective for fiscal years, and interim periods within those years beginning after December 15, 2017. The Company adopted ASU 2016-15 effective January 1, 2018 and it did not have a material impact on its financial statements. In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 as part of the goodwill impairment test. The amount of the impairment charge to be recognized would now be the amount by which the carrying value exceeds the reporting unit’s fair value. The loss to be recognized cannot exceed the amount of goodwill allocated to that reporting unit. The amendments in ASU 2017-04 are effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company has elected to early adopt ASU 2017-04 as of January 1, 2018. The Company has applied the guidance related to ASU 2017-04 during its annual impairment test in the fourth quarter of 2018. An entity should apply the amendments in this update on a prospective basis. An entity is required to disclose the nature of and reason for the change in accounting principle upon transition. That disclosure should be provided in the first annual period and in the interim period within the entity initially adopts the amendments in this update. The Company has elected to early adopt this standard in performing their 2018 impairment test. In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”) to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under this new guidance, modification accounting is required if the fair value, vesting conditions, or classification of the award changes as a result of the change in terms or conditions. ASU 2017-09 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within each annual reporting period. The Company adopted ASU 2017-09 effective January 1, 2018 and it did not have a material impact on its financial statements. In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (ASC 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 simplifies the accounting for nonemployee share-based payment transactions. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The new standard will become effective for the Company beginning January 1, 2019, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures. In August 2018, the FASB issue ASU 2018-13, Fair Value Measurement (ASC 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The new standard will become effective for the Company January 1, 2020, with early adoption permitted. The Company is currently evaluating the impactof this standard on its consolidated financial statements and disclosures. Subsequent Events Management has evaluated subsequent events or transactions occurring through the date on which the financial statements were issued. NOTE 3 – GOING CONCERN Our historical operating results indicate substantial doubt exists related to the Company’s ability to continue as a going concern.As reflected in the accompanying consolidated financial statements, as of December 31, 2018 the Company had a working capital deficit of $(7,756,792). Furthermore, the Company incurred net losses of approximately $3.74 million for the year ended December 31, 2018 and $1.87 million for the year ended December 31, 2017, and had an accumulated deficit of $19.6 million at December 31, 2018. Substantially all of our accumulated deficit has resulted from losses incurred on construction projects, costs incurred in connection with our research and development and general and administrative costs associated with our operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern through April 15, 2020. We expect that for the next 12 months, our operating cash burn will be approximately $2.3 million, excluding repayments of existing debts in the aggregate amount of $1.8 million. Our cash requirements relate primarily to working capital needed to operate and grow our business, including funding operating expenses and continued development and expansion of our products/services. Our ability to achieve profitability and meet future liquidity needs and capital requirements will depend upon numerous factors, including the timing and size of awarded contracts; the timing and amount of our operating expenses; the timing and costs of working capital needs; the timing and costs of expanding our sales team and business development opportunities; the timing and costs of developing a marketing program; the timing and costs of warranty and other post-implementation services; the timing and costs of hiring and training construction and administrative staff; the extent to which our brand and construction services gain market acceptance; the extent of our ongoing and any new research and development programs; and changes in our strategy or our planned activities. We have experienced and continue to experience negative cash flows from operations and we expect to continue to incur net losses in the foreseeable future. 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. If we are not able to obtain financing when needed, we may be unable to carry out our business plan. As a result, we may have to significantly limit our operations and our business, financial condition and results of operations would be materially harmed. To date, we have funded our operational short-fall primarily through private offerings of common stock, convertible notes and promissory notes, our line of credit and factoring of receivables. The accompanying 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 December 31, 2018 and December 31, 2017: | | | December 31, | | | December 31, | | | | | 2018 | | | 2017 | | | Costs incurred on contracts in progress | | $ | 19,817,415 | | | $ | 12,289,931 | | | Estimated earnings (losses) | | | (378,469 | ) | | | (771,512 | ) | | | | | 19,438,946 | | | | 13,061,443 | | | Less billings to date | | | (21,287,808 | ) | | | (14,078,163 | ) | | | | $ | (1,848,862 | ) | | $ | (1,016,720 | ) |
The above accounts are shown in the accompanying consolidated balance sheet under these captions at December 31, 2018 and December 31, 2017: Contract assets consist of the following: | | | December 31, 2018 | | | December 31, 2017 | | | Costs & Estimated Earnings in Excess of Billings | | $ | 363,396 | | | $ | 204,610 | | Inventory | | | - | | | | 256,884 | | Contract Assets | | $ | 363,396 | | | $ | 461,494 | |
Contract assets decrease by $98,098 compared to December 31, 2017 due primarily to a decrease increase in project activity during year ended December 31, 2018. Contract liabilities consist of the following: | | | December 31, 2018 | | | December 31, 2017 | | | | | | | | | | | Billings in Excess of Costs & Estimated Earnings | | $ | 1,961,580 | | | $ | 1,186,562 | | | Provision for Estimated Losses on Uncompleted Contracts | | | 250,678 | | | | 34,768 | | | Contract Liabilities | | $ | 2,212,258 | | | $ | 1,221,330 | |
Contract liabilities increased $990,928 compared to December 31, 2017 primarily due to higher Billings in Excess of Costs & Estimated Earnings and increased project activity. Warranty Costs During the years ended December 31, 2018 and 2017 the Company incurred costs of $37,935 and $0, respectively. A substantial amount of the warranty costs incurred during the year ended December 31, 2018 related to subgrade installation provided by a new subcontractor used on a 2018 project. Since then, this subcontractor has not been used again. The Company has implemented policies and procedures to avoid these costs in the future, including but not limited to product improvements, change of suppliers, new field personnel, improved subcontractor agreements and product warranties, improved project and supply chain management and quality control. 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. The Company’s subcontractors provide an 8 - year warranty to the Company against defects in material or workmanship. The Company has accrued a warranty reserve of $50,000 and $50,000 as of December 31, 2018 and 2017, respectively which is included in accounts payable and accrued expenses on the consolidated balance sheets. NOTE 5 – PROPERTY AND EQUIPMENT Property, plant and equipment consists of the following: | | | December 31, | | | December 31, | | | | | 2018 | | | 2017 | | | Furniture and equipment | | $ | 20,278 | | | $ | 20,278 | | | Leasehold improvements | | | 24,292 | | | | - | | | Total | | | 44,570 | | | | 20,278 | | | Less: accumulated depreciation | | | (25,003 | ) | | | (14,140 | ) | | | | $ | 19,567 | | | $ | 6,138 | |
Depreciation expense for the years ended December 31, 2018 and 2017 was $10,863 and $4,055, respectively. NOTE 6 – DEPOSITS Deposits at December 31, 2018 and 2017 were comprised of a $2,090 security deposit on an Illinois office lease (See Note 11). NOTE 7 – DEBT Convertible Notes On May 7, 2015, the Company issued unsecured convertible promissory notes (each a “Note” and 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 is 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 was amortized to interest expense over the contractual 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 were amortized over the contractual life of the notes. The outstanding principal balance on the notes at December 31, 2018 and 2017 was $522,667 including interest and penalty as disclosed below. 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 “First Waiver”). As consideration for the First 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. Subsequent to the First Waiver, the Notes matured on July 1, 2016. On August 9, 2016, one Note Holder entered into a letter agreement whereby, effective as of August 1, 2016, they waived any and all defaults that may or may not have occurred prior to the date thereof (the “Second Waiver”). As consideration for the Second Waiver, the Company issued the Note Holder an aggregate of 40,000 shares of the Company’s common stock and added $15,000 to the principal amount of the note. The principal amount on the Note increased from $218,000 to $242,810 as the accrued interest amount, $9,810 as of August 1, 2016 and the aforementioned $15,000 of consideration, was added to the principal amount of the Note. The maturity date of the Note was extended to January 1, 2017 and the Note shall pay interest as of August 1, 2016 at a rate of 15% per annum, payable in one lump sum on the maturity date. In addition, on any note conversion date from August 9, 2016 through January 1, 2017, the Note is convertible into shares of the Company’s common stock at a conversion price of $1.00 per share. On any Note conversion after January 1, 2017, the Note is 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 Note remained the same. On October 18, 2017, a letter was sent to the board of directors and the CEO of the Company on behalf of the Note Holder, demanding that the Company repay its outstanding debt in the principal aggregate amount of $200,000, plus accrued interest, issued pursuant to the Note. On July 25, 2018, this Note Holder and another filed (“Note Holder Plaintiffs”) suit against the Company in the New York State Supreme Court, County of New York. The suit alleges that, as of July 24, 2018, the Company owes the plaintiffs a total amount of $466,177, which is inclusive of principal and interest. The plaintiffs filed a Motion for Summary Judgment in Lieu of Complaint and asked that judgment be entered against the Company. As of November 8, 2018, the outstanding principal was $351,810 and accrued unpaid interest as $124,524, totaling $476,334. On November 8, 2018, the Note Holder Plaintiffs and the Company executed a Settlement Agreement pursuant to which the Note Holder Plaintiffs agreed to a full release and wavier of their claims, including but not limited to, dismissal with prejudice of the suit in exchange for (a) an initial payment of $250,000, and (b) promissory notes in the total amount of $150,000, payable over twenty-four (24) months, with interest at nine percent (9%) per annum. As security for the two promissory notes, the Company will place 850,000 shares of common stock into an escrow account (“Escrow”). In the event the Company does not make timely payments under the promissory notes, upon written notice and after expiration of a cure period, the escrow agent shall release from Escrow shares of common stock with a value equal to the missed installment payment or payments plus accrued interest on that payment or payments. The number of shares so issued shall be determined by dividing the amount of the past due installment payment by the volume-weighted average price of the Company’s common stock for the last five trading days preceding the due date of the installment payment. With respect to the common stock held in Escrow, Note Holder Plaintiffs do not have any shareholder rights, including but not limited to voting, dividend or ownership rights. Upon full performance of the promissory notes, all shares of common stock still remaining in Escrow shall revert back to the Company as treasury shares. Given that the Company is experiencing financial difficulties and the Note Holder Plaintiffs granted a concession by accepting total payments of $400,000 for the remaining balance of the principal and interest due, the Company accounted for such transactions as a troubled debt restructuring and recognized a total gain of $76,336 from the debt settlement. The gain on troubled debt restructuring was $0.00 per share. Glenn Tilley, a director of the Company, is the holder of $170,857 of principal as of December 31, 2018 of the aforementioned Note. As of December 31, 2018, the Company was not compliant with the repayment terms of the Note but no defaults under the Note have been called by the note holder. The Company is currently conducting good faith negotiations with the note holder to further extend the maturity date, however, there can be no assurance that a further extension will be granted. The Company is currently accruing interest on the Note at the default interest rate of 15% per annum. The Note is convertible into shares of the Company’s common stock at a conversion price equal to 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. 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 “February 2016 Note”). As of December 31, 2018, the Company was not compliant with the repayment terms of the Note but no defaults under the note have been called by the note holder. The Company is currently conducting good faith negotiations with the Note Holder to further extend the maturity date, however, there can be no assurance that a further extension will be granted. The Note is convertible into shares of the Company’s common stock at a conversion price equal to the lower of i) $1.00 per share and ii) 65% of the volume-weighted average price for the last twenty trading days preceding the conversion date. The Note holder converted a portion of the principal $1,500 and accrued interest $1,748 to 16,901 shares of common stock during the second quarter ended June 30, 2017. The outstanding principal balance on the February 2016 note at December 31, 2018 and 2017 was $168,500. Accrued interest on this note was $37,912 and $12,638 as of December 31, 2018 and 2017, respectively. Promissory Notes 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 $44,500 for entering into the Credit Agreement. The loan fees shall be amortized to interest expense over the life of the notes. 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 December 31, 2017 was $1,000,000. In December 2017, in exchange for an extension fee of $10,000, this Loan Agreement was converted into a one-year term loan and extend for one additional year, with monthly payments of $20,833 in principal plus interest at 15% and a balloon payment of $729,167 due at maturity on January 25, 2019. In November 2018, this Loan Agreement was amended in order to increase the principal amount to $1,125,000, and extended through November 25, 2020 with interest at 15% requiring monthly payments of $26,650 in principal (starting in March 2019) plus interest with a balloon payment of $592,000 due on the maturity date. As additional security for the term loan, the Company has placed 970,000 shares of common stock into reserve. As of November 8, 2018, the outstanding principal was $351,810 and accrued unpaid interest as $124,524, totaling $476,334. On November 8, 2018, the Note Holder Plaintiffs and the Company executed a Settlement Agreement pursuant to which the Note Holder Plaintiffs agreed to a full release and wavier of their claims, including but not limited to, dismissal with prejudice of the suit in exchange for (a) an initial payment of $250,000, and (b) promissory notes in the total amount of $150,000, payable over twenty-four (24) months, with interest at nine percent (9%) per annum. As security for the two promissory notes, the Company will place 850,000 shares of common stock into an escrow account (“Escrow”). In the event the Company does not make timely payments under the promissory notes, upon written notice and after expiration of a cure period, the escrow agent shall release from Escrow shares of common stock with a value equal to the missed installment payment or payments plus accrued interest on that payment or payments. The number of shares so issued shall be determined by dividing the amount of the past due installment payment by the volume-weighted average price of the Company’s common stock for the last five trading days preceding the due date of the installment payment. With respect to the common stock held in Escrow, Note Holder Plaintiffs do not have any shareholder rights, including but not limited to voting, dividend or ownership rights. Upon full performance of the promissory notes, all shares of common stock still remaining in Escrow shall revert back to the Company as treasury shares. Given that the Company is experiencing financial difficulties and the Note Holder Plaintiffs granted a concession by accepting total payments of $400,000 for the remaining balance of the principal and interest due, the Company accounted for such transactions as a troubled debt restructuring and recognized a total gain of $76,336 from the debt settlement. The gain on troubled debt restructuring was $0.00 per share. At December 31, 2018, the outstanding balance promissory notes was $140,490. On March 30, 2018, the Company entered into an eighteen-month loan agreement with an investor. Pursuant to the agreement, the investor agreed to loan the Company $250,000 for general operating expenses. During the first six months, the Company will pay interest only at 8% per annum. Thereafter, the Company shall pay principal and interest through maturity on December 31, 2019. At December 31, 2018, the outstanding balance related to this finance agreement was $208,333. On April 9, 2018, the Company entered into an eighteen-month loan agreement with a director. Pursuant to the agreement, the director agreed to loan the Company $50,000 for general operating expenses. During the first six months, the Company will pay interest only at 8% per annum. Thereafter, the Company shall pay principal and interest through maturity on October 30, 2019. At December 31, 2018, the outstanding balance was $45,833. Future maturities of debt are as follows: For the year ending December 31 | 2019 | | $ | 932,204 | | | 2020 | | | 930,592 | | | Total | | $ | 1,862,796 | |
NOTE 8 – STOCKHOLDERS DEFICIT Preferred Stock The Company has authorized 20,000,000 shares of preferred stock, with a par value of $0.00001 per share. As of December 31, 2018 and 2017, the Company has no 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 December 31, 2018 and 2017, the Company has 19,180,063 and 17,403,527 shares of common stock issued and outstanding, respectively. Common stock issued for services During each year ended December 31, 2018 and 2017, 40,000 shares of common stock were granted to a certain employee with a fair value of $15,372 and $16,100, respectively. During each year ended December 31, 2018 and 2017, 6,000 shares of common stock were granted to a certain employee with a fair value of $1,639 and $2,415, respectively. During the year ended December 31, 2018 and 2017, 137,204 shares and $119,853 shares, respectively, of common stock valued at $33,548 and $51,292, respectively, were issued to consultant for professional services provided to the Company. Sale of common stock During the year ended December 31, 2018, the Company sold 1,593,332 shares of common stock to investors in exchange for $239,000 in gross proceeds in connection with the private placement of the Company’s common stock. Termination of Registration Statement On September 19, 2017, pursuant to Rule 477 under the Securities Act of 1933, as amended (the “Securities Act”), we withdrew our Registration Statement on Form S-1 (File No. 333-213385), together with all exhibits thereto, initially filed with the SEC on August 30, 2016, as subsequently amended on November 4, 2016 (the “Registration Statement”). The Registration Statement was not declared effective and no securities were issued or sold pursuant to the Registration Statement. 2016 Incentive Stock Option Plan On October 4, 2016, the Board approved the Sports Field 2016 Incentive Stock Option Plan (the “2016 Plan”). The Plan provides for the issuance of up to 2,500,000 shares of common stock of the Company through the grant of non-qualified options (the “Non-qualified Options”), incentive options (the “Incentive Options” and together with the Non-qualified Options, the “Options”) and restricted stock (the “Restricted Stock”) and unrestricted stock (the “Unrestricted Stock”) to directors, officers, consultants, attorneys, advisors and employees. The 2,500,000 shares available under the 2016 Plan represent approximately 15% of the Company’s issued and outstanding common stock as of October 4, 2016. The 2016 Plan shall be administered by a committee consisting of two or more independent, non-employee and outside directors (the “Committee”). In the absence of such a Committee, the Board shall administer the 2016 Plan. The 2016 Plan is currently being administered by the Board. Options are subject to the following conditions: (i) The Committee determines the strike price of Incentive Options at the time the Incentive Options are granted. The assigned strike price must be no less than 100% of the Fair Market Value (as defined in the Plan) of the Company’s Common Stock. In the event that the recipient is a Ten Percent Owner (as defined in the Plan), the strike price must be no less than 110% of the Fair Market Value of the Company. (ii) The strike price of each Non-qualified Option will be at least 100% of the Fair Market Value of such share of the Company’s Common Stock on the date the Non-qualified Option is granted. (iii) The Committee fixes the term of Options, provided that Options may not be exercisable more than ten years from the date the Option is granted, and provided further that Incentive Options granted to a Ten Percent Owner may not be exercisable more than five years from the date the Incentive Option is granted. (iv) The Committee may designate the vesting period of Options. In the event that the Committee does not designate a vesting period for Options, the Options will vest in equal amounts on each fiscal quarter of the Company through the five (5) year anniversary of the date on which the Options were granted. The vesting period accelerates upon the consummation of a Sale Event (as defined in the Plan). (v) Options are not transferable and Options are exercisable only by the Options’ recipient, except upon the recipient’s death. (vi) Incentive Options may not be issued in an amount or manner where the amount of Incentive Options exercisable in one year entitles the holder to Common Stock of the Company with an aggregate Fair Market value of greater than $100,000. Awards of Restricted Stock are subject to the following conditions: (i) The Committee grants Restricted Stock Options and determines the restrictions on each Restricted Stock Award (as defined in the Plan). Upon the grant of a Restricted Stock Award and the payment of any applicable purchase price, grantee is considered the record owner of the Restricted Stock and entitled to vote the Restricted Stock if such Restricted Stock is entitled to voting rights. (ii) Restricted Stock may not be delivered to the grantee until the Restricted Stock has vested. (iii) Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as provided in the Plan or in the Award Agreement (as defined in the Plan). Stock options issued for services On March 31, 2017, the Company issued our CEO 25,000 common stock options for services, having a total fair value of approximately $7,500. These options expire on March 31, 2022. On May 17, 2017, the Company issued 200,000 common stock options to a board member for his services, having a total fair value of approximately $4,015. The options vest ratably over a two-year period and have a $1 strike price. On July 11, 2017, the Company issued 100,000 common stock options to a consultant for investor relations services at a fair value of $13,286. The options immediately vested and have a $0.35 strike price. On January 11, 2018, the Company issued 100,000 common stock options to a consultant for investor relations services at a fair value of $3,796. The options immediately vested and have a $0.35 strike price. On May 8, 2018, the Company issued 200,000 common stock options to a board member for his services, having a total fair value of approximately $10,169. The options vest ratably over a two-year period and have a $1 strike price. On July 1, 2018, the Company issued 100,000 common stock options to a consultant for investor relations services at a fair value of $11,110. The options immediately vested and have a $0.35 strike price. 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 Year Ended
December 31, | | | | | 2018 | | | 2017 | | | Risk free interest rate | | | 2.32-2.75% | | | | 1.43-1.50% | | | Dividend yield | | | 0.00% | | | | 0.00% | | | Expected volatility | | | 41-44% | | | | 42-43% | | | Expected life in years | | | 3.5-5.0 | | | | 2.5-3.5 | | | Forfeiture Rate | | | 0.00% | | | | 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 thesimplified 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 years ended December 31, 2018 and 2017: | | | Number
of Options | | | Weighted
Average
Exercise
Price | | | Weighted
Average
Remaining
Contractual
Life | | | Outstanding - December 31, 2016 | | | 972,500 | | | $ | 1.26 | | | | 4.00 | | | Exercisable - December 31, 2016 | | | 847,500 | | | $ | 1.23 | | | | 4.02 | | | Granted | | | 325,000 | | | $ | 0.86 | | | | 5.00 | | | Exercised | | | - | | | | - | | | | - | | | Forfeited/Cancelled | | | - | | | | - | | | | - | | | Outstanding - December 31, 2017 | | | 1,297,500 | | | $ | 1.14 | | | | 3.34 | | | Exercisable - December 31, 2017 | | | 1,180,000 | | | $ | 1.21 | | | | 3.23 | | | Granted | | | 400,000 | | | $ | 0.86 | | | | 5.00 | | | Exercised | | | - | | | | - | | | | - | | | Forfeited/Cancelled | | | - | | | | - | | | | - | | | Outstanding - December 31, 2018 | | | 1,697,500 | | | $ | 1.05 | | | | 3.14 | | | Exercisable - December 31, 2018 | | | 1,522,500 | | | $ | 1.05 | | | | 3.42 | |
At December 31, 2018 and 2017, the total intrinsic value of options outstanding was $75,000 and $0, respectively. At December 31, 2018 and 2017, the total intrinsic value of options exercisable was $75,000 and $0, respectively. Stock-based compensation for stock options has been recorded in the consolidated statements of operations and totaled $21,415 for the year ended December 31, 2018 and $30,607 for the year ended December 31, 2017. As of December 31, 2018, the remaining balance of unamortized expense is $4,597. Stock Warrants The following is a summary of the Company’s stock warrant activity during the six monthsyears ended June 30, 2016:December 31, 2018 and 2017: | | | | 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 |
| | | Number of
Warrants | | | Weighted
Average
Exercise
Price | | | Weighted
Average
Remaining Contractual
Life | | | Outstanding - December 31, 2016 | | | 679,588 | | | $ | 1.03 | | | | 2.66 | | | Exercisable - December 31, 2016 | | | 679,588 | | | $ | 1.03 | | | | 2.66 | | | Granted | | | - | | | | - | | | | - | | | Exercised | | | - | | | | - | | | | - | | | Forfeited/Cancelled | | | - | | | | - | | | | - | | | Outstanding - December 31, 2017 | | | 679,588 | | | $ | 1.03 | | | | 1.66 | | | Exercisable - December 31, 2017 | | | 679,588 | | | $ | 1.03 | | | | 1.66 | | | Granted | | | - | | | | - | | | | - | | | Exercised | | | - | | | | - | | | | - | | | Forfeited/Cancelled | | | - | | | | - | | | | - | | | Outstanding - December 31, 2018 | | | 679,588 | | | $ | 1.03 | | | | 1.66 | | | Exercisable - December 31, 2018 | | | 679,588 | | | $ | 1.03 | | | | 1.66 | |
At June 30, 2016December 31, 2018 and 2015,2017, the total intrinsic value of warrants outstanding and exercisable was $49,625$0 and $0, respectively. NOTE 9 —– RELATED PARTY TRANSACTIONS Jeromy Olson, the Chief Executive Officer of the Company, owns 33.3%50.0% of a sales management and consulting firm, NexPhase Global, LLC (“NexPhase”) 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$270,000 for the three and six monthsyear ended June 30, 2016, respectively.December 31, 2017. Included in consulting expense for the three and six monthsyear ended June 30, 2016December 31, 2017 were 10,000 and 20,00030,000 shares of common stock valued at $11,000 and $22,000, respectively,$12,100, issued to Nexphase Global.NexPhase. The NexPhase consulting agreement was terminated on October 1, 2017. For years ended December 31, 2018 and 2017, NexPhase earned sales commissions of $0 and $74,517, respectively, and had accounts payable from the Company of $149,090 and $134,992, respectively. 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, is the holder of $170,857 of principal as of December 31, 2018 of the aforementioned Note. As of December 31, 2018, the Company was issued 15,000not compliant with the repayment terms of the Notes but no defaults under the note have been called by the note holder. The Company is currently conducting good faith negotiations with the note holder to further extend the maturity date, however, there can be no assurance that a further extension will be granted. The Company is currently accruing interest on the Note at the default interest rate of 15% per annum. The Note is convertible into shares of ourthe Company’s common stock as partat a conversion price equal to the lower of a Waiveri) $1.00 per share and ii) the volume-weighted average price for the last five trading days preceding the conversion date. On March 30, 2018, the Company entered into an eighteen-month loan agreement with Mr. Tilleyan investor. Pursuant to the agreement, the investor agreed to loan the Company $250,000 for general operating expenses. During the first six months, the Company will pay interest only at 8% per annum. Thereafter, the Company shall pay principal and interest through maturity on MarchDecember 31, 2016. (See Note 6 – Convertible Notes – May 7, 2015 Notes).2019. At December 31, 2018, the outstanding balance related to this finance agreement was $208,333. OnApril 9, 2018, the Company entered into an eighteen-month loan agreement with a director. Pursuant to the agreement, the director agreed to loan the Company $50,000 for general operating expenses. During the first six months, the Company will pay interest only at 8% per annum. Thereafter, the Company shall pay principal and interest through maturity on October 30, 2019. At December 31, 2018, the outstanding balance was $45,833. NOTE 10 — COMMITMENTS AND CONTINGENCIES– EMPLOYEE SEPARATION Services Agreements
On August 12, 2015,March 27, 2019 the Company entered into a Servicesmutual general release and settlement agreement (the “Settlement Agreement”) with the former employee. Pursuant to the Settlement Agreement, with Aranea Partners. Aranea Partnersthe Company agreed to provide investor relations services topay the Company forformer employee $69,000, payable in three equal installments of $23,000 on March 31, June 28 and September 30, 2019 (the “Settlement Amount”). The Settlement Agreement also contains a period of 12 months. As compensation forgeneral release by the services, the Company issued 50,000 sharesformer employee of the Company common stockrelating to the Claim, such release however is predicated on August 12, 2015. On August 12, 2016, the Company is obligatedmaking payments pursuant to issue an additional 100,000 sharesthe Settlement Agreement. As of March 31, 2019, the Company’s commonoutstanding balance on this obligation was $46,000. F-18
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 —11 – COMMITMENTS AND CONTINGENCIES(cont.) 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.
Services Agreements 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, 2016July 11, 2017 (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 126 months. As compensation for the services, the Company shall pay the consultant $12,000$7,500 per month and is obligated to issue 62,500options for 100,000 shares of the Company common stock upon the 90-day anniversary of the Effective Dateexecution 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.at each renewal. The Company may terminate this agreement by providing 5 days advance written notice in the first 60 days of entering into this agreement and withat least 30 days advance written notice thereafter forprior to the duration of the agreement.next renewal date. The Company has recorded compensation expense relating to the equity portion of the agreement of $68,374 and $99,180$14,905 during the three and six monthsyear 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 MarchDecember 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.2018.
Consulting Agreements In March 2014, the Company reached an agreement with a consulting firm owned by the CEO of the Company, NexPhase, 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 |
On November 3, 2016, the Board, pursuant to the consulting agreement, approved the issuance of (i) qualified options to purchase 100,000 shares of the Company’s Common Stock at a price of $1.50 per share that vestvesting immediately with a grant date of November 3, 2016 and (ii) qualified options to purchase 75,000 shares of the Company’s Common Stock at a price of $1.75 vesting on December 31, 20152016. The consultant is due additional option grants pursuant to the consulting agreement, however, those grants were being deferred to comply with the terms of the issuance of incentive options in the 2016 Plan. • 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.
F-19
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 — COMMITMENTS AND CONTINGENCIES(cont.)
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
The NexPhase consulting agreement with a consulting firm to provide non-exclusive sales services. The consulting firm will receive up to 5% commissionswas terminated 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.October 1, 2017. 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 expiresexpired 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.2017. As compensation for the services, the consultant will receivereceived (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 bewere subject to certain Clawback provisions. “Clawback” means (i) if this agreement iswas 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 iswas 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.Unvested shares are revalued at the end of each reporting period until they vest and are expensed on a straight-line basis over the term of the agreement. The Company has recorded compensation expense relating to the equity portion of the agreement of $9,057$0 and $18,114$23,095 during the threeyears ended December 31, 2018 and six months ended June 30, 2016,2018, 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
F-20
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 — COMMITMENTS AND CONTINGENCIES(cont.)
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 15th 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 15th 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.periods (the “Olson Employment Agreement”). 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 F-21
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 — COMMITMENTS AND CONTINGENCIES(cont.)
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 receivereceived 250,000 shares of common stock on January 1, 2016 provided the agreement is still in effect.2016. 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 |
On November 3, 2016, the Board, pursuant to the Olson Employment Agreement (as defined above), approved the issuance of (i) qualified options to purchase 100,000 shares of the Company’s Common Stock at a price of $1.50 per share that vestvesting immediately with a grant date of November 3, 2016, (ii) qualified options to purchase 75,000 shares of the Company’s Common Stock at a price of $1.75 vesting on December 31, 2015 • 100,000 stock2016, and (iii) qualified options to purchase 25,000 shares of the Company’s Common Stock at an exercisea price of $1.75 per share that vestvesting on December 31, 2016, which options were issued in the first quarter of 2017. The CEO is due additional option grants pursuant to the consulting agreement, however, those grants were deferred to comply with the terms of the issuance of incentive options in the 2016 Plan. Pursuant to section 3 of the Olson Employment Agreement, Mr. Olson’s employment term was automatically renewed and will expire on January 19, 2020.
• 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 August 27, 2015, the Company entered into a director agreement with Glenn Appel, concurrent with Mr. Appel’s appointment to the Board of Directors of the Company effective August 27, 2015. The Director Agreement may, at the option of the Board, be automatically renewed on such date that Mr. Appel is re-elected to the Board. Pursuant to the Director Agreement, Mr. Appel 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. Appel receive non-qualified stock 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 in the third fiscal quarter of 2015. The total grant date value of the options was $80,932 which shall be expensed over the vesting period. 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. On May 15, 2017, the Company entered into a director agreement (“Minichiello Director Agreement”) with Tom Minichiello, concurrent with Mr. Minichiello’s appointment to the Board of Directors of the Company (the “Board”) effective May 15, 2017. The Minichiello Director Agreement may, at the option of the Board, be automatically renewed on such date that Mr. Minichiello is re-elected to the Board. Pursuant to the Director Agreement, Mr. Minichiello 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. Minichiello shall receive non-qualified stock options (the “Options”) to purchase up to 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. The total grant date value of the options was $4,017 which shall be expensed over the vesting period. On May 8, 2018, the Company entered into a director agreement (“Tuntland Director Agreement”) with John Tuntland, concurrent with Mr. Tuntland’s appointment to the Board of Directors of the Company (the “Board”) effective May 8, 2018. The Tuntland Director Agreement may, at the option of the Board, be automatically renewed on such date that Mr. Tuntland is re-elected to the Board. Pursuant to the Director Agreement, Mr. Tuntland 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. Tuntland shall receive non-qualified stock options (the “Options”) to purchase up to 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 beginning in the third quarter of 2018. The total grant date value of the options was $10,169 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$7,500 and $8,740$28,157 during the threeyears ended December 31, 2017 and six months ended June 30, 2016, respectively. As of December 31, 2017, this agreement has been terminated. 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, 2019.2019 (the “Term”). Under the Agreement, The Company is to be the “Official Supplier” of IMG in connection with certain of the Company’s products and related services during the Term. Additionally, the Agreement grants SFEprovides the Company with certain defined promotional opportunities and supplier benefits.benefits including but not limited to (i) on-site signage and Company brand exposure (ii) the opportunity to install up to 4 test turf plots (the “Test Plots”) in order for the Company to conduct research on its turf products and the ability to use IMG athletes as participants in such testing (ii) opportunity to schedule site visits of test plots for potential Company customers and (iv) access to IMG’s personnel to include Head Coaches, Athletic Director and Administrators, subject to clearances and applicable rules of governing bodies such as NCAA. As consideration for its designation as IMG’s “Official Supplier” the Company must pay IMG three installments of $208,000 during the Term as specified in the Agreement. For the exclusive rights given to SFE inyears ended December 31, 2018 and 2017, the Agreement, SFE will pay IMG $626,000. The payment terms are 1/3 after completion and acceptancecompany has recorded $156,500 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 $78,250expense related to the Agreement and is included in accounts payable and accrued expenses at June 30, 2016.agreement. F-22
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 — COMMITMENTS AND CONTINGENCIES(cont.)
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.
F-23
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 — COMMITMENTS AND CONTINGENCIES(cont.)
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.
F-24
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Sports Field Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Sports Field Holdings, Inc. as of December 31, 2015 and 2014, and the related consolidated statements of operations, stockholders’ (deficit) equity, and cash flows for the years ended December 31, 2015 and 2014. Sports Field Holdings, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sports Field Holdings, Inc. as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years ended December 31, 2015 and 2014 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company had a working capital deficit, a net loss and net cash used in operations of $2,517,035, $3,338,157 and $1,408,685, respectively and has an accumulated deficit totaling $10,269,518. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Rosenberg Rich Baker Berman & Company
Somerset, New Jersey
April 12, 2016
F-25
SPORTS FIELD HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
| | | | | ASSETS | | | | | | | | | Current assets | | | | | | | | | Cash | | $ | 61,400 | | | $ | 523,492 | | Accounts receivable | | | 151,168 | | | | — | | Costs and estimated earnings in excess of billings | | | 137,016 | | | | — | | Inventory | | | — | | | | 131,455 | | Prepaid expenses and other current assets | | | 10,346 | | | | 2,640 | | Debt issuance costs, net | | | 23,037 | | | | — | | Total current assets | | | 382,967 | | | | 657,587 | | | | | | | | | | | Property, plant and equipment, net | | | 14,249 | | | | 114,102 | | Deposits | | | 2,090 | | | | 8,507 | | | | | | | | | | | Total assets | | $ | 399,306 | | | $ | 780,196 | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | | | | | | | | | Current liabilities | | | | | | | | | Accounts payable and accrued expenses | | $ | 1,896,557 | | | $ | 394,419 | | Billings in excess of costs and estimated earnings | | | — | | | | 20,500 | | Provision for estimated losses on uncompleted contracts | | | 130,046 | | | | — | | Promissory notes | | | 313,993 | | | | — | | Convertible notes payable, net of debt discount of $40,594 | | | 559,406 | | | | — | | Total liabilities | | | 2,900,002 | | | | 414,919 | | | | | | | | | | | 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, 13,915,331 and 13,545,275 issued and outstanding as of December 31, 2015 and December 31, 2014, respectively | | | 138 | | | | 135 | | Additional paid in capital | | | 7,773,184 | | | | 7,301,003 | | Common stock subscription receivable | | | (4,500 | ) | | | (4,500 | ) | Accumulated deficit | | | (10,269,518 | ) | | | (6,931,361 | ) | Total stockholders’ equity (deficit) | | | (2,500,696 | ) | | | 365,277 | | | | | | | | | | | Total liabilities and stockholders’ equity (deficit) | | $ | 399,306 | | | $ | 780,196 | |
See the accompanying notes to these consolidated financial statements
F-26
SPORTS FIELD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | | | | | | Revenue | | | | | | | | | Contract revenue | | $ | 3,941,833 | | | $ | 1,228,188 | | Total revenue | | | 3,941,833 | | | | 1,228,188 | | | | | | | | | | | Cost of sales | | | | | | | | | Contract cost of sales | | | 4,450,831 | | | | 1,716,511 | | Loss on write-off of obsolete inventory | | | 69,166 | | | | — | | Total cost of sales | | | 4,519,997 | | | | 1,716,511 | | | | | | | | | | | Gross profit (loss) | | | (578,164 | ) | | | (488,323 | ) | | | | | | | | | | Operating expenses | | | | | | | | | Selling, general and administrative | | | 2,677,524 | | | | 3,007,510 | | Depreciation | | | 28,044 | | | | 67,212 | | Separation expense | | | — | | | | 228,414 | | Total operating expenses | | | 2,705,568 | | | | 3,303,136 | | | | | | | | | | | Net loss from operations | | | (3,283,732 | ) | | | (3,791,459 | ) | | | | | | | | | | Other income (expense), net | | | | | | | | | Interest, net | | | (91,759 | ) | | | (16,397 | ) | Miscellaneous income | | | 4,328 | | | | — | | Forfeit on deposit of land | | | — | | | | (25,000 | ) | Loss on abandonment of furniture, fixture and equipment | | | (11,826 | ) | | | — | | Gain on disposition of fabrication molds | | | 44,832 | | | | — | | Total other income (expense), net | | | (54,425 | ) | | | (41,397 | ) | | | | | | | | | | Net loss before income taxes | | | (3,338,157 | ) | | | (3,832,856 | ) | | | | | | | | | | Provision for income taxes | | | — | | | | — | | | | | | | | | | | Net loss | | $ | (3,338,157 | ) | | $ | (3,832,856 | ) | | | | | | | | | | Net loss per common share, basic | | $ | (0.24 | ) | | $ | (0.29 | ) | | | | | | | | | | Net loss per common share, diluted | | $ | (0.24 | ) | | $ | (0.29 | ) | | | | | | | | | | Weighted average common shares outstanding, basic | | | 13,698,354 | | | | 13,194,055 | | | | | | | | | | | Weighted average common shares outstanding, diluted | | | 13,698,354 | | | | 13,194,055 | |
See the accompanying notes to these consolidated financial statements
F-27
SPORTS FIELD HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
| | | | | | | | | | Additional | | Common | | | | | | | | | | | Paid in | | Stock | | Accumulated | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2013 | | — | | $ | — | | 8,885,000 | | | $ | 89 | | | $ | 1,744,609 | | | $ | (4,500 | ) | | $ | (3,098,505 | ) | | $ | (1,358,307 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares issued for services | | — | | | — | | 1,010,000 | | | | 9 | | | | 1,009,991 | | | | — | | | | — | | | | 1,010,000 | | Shares issued in an offering-net
proceeds | | — | | | — | | 5,000,000 | | | | 50 | | | | 4,304,323 | | | | — | | | | — | | | | 4,304,373 | | Reverse merger fees | | — | | | — | | — | | | | — | | | | (365,000 | ) | | | — | | | | — | | | | (365,000 | ) | Additional shares resulting from the reverse merger | | — | | | — | | 1,533,000 | | | | 15 | | | | (15 | ) | | | — | | | | — | | | | — | | Cancellation of founders’ shares | | — | | | — | | (3,742,200 | ) | | | (37 | ) | | | 37 | | | | — | | | | — | | | | — | | Separation Expense | | — | | | — | | 192,100 | | | | 2 | | | | 192,098 | | | | — | | | | — | | | | 192,100 | | Conversion of notes payable into common stock | | — | | | — | | 667,375 | | | | 7 | | | | 333,681 | | | | — | | | | — | | | | 333,688 | | Debt forgiveness of officer salaries | | — | | | — | | — | | | | — | | | | 81,279 | | | | — | | | | — | | | | 81,279 | | Net loss | | — | | | — | | — | | | | — | | | | — | | | | — | | | | (3,832,856 | ) | | | (3,832,856 | ) | Balance, December 31, 2014 | | — | | | — | | 13,545,275 | | | | 135 | | | | 7,301,003 | | | | (4,500 | ) | | | (6,931,361 | ) | | | 365,277 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares issued for services | | — | | | — | | 225,000 | | | | 2 | | | | 225,998 | | | | — | | | | — | | | | 226,000 | | Shares issued in an offering-net
proceeds | | — | | | — | | 118,182 | | | | 1 | | | | 113,099 | | | | — | | | | — | | | | 113,100 | | Stock options issued for services | | — | | | — | | — | | | | — | | | | 63,084 | | | | — | | | | — | | | | 63,084 | | Shares issued with convertible promissory notes | | — | | | — | | 25,000 | | | | — | | | | 70,000 | | | | — | | | | — | | | | 70,000 | | Shares issued for cashless warrant exercise | | — | | | — | | 1,874 | | | | — | | | | — | | | | — | | | | — | | | | — | | Net loss | | — | | | — | | — | | | | — | | | | — | | | | — | | | | (3,338,157 | ) | | | (3,338,157 | ) | Balance, December 31, 2015 | | — | | $ | — | | 13,915,331 | | | $ | 138 | | | $ | 7,773,184 | | | $ | (4,500 | ) | | $ | (10,269,518 | ) | | $ | (2,500,696 | ) |
See the accompanying notes to these consolidated financial statements
F-28
SPORTS FIELD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | Net loss | | $ | (3,338,157 | ) | | $ | (3,832,856 | ) | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | Depreciation | | | 28,044 | | | | 67,212 | | Loss on write-off of obsolete inventory | | | 69,166 | | | | — | | Gain on disposition of fabrication molds | | | (44,832 | ) | | | — | | Loss on abandonment of furniture, fixture and equipment | | | 11,826 | | | | — | | Amortization of debt issuance costs | | | 51,963 | | | | — | | Amortization of debt discount | | | 42,574 | | | | — | | Accretion of original issue discount | | | 9,832 | | | | — | | Forfeit on deposit of land option | | | — | | | | 25,000 | | Forfeit on deposit of office lease | | | 6,417 | | | | — | | Loss on disposal of property, plant and equipment | | | — | | | | 31,547 | | Loss on settlement of related party loans receivable and payable | | | — | | | | 4,767 | | Common stock issued for employee separation | | | — | | | | 192,100 | | Common stock and options issued to consultants and employees | | | 289,084 | | | | 1,010,000 | | Changes in operating assets and liabilities: | | | | | | | | | Cash overdraft | | | — | | | | (6,727 | ) | Accounts receivable | | | (151,168 | ) | | | 14,874 | | Prepaid expenses | | | (7,706 | ) | | | 17,760 | | Inventory | | | 62,289 | | | | (65,513 | ) | Accounts payable and accrued expenses | | | 1,589,453 | | | | (418,265 | ) | Costs and estimated earnings in excess of billings | | | (137,016 | ) | | | 8,115 | | Billings in excess of costs and estimated earnings | | | (20,500 | ) | | | (19,343 | ) | Provision for estimated losses on uncompleted contracts | | | 130,046 | | | | — | | Increase in due from related party | | | — | | | | (324 | ) | Net cash used in operating activities | | | (1,408,685 | ) | | | (2,971,653 | ) | | | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | Acquisitions | | | — | | | | (350,000 | ) | Deposit on lease | | | — | | | | (8,507 | ) | Deposit on land option | | | — | | | | (25,000 | ) | Purchase of equipment | | | — | | | | (36,437 | ) | Net cash used in investing activities | | | — | | | | (419,944 | ) | | | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | Proceeds of convertible notes | | | 585,000 | | | | — | | Debt issuance costs | | | (57,500 | ) | | | — | | Proceeds of promissory notes | | | 355,993 | | | | — | | Repayments of promissory notes | | | (50,000 | ) | | | (391,183 | ) | Proceeds from common stock subscriptions, net | | | 113,100 | | | | 4,304,373 | | Repayments of notes payable | | | — | | | | (23,591 | ) | Proceeds of related party advances | | | — | | | | 25,015 | | Net cash provided by financing activities | | | 946,593 | | | | 3,914,614 | | | | | | | | | | | Increase (decrease) in cash | | | (462,092 | ) | | | 523,017 | | Cash, beginning of year | | | 523,492 | | | | 475 | | Cash, end of year | | $ | 61,400 | | | $ | 523,492 | |
F-29
SPORTS FIELD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
| | | | | | | | Supplemental disclosures of cash flow information: | | | | | | | Cash paid during the period for: | | | | | | | Interest | | $ | — | | $ | 16,397 | Taxes | | $ | — | | $ | — | | | | | | | | Non cash investing and financing activities: | | | | | | | Cancellation of founders shares | | $ | — | | $ | 37 | Shares added though acquisitions | | $ | — | | $ | 15 | Conversion of notes and accrued interest into common stock | | $ | — | | $ | 333,688 | Forgiveness of officer accrued salaries | | $ | — | | $ | 81,279 | Original issue discount on promissory notes | | $ | 8,000 | | $ | — | Original issue discount on convertible notes | | $ | 15,000 | | $ | — | Debt discount paid in the form of common shares | | $ | 70,000 | | $ | — | Debt issuance costs accrued | | $ | 17,500 | | $ | — | Stock issuance costs paid in the form of warrants | | $ | 5,257 | | $ | 204,759 | Fabrication molds given in settlement agreement for liabilities | | $ | 59,983 | | $ | — | Property, plant and equipment given in separation agreement | | $ | — | | $ | 190,180 |
See the accompanying notes to these consolidated financial statements
F-30
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
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 Company was formed September 7, 2012. Effective September 7, 2012, the Company acquired all of the membership interests and operations of Sports Field Contractors, LLC, an Illinois limited liability company formed July 7, 2011 in exchange for 6,225,000 shares of the Company’s common stock. The former members of Sports Field Contractors, LLC owned all the Company’s common stock after the acquisition. All equity accounts have been retrospectively recast as a result of the acquisition.
The Company, through its wholly owned subsidiaries, is a product development, engineering, manufacturing and construction company that designs, engineers and builds athletic facilities, as well as supplies its own proprietary technologically advanced, synthetic turf products to the industry. The Company is headquartered at 4320 Winfield Road, Suite 200, Warrenville, IL 60555.
On May 13, 2014, The Board of Directors ratified the incorporation of Sports Field Engineering, Inc. and Sportsfield Athletic Construction Engineering, Inc., which became subsidiaries of the Company. On September 21, 2015, the Company filed articles of dissolution with the Florida Department of State dissolving Sportsfield Athletic Construction Engineering, Inc. Effective April 4, 2016, Sports Field Engineering, Inc. changed its name to FirstForm, Inc.
On June 16, 2014, Anglesea Enterprises (“Anglesea”), Inc. a Nevada corporation, Anglesea Enterprises Acquisition Corp, a Nevada corporation and wholly owned subsidiary of Anglesea (“Merger Sub”), Sports Field Holdings, Inc. (“Sports Field”), Leslie Toups and Edward Mass Jr., as individuals (the “Majority Shareholders”), entered into an Acquisition Agreement and Plan of Merger (the “Agreement”) pursuant to which Sports Field was merged with and into the Merger Sub, with Sports Field surviving as a wholly owned subsidiary of Anglesea (the “Merger”). The transaction (the “Closing”) took place on June 16, 2014 (the “Closing Date”). Anglesea acquired, through a reverse triangular merger, all of the outstanding capital stock of Sports Field in exchange for issuing Sports Field’s shareholders the same number of shares of Anglesea’s common stock. Immediately after the Merger was consummated, and further to the Agreement, the majority shareholders and certain affiliates of Anglesea cancelled a total of 64,500,000 shares of the Anglesea’s common stock held by them (the “Cancellation”). In consideration of the cancellation of such common stock, Sports Field paid the Majority Shareholders an aggregate of $365,000 and released the other affiliates from certain liabilities. In addition, the Company has agreed to spinout to the Majority Shareholders any and all assets and liabilities related to the Anglesea’s website development business within 30 days after the closing. As a result of the Merger and the Cancellation, the Sports Field Shareholders became the majority shareholders of the Company.
Upon completion of the Merger, on June 16, 2014, Anglesea merged with Sports Field in a short form merger transaction (the “Short Form Merger”) under Nevada law. Upon completion of the Short Form Merger, Anglesea became the parent company of the Sports Field’s wholly owned subsidiaries, Sports Field Contractors LLC, Sports Field Engineering, Inc. and Athletic Construction Enterprises, Inc. In connection with the Short Form Merger, Angelsea changed its name to Sports Field Holdings, Inc.
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
Our 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.
F-31
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES(cont.)
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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 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 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 December 31, 2015 and 2014 the company did not have any cash equivalents.
Inventory
Inventory is stated at the lower of cost (first-in, first out) or market and consists primarily of construction materials.
During the year ended December 31, 2013, construction materials and shipping materials deemed obsolete in the amount of $65,941 and $3,225, respectively, were written-off.
F-32
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES(cont.)
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.
Income Taxes
Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss and credit carry-forwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. The differences relate primarily to net operating loss carryforward from date of acquisition and to the use of the cash basis of accounting for income tax purposes. The Company records an estimated valuation allowance on its deferred income tax assets if it is more likely than not that these deferred income tax assets will not be realized.
The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company has not recorded any unrecognized tax benefits.
Prior to the acquisition, Sports Field Contractors, LLC was a limited liability company. As a result, the Company’s income for federal and state income tax purposes was reportable on the tax returns of the individual partners. Accordingly, no recognition has been made for federal or state income taxes in the accompanying financial statements of the predecessor Company.
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
F-33
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES(cont.)
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 December 31, 2015 and 2014, the Company’s accounts receivable balance was $151,168 and $0, respectively, and the allowance for doubtful accounts is $0 in each period.
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 December 31, 2015 and, 2014.
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.
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
F-34
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES(cont.)
inclusion would be anti-dilutive. Anti-dilutive securities excluded from the computation of basic and diluted net loss per share for the years ended December 31, 2015 and 2014, respectively, are as follows:
| | | | | | | | Warrants to purchase common stock | | 508,068 | | 500,000 | Options to purchase common stock | | 430,000 | | — | Convertible Notes | | 626,775 | | — | Totals | | 1,564,843 | | 500,000 |
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 accounts receivable among a few customers. This concentration of accounts receivable 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 December 31, 2015, the Company had two customer representing 94% of the total accounts receivable balance.
At December 31, 2014, the Company had no customers representing at least 10% of the total accounts receivable balance.
For the year ended December 31, 2015, the Company had four customers that represented 97% of the total revenue and for the year ended December 31, 2014, the Company had two customers that represented 82% of the total revenue.
Reclassifications
Certain items in the prior year financial statements have been reclassified to conform to the current year presentation.
Recent Accounting Pronouncements
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 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
F-35
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES(cont.)
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. The adoption of ASU 2014-12 is not expected to have a material impact on our financial position, results of operations or cash flows.
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 April 2015, the Financial Accounting Standards Board issued Accounting Standards Update 2015-03,Interest-Imputation of Interest. To simplify presentation of debt issuance costs, the amendments in this Update would require that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs would not be affected by the amendments in this update. This Accounting Standards Update is the final version of Proposed Accounting Standards Update 2014-250-Interest-Imputation of Interest (Subtopic 835-30), which has been deleted. The amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of ASU 2015-03 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.
F-36
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES(cont.)
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.
Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying consolidated financial statements.
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 consolidated financial statements, except as disclosed.
NOTE 3 — GOING CONCERN
As reflected in the accompanying consolidated financial statements, as of December 31, 2015 the Company had a cash balance of $61,400 and a working capital deficit of $(2,517,035). Furthermore, the Company had a net loss and net cash used in operations of $(3,338,157) and (1,408,685), respectively, for the year ended December 31, 2015 and an accumulated deficit totaling $(10,269,518). 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 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.
F-37
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
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 December 31, 2015 and December 31, 2014:
| | December 31, | | December 31, | | | | | | Costs incurred on contracts in progress | | $ | 5,395,046 | | | $ | 927,601 | | Estimated earnings (losses) | | | (863,259 | ) | | | (207,601 | ) | | | | 4,531,787 | | | | 720,000 | | Less billings to date | | | (4,524,817 | ) | | | (740,500 | ) | | | $ | 6,970 | | | $ | (20,500 | ) |
The above accounts are shown in the accompanying consolidated balance sheet under these captions at December 31, 2015 and December 31, 2014:
| | December 31, | | December 31, | | | | | | Costs and estimated earnings in excess of billings | | $ | 137,016 | | | $ | — | | Billings in excess of costs and estimated earnings | | | — | | | | (20,500 | ) | Provision for estimated losses on uncompleted contracts | | | (130,046 | ) | | | — | | | | $ | 6,970 | | | $ | (20,500 | ) |
Warranty Costs
During the year ended December 31, 2015 the Company incurred costs of approximately $231,400 relating to the faulty 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 December 31, 2015.
NOTE 5 — PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
| | | | | Furniture and equipment | | $ | 20,278 | | | $ | 144,501 | | Total | | | 20,278 | | | | 144,501 | | Less: accumulated depreciation | | | (6,029 | ) | | | (30,399 | ) | | | $ | 14,249 | | | $ | 114,102 | |
Depreciation expense for the years ended December 31, 2015 and 2014 was $28,044 and $67,212, respectively.
In May 2014, the Company and its former President, Jeremy Strawn entered into a mutual separation agreement (the “Separation Agreement”). Pursuant to the Separation Agreement, the Company assigned title and ownership of various equipment held by the Company to Mr. Strawn. As a result, the Company recorded a disposal of property plant and equipment having a net book value of $221,727 and a termination of loans on the equipment totaling $190,180, resulting in a loss on disposal of property, plant and equipment of $31,547, which was recorded as a component of Separation Expense during the year ended December 31, 2014 in the Consolidated Statement of Operations.
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SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 5 — PROPERTY, PLANT AND EQUIPMENT(cont.)
On October 21, 2015, the Company and East Point Crossing, LLC (the “Landlord”) entered into a settlement and release agreement (the “East Point Settlement Agreement”). Pursuant to the East Point Settlement Agreement, the Company agreed to the transfer of all right, title and interest in and to the furniture, fixtures and equipment in the premises to the Landlord. (See Note 11 – Litigation) As a result, the Company recorded an abandonment of furniture, fixtures and equipment having a net book value of $11,826, resulting in a loss on abandonment of furniture, fixtures and equipment of $11,826.
On December 17, 2015, the Company and 308, LLC entered into a settlement and release agreement (the “Settlement Agreement”). As mutual consideration for entering into the Settlement Agreement with 308, LLC the Company assigned title and ownership of various fabrication molds held by the Company to 308, LLC and 308, LLC wrote down to $0 all past due royalties and/or any other amounts owed pursuant to the License Agreement. (See Note 11 – Litigation) As a result, the Company recorded a disposal of fabrication molds having a net book value of $59,983 and a termination of royalties due on the License Agreement totaling $104,815, resulting in a gain on disposition of fabrication molds of $44,832.
NOTE 6 — DEPOSITS
On June 16, 2014, the Company closed on its acquisition of Anglesea via a reverse triangular merger and paid the majority shareholders of Anglesea $350,000 in addition to the $15,000 deposit paid in the prior year.
In May 2013, the Company entered into a contract to purchase property in Springfield, Illinois. The purchase price was $1,050,000, and was payable in several installments. The Company paid the first four installments totaling $100,000. Prior to the closing date, a dispute arose that could not be remedied. The seller terminated the contract and the Company temporarily forfeited a total of $100,000 in payments made under the contract. During the year ended December 31, 2014, the forfeitures totaled $25,000 and is classified as forfeit on deposit of land in the Consolidated Statement of Operations. See Note 11 for litigation that resulted from the dispute.
Deposits at December 31, 2014 were comprised of a $6,417 security deposit on a Massachusetts office lease and a $2,090 security deposit on an Illinois office lease (See Note 11).
Deposits at December 31, 2015 were comprised of a $2,090 security deposit on an Illinois office lease (See Note 11).
NOTE 7 — DEBT
Convertible Notes
As of January 31, 2014, the Company owed $650,000 in principal and $74,871 in accrued interest relating to convertible promissory notes entered into during the year ended December 31, 2014. During 2014, the Company repaid in cash $391,183 on outstanding principal and converted the remaining principal of $258,817 and accrued interest of $74,871 into 667,375 shares of common stock.
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
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SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 7 — DEBT(cont.)
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.
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.
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SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 7 — DEBT(cont.)
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.
Promissory Notes
As discussed in Note 5, as a result of the separation agreement reached between the Company and Mr. Strawn, the following loans on equipment totaling $190,180 were assumed by Mr. Strawn.
i. On August 28, 2013, the Company entered into a note agreement to fund a fixed asset purchase. The note matures on August 28, 2018, and bears interest at 0.83% per annum with monthly payments of $1,396.
ii. On September 13, 2013, the Company entered into a note agreement to fund the purchase of a vehicle. The note matures on September 13, 2015 and bears interest at 5.09% per annum with monthly payments of $709.
iii. On December 3, 2013, the Company traded in one of the two fixed assets purchased in December of 2012 for a new fixed asset. The note on the new fixed assets matures on December 3, 2017 and bears interest at 0% per annual with monthly payments of $1,361.
iv. In December of 2012, the Company entered into two note agreements to fund fixed asset purchases. The notes mature on December 20, 2017 and bear interest at .84% and 0% per annum, respectively; with aggregate monthly payments of $2,046. The Company has imputed an interest rate of 3% on the loans.
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. The outstanding principal balance on the loan at December 31, 2015 was $200,000.
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. Subsequent to December 31, 2015, the Company paid an aggregate of $113,993 of principal on the note.
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
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SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 8 — STOCKHOLDERS EQUITY (DEFICIT)(cont.)
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 December 31, 2015 and 2014, 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 December 31, 2015 and December 31, 2014, the Company has 13,915,331 and 13,545,275 shares of common stock issued and outstanding, respectively.
Common stock issued for note conversions
As discussed in Note 7, during the year ended December 31, 2014 the holders of certain convertible notes converted outstanding principal and accrued interest into 667,375 shares of common stock.
Common stock issued in placement of debt
As part of a securities purchase agreement entered into on August 19, 2015, we agreed to issue an investor 25,000 shares of our common stock for certain due diligence and other transaction related costs.
Common stock issued in cashless exercise of warrants
On June 17, 2015, a warrant holder elected their cash-less exercise provision and exercised 3,750 warrants. Accordingly, the Company issued 1,874 shares of common stock in connection with such exercise.
Common stock issued for services
On April 1, 2015, 20,000 restricted shares were granted to a certain employee with a fair value of $20,000. The restricted shares vest over a one year period — 25% three months from the date of issue and the remaining shares vesting quarterly until the end of the term. The Company has recorded $15,000 in stock-based compensation expense for the year ended December 31, 2015 for the shares that have vested, which is a component of general and administrative expenses in the Consolidated Statement of Operations.
During the year ended December 31, 2015, 210,000 shares of common stock valued at $211,000 were issued for professional services provided to the Company.
During the year ended December 31, 2014, 760,000 shares of common stock valued at $760,000 were issued for professional services provided to the Company.
As discussed in Note 11, Jeromy Olson was issued 250,000 shares of common stock valued at $250,000 upon execution of his employment agreement with the company as Chief Executive Officer.
Cancellation of common stock
On May 13, 2014, 90% of William Michaels’ shares of common stock, or 1,871,100 shares of common stock, were cancelled as a result of his employment termination.
On May 22, 2014, 90% of Mr. Strawn’s shares of common stock, or 1,871,100 shares of common stock, were cancelled as a result of his employment termination.
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SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 8 — STOCKHOLDERS EQUITY (DEFICIT)(cont.)
On June 16, 2014, as a result of the reverse merger with Anglesea, 64,500,000 of Anglesea’s shares were cancelled.
On September 18, 2014, 250,000 common shares valued at $250,000 were issued to Jeromy Olson when he entered into an employment agreement to serve as the Company’s Chief Executive Officer (“CEO”). As discussed in Note 11, Mr. Olson will also be issued stock options after the Company adopts a formal option plan that is approved by the Board of Directors.
Common stock issued as part of separation agreement
On May 22, 2014 Mr. Strawn received 192,100 shares of common stock valued at $192,100, which was recorded as a component of Separation expense in the Consolidated Statement of Operations.
Sale of common stock
During the year ended December 31, 2014, the Company sold 5,000,000 shares of common stock to investors in exchange for $5,000,000 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 $695,627. In addition, 500,000 five year warrants with an exercise price of $1.00 were issued to the placement agent. The Company valued the warrants at $204,759 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.
During the year ended December 31, 2015, the Company sold 118,182 shares of common stock to investors in exchange for $130,000 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 $16,900. In addition, 11,818 five year warrants with an exercise price of $1.10 were issued to the placement agent. The Company valued the warrants at $5,257 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 year ended December 31, 2015, the Company’s board of directors authorized the grant of 430,000 stock options, having a total fair value of approximately $171,881, with a vesting period ranging from 1.00 year to 1.84 years. These options expire between January 29, 2020 and August 27, 2020.
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 Year EndedDecember 31, | | | | | | Risk free interest rate | | 1.47 – 1.83 | % | | 1.49 – 1.64 | % | Dividend yield | | 0.00 | % | | 0.00 | % | Expected volatility | | 44% – 45 | % | | 45 | % | Expected life in years | | 5 | | | 5 | | Forfeiture Rate | | 0.00 | % | | 0.00 | % |
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SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 8 — STOCKHOLDERS EQUITY (DEFICIT)(cont.)
Since the Company has no 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 thesimplified 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 following is a summary of the Company’s stock option activity during the years ended December 31, 2015 and 2014:
| | | | Weighted Average Exercise
Price | | Weighted Average Remaining Contractual Life | Outstanding – December 31, 2014 | | — | | $ | — | | — | Granted | | 430,000 | | | 1.03 | | 5.00 | Exercised | | — | | | — | | — | Forfeited/Cancelled | | — | | | — | | — | Outstanding – December 31, 2015 | | 430,000 | | $ | 1.03 | | 4.36 | Exercisable – December 31, 2015 | | 172,500 | | $ | 1.07 | | 4.26 |
At December 31, 2015 and 2014, the total intrinsic value of options outstanding was $40,000 and $0, respectively.
At December 31, 2015 and 2014, the total intrinsic value of options exercisable was $15,000 and $0, respectively.
Stock-based compensation for stock options has been recorded in the consolidated statements of operations and totaled $63,084 for the year ended December 31, 2015 and $0 for the year ended December 31, 2014. As of December 31, 2015, the remaining balance of unamortized expense is $108,797 and is expected to be amortized over a remaining period of 1.5 years.
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SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 8 — STOCKHOLDERS EQUITY (DEFICIT)(cont.)
Stock Warrants
The following is a summary of the Company’s stock warrant activity during the year ended December 31, 2015:
| | | | Weighted Average Exercise
Price | | Weighted Average Remaining Contractual Life | Outstanding – December 31, 2013 | | — | | | $ | — | | | Granted | | 500,000 | | | | 1.00 | | 4.09 | Exercised | | — | | | | — | | | Forfeited/Cancelled | | — | | | | — | | | Outstanding – December 31, 2014 | | 500,000 | | | $ | 1.00 | | 4.09 | Exercisable – December 31, 2014 | | 500,000 | | | $ | 1.00 | | 4.09 | Granted | | 11,818 | | | | 1.10 | | | Exercised | | (3,750 | ) | | | — | | | Forfeited/Cancelled | | — | | | | — | | | Outstanding – December 31, 2015 | | 508,068 | | | $ | 1.00 | | 3.13 | Exercisable – December 31, 2015 | | 508,068 | | | $ | 1.00 | | 3.13 |
At December 31, 2015 and 2014, the total intrinsic value of warrants outstanding and exercisable was $49,625 and $0, respectively.
NOTE 9 — RELATED PARTY TRANSACTIONS
Prior to the year ended December 31, 2015 the Company utilized All Synthetics Group, a company under the control of Jeremy Strawn, one of the Company’s former officers and directors, to acquire products and services where vendor purchase lines had been previously established. For the year ended December 31, 2014, the Company purchased an aggregate of $25,015 through All Synthetics Group.
Pursuant to the Separation Agreement, all related party loans receivable and payable involving Mr. Strawn were cancelled. As a result, the Company recorded a loss on the settlement of related party loans receivable and payable of $4,767, which was recorded as a component of Separation expense in the Consolidated Statement of Operations during the year ended December 31, 2014.
Sports Field Contractors LLC, a subsidiary of the Company, is a grantor under a commercial security agreement issued in favor of Illini Bank, as lender, by The AllSynthetic Group, Inc., as borrower, on November 26, 2012, in connection with a loan made by Illini Bank to The AllSynthetic Group, Inc. in the amount of $249,314 (the “Illini Loan”). Jeremy Strawn, a former officer of the Company, executed the Illini Loan on behalf of The AllSynthetic Group, Inc. in his capacity as such company’s President/CEO. The Illini Loan appears to have matured on November 26, 2013 and appears to currently be in default. The Illini Loan is collateralized by all of the assets of Sports Field Contractors LLC; however, because Sports Field Contractors LLC is an inactive subsidiary of the Company and had no assets at December 31, 2015, the Company believes that it does not have any financial exposure in connection with the Illini Loan.
During 2014, four of the Company’s officers agreed to forgive the accrued salaries due to them. The total accrued salaries that were forgiven by the officers totaled $81,279 and was accounted for as an adjustment to Additional paid in capital.
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SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 9 — RELATED PARTY TRANSACTIONS(cont.)
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 $161,000 for the year ended December 31, 2015. Included in consulting expense for the year ended December 31, 2015 was 40,000 shares of common stock valued at $41,000 issued to NexPhase Global.
Consulting expenses pertaining to the firm’s services were $254,948 for the year ended December 31, 2014. Included in consulting expense for the year ended December 31, 2014 was 130,000 shares of common stock valued at $130,000 issued to NexPhase Global.
NOTE 10 — EMPLOYEE SEPARATIONS
On May 13, 2014, the employment of William Michaels, the former Chief Operating Officer, was terminated for cause. Pursuant to Mr. Michaels’ employment agreement (the “Employment Agreement”), upon termination for cause, Mr. Michaels must return 90% of his shares, or 1,871,100 shares of common stock, to the Company. As of the date the financial statements were issued, Mr. Michaels has failed to return the physical share certificate (the “Certificate”) representing the shares in question and the Company was forced to commence legal action against him in NJ Superior Court, Middlesex County in an effort to enforce the terms of his the Employment Agreement. As of December 31, 2014, the Company has accounted for the 1,871,100 common shares as canceled in the Consolidated Balance Sheet.
On May 22, 2014, the Company entered into a separation agreement (the “Separation Agreement”) with Jeremy Strawn, the former President of the Company. According to the Separation Agreement, Mr. Strawn resigned his position as the President of the Company as well as all positions held on the Board of Directors and committees. Upon execution of the Separation Agreement, Mr. Strawn retained 10% of the initial shares issued, or 207,900 shares, awarded according to his original employment agreement signed in November 2013. The remaining 1,871,100 shares were cancelled by the Company. In addition to these shares, Mr. Strawn was issued an additional 192,100 shares.
In addition, as discussed above in Notes 5 and 7, Mr. Strawn was also assigned title and ownership to various equipment and related equipment loans held by the Company.
On September 19, 2014, Joseph DiGeronimo resigned from his position as the Company’s Chief Executive Officer.
On October 9, 2014, Dan Daluise resigned from his position as a member of the Company’s Board of Directors.
NOTE 11 — 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 $61,639 during the year ended December 31, 2015.
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
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SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 11 — COMMITMENTS AND CONTINGENCIES(cont.)
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. As of December 31, 2015 the shares have not been issued. The Company has recorded compensation expense relating to the agreement of $53,432 during the year ended December 31, 2015.
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.
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 stock based compensation relating to this agreement of $120,000 during the year ended December 31, 2015.
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
F-47
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 11 — COMMITMENTS AND CONTINGENCIES(cont.)
owed in connection with any renewal term. The Company has recorded compensation expense relating to the equity portion of the agreement of $32,246 during the year ended December 31, 2015.
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 $16,667 during the year ended December 31, 2015.
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 $2,785 during the year ended December 31, 2015.
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 $602 during the year ended December 31, 2015.
In August 2014, Jeromy Olson entered into an 18 month consulting agreement to serve in the capacity of Chief Revenue Officer (“CRO”), with subsequent six month renewal periods. The CRO will receive monthly compensation of $4,000, and upon the Company completing an equity financing of at least $2,000, the CRO’s monthly compensation will increase to $8,000. The CRO was issued 30,000 shares of common stock upon signing the agreement, and will receive 30,000 and 40,000 shares of common stock at the respective six month and one year anniversaries of the of date of the agreement. Furthermore, the CRO will receive 100,000 five year stock options that vest on July 1, 2015. The exercise price will be the same exercise price as options issued to other members of senior management. The options will be issued after the Company adopts a formal option plan that is approved by the Board of Directors. This agreement was superseded in
F-48
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 11 — COMMITMENTS AND CONTINGENCIES(cont.)
September 2014 when Mr. Olson entered into an employment agreement to serve as the Company’s Chief Financial Officer. (See below).
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 29, 2015, the Company entered into a director agreement (“Director Agreement”) with Tracy Burzycki, concurrent with Ms. Burzycki’s appointment to the Board of Directors of the Company (the “Board”) effective January 29, 2015. The Director Agreement may, at the option of the Board, be automatically renewed on such date that Ms. Burzycki is re-elected to the Board. Pursuant to the Director Agreement, Ms. Burzycki is to be paid a stipend of $1,000 per meeting of the Board, which shall be contingent upon her attendance at the meetings being in person, rather than via telephone or some other electronic medium. Additionally, Ms. Burzycki received non-qualified stock options to purchase 200,000 common shares at an exercise price of $1.00 per share. The options shall vest in equal amounts over a period of two years at the rate of 25,000 shares per quarter on the last day of each such quarter, commencing in the first quarter of 2015. The total grant date value of the options was $82,140 which shall be expensed over the vesting period.
On August 27, 2015, the Company entered into a director agreement with Glenn Appel, concurrent with Mr. Appel’s appointment to the Board of Directors of the Company effective August 27, 2015. The Director Agreement may, at the option of the Board, be automatically renewed on such date that Mr. Appel is re-elected to the Board. Pursuant to the Director Agreement, Mr. Appel 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. Appel receive non-qualified stock 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
F-49
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 11 — COMMITMENTS AND CONTINGENCIES(cont.)
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 in the third fiscal quarter of 2015. The total grant date value of the options was $80,932 which shall be expensed over the vesting period.
Placement Agent and Finders Agreements
The Company entered into an exclusive Financial Advisory and Investment Banking Agreement with Spartan Capital Securities, LLC (“Spartan”) effective November 20, 2013 (the “2013 Spartan Advisory Agreement”). Pursuant to the 2013 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 “2013 Financing”) of up to $5 million of the Company’s equity securities (the “Securities”) and a reverse merger. The Company, upon closing of the 2013 Financing, shall pay consideration to Spartan, in cash, a fee in an amount equal to 10% of the aggregate gross proceeds raised in the 2013 Financing. The Company shall grant and deliver to Spartan at the closing of the 2013 Financing, for nominal consideration, five year warrants (the “Warrants”) to purchase a number of shares of the Company’s Common Stock equal to 10% of the number of shares of Common Stock (and/or shares of Common Stock issuable upon exercise of securities or upon conversion or exchange of convertible or exchangeable securities) sold at such closing. The Warrants shall be exercisable at any time during the five year period commencing on the closing to which they relate at an exercise price equal to the purchase price per share of Common Stock paid by investors in the 2013 Financing or, in the case of exercisable, convertible, or exchangeable securities, the exercise, conversion or exchange price thereof. If the Financing is consummated by means of more than one closing, Spartan shall be entitled to the fees provided herein with respect to each such closing.
Along with the above fees, the Company shall pay (i) a $10,000 engagement fees upon execution of the agreement, (ii) 3% of the gross proceeds raised for expenses incurred by Spartan in connection with this 2013 Financing, together with cost of background checks on the officers and directors of the Company and (iii) a monthly fee of $10,000 for 24 months contingent upon Spartan successfully raising $3.5 million under the 2013 Financing.
The Company entered into a second exclusive Financial Advisory and Investment Banking Agreement with Spartan Capital Securities, LLC (“Spartan”) effective October 1, 2015, amended August 3, 2016 (the “2015 Spartan Advisory Agreement”)., which replaced and superseded the 2013 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 JanuaryAugust 1, 2019. The Company, upon closing of the 2015 Financing, shall pay consideration to Spartan, in cash, a fee in an amount equal to 10% of the aggregate gross proceeds raised in the 2015 Financing. The Company shall grant and deliver to Spartan at the closing of the 2015 Financing, for nominal consideration, five year warrants (the “Warrants”) to purchase a number of shares of the Company’s Common Stock equal to 10% of the number of shares of Common Stock (and/or shares of Common Stock issuable upon exercise of securities or upon conversion or exchange of convertible or exchangeable securities) sold at such closing. The Warrants shall be exercisable at any time during the five year period commencing on the closing to which they relate at an exercise price equal to the purchase price per share of Common Stock paid by F-50
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 11 — COMMITMENTS AND CONTINGENCIES(cont.)
investors in the 2015 Financing or, in the case of exercisable, convertible, or exchangeable securities, the exercise, conversion or exchange price thereof. If the 2015 Financing is consummated by means of more than one closing, Spartan shall be entitled to the fees provided herein with respect to each such closing. (See Note 8 sale of common stock). Along with the above fees, the Company shall pay (i) $15,000 engagement fees upon execution of the agreement, (ii) 3% of the gross proceeds raised for expenses incurred by Spartan in connection with this Financing, together with cost of background checks on the officers and directors of the Company, (iii) a monthly fee of $10,000 for 4 months for the period commencing October 1, 2015 through January 1, 2016; and contingent upon Spartan successfully raising $2.0 million under the 2015 Financing (iv) a monthly fee of $5,000 for 6 months for the period commencing FebruarySeptember 1, 2016 through JulyFebruary 1, 2016;2017; (v) a monthly fee of $7,500 for 6 months for the period commencing AugustMarch 1, 20162017 through JanuaryAugust 1, 2017; (vi) a monthly fee of $10,000 for 12 months for the period commencing FebruarySeptember 1, 2017 through JanuaryAugust 1, 2018; (vii) a monthly fee of $13,700 for 12 months for the period commencing FebruarySeptember 1, 2018 through JanuaryAugust 1, 2019. The obligation to pay the monthly fee shall survive any termination of this agreement. As of December 31, 20152018 and 2014,2017, Spartan was owed fees of $17,500$292,250 and $0,$153,750, respectively. Litigation On May 5, 2014, Sports FieldJanuary 26, 2018, the Company and one of its historical clients executed a Settlement Agreement, pursuant to which the Company is obligated to remediate a track which was namedimproperly installed by one of the Company’s subcontractors. No later the July 15, 2018, the Company is obligated to complete installment of a replacement track which is of the same or comparable specifications as a defendant in a civil lawsuit in the Circuit Courtoriginal contract. Upon completion of the Seventh Judicial Circuit in Sangamon County, Illinois (“installation, the Court”). Sallenger Incorporated, as plaintiff,client is making certain claimsobligated to release from escrow a retainage amount of $110,000. During construction, the Company’s insurance company is obligated to release from escrow funds to cover the expected construction costs of $370,000; the remediation will be entirely funded with insurance proceeds. This remediation work has been completed. On July 25, 2018, two note holders filed suit against the Company in connection withthe New York State Supreme Court, County of New York. The suit alleges that, as of July 24, 2018, the Company owes the plaintiffs a mechanics lientotal amount of $466,177, which is inclusive of principal and interest. The plaintiffs filed a Motion for unjust enrichment. The matterSummary Judgment in Lieu of Complaint and asked that judgment be entered against the Company. As of November 8, 2018, the outstanding principal was settled on December 18, 2014. The$351,810 and accrued unpaid interest as $124,524, totaling $476,334. On November 8, 2018, the Note Holder Plaintiffs and the Company executed a Settlement Agreement pursuant to which the Note Holder Plaintiffs agreed to pay Sallenger a totalfull release and wavier of $210,000,their claims, including but not limited to, dismissal with $50,000 upfront and $16,000 per month for ten months thereafter. As of December 31, 2015, the settlement was paid in full. On October 21, 2015, the Company and East Point Crossing, LLC (the “Landlord”) entered into a settlement and release agreement (the “East Point Settlement Agreement”). Whereas, on April 15, 2013, the Company and the Landlord entered into a lease agreement for office space in Massachusetts (the “Lease Agreement”). In October 2014, the Company vacated the office space and on August 24, 2015 the Landlord filed a complaint against the Company for non-payment of rent and breach of other covenants, conditions and obligationsprejudice of the Lease Agreement (the “Lease Litigation”suit in exchange for (a) an initial payment of $250,000, and (b) promissory notes in the total amount of $150,000, payable over twenty-four (24) months, with interest at nine percent (9%). Pursuant per annum. With respect to the East Pointthis Settlement Agreement, the Company recorded forgiveness of indebtedness income of $76,334. As security for the two promissory notes, the Company will place 850,000 shares of common stock into an escrow account (“Escrow”). In the event the Company does not make timely payments under the promissory notes, upon written notice and after expiration of a cure period, the Landlord agreedescrow agent shall release from Escrow shares of common stock with a value equal to the following: a settlementmissed installment payment inor payments plus accrued interest on that payment or payments. The number of shares so issued shall be determined by dividing the amount of $12,943 to be paid in 2 payments within 60the past due installment payment by the volume-weighted average price of the Company’s common stock for the last five trading days (the “Settlement Amount”); transferpreceding the due date of all right, title and interest in andthe installment payment. With respect to the furniture, fixtures and equipmentcommon stock held in the premisesEscrow, Note Holder Plaintiffs do not have any shareholder rights, including but not limited to Landlord; and forfeiture of the last month’s rent and security deposit held by the Landlord.voting, dividend or ownership rights. Upon full performance of the obligations set forthpromissory notes, all shares of common stock still remaining in the East Point Settlement Agreement, the Landlord releases and forever dischargesEscrow shall revert back to the Company as treasury shares. Given that the Company is experiencing financial difficulties and the Note Holder Plaintiffs granted a concession by accepting total payments of $400,000 for the remaining balance of the principal and interest due, the Company accounted for such transactions as a troubled debt restructuring and recognized a total gain of $76,336 from any and all claims and causes of action, excepting only claims arising out of third-party liability claims.the debt settlement. The Settlement Amountgain on troubled debt restructuring was paid in full as of December 31, 2015.$0.00 per share.
On December 17, 2015,March 27, 2019 the Company and 308, LLC (the “Parties”) entered into a settlementmutual general release and releasesettlement agreement (the “Settlement Agreement”). Whereas, on April 15, 2013, with the Parties entered into a non-exclusive patent license agreement for use of 308, LLC’s patented design synthetic turf base (the “License Agreement”). A dispute arose between the parties concerning the License Agreement and on September 25, 2015 308, LLC filed a complaint against the Company for breach of the License Agreement (the “Litigation”).former employee. Pursuant to the Settlement Agreement, the Parties wishCompany agreed to mutually terminatepay the License Agreementformer employee $69,000, payable in three equal installments of $23,000 on March 31, June 28 and to dismiss the Litigation. As mutual consideration for entering into theSeptember 30, 2019 (the “Settlement Amount”). The Settlement Agreement also contains a general release by the former employee of the Company assigned title and ownership of various fabrication molds held byrelating to the Claim, such release however is predicated on the Company to 308,LLC and 308, LLC wrote down to $0 all past due royalties and/or any other amounts owedmaking payments pursuant to the LicenseSettlement Agreement. As of the March 31, 2019, the outstanding balance on this obligation was $46,000. F-51
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 11 — COMMITMENTS AND CONTINGENCIES(cont.On April 5, 2019, Spartan Capital Securities, LLC, an investment banker (“Spartan Capital”)
, filed a result,Demand for Arbitration with the American Arbitration Association(New York, New York; case no. 01-19-0001-0700).Spartan Capital alleges the Company recorded a disposal of fabrication molds having a net book value of $59,983owes various service fees and a termination of royalties due on the License Agreement totaling $104,815, resulting in a gain on disposition of fabrication molds of $44,832. The Company is engaged in an administrative proceeding against a former employee who was terminated from his positions withcommissions, which the Company for cause on May 12, 2014. The former employee has claimed hedisputes both to legitimacy and amount. This arbitration is due between $24,000subject to inherent uncertainties, and $48,000 in unpaid wages. Thean adverse result may arise that could harm our business. No assurance can be given that the Company believeswill be able to resolve this claim to be unfounded and is continuing to vigorously defend itself.matter or the timing of any such resolution.
Operating Leases On April 1, 2014, the Company entered into a new lease agreement for its office space in Massachusetts. The lease commenced on that date and expires on March 31, 2017. The lease has minimum monthly payments of $2,115, $2,151 and $2,188 for year one, two and three, respectively. The Company was required to pay a security deposit to the lessor totaling $6,417. In October 2014, the Company vacated the office space and subsequently defaulted on the lease. (See Litigation above).
On September 23, 2015,January 1, 2018, the Company entered into a new lease agreement for its office space in Illinois. The lease commences on January 1, 20162018 and expires on December 31, 2016. The2020. For 2018, the lease has minimum monthly payments of $1,140. The rents for$1,367; thereafter, the first and seventh monthsminimum monthly payment shall increase by the lesser of 2016 are free. The lease automatically renews for periods of 12 months unless three months notice is provided by either the CompanyCPI or the landlord. The Company was required to pay a security deposit to the lessor totaling $2,090. Deferred rent at December 31, 2015 was immaterial.5%. Rent expense was $33,215$15,936 and $28,951$20,295 for the years ended December 31, 20152018 and 2014,2017, respectively. Future lease payments for the years ended December 31 are as follows: | 2019 | | $ | 17,224 | | | 2020 | | | 18,085 | | | Total | | $ | 35,310 | |
The table above assumes a 5% increase in minimum monthly payment each year. NOTE 12 —– INCOME TAXES Per FASB ASC 740-10, disclosure is not required of an uncertain tax position unless it is considered probable that a claim will be asserted and there is a more-likely-than-not possibility that the outcome will be unfavorable. Using this guidance, as of December 31, 2015,2017, the Company has no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. The Company’s 2017, 2016, 2015 2014, 2013 and 20122014 Federal and State tax returns remain subject to examination by their respective taxing authorities. Neither of the Company’s Federal or State tax returns are currently under examination. On December 22, 2017, President Trump signed into law the “Tax Cuts and Jobs Act” (TCJA) that significantly reformed the Internal Revenue Code of 1986, as amended. The TCJA reduces the corporate tax rate to 21 percent beginning with years starting January 1, 2018. Because a change in tax law is accounted for in the period of enactment, the deferred tax assets and liabilities have been adjusted to the newly enacted U.S. corporate rate, and the related impact to the tax expense has been recognized in the current year.The reduction of the corporate tax rate did not result in a write-down of the Company’s gross deferred tax assets. Components of deferred tax assets are as follows: | | | | | | | | Net deferred tax assets – Non-current: | | | | | | | | | | | | | | | | | | Expected income tax benefit from NOL carry-forwards | | $ | 2,461,800 | | | $ | 1,829,659 | | Depreciation | | | (3,200 | ) | | | (14,618 | ) | Less valuation allowance | | | (2,458,600 | ) | | | (1,815,041 | ) | Deferred tax assets, net of valuation allowance | | $ | — | | | $ | — | |
F-52
| | | December 31, | | | | | 2018 | | | 2017 | | | Current deferred tax asset: | | | | | | | | | | Stock based compensation | | $ | 221,628 | | | $ | 177,785 | | | Accrual to cash method accounting items | | | 274,180 | | | | 214,745 | | | Less valuation allowance | | | (495,808 | ) | | | (392,530 | ) | | Net current deferred tax asset | | | - | | | | - | | | Non-current deferred tax assets: | | | | | | | | | | Expected income tax benefit from NOL carry-forwards | | | 4,470,452 | | | | 3,032,075 | | | Less valuation allowance | | | (4,470,452 | ) | | | (3,032,075 | ) | | Net non-current deferred tax asset | | $ | - | | | $ | - | |
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 12 — INCOME TAXES(cont.)
Income Tax Provision in the Consolidated Statements of Operations A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes is as follows: | | For the Year Ended
December 31, | | | | | | U.S. statutory federal tax rate | | (34.0 | )% | | (34.0 | )% | | | | | | | | State income taxes, net of federal tax benefit | | (3.5 | )% | | (4.3 | )% | | | | | | | | Shares issued for services | | 3.3 | % | | 9.0 | % | | | | | | | | Shares issued in a separation agreement | | 0.0 | % | | 1.7 | % | | | | | | | | Tax rate change | | 6.8 | % | | 0.0 | % | | | | | | | | Deferred tax true-up | | 7.0 | % | | 0.0 | % | | | | | | | | Other permanent differences | | 1.4 | % | | (2.9 | )% | | | | | | | | Change in valuation allowance | | 19.0 | % | | 30.5 | % | | | | | | | | Effective income tax rate | | 0.0 | % | | 0.0 | % |
| | | For the Year Ended | | | | | December 31, | | | | | 2018 | | | 2017 | | | U.S. statutory federal tax rate | | | (21.0 | )% | | | (34.0 | )% | | | | | | | | | | | | State income taxes, net of federal tax benefit | | | (1.6 | )% | | | (2.6 | )% | | | | | | | | | | | | Shares issued for services | | | 13.6 | % | | | 9.4 | % | | | | | | | | | | | | Shares issued in a separation agreement | | | 0.0 | % | | | 0.0 | % | | | | | | | | | | | | Tax rate change | | | 0.0 | % | | | (0.9 | )% | | | | | | | | | | | | Deferred tax true-up | | | (13.0 | )% | | | (8.1 | )% | | | | | | | | | | | | Other permanent differences | | | 1.1 | % | | | 1.9 | % | | | | | | | | | | | | Change in valuation allowance | | | 21.5 | % | | | 34.3 | % | | | | | | | | | | | | Effective income tax rate | | | 0.0 | % | | | 0.0 | % |
Income Tax Provision in the Consolidated Statements of Operations A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes is as follows: Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in the Consolidated Statement of Operations in the period that includes the enactment date. The Company has available at December 31, 20152018 unused federal and state net operating loss carry forwards totaling approximately $6,600,000$(20,837,409) that may be applied against future taxable income that expire through 2024.2030. Management believes it is more likely than not that all of the deferred tax asset will not be realized. A valuation allowance has been provided for the entire deferred tax asset. The valuation allowance increased approximately $643,500$1,438,377 and $1,166,000decreased approximately $540,295 for the years ended December 31, 20152018 and 2014,2017, respectively. NOTE 13 —– SUBSEQUENT EVENTS Subsequent
On March 1, 2019, in exchange for retiring 400,000 in previously issued common stock options, the Company issued 550,000 common stock options to December 31, 2015,a consultant for investor relations services. The options vest ratably in one-half year increments and have a $0.10 strike price. InMarch and April 2019, the Company sold 1,266,259an aggregate of 4,100,000 shares of Company common stock to investorsfor $410,000 in exchange for $1,392,885cash. These shares were sold in gross proceeds in connection withreliance on the private placementexemption from registration provided by Section 4(a)(2) of the Company’s stock. In connection withSecurities Act of 1933, as amended, as there was no general solicitation and the private placement the Company incurred fees of $181,075. In addition, 126,626 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 usingtransactions did not involve 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.
F-53
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014public offering.
NOTE 13 — SUBSEQUENT EVENTS(cont.)
On January 4, 2016,March 27, 2019 the Company entered into a directormutual general release and settlement agreement (the “Settlement Agreement”) with Glenn Tilley, concurrent with Mr. Tilley’s appointmentthe former employee. Pursuant to the BoardSettlement Agreement, the Company agreed to pay the former employee $69,000, payable in three equal installments of Directors$23,000 on March 31, June 28 and September 30, 2019 (the “Settlement Amount”). The Settlement Agreement also contains a general release by the former employee 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-electedrelating to the Board. PursuantClaim, such release however is predicated on the Company making payments pursuant to the director agreement, Mr. Tilley is to be paid a stipendSettlement Agreement. As of One Thousand Dollars ($1,000) per meeting ofMarch 31, 2019, 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 quarteroutstanding balance on the last day of each such quarter, commencing January 4, 2016.this obligation was $46,000. On February 22, 2016 (the “Effective Date”),April 5, 2019, Mr. John Rombold voluntarily resigned from the Company, issuedto pursue other activities. On April 5, 2019, Spartan Capital Securities, LLC, an investment banker (“Spartan Capital”), filed a convertible note inDemand for Arbitration with 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”)American Arbitration Association (New York, New York; case no. 01-19-0001-0700). 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 afterSpartan Capital alleges the Company has registered shares of its common stock underlyingowes various service fees and commissions, which the note in a registration statement on Form S-1 or any other form applicable thereto,Company disputes both to legitimacy and amount. This arbitration is subject to inherent uncertainties, and an adverse result may arise that could harm our business. No assurance can be given that the lower of $1.00 per shareCompany will be able to resolve this matter or the variable conversion price (as defined in the note). The Company used the proceedstiming 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.
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.
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.
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 15th 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.
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SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 13 — SUBSEQUENT EVENTS(cont.)
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. As of the date of this filing, accounts receivable purchased by the Factor amounted to $283,327 and advances from the Factor amounted to $226,661. Advances from the Factor are collateralized by all accounts receivable of the Company.
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Warrants to Purchase Shares of Common Stock
_______________________
PROSPECTUS
_______________________
Joseph Gunnar & Co.
[•], 2016
Through and including _________, 2016 (the 25th day after the date of this offering), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription
such resolution. PART II - INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution The following table sets forth the costs andis an itemization of all expenses, other than underwriting discounts and commissions,without consideration to future contingencies, incurred or expected to be paidincurred by the Registrantour Corporation in connection with the issuance and distribution of the common stockshares being offered by this Prospectus. Items marked with an asterisk (*) represent estimated expenses. We have agreed to pay all the costs and warrants being registered. All amounts other thanexpenses of this offering except the SECGHS has agreed to pay the legal fees associated with the preparation of this registration fees and FINRA fees are estimates. SEC Registration Fee | | $ | 2,768.51 | | FINRA Filing Fee | | $ | 4,623.83 | | NASDAQ Filing Fee | | $ | | * | Printing Fees and Expenses | | $ | | * | Accounting Fees and Expenses | | $ | | * | Legal Fees and Expenses | | $ | | * | Transfer Agent and Registrar Fees | | $ | | * | Miscellaneous Fees and Expenses | | $ | | * | Total | | $ | | * |
* To be completed by amendment.
| Item | | Amount | | | SEC Registration Fee | | $ | 170 | | | Legal Fees and Expenses* | | $ | 15,000 | | | Accounting Fees and Expenses* | | $ | 2,500 | | | Miscellaneous* | | $ | 2,500 | | | Total* | | $ | 20,170 | |
Item 14. Indemnification of DirectorsOfficers and OfficersDirectors Under the General Corporation Law
Pursuant to Section 78.7502 of the StateNevada Revised Statutes, we have the power to indemnify any person made a party to any lawsuit by reason of Nevada, we canbeing a director or officer of the Registrant, or serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Our Bylaws provide that the Registrant shall indemnify ourits directors and officers to the fullest extent permitted by Nevada law. With regard to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities they may incur(other than the payment by us of expenses incurred or paid by a director, officer or controlling person of the Corporation in the successful defense of any action, suit or proceeding) is asserted by such capacities, including liabilitiesdirector, officer or controlling person in connection with the common shares being registered, we will, unless in the opinion of our counsel the matter has been settled by a controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by us is against public policy as expressed in the Securities Act of 1933, as amended, and will be governed by the final adjudication of such case. Item 15. Recent Sales of Unregistered Securities We have issued the following securities which were not registered under the Securities Act. Unless otherwise indicated, all of the share issuances described below were made in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act for transactions not involving a public offering: On August 14, 2018, the Company issued and sold 100,000 shares of common stock, at a per share price of $0.15 in cash, generating total proceeds of $15,000. The shares were issued pursuant to the exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). Our articles The Company placed 850,000 shares of incorporation provide that,common stock into escrow as security for the promissory notes it issued pursuant to Nevada law, our directorsthe Settlement Agreement with the Note Holder Plaintiffs discussed above. In the event the Company does not make timely payments under the promissory notes, upon written notice and after expiration of a cure period, the escrow agent shall notrelease from Escrow shares of common stock with a value equal to the missed installment payment or payments plus accrued interest on that payment or payments. If shares are to be liable for monetary damages for breachreleased from the Escrow, the Company intends to rely on the exemption from registration under Section 4(a)(2) of the directors’ fiduciary dutySecurities Act. The Company placed 970,000 shares of carecommon stock into escrow as security for the promissory notes it issued pursuant to us and our stockholders. This provision inGenlink as discussed above. In the articles of incorporationevent the Company does not eliminatemake timely payments under the dutypromissory notes, upon written notice and after expiration of care, and in appropriate circumstances equitable remedies such as injunctive or other formsa cure period, the escrow agent shall release from Escrow shares of non-monetary relief will remain available under Nevada law. In addition, each director will continuecommon stock. If shares are to be subjectreleased from the escrow, the Company intends to liability for breachrely on the exemption from registration under Section 4(a)(2) of the director’s dutySecurities Act. In March and April 2019, the Company issued and sold 4,100,000 shares of loyalty to us or our stockholders, for acts or omissions notcommon stock, at a per share price of $0.10 in good faith or involving intentional misconduct or knowing violationscash, generating total proceeds of law, for any transaction from which the director directly or indirectly derived an improper personal benefit, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Nevada law.$410,000. The provision also does not affect a director’s responsibilities under any other law, such as the federal securities laws or state or federal environmental laws. Our by-laws provide for the indemnification of our directors and officersshares were issued pursuant to the fullest extent permitted by the Nevada General Corporation Law. We are not, however, required to indemnify any director or officer in connection with any (a) willful misconduct, (b) willful neglect, or (c) gross negligence toward or on behalfexemption from registration under Section 4(a)(2) of us in the performance of his or her duties as a director or officer. We are required to advance, prior to the final disposition of any proceeding, promptly on request, all expenses incurred by any director or officer in connection with that proceeding on receipt of any undertaking by or on behalf of that director or officer to repay those amounts if it should be determined ultimately that he or she is not entitled to be indemnified under our bylaws or otherwise.
We have been advised that, in the opinion of the SEC, any indemnification for liabilities arising under the Securities Act of 1933, is against public policy, as expressed in the Securities Act, and is, therefore, unenforceable.amended (the “Securities Act”).
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Item 15. Recent Sales of Unregistered Securities
Common stock issued as part of settlement agreement
During the year ended December 31, 2013, 201,000 shares of common stock, valued at $201,000, were issued as part of a settlement agreement. The shares were valued based on the most recent sales of its common stock to independent qualified investors.
IssuanceIssuances of Common Stock in Exchange for Services
During the period January 1, 20132018 through December 31, 2013,2018, the Company issued 1,983,000 shares of its common stock for services rendered at a fair value of $1,263,000. The shares were valued based on the most recent sales of its common stock to independent qualified investors. During the period January 1, 2014 through December 31, 2014, the Company issued 350,000 shares of common stock for legal services rendered at a fair value of $350,000. The shares were valued based on the most recent sales of its common stock to independent qualified investors.
During the period January 1, 2014 through December 31, 2014, the Company issued 130,000 shares of common stock to a sales consultant, for services rendered at a fair value of $130,000. The shares were valued based on the most recent sales of its common stock to independent qualified investors.
On August 1, 2014 the Company issued 250,000137,204 shares of its common stock at a fair value of $250,000 for services related$33,548 to investment banking. The shares were valued based on the most recent sales of its common stock to independent qualified investors.
On August 1, 2014, the Company issued 30,000 shares of common stock to our Chief Revenue Officer for services at a fair value of $30,000. The shares were valued based on the most recent sales of its common stock to independent qualified investors.
On September 18, 2014, the Company issued 250,000 shares of common stock to our Chief Executive Officer for services at a fair value of $250,000. The shares were valued based on the most recent sales of its common stock to independent qualified investors.
During the period January 1, 2015 through December 31, 2015, the Company issued 160,000 shares of common stock to 2 sales consultants, for services rendered at a fair value of $161,000. The shares were valued based on the most recent sales of its common stock to independent qualified investors.
On June 30, 2015, the Company issued 5,000 shares of common stock to an employee for services at a fair value of $5,000. The shares were valued based on the most recent sales of its common stock to independent qualified investors.
On August 12, 2015, the Company issued 50,000 shares of its common stock at a fair value of $50,000 for services related to investor relations. The shares were valued based on the most recent sales of its common stock to independent qualified investors.
On September 30, 2015, the Company issued 5,000 shares of common stock to an employee for services at a fair value of $5,000. The shares were valued based on the most recent sales of its common stock to independent qualified investors.
On December 31, 2015, the Company issued 5,000 shares of common stock to an employee for services at a fair value of $5,000. The shares were valued based on the most recent sales of its common stock to independent qualified investors.
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.
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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 memberconsultant pursuant to his agreement with the Company and service in such capacity. The shares were valued based onupon the most recent salesvolume weight average quoted closing trading price for the five days prior to the date of its common stock to independent qualified investors.issuance.
During the period January 1, 20162018 through June 30, 2016December 31, 2018, the Company issued 125,00040,000 shares of its common stock at a fair value of $131,000$15,372 to an employee for services related to investor relations.services. The shares were valued based upon the quoted closing trading price on the most recent salesdate of its common stock to independent qualified investors.issuance. 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.
Common stock issued as part of separation agreement
On May 22, 2014, an employee received 192,100 shares of common stock valued at $192,100, as per the terms of a separation agreement.
Issuance of Stock Options for Services
On January 29, 2015, the Company issued a board member 200,000 common stock options for services at a fair value of $82,140. The Company valued these issuances at fair value, utilizing a Black-Scholes option valuation model.
On March 6, 2015, the Company issued an employee 30,000 common stock options for services at a fair value of $8,809. The Company valued these issuances at fair value, utilizing a Black-Scholes option valuation model.
On August 27, 2015, the Company issued a board member 200,000 common stock options for services at a fair value of $80,932. The Company valued these issuances at fair value, utilizing a Black-Scholes option valuation model.
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, 20142018 through December 31, 2014,2018, the Company issued an investment banker 500,000 common stock warrants for services at a fair value of $204,759. The Company valued these issuances at fair value, utilizing a Black-Scholes option valuation model. During the period January 1, 2015 through December 31, 2015, the Company issued an investment banker 11,818 common stock warrants for services at a fair value of $5,257. The Company valued these issuances at fair value, utilizing a Black-Scholes option valuation model.
During the period January 1, 2016 through July 22, 2016, the Company issued an investment banker 171,520 common stock warrants for services at a fair value of $76,748. The Company valued these issuances at fair value, utilizing a Black-Scholes option valuation model.
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On July 14, 2016, the Company issued an investment banker 51,395 common stock warrants for services at a fair value of approximately $35,000. The Company valued these issuances at fair value, utilizing a Black-Scholes option valuation model.
Common stock issued in cashless exercise of warrants
On June 17, 2015, a warrant holder elected their cash-less exercise provision and exercised 3,750 warrants. Accordingly, the Company issued 1,8746,000 shares of common stock in connection with such exercise.
Common stock issued for note conversions
During the year ended December 31, 2014, 5 holders of certain convertible notes converted outstanding principal of $258,817 and accrued interest of $74,871 into 667,375 shares of common stock.
Issuance of Common Stock in Exchange for Cash
During the year ended December 31, 2013, the Company issued 1,305,000 shares of its common stock for common stock subscriptions received at $0.10 per share.
During the year ended December 31, 2014, the Company sold 5,000,000 shares of common stock to investors in exchange for $5,000,000 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 $695,627.
From December 28, 2016 through July 22, 2016, the Company conducted 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 39 accredited investors 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. Proceeds from the Offering were used for general working capital purposes and for advancing the Company’s business plan.
Convertible Debt Issuances
During the year ended December 31, 2013, the Company issued an aggregate of $650,000 convertible promissory notes due six months from the issuance date, subsequently extended to January 31, 2014, with 15% per annum interest commencing on the date the Company receives funding, as defined. The convertible promissory notes were convertible into the Company’s common stock at $0.50 per share on or after the funding date, as defined in the agreement.
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 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 at a fair value of $49,500.$2,057 to an employee for services. The
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shares were valued based upon the quoted closing trading price on the most recent sales of its common stock to independent qualified investors. 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. 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.
Issuances of Stock Options for Services 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. The Agreement provides that, subject to our compliance with certain conditions to closing, at the request ofJanuary 11, 2018, 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 ourissued 100,000 common stock atoptions to 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 priceconsultant 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 issue 25,000 shares of our Common Stock for certain due diligence and other transaction related costsinvestor relations services at a fair value of $25,000.$3,571. The shares were valued based on the most recent sales of its common stock to independent qualified investors.options immediately vested and have a $0.35 strike price.
On February 22, 2016 (the “Effective Date”),May 8, 2018, the Company issued a convertible note in the principal aggregate amount of $170,000200,000 common stock options 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 considerationboard member for issuing the note, on the Effective Date the Company issued to the investor 35,000 shares of the Company’s restricted common stockhis services at a fair value of $38,500.$10,169. The shares were valued based onoptions vest ratably over a two-year period and have a $1 strike price.
On July 11, 2018, the most recent sales of itsCompany issued 100,000 common stock options to independent qualified investors.a consultant for investor relations services at a fair value of $10,996. The options immediately vested and have a $0.35 strike price. All of
On March 1, 2019, in exchange for retiring 400,000 in previously issued common stock options, the aforementioned issuances were madeCompany issued 550,000 common stock options to a consultant for investor relations services. The options ratably 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.one-half year increments and have a $0.10 strike price. II-5
Item 16. Exhibits and Financial Statement SchedulesSchedules. (a) EXHIBITS
We have filed theThe following exhibits listed on the accompanying Exhibit Indexare included as part of this registration statement and below in this Item 16:Form S-1.
| | | 1.1†
2.1 | | Form of Underwriting Agreement
| | | | 2.1
| | Acquisition and Plan of Merger Agreement dated June 16, 2014 by and among Anglesea Enterprises, Inc., Anglesea Enterprises Acquisition Corp., and Sports Field Holdings, Inc. (Incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 18, 2014) . | | | | 2.2 | | Short Form Merger Agreement dated June 16, 2014 by and between Anglesea Enterprises, Inc. and Sports Field Holdings, Inc. (Incorporated by reference to Exhibit 2.2 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 18, 2014) . | | | | 3.1 | | Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Company’s Form S-1 filed with the Securities and Exchange Commission on January 24, 2012). | | | | 3.2 | | By-Laws (incorporated herein by reference to Exhibit 3.2 to the Company’s Form S-1 filed with the Securities and Exchange Commission on January 24, 2012). | | | | 4.1†
3.3 | | Certificate of Incorporation of Sports Field Holdings, Inc. (Incorporated by reference to Exhibit 3.3 of the Company’s Current Report on Form of Common Stock Purchase Warrant 8-K filed with the Securities and Exchange Commission on June 18, 2014). | | | | 4.2
3.4 | | By-Laws of Sports Field Holdings, Inc. (Incorporated by reference to Exhibit 3.4 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 18, 2014). | | | | | 4.1 | | Form of Convertible Debenture (Incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 12, 2015). | | | | 4.3†
4.2 | | Form of Underwriters’Private Placement Warrant (Incorporated by reference to Exhibit 4.4 of the Company’s Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on November 4, 2016). | | | | 5.1†
5.1* | | Opinion of Lucosky Brookman LLP Regarding Legality | | | | 10.1 | | Consulting Agreement, dated August 29, 2014, between the Company and Jeromy Olson (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 2, 2014). | | | | | 10.2 | | Employment Agreement, dated September 18, 2014, between the Company and Jeromy Olson (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 23, 2014). | | | | 10.2
10.3 | | Director Agreement, dated January 29, 2015,May 8, 2018, between the Company and Tracy BurzyckiJohn Tuntland (Incorporated by reference to Exhibit 10.1 of the Company’s CurrentQuarterly Report on Form 8-K10-Q filed with the Securities and Exchange Commission on February 4, 2015)August 20, 2018). | | | | 10.3
10.4 | | Director Agreement, dated August 27, 2015, between the Company and Glenn Appel (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 3, 2015). | | | | 10.4
10.5 | | Form of Subscription Agreement (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 12, 2015) . |
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| | | 10.6
10.7 | | Business Loan Agreement by and between the Company and Genlink (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 22, 2016). | | | | 10.7
10.8 | | Promissory Note issued in favor of Genlink (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 22, 2016). | | | | 10.8
10.9 | | Security Agreement by and between the Company and Genlink (Incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 22, 2016). | | | | 21.1
10.10 | | Consulting Agreement by and between the Company and Nexphase Global, dated March 10, 2014 (Incorporated by reference to Exhibit 10.9 of the Company’s Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on November 4, 2016). | | | | | 10.11 | | Letter Agreement by and between the Company and Brothers Consulting, dated (incorporated by reference to the exhibit 10.6 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 4, 2016). | | | | | 10.12 | | Letter Agreement by and between the Company and Glenn Tilley, dated October 21, 2016 (incorporated by reference to the exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 27, 2016). | | | | | 10.13 | | Consulting Agreement by and between the Company and Nexphase Global, dated March 15, 2016 (Incorporated by reference to Exhibit 10.9 of the Company’s Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on November 4, 2016). | | | | | 10.14 | | Form of Ambassador Program Representative Agreement (Incorporated by reference to Exhibit 10.14 of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 2, 2018). | | | | | 10.15 | | Sports Field Holdings, Inc., 2016 Incentive Stock Option Plan (incorporated by reference to the exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 12, 2016). | | | | | 10.16 | | Form of Restricted Stock Agreement (incorporated by reference to the exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 12, 2016). | | | | | 10.17 | | Form of Nonqualified Stock Option Agreement (Non-Employee) (incorporated by reference to the exhibit 10.3 of the company’s current report on form 8-K filed with the Securities and Exchange Commission on October 12, 2016). | | | | | 10.18 | | Form of Nonqualified Stock Option Agreement (Employee) (incorporated by reference to the exhibit 10.4 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 12, 2016). |
| 10.19 | | Form of Incentive Stock Option Agreement (incorporated by reference to the exhibit 10.5 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 12, 2016). | | | | | 10.20 | | NM Letter Agreement Extending the Maturity Date of the Brothers Note (incorporated by reference to the exhibit 10.6 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 12, 2016). | | | | | 10.21 | | Director Agreement, dated May 15, 2017, between the Company and Tom Minichiello (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 17, 2017). | | | | | 10.22 | | Settlement Agreement, dated January 26, 2018, between the Company and Montreat College. (Incorporated by reference to Exhibit 10.22 of the Company’s Annual Report on Form 10-K/A filed with the Securities and Exchange Commission on April 20, 2018). | | | | | 10.23 | | First Modification of Business Loan Agreement, dated December 11, 2017, between the Company Genlink Capital, LLC (Incorporated by reference to Exhibit 10.22 of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 2, 2018). | | | | | 10.24 | | First Modification of Promissory Note, dated December 11, 2017, between the Company and Genlink Capital, LLC (Incorporated by reference to Exhibit 10.23 of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 2, 2018). | | | | | 10.25 | | Promissory Note, dated May 1, 2019, and issued May 7, 2019, to GHS Investments, LLC (Incorporated by reference to Exhibit 10.25 of the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 20, 2019). | | | | | 10.26 | | Equity Financing Agreement, dated May 1, 2019, between the Company and GHS Investments, LLC (Incorporated by reference to Exhibit 10.26 of the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 20, 2019). | | | | | 21.1 | | List of Subsidiaries*Subsidiaries (Incorporated by reference to exhibit 21.1 to the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 30, 2016). | | | | 23.1
23.1* | | Consent of Rosenberg Rich Baker Berman & Company* Company | | | | 23.2†
23.2 | | Consent of Lucosky Brookman LLP (reference is made toBrunson Chandler & Jones, PLLC (included in Exhibit 5.1) |
____________
* filed herewith
† to be filed by amendment
Item 17. Undertakings The undersigned registrant hereby undertakes:undertakes (1)
| 1. | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
| i. | To include any Prospectus required by section 10(a)(3) of the Securities Act of 1933; | | | | | ii. | To reflect in the Prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of Prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement. | | | | | iii. | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; |
| 2. | That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. | | | | | 3. | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. | | | | | 4. | That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
| i. | Any Preliminary Prospectus or Prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; | | | | | ii. | Any free writing Prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; | | | | | iii. | The portion of any other free writing Prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and | | | | | iv. | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
| 5. | That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser: Each Prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than Prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or Prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or Prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or Prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
(ii)To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
(2) That for the purpose of determining any liability under the Securities Act of 1933 each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration
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statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:
The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(6) The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
(7) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons, of the Registrant pursuant to the provisions described in Item 14 above, or otherwise, the Registrant haswe have been advised that in the opinion of the SECSecurities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrantus of expenses incurred or paid by a director, officer or controlling person of the Registrantcorporation in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrantwe will, unless in the opinion of itsour counsel the matter has been settled by a controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by itus is against public policy as expressed in the Securities Act of 1933, as amended, and will be governed by the final adjudication of such issue.case.
(8) The undersigned Registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) That for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and this offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
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SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrantregistrant has duly caused this Registration Statementregistration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Warrenville, Illinois, on August 30, 2016.July 18, 2019. | | Sports Field Holdings, Inc. | | | | | | | | By:
| | /s/ Jeromy Olson | | By: | | | Name: Jeromy Olson
| | Title: Chief Executive Officer
(Principal Executive Officer and Principal Accounting and Financial Officer) | CEO & Director |
POWER OF ATTORNEY: KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Jeromy Olson, his or her true and lawful attorney-in-fact and agent
In accordance with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by the Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his, her or their substitute or substitutes, may lawfully do or cause to be done or by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has beenregistration statement was signed by the following persons in the capacities and on the dates indicated:stated:
| | | | | | | | | | /s/ Jeromy Olson | | Chief Executive Officer (Principal Executive
CEO, Director | | August 30, 2016
July 18, 2019 | Jeromy Olson
| | Officer and Principal Accounting and Financial Officer), Chairman of the Board
| | | | /s/ John Tuntland | | Director | | July 18, 2019 | /s/ Tracy Burzycki
| | Director
| | August 30, 2016
| Tracy Burzycki
/s/ Tom Minichiello | | Director | | July 18, 2019 | | | | | | /s/ Glenn Appel
| | Director
| | August 30, 2016
| Glenn Appel
| | | | | | | | | | /s/ Glenn Tilley
| | Director
| | August 30, 2016
| Glenn Tilley
| | | | |
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