UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
8-K-A
(Amendment
No. 1)
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of Report (Date of earliest event reported): July 25, 2014
SURNA
INC.
(Exact
name of registrant as specified in its charter)
| Nevada |
|
000-54286 |
|
27-3911608 |
| (State
or other jurisdiction |
|
(Commission |
|
(IRS
Employer |
| of
incorporation) |
|
File
Number) |
|
Identification
No.) |
| 1780
55th Street, Suite C, Boulder, CO |
|
80301 |
| (Address
of principal executive offices) |
|
(Zip
Code) |
Registrant’s
telephone number, including area code: (303) 993-5271
Not
applicable.
(Former
name or former address, if changed since last report)
Check
the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant
under any of the following provisions (see General Instruction A.2. below):
[ ] Written
communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
EXPLANATORY
NOTE
On
July 29, 2014, Surna, Inc. (the “Company”) filed a Current Report on Form 8-K (the “Form 8-K”) related
to a Membership Interest Purchase Agreement, as amended, entered into among the Company, Hydro Innovations, LLC, and its owners
Stephen Keen and Brandy Keen. This Amendment No. 1 to the Form 8-K is filed to provide the financial statements and other information
required under Item 9.01 of Form 8-K.
| Item 2.02 | Results
of Operations and Financial Condition. |
| Item 7.01 | Regulation
FD Disclosure. |
On
October 8, 2014, Surna, Inc. (the “Company”) issued a press release to announce the audited financial statements of
Hydro Innovations, LLC and other interim and pro forma information required under Item 9.01 of Form 8-K. Additionally, the Company
announced its preliminary pro forma gross revenues for the nine months ended September 30, 2014. A copy of the press release
is furnished as Exhibit 99.5 to this Form 8-K.
The
information furnished with this Current Report on Form 8-K shall not be deemed “filed” for purposes of Section 18
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of
that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or
the Exchange Act, except as expressly set forth by specific reference in such a filing.
Item
9.01 Financial Statements and Exhibits.
| (a) | Financial
Statements of the Business Acquired |
| ● | Audited
financial statements of Hydro Innovations, LLC. for the years ended December 31, 2013
and 2012 are filed as Exhibit 99.1 to this Amendment No. 1 of this Current Report and
are incorporated herein by reference. |
| | | |
| ● | Unaudited
condensed financial statements of Hydro Innovations, LLC for the six months ended June
30, 2014 and 2013 are filed as Exhibit 99.2 to this Amendment No. 1 of this Current Report
and are incorporated herein by reference. |
| (b) | Pro
forma financial information |
| ● | Unaudited
Combined Pro Forma Balance Sheet as of June 30, 2014 filed as Exhibit 99.3 to this Amendment
No. 1 of this Current Report and is incorporated herein by reference. |
| | | |
| ● | Unaudited
Combined Proforma Income Statement for the six months ended June 30, 2014 and the year
ended December 31, 2013 is filed as Exhibit 99.4 to this Amendment No. 1 of this Current
Report and is incorporated herein by reference. |
| Exhibit |
|
Description |
| |
|
|
| 2.1** |
|
Membership
Interest Transfer And Assignment Agreement, incorporated by reference to the Company’s Form 8-K, filed with the U.S.
Securities and Exchange Commission on July 30, 2014 |
| |
|
|
| 2.2** |
|
Executive
Employment Agreement for Brandy Keen, incorporated by reference to the Company’s Form 8-K, filed with the U.S. Securities
and Exchange Commission on July 30, 2014 |
| |
|
|
| 2.3** |
|
Executive
Employment Agreement for Stephen Keen, incorporated by reference to the Company’s Form 8-K, filed with the U.S. Securities
and Exchange Commission on July 30, 2014 |
| |
|
|
| 99.1* |
|
Audited
financial statements of Hydro Innovations, LLC. for the years ended December 31, 2013 and 2012 |
| |
|
|
| 99.2* |
|
Unaudited
condensed financial statements of Hydro Innovations, LLC for the six months ended June 30, 2014 and 2013 |
| |
|
|
| 99.3* |
|
Unaudited
Combined Pro Forma Balance Sheet as of June 30, 2014 |
| |
|
|
| 99.4* |
|
Unaudited
Combined Proforma Income Statement for the six months ended June 30, 2014 and the year ended December 31, 2013 |
| |
|
|
| 99.5* |
|
Press
Release of Surna, Inc. dated October 8, 2014. |
*
Filed herewith.
**
Previously filed.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Date: October
8, 2014
| SURNA
INC. |
|
| |
|
|
| By: |
/s/
Tom Bollich |
|
| |
Tom Bollich, Chief
Executive Officer |
|
Exhibit
99.1
Hydro
Innovations, LLC
Financial
statements
for
the years ended December 31, 2013 and 2012
TABLE
OF CONTENTS
| Report of Independent
Registered Public Accounting Firm |
|
F-1 |
| |
|
|
| Balance Sheets
as of December 31, 2013 and 2012 |
|
F-2 |
| |
|
|
| Statement of Operations
and Members’ Deficit for the years ended December 31,
2013 and 2012 |
|
F-3 |
| |
|
|
| Statement of Cash
Flows for the years ended December 31, 2013 and 2012 |
|
F-4 |
| |
|
|
| Notes to Financial
Statements |
|
F-5
to F-10 |
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Members
Hydro
Innovations, LLC
Boulder,
CO 80301
We
have audited the accompanying balance sheets of Hydro Innovations, LLC (the “Company”) as of December 31, 2013 and
2012 and the related statements of operations and members’ deficit and cash flows for each of the two years in the period
ended December 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We
have conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of
America). 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 audits 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 financial statements referred to above present fairly, in all material respects, the financial position of Hydro
Innovations, LLC as of December 31, 2013 and 2012, and the results of their operations and its cash flows for each of the two
years in the period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States
of America.
The
accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note
3 to the accompanying financial statements, the Company has incurred recurring losses from operations and has a working capital
deficiency as of December 31, 2013 and 2012, which raises substantial doubt about its ability to continue as a going concern.
Management’s plans in regard to this matter are described in Note 3. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
| |
/s/ RBSM
LLP |
| |
|
| New York, New York |
|
| October 7, 2014 |
|
HYDRO
INNOVATIONS, LLC
BALANCE
SHEETS
DECEMBER
31, 2013 and 2012
| | |
2013 | | |
2012 | |
| ASSETS | |
| | | |
| | |
| CURRENT ASSETS | |
| | | |
| | |
| Cash | |
$ | 19,176 | | |
$ | 5,953 | |
| Accounts receivable | |
| 121,908 | | |
| 26,261 | |
| Inventory | |
| 49,502 | | |
| 30,310 | |
| Total current assets | |
| 190,586 | | |
| 62,524 | |
| | |
| | | |
| | |
| Property and equipment | |
| 63,416 | | |
| 108,241 | |
| Accumulated depreciation | |
| (36,726 | ) | |
| (34,604 | ) |
| | |
| 26,690 | | |
| 73,637 | |
| | |
| | | |
| | |
| Intangible assets | |
| 5,178 | | |
| 5,178 | |
| Accumulated amortization | |
| (3,663 | ) | |
| (3,496 | ) |
| | |
| 1,515 | | |
| 1,683 | |
| | |
| | | |
| | |
| TOTAL
ASSETS | |
$ | 218,791 | | |
$ | 137,844 | |
| | |
| | | |
| | |
| LIABILITIES AND
MEMBERS’ DEFICIT | |
| | | |
| | |
| | |
| | | |
| | |
| CURRENT LIABILITIES | |
| | | |
| | |
| Accounts payable and accrued liabilities | |
$ | 10,080 | | |
$ | 9,934 | |
| Accounts payable, related party | |
| - | | |
| 20,781 | |
| Settlement obligation | |
| - | | |
| 49,027 | |
| Short term line of credit | |
| 20,336 | | |
| 19,155 | |
| Short term loans | |
| 250,000 | | |
| 8,800 | |
| Advances from others | |
| 21,932 | | |
| - | |
| Advances from related party | |
| - | | |
| 18,397 | |
| | |
| | | |
| | |
| Total current liabilities | |
| 302,348 | | |
| 126,094 | |
| | |
| | | |
| | |
| LONG TERM LIABILITIES | |
| | | |
| | |
| Line of credit | |
| 26,156 | | |
| 45,816 | |
| | |
| | | |
| | |
| Total long term Liabilities | |
| 26,156 | | |
| 45,816 | |
| | |
| | | |
| | |
| TOTAL LIABILITIES | |
| 328,504 | | |
| 171,910 | |
| | |
| | | |
| | |
| COMMITMENTS AND
CONTINGENCIES | |
| | | |
| | |
| | |
| | | |
| | |
| MEMBERS’ DEFICIT | |
| | | |
| | |
| Members’ deficit | |
| (109,713 | ) | |
| (34,066 | ) |
| | |
| | | |
| | |
| TOTAL
LIABILITIES AND MEMBERS’ DEFICIT | |
$ | 218,791 | | |
$ | 137,844 | |
See
accompanying notes to the financial statements
HYDRO
INNOVATIONS, LLC
STATEMENTS
OF OPERATIONS AND MEMBERS’ DEFICIT
| | |
For the Year Ended December 31, | |
| | |
2013 | | |
2012 | |
| | |
| | |
| |
| Revenue | |
$ | 695,031 | | |
$ | 639,973 | |
| | |
| | | |
| | |
| Cost of revenue | |
| 334,719 | | |
| 310,159 | |
| | |
| | | |
| | |
| Gross profit | |
| 360,312 | | |
| 329,814 | |
| | |
| | | |
| | |
| Operating Expenses: | |
| | | |
| | |
| Depreciation and amortization expenses | |
| 14,257 | | |
| 12,063 | |
| Product development cost | |
| 39,985 | | |
| 786 | |
| General and administrative expenses | |
| 376,077 | | |
| 417,309 | |
| Total operating expenses | |
| 430,318 | | |
| 430,158 | |
| | |
| | | |
| | |
| Operating loss | |
| (70,007 | ) | |
| (100,344 | ) |
| | |
| | | |
| | |
| Other income (expenses): | |
| | | |
| | |
| Interest expense | |
| (8,360 | ) | |
| (11,702 | ) |
| Net
Loss | |
$ | (78,367 | ) | |
$ | (112,045 | ) |
| | |
| | | |
| | |
| Member deficit | |
| | | |
| | |
| Balance - beginning of year | |
$ | (34,066 | ) | |
$ | 76,600 | |
| Imputed interest on loan | |
| 2,719 | | |
| 1,379 | |
| Net loss for the year | |
| (78,367 | ) | |
| (112,045 | ) |
| Balance - end of year | |
$ | (109,713 | ) | |
$ | (34,066 | ) |
See
accompanying notes to the financial statements
HYDRO
INNOVATIONS, LLC
STATEMENTS
OF CASH FLOW
| | |
For the year ended December
31, | |
| | |
2013 | | |
2012 | |
| | |
| | |
| |
| CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
| | |
| | | |
| | |
| Net loss | |
$ | (78,367 | ) | |
$ | (112,045 | ) |
| | |
| | | |
| | |
| Adjustments to reconcile
net loss to net cash used in operating activities: | |
| | | |
| | |
| Depreciation and amortization
expenses | |
| 14,257 | | |
| 12,063 | |
| Loss on loan receivable
write off | |
| - | | |
| 40,000 | |
| Loss on abandonment
of fixed assets | |
| 47,867 | | |
| - | |
| Operating expenses
incurred by related party on behalf of the Company | |
| 10,629 | | |
| 7,869 | |
| | |
| | | |
| | |
| Changes in operating
assets and liabilities: | |
| | | |
| | |
| Accounts receivable | |
| (95,647 | ) | |
| 38,081 | |
| Inventory | |
| (19,192 | ) | |
| (6,045 | ) |
| Prepaid and other | |
| - | | |
| 10,685 | |
| Accounts
payable and accrued liabilities | |
| (45,010 | ) | |
| 24,931 | |
| Net cash used in
(provided by) operating activities | |
| (165,463 | ) | |
| 15,539 | |
| | |
| | | |
| | |
| CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
| Purchase of equipment | |
| (15,009 | ) | |
| - | |
| Net cash used in
investing activities | |
| (15,009 | ) | |
| - | |
| | |
| | | |
| | |
| CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
| (Repayment of) proceeds
from related party advances | |
| (29,026 | ) | |
| 26,850 | |
| Proceeds from short
term loan | |
| 241,200 | | |
| (37,262 | ) |
| Repayment of
line of credit | |
| (18,479 | ) | |
| (16,208 | ) |
| Net cash provided
by (used in) financing activities | |
| 193,695 | | |
| (26,620 | ) |
| | |
| | | |
| | |
| Net increase / (decrease) in cash | |
| 13,223 | | |
| (11,081 | ) |
| | |
| | | |
| | |
| Cash, beginning
of period | |
| 5,953 | | |
| 17,034 | |
| Cash, end of
period | |
$ | 19,176 | | |
$ | 5,953 | |
| | |
| | | |
| | |
| Supplemental disclosures of cash flow
information: | |
| | | |
| | |
| Cash
paid during the year for interest | |
$ | 5,641 | | |
$ | 10,323 | |
| Cash
paid during the year for income taxes | |
$ | - | | |
$ | - | |
| | |
| | | |
| | |
| Non cash Investing and Financing activities: | |
| | | |
| | |
| Notes
transferred to accounts payable | |
$ | - | | |
$ | 20,781 | |
See
accompanying notes to the financial statements
Hydro
Innovations, LLC
Notes
to Financial Statements
For
the Years Ended December 31, 2013 and 2012
NOTE
1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature
of Company
The
Company manufactures and sells equipment for the indoor gardening industry. The Company’s primary products are indoor climate
systems and equipment based upon water chillers (“WCS”) rather than typical heating, ventilation and air conditioning
(commonly referred to as HVAC) and targets the indoor gardening industry through direct and third party distribution channels.
The Company manufactures and/or assembles its WCS products.
Basis
of presentation
Hydro
Innovations LLC, a Texas limited liability company (the “Company”, “we”, “our”) was formed
on January 8, 2008.
The
accompanying financial statements have been prepared in accordance with generally accepted accounting principles (“US GAAP”)
in the United States of America.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates:
The
preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements and that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash
and Cash Equivalents:
All
highly liquid investments with original maturities of three months or less at the date of purchase are considered to be cash equivalents.
Property
and Equipment:
Property
and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation
are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings.
For financial statement purposes, property and equipment are depreciated using the straight-line method over their estimated useful
lives.
Intangible
Assets:
Organizational
costs, patent costs, trademarks and other intangibles are stated at cost. When retired or otherwise disposed, the related carrying
value and accumulated amortization are removed from the respective accounts and the net difference less any amount realized from
disposition, is reflected in earnings. For financial statement purposes, intangible assets are amortized using the straight-line
method over their estimated useful lives.
The
balance at December 31, 2013 and 2012 amounted to $1,515 and $1,683, respectively.
Amortization
expense amounted to $167 and $167 for the years ended December 31, 2013 and 2012, respectively.
Revenue
Recognition:
The
Company sells its climate systems equipment and other related equipment to the indoor gardening industry through direct and third
party distribution channels. The Company recognizes revenue in accordance with Accounting Standards Codification subtopic 605-10,
Revenue Recognition (“ASC 605-10”) which requires that four basic criteria must be met before revenue can be recognized:
(1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable;
and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments
regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions
for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period
the related sales are recorded.
ASC
605-10 incorporates Accounting Standards Codification subtopic 605-25, Multiple-Element Arraignments (“ASC 605-25”).
ASC 605-25 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or
rights to use assets. There was no effect on implementing ASC 605-25 on the Company’s financial position and results of
operations.
Product
warranty claims:
The
Company warrants their products against defects for one year from the date of sales. The Company has experienced only nominal
claims in the past years. During the years ended December 31, 2013 and 2012, the warranty claims incurred by the Company were
$3,384 and $5,140, respectively.
Based
on the Company’s history of incurring claims expenses, management feels that there were no provisions needed for estimated
future costs and estimated returns for credit relating to warranty liability as of December 31, 2013 and 2012.
Cost
of Sales:
The
Company manufactures/assembles its climate control systems generally on an order by order basis. The Company also buys certain
other components and equipment from third party manufacturers and keeps an inventory of the purchased equipment. The cost of the
manufactured product and purchased equipment is charged to costs of sales when the related equipment is shipped and revenue is
recognized for the respective sale. Equipment that is sold from inventory is charged to cost of sales at the average price of
the equipment.
Accounts
Receivable and Allowance for Doubtful Accounts:
Accounts
receivable are recorded at invoiced amount and generally do not bear interest. An allowance for doubtful accounts is established,
as necessary, based on past experience and other factors which, in management’s judgment, deserve current recognition in
estimating bad debts. Such factors include growth and composition of accounts receivable, the relationship of the allowance for
doubtful accounts to accounts receivable and current economic conditions. The determination of the collectability of amounts due
from customer accounts requires the Company to make judgments regarding future events and trends. Allowances for doubtful accounts
are determined based on assessing the Company’s portfolio on an individual customer and on an overall basis. This process
consists of a review of historical collection experience, current aging status of the customer accounts, and the financial condition
of the Company’s customers. Based on a review of these factors, the Company establishes or adjusts the allowance for specific
customers and the accounts receivable portfolio as a whole. At December 31, 2013 and 2012, an allowance for doubtful accounts
was $-0-.
Inventory:
The
Company purchases certain equipment in quantity rather than on an order by order basis and keeps an inventory of this equipment.
The inventory is carried at the lower of cost or market. Inventory is relieved at its average cost.
The
balance at December 31, 2013 and 2012 amounted to $49,502 and $30,310, respectively.
Concentration
of Credit Risk:
Financial
instruments that potentially subject the Company to credit risk consist of cash, cash equivalents and accounts receivable. Exposure
to losses on accounts receivable is principally dependent on each customer’s financial condition. The Company monitors its
exposure for customer credit losses and maintains allowances for anticipated losses. The Company places its cash and cash equivalents
in financial institutions insured by the Federal Depository Insurance Corporation, to the maximum amount of that coverage. Additionally,
the Company limits its amount of credit exposure to any one institution. The Company has never experienced any losses in these
accounts and believes that its credit risk exposure with respect to cash balances held by depository institutions is limited.
Sales
to four customers comprised 75% of the Company’s revenues for the year ended December 31, 2013 and sales to two customers
comprised 70% of the Company’s revenues for the year ended December 31, 2012. The Company believes that, in the event that
its primary customers are unable or unwilling to continue to purchase its products, there are alternative buyers for its production
at comparable prices.
Purchases from three vendors comprised 76%
of the Company’s purchase for the year ended December 31, 2013 and four vendors comprised 90% of the Company’s purchases
for the year ended December 31, 2012. The Company believes that in the event that its primary vendors are unable to continue to
sell their products to the Company, there are alternative vendors at comparable prices.
Fair
Value Measurements:
The
carrying value of financial instruments, including cash and cash equivalents, accrued liabilities, and accounts payable approximate
fair value because of the short maturity of these instruments.
Income
Taxes:
The
Company is a limited liability company which has elected to be taxed as a sub-chapter S corporation for federal income tax purposes.
As a result, no provision for income taxes is presented.
Contingencies:
In
the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out
of its business, that cover a wide range of matters, including, among others, government investigations, environment liability
and tax matters. An accrual for a loss contingency is recognized when it is probable that an asset had been impaired or a liability
had been incurred and the amount of loss can be reasonably estimated. At December 31, 2013 and 2012, there were no loss contingencies.
Advertising
Costs:
Advertising
costs are expensed as incurred. Advertising expense for the year ended December 31, 2013 and 2012 were $40,800 and $10,528, respectively.
Shipping
Costs:
Shipping
costs are expensed as incurred. Shipping expense for the year ended December 31, 2013 and 2012 were $54,153 and $45,829, respectively.
Recent
Accounting Pronouncements:
There
were various updates recently issued, most of which represented technical corrections to the accounting literature or application
to specific industries and are not expected to a have a material impact on the Company’s financial position, results of
operations or cash flows.
NOTE
3 - GOING CONCERN
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course of business. The Company has had a net losses for
the years ended December 31, 2013 and 2012 of $78,367 and $112,045, respectively and has a $111,762 and $63,570 working capital
deficit (current liabilities exceeds current assets) at December 31, 2013 and 2012, respectively.
In
the course of its activities, the Company has generated net income and also sustained net losses. The Company expects to be profitable
and will meet its obligations through its ongoing operations. However, management cannot provide any assurances that the Company
will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon
its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing
and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
Subsequent
to year end, the Company was acquired by Surna, Inc. (see Subsequent Events Note 10).
NOTE
4 - ACCOUNTS RECEIVABLE
At
December 31, 2013 and 2012 accounts receivable summarized by due dates consists of the following:
| | |
2013 | | |
2012 | |
| Current | |
$ | 35,929 | | |
$ | 19,431 | |
| Past due 1 - 30 days | |
| 70,446 | | |
| 6,147 | |
| Past due 31 - 60 days | |
| 9,422 | | |
| - | |
| Past due 61 days and over | |
| 6,111 | | |
| 683 | |
| Total | |
$ | 121,908 | | |
$ | 26,261 | |
At
December 31, 2013 and 2012, an allowance for doubtful accounts was $nil.
NOTE
5 – PROPERTY AND EQUIPMENT
At
December 31, 2013 and 2012, property and equipment consists of:
| | |
2013 | | |
2012 | |
| Furniture & equipment | |
$ | 6,914 | | |
$ | 2,344 | |
| Molds | |
| 31,063 | | |
| 31,063 | |
| Vehicles | |
| 15,000 | | |
| 15,000 | |
| Leasehold Improvements | |
| 10,439 | | |
| 59,834 | |
| | |
| 63,416 | | |
| 108,241 | |
| Accumulated depreciation | |
| (36,726 | ) | |
| (34,604 | ) |
| | |
$ | 26,690 | | |
$ | 73,637 | |
Depreciation
expense amounted to $14,089 and $11,896 for the years ended December 31, 2013 and 2012, respectively. During the year ended December
31, 2013, the Company recorded a loss on abandonment of fixed assets of $47,867.
NOTE
6 – SHORT TERM NOTES
During
2013, an individual loaned a total of $250,000 to the Company in multiple tranches (the “Advances”). The Loan does
not carry a stated interest rate or term. As such the Company has imputed interest at the rate of six percent (6%) per annum.
On
December 7, 2011, the Company borrowed $70,000 from an individual and executed a Promissory Note (the “Note”) in connection
with the transaction. This note was fully repaid in February 2012 and has a stated interest rate of 0.00% per annum. As such the
Company has imputed interest at the rate of six percent (6%) per annum.
The
outstanding balance of the above notes were $250,000 and $8,800, respectively.
During
the years ended December 31, 2013 and 2012, the Company charged imputed interest on above notes of $2,719 and $1,379, respectively.
In
addition, this individual advanced the Company an additional $21,932 on a short term basis. The total outstanding balance at December
31, 2013 and 2012 were $21,932 and $-0-, respectively.
NOTE
7 – RELATED PARTY TRANSACTIONS
During
the year ended December 31, 2013 and 2012, Brandy and Stephen Keen (the “Keens”), the owners of the Company, advanced
a total of $23,665 and $82,528, respectively to the Company to cover cash requirements for Company operations. At December 31,
2013 and 2012, the Keens were owed $0 and $18,397 respectively.
NOTE
8 – LINE OF CREDIT
The
Company has a line of credit with People Fund in the amount of $100,000. The line of credit is secured by substantially all of
the assets of the Company and guaranteed by the owners of the Company. The line of credit bears interest at the rate of 12%, per
annum, with interest due and payable monthly and expires on January 1, 2011. In February 2011, the line of credit was renewed
with substantially the same terms and expires on February 1, 2016.
Line
of credit at December 31, 2013 and 2012 are as follows:
| | |
2013 | | |
2012 | |
| Outstanding balance | |
$ | 46,492 | | |
$ | 64,971 | |
| Less: current portion of line of credit People Fund | |
| (20,336 | ) | |
| (19,155 | ) |
| Long-term portion of line of credit | |
$ | 26,156 | | |
$ | 45,816 | |
During
the years ended December 31, 2013 and 2012, the Company paid interest on above notes of $1,170 and $5,931, respectively.
NOTE
9 – COMMITMENTS AND CONTINGENCIES
Settlement
Agreement
During
2010, the Company along with the Keens (owners of the Company) were sued by T. Marek, M. Marek, Liquid Lumens, and Global Garden
Supply for breach of contract and attorneys’ fees in the 98th Judicial District Court for Travis County, Texas (the “State
Lawsuit”); the court in the State Lawsuit entered its February 22, 2012 Final Judgment in favor of T. Marek, M. Marek, Liquid
Lumens, and Global Garden Supply (the “State Lawsuit Final Judgment,” awarding, among other things, $91,585 to the
Marek Parties, comprised of $15,000 in actual damages and $76,585 in attorneys’ fees (the “State Lawsuit Award”).
In 2011, the Keens then sued the Marek Parties in the United States District Court for the Western District of Texas (the “Patent
Lawsuit”) alleging, among other things, patent infringement.
In
2012, the parties to the above described litigation settled all claims and the parties entered into a Settlement Agreement, the
terms of which call for the Keens to pay to the Marek Parties the total sum of one hundred thirteen thousand fifty-three U.S.
dollars and twenty-four US cents (USD 113,053) (the “Total Settlement Amount”) to be paid according to the following
installment schedule, with each payment being an “Installment Payment”:
a.
Installment Payment No. 1: Fifteen thousand U.S. dollars (USD 15,020) due on the Effective Date;
b.
Installment Payment Nos. 2-17: Six thousand one hundred twenty-eight U.S. dollars and thirty-three U.S. cents (USD 6,128) due
on or before the fifteenth calendar day of every month beginning June 15, 2012 and continuing until the last payment is due on
or before August 15, 2013.
As
of December 31, 2013 the balance had been paid in its entirety and as of December 31, 2012, the Company had a Balance due to the
Marek Parties of $49,027.
Litigations
Company
is subject to certain legal proceedings and claims, which arise in the ordinary course of its business. Although occasional adverse
decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material
adverse effect on its financial position, results of operations or liquidity. As of filing date, there was no outstanding litigation.
Lease
Obligations
The
Company has entered into a lease agreement for its manufacturing and office space consisting of approximately 18,000 square feet.
The lease term extends through September 30, 2016 and calls for yearly payment as follows:
| Year ended December 31, 2014 | |
$ | 137,209 | |
| Year ended December 31, 2015 | |
| 184,538 | |
| January 1 through September 30, 2016 | |
| 138,404 | |
| Total | |
$ | 460,151 | |
Subsequent
to year end, Surna, Inc. assumed the lease obligations and acquired the Company (see following Note 10 - Subsequent Events).
NOTE
10 – SUBSEQUENT EVENTS
Effective
as of July 1, 2014, we entered into a Modification and Amendment (the “Hydro Amendment”) to the previously executed
March 31, 2014 Membership Purchase Agreement we entered into with Surna, Inc., a Nevada corporation (“Surna”), under
the terms of which Surna would acquire 100% of the Company. Pursuant to the terms of the Hydro Amendment, Surna is to pay the
Keens $250,000 by the delivery to the Keens of a $250,000 promissory note from Surna (the “Surna Note”). The Surna
Note bears interest at the rate of 6% per annum and is payable in monthly installments of $5,000 with a balloon payment for the
balance of accrued interest and principal due on July 18, 2016. The Surna Note may be prepaid in whole or in part at any time.
As
additional consideration for the purchase of Hydro, the Company entered into employment agreements with the Keens. Pursuant to
the terms of Brandy Keen’s employment agreement, the Company agreed to employ Brandy Keen as its Vice President of Operations
for a period of three years beginning on July 18, 2014 and pay her an annual base salary of $96,000 which is subject to review
annually by the Company’s Board of Directors. Brandy Keen will be entitled to stock compensation in an amount and on terms
to be agreed on at a later date, vacation, leave and other benefits as may be in effect at the Company’s discretion from
time to time and reimbursement of out of pocket expenses for business entertainment in connection with his duties. Brandy Keen’s
employment is at-will and may be terminated at any time, with or without cause. Brandy Keen is subject to a restriction on competition
following termination of her employment agreement for a period of one year.
Pursuant to the terms of Stephen Keen’s
employment agreement, the Company agreed to employ Stephen Keen as its Vice President of Research and Development for a period
of three years beginning on July 18, 2014 and pay him an annual base salary of $96,000 which is subject to review annually by
the Company’s Board of Directors. Stephen Keen will be entitled to stock compensation in an amount and on terms to be agreed
on at a later date, vacation, leave and other benefits as may be in effect at the Company’s discretion from time to time
and reimbursement of out of pocket expenses for business entertainment in connection with his duties. Stephen Keen’s employment
is at-will and may be terminated at any time, with or without cause. Stephen Keen is subject to a restriction on competition following
termination of his employment agreement for a period of one year.
Exhibit
99.2
Hydro
Innovations, LLC
Unaudited
Condensed Financial Statements
For
the Six Months Ended June 30, 2014 and 2013
TABLE
OF CONTENTS
| Condensed Balance Sheets as of June 30, 2014 and December 31, 2013 (Unaudited) | |
F-1 |
| | |
|
| Condensed Statement of Operations for the six months ended June 30, 2014 and 2013 (Unaudited) | |
F-2 |
| | |
|
| Condensed Statement of Cash Flows for the six months ended June 30, 2014 and 2013 (Unaudited) | |
F-3 |
| | |
|
| Notes to Unaudited Condensed Financial Statements | |
F-4 to F-9 |
Hydro
Innovations, LLC
Condensed
Balance Sheets
| | |
June 30, 2014 | | |
December 31, 2013 | |
| |
| (Unaudited) | | |
| | |
| ASSETS | |
| | | |
| | |
| CURRENT ASSETS | |
| | | |
| | |
| Cash | |
$ | 2,637 | | |
$ | 19,176 | |
| Accounts receivable | |
| 76,444 | | |
| 121,908 | |
| Inventory | |
| 17,631 | | |
| 49,502 | |
| Total current assets | |
| 96,712 | | |
| 190,586 | |
| | |
| | | |
| | |
| Property and equipment | |
| 72,617 | | |
| 63,416 | |
| Accumulated depreciation | |
| (42,809 | ) | |
| (36,726 | ) |
| | |
| 29,808 | | |
| 26,690 | |
| | |
| | | |
| | |
| Intangible assets | |
| 5,178 | | |
| 5,178 | |
| Accumulated amortization | |
| (3,747 | ) | |
| (3,663 | |
| | |
| 1,432 | | |
| 1,515 | |
| | |
| | | |
| | |
| TOTAL ASSETS | |
$ | 127,951 | | |
$ | 218,791 | |
| | |
| | | |
| | |
| LIABILITIES AND MEMBERS’ DEFICIT | |
| | | |
| | |
| | |
| | | |
| | |
| CURRENT LIABILITIES | |
| | | |
| | |
| Accounts payable and accrued liabilities | |
$ | 46,992 | | |
$ | 2,459 | |
| Payroll taxes payable | |
| 54,138 | | |
| 7,621 | |
| Short term line of credit | |
| 21,386 | | |
| 20,336 | |
| Short term loans | |
| 260,000 | | |
| 250,000 | |
| Advances from others | |
| 28,186 | | |
| 21,932 | |
| Advances from Surna, Inc. | |
| 84,681 | | |
| - | |
| | |
| | | |
| | |
| Total current liabilities | |
| 495,383 | | |
| 302,348 | |
| | |
| | | |
| | |
| Long Term Debt | |
| | | |
| | |
| Line of credit | |
| 13,632 | | |
| 26,156 | |
| | |
| | | |
| | |
| TOTAL LIABILITIES | |
| 509,015 | | |
| 328,504 | |
| | |
| | | |
| | |
| COMMITMENTS AND CONTINGENCIES | |
| | | |
| | |
| | |
| | | |
| | |
| MEMBERS’ DEFICIT | |
| | | |
| | |
| Members’ deficit | |
| (381,064 | ) | |
| (109,713 | ) |
| | |
| | | |
| | |
| TOTAL LIABILITIES AND MEMBERS’ DEFICIT | |
$ | 127,951 | | |
$ | 218,791 | |
See
accompanying notes to the unaudited condensed financial statements
Hydro
Innovations, LLC
Condensed
Statement of Operations
Six
Months ended June 30, 2014 and 2013 Unaudited
| | |
Six months ended June 30, | |
| | |
2014 | | |
2013 | |
| Revenue | |
$ | 649,925 | | |
$ | 350,023 | |
| | |
| | | |
| | |
| Cost of revenue | |
| 373,316 | | |
| 155,751 | |
| | |
| | | |
| | |
| Gross margin | |
| 276,609 | | |
| 194,272 | |
| | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | |
| Depreciation and amortization expenses | |
| 6,167 | | |
| 7,128 | |
| Product development cost | |
| 22,212 | | |
| - | |
| General and administrative expenses | |
| 510,415 | | |
| 106,891 | |
| Total operating expenses | |
| 538,794 | | |
| 114,019 | |
| | |
| | | |
| | |
| Operating (loss) income | |
| (262,185 | ) | |
| 80,253 | |
| | |
| | | |
| | |
| Other income (expenses): | |
| | | |
| | |
| Interest expense | |
| (9,166 | ) | |
| (2,544 | ) |
| | |
| | | |
| | |
| Net (loss) income | |
$ | (271,351 | ) | |
$ | 77,709 | |
See
accompanying notes to the unaudited condensed financial statements
HYDRO
INNOVATIONS, LLC
CONDENSED
STATEMENTS OF CASH FLOW
(Unaudited)
| | |
| For
the six months ended June 30, |
|
| | |
| 2014 | |
|
|
2013 |
|
| | |
| | |
|
|
|
|
| CASH FLOWS FROM OPERATING ACTIVITIES | |
| | |
|
|
|
|
| Net loss | |
$ | (271,351 | ) |
|
|
77,709 |
|
| | |
| | |
|
|
|
|
| Adjustments to reconcile net loss to net cash used
in operating activities: | |
| | |
|
|
|
|
| Depreciation and amortization expenses | |
| 6,167 | |
|
|
7,128 |
|
| Operating expenses incurred by
related party on behalf of the Company | |
| | |
|
|
9,501 |
|
| | |
| | |
|
|
|
|
| Changes in operating assets and liabilities: | |
| | |
|
|
|
|
| Accounts receivable | |
| 45,464 | |
|
|
(28,417 |
) |
| Inventory | |
| 31,871 | |
|
|
1,450 |
|
| Accounts
payable and accrued liabilities | |
| 97,304 | |
|
|
(34,884 |
) |
| Cash (used)
provided by operations | |
| (90,545 | ) |
|
|
32,487 |
|
| | |
| | |
|
|
|
|
| CASH FLOWS FROM INVESTING ACTIVITIES | |
| | |
|
|
|
|
| Purchase of equipment | |
| (9,201 | ) |
|
|
- |
|
| Net cash used in investing activities | |
| (9,201 | ) |
|
|
- |
|
| | |
| | |
|
|
|
|
| CASH FLOWS FROM FINANCING ACTIVITIES | |
| | |
|
|
|
|
| Repayment of related party advances | |
| - | |
|
|
(24,273 |
) |
| Proceeds from short term loan | |
| 94,681 | |
|
|
|
|
| Repayment of line of credit | |
| (11,434 | ) |
|
|
(10,116 |
) |
| Net cash provided by (used in)
financing activities | |
| 83,207 | |
|
|
(34,389 |
) |
| | |
| | |
|
|
|
|
| Net increase/(decrease) in
cash | |
$ | (16,539 | ) |
|
|
(1,902 |
) |
| Cash, beginning of period | |
| 19,176 | |
|
|
5,953 |
|
| Cash, end of period | |
$ | 2,637 | |
|
$ |
4,051 |
|
| | |
| | |
|
|
|
|
| Supplemental disclosures of cash flow information: | |
| | |
|
|
|
|
| Cash paid during the year for
interest | |
$ | 2,266 | |
|
|
2,544 |
|
| Cash paid during the year for
income taxes | |
$ | - | |
|
|
- |
|
| | |
| | |
|
|
|
|
| Non cash Investing and Financing activities: | |
| | |
|
|
|
|
See
accompanying notes to the unaudited condensed financial statements
Hydro
Innovations, LLC
Notes
to Unaudited Condensed Financial Statements
For
the Six Months Ended June 30, 2014 and 2013
NOTE
1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature
of Company
The
Company manufactures and sells equipment for the indoor gardening industry. The Company’s primary products are indoor climate
systems and equipment based upon water chillers (“WCS”) rather than conventional heating, ventilation and air conditioning
(commonly referred to as HVAC) and targets the indoor gardening industry through direct and third party distribution channels.
The Company manufactures and/or assembles its WCS products.
Basis
of presentation
Hydro
Innovations LLC, a Texas limited liability company (the “Company”, “we”, “our”) was formed
on January 8, 2008.
The
accompanying unaudited condensed financial statements for the six months ended June 30, 2014 and 2013 have been prepared in accordance
with generally accepted accounting principles (“US GAAP”) in the United States of America and the rules of the U.S.
Securities and Exchange Commission and do not conform in all respects to the disclosure and information that is required for annual
financial statements. These interim financial statements should be read in conjunction with the Company’s December 31, 2013
audited financial statements and related notes.
In
opinion of management, all adjustments, all of which are of a normal recurring nature, considered necessary for fair statement
have been included in these interim financial statements.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates:
The
preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements and that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates
Cash
and Cash Equivalents:
All
highly liquid investments with original maturities of three months or less at the date of purchase are considered to be cash equivalents.
Property
and Equipment:
Property
and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation
are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings.
For financial statement purposes, property and equipment are depreciated using the straight-line method over their estimated useful
lives.
Intangible
Assets:
Organizational
costs, patent costs, trademarks and other intangibles are stated at cost. When retired or otherwise disposed, the related carrying
value and accumulated amortization are removed from the respective accounts and the net difference less any amount realized from
disposition, is reflected in earnings. For financial statement purposes, intangible assets are amortized using the straight-line
method over their estimated useful lives.
The
balance at June 30, 2014 and December 31, 2013 amounted to $1,432 and $1,515, respectively.
Amortization
expense amounted to $84 and $84 for the six months ended June 30, 2014 and 2013, respectively.
Revenue
Recognition:
The
Company sells its climate systems equipment and other related equipment to the indoor gardening industry through direct and third
party distribution channels. The Company recognizes revenue in accordance with Accounting Standards Codification subtopic 605-10,
Revenue Recognition (“ASC 605-10”) which requires that four basic criteria must be met before revenue can be recognized:
(1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable;
and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments
regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions
for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period
the related sales are recorded.
ASC
605-10 incorporates Accounting Standards Codification subtopic 605-25, Multiple-Element Arraignments (“ASC 605-25”).
ASC 605-25 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or
rights to use assets. There was no effect on implementing ASC 605-25 on the Company’s financial position and results of
operations.
Product
Warranty Claims:
The
Company warrants their products against defects for one year from the date of sales. The Company has experienced only nominal
claims in the past years. During the six months ended June 30, 2014 and 2013, the warranty claims incurred by the Company were
$3,251 and $1,660, respectively.
Based
on the Company’s history of incurring claims expenses, the management feels that there were no provision needed for estimated
future costs and estimated returns for credit relating to warranty liability as of June 30, 2014 and December 31, 2013.
Cost
of Sales:
The
Company manufactures/assembles it climate control systems generally on an order by order basis. The Company also buys certain
other components and equipment from third party manufacturers and keeps an inventory of the purchased equipment. The cost of the
manufactured product and purchased equipment are charged to costs of sales when the related equipment is shipped and revenue is
recognized for the respective sale. Equipment that is sold from inventory are charged to cost of sales at the average price of
the equipment.
Accounts
Receivable and Allowance for Doubtful Accounts:
Accounts
receivable are recorded at invoiced amount and generally do not bear interest. An allowance for doubtful accounts is established,
as necessary, based on past experience and other factors which, in management’s judgment, deserve current recognition in
estimating bad debts. Such factors include growth and composition of accounts receivable, the relationship of the allowance for
doubtful accounts to accounts receivable and current economic conditions. The determination of the collectability of amounts due
from customer accounts requires the Company to make judgments regarding future events and trends. Allowances for doubtful accounts
are determined based on assessing the Company’s portfolio on an individual customer and on an overall basis. This process
consists of a review of historical collection experience, current aging status of the customer accounts, and the financial condition
of the Company’s customers. Based on a review of these factors, the Company establishes or adjusts the allowance for specific
customers and the accounts receivable portfolio as a whole. At June 30, 2014 and December 31, 2013, an allowance for doubtful
accounts was $nil.
Inventory:
The
Company purchases certain equipment in quantity rather than on an order by order basis and keeps an inventory of this equipment.
The inventory is carried at the lower of cost or market. Inventory is relieved at its average cost.
The
balance at June 30, 2014 and December 31, 2013 amounted to $17,631 and $49,502, respectively.
Concentration
of Credit Risk:
Financial
instruments that potentially subject the Company to credit risk consist of cash, cash equivalents and accounts receivable. Exposure
to losses on accounts receivable is principally dependent on each customer’s financial condition. The Company monitors its
exposure for customer credit losses and maintains allowances for anticipated losses. The Company places its cash and cash equivalents
in financial institutions insured by the Federal Depository Insurance Corporation, to the maximum amount of that coverage. Additionally,
the Company limits its amount of credit exposure to any one institution. The Company has never experienced any losses in these
accounts and believes that its credit risk exposure with respect to cash balances held by depository institutions is limited.
Sales
to three customers comprised 31% of the Company’s revenues for the six months ended June 30, 2014 and sales to four customers
comprised 88% of the Company’s revenues for the six months ended June 30,, 2013. The Company believes that, in the event
that its primary customers are unable or unwilling to continue to purchase its products, there are alternative buyers for its
production at comparable prices.
Fair
Value Measurements:
The
carrying value of financial instruments, including cash and cash equivalents, accrued liabilities, and accounts payable approximate
fair value because of the short maturity of these instruments.
Income
Taxes:
The
Company is a limited liability company which has elected to be taxed as a sub-chapter S corporation for federal income tax purposes.
As a result, no provision for income taxes is presented.
Contingencies:
In
the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out
of its business, that cover a wide range of matters, including, among others, government investigations, environment liability
and tax matters. An accrual for a loss contingency is recognized when it is probable that an asset had been impaired or a liability
had been incurred and the amount of loss can be reasonably estimated. At June 30, 2014 and December 31, 2013, there were no loss
contingencies.
Advertising
Costs:
Advertising
costs are expensed as incurred. Advertising expense for the six months ended June 30, 2014 and 2013 were $40,343 and $9,210, respectively.
Shipping
Costs:
Shipping
costs are expensed as incurred. Shipping expense for the six months ended June 30, 2014 and 2013 were $33,427 and $29,771, respectively.
Recent
Accounting Pronouncements:
There
were various updates recently issued, most of which represented technical corrections to the accounting literature or application
to specific industries and are not expected to a have a material impact on the Company’s financial position, results of
operations or cash flows.
Reclassifications:
Certain
reclassifications have been made to amounts in prior periods to conform with the current period presentation. All reclassifications
have been applied consistently to the periods presented.
Purchases from three vendors comprised 79%
of the Company’s Purchases for both of the six months ended June 30, 2014 and 2013. The Company believes that in the event
that is primary vendors are unable to continue to sell their products to the Company, there are alternative vendors at comparable
prices.
NOTE
3 – GOING CONCERN
The
accompanying unaudited condensed financial statements have been prepared assuming that the Company will continue as a going concern,
which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company had
a net loss for the six months ended June 30, 2014 of $271,351 and has a $398,671 and $111,762 working capital deficit (current
liabilities exceeds current assets) at June 30, 2014 and December 31, 2013, respectively.
In
the course of its activities, the Company has generated net income and also sustained net losses. The Company expects to be profitable
and will meet its obligations through its ongoing operations. However, management cannot provide any assurances that the Company
will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon
its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing
and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
Subsequent
to June 30, 2014, the Company was acquired by Surna, Inc. (see Subsequent Events Note 10).
NOTE
4 – ACCOUNTS RECEIVABLE
At
June 30, 2014 and December 31, 2013, accounts receivable summarized by due dates consists of the following:
| | |
June 30, 2014 | | |
December 31, 2013 | |
| Current | |
$ | 33,267 | | |
$ | 35,929 | |
| Past due 1 - 30 days | |
| 17,827 | | |
| 70,446 | |
| Past due 31 - 60 days | |
| 3,692 | | |
| 9,422 | |
| Past due 61 days and over | |
| 21,658 | | |
| 6,111 | |
| Total | |
$ | 76,444 | | |
$ | 121,908 | |
At
June 30, 2014 and December 31, 2013, an allowance for doubtful accounts was $-0-.
NOTE
5 – PROPERTY AND EQUIPMENT
At
June 30, 2014 and December 31, 2013, property and equipment consists of:
| | |
June 30, 2014 | | |
December 31, 2013 | |
| Furniture & equipment | |
$ | 14,425 | | |
$ | 6,914 | |
| Molds | |
| 31,063 | | |
| 31,063 | |
| Vehicles | |
| 15,000 | | |
| 15,000 | |
| Leasehold Improvements | |
| 12,129 | | |
| 10,439 | |
| | |
| 72,617 | | |
| 63,416 | |
| Accumulated depreciation | |
| (42,809 | ) | |
| (36,726 | ) |
| | |
$ | 29,808 | | |
$ | 26,690 | |
Depreciation
expense amounted to $6,082 and $7,044 for the six months ended June 30, 2014 and 2013, respectively.
NOTE
6 – SHORT TERM NOTES
During
2013, an individual loaned a total of $250,000 to the Company in multiple tranches (the “Advances”) and advanced an
additional $10,000 during 2014. The Loan does not carry a stated interest rate or term. As such the Company has imputed interest
at the rate of six percent (6%) per annum. The outstanding balance of the advances totals $260,000 and $250,000 at June 30, 2014
and December 31, 2013, respectively.
During
the six months ended June 30, 2014 and 2013, the Company charged imputed $6,800 and $0, respectively, interest on the above advances.
In
addition, during the six months ended June 30, 2014, this individual has advanced the Company an additional $6,254 on a short
term basis. The total outstanding balance at June 30, 2014 and December 31, 2013 was $28,185 and $21,932, respectively.
NOTE
7 – RELATED PARTY TRANSACTIONS
During
the six months ended June 30, 2014 and 2013, Brandy and Stephen Keen (the “Keens”), the owners of the Company, advanced
a total of $-0- and $23,665, respectively to the Company to cover cash requirements for Company operations. At June 30, 2014 and
December 31, 2013, the Keens were owed $-0- and $-0- respectively.
NOTE
8 – LINE OF CREDIT
The
Company has a line of credit with People Fund in the amount of $100,000. The line of credit is secured by substantially all of
the assets of the Company and guaranteed by the owners of the Company. The line of credit bears interest at the rate of 12%, per
annum, with interest due and payable monthly and expires on January 1, 2016.
Line
of credit balances at June 30, 2014 and December 31, 2013 are as follows:
| | |
June 30, 2014 | | |
December 31, 2013 | |
| Outstanding balance | |
$ | 35,018 | | |
$ | 46,493 | |
| Less: current portion of line of credit | |
| (21,386 | ) | |
| (20,337 | ) |
| Long-term portion of line of credit | |
$ | 13,632 | | |
$ | 26,156 | |
During
the six months ended June 30, 2014 and 2013, the Company paid interest on above notes of $2,109 and $3,081, respectively.
NOTE
9 – COMMITMENTS AND CONTINGENCIES
Settlement
Agreement
During
2010, the Company along with the Keens (owners of the Company) were sued by T. Marek, M. Marek, Liquid Lumens, and Global Garden
Supply for breach of contract and attorneys’ fees in the 98th Judicial District Court for Travis County, Texas (the “State
Lawsuit”); the court in the State Lawsuit entered its February 22, 2012 Final Judgment in favor of T. Marek, M. Marek, Liquid
Lumens, and Global Garden Supply (the “State Lawsuit Final Judgment,” awarding, among other things, $91,585 to the
Marek Parties, comprised of $15,000 in actual damages and $76,585 in attorneys’ fees (the “State Lawsuit Award”).
In 2011, the Keens then sued the Marek Parties in the United States District Court for the Western District of Texas (the “Patent
Lawsuit”) alleging, among other things, patent infringement.
In
2012, the parties to the above described litigation settled all claims and the parties entered into a Settlement Agreement, the
terms of which call for the Keens to pay to the Marek Parties the total sum of one hundred thirteen thousand fifty-three U.S.
dollars and twenty-four US cents (USD 113,053) (the “Total Settlement Amount”) to be paid according to the following
installment schedule, with each payment being an “Installment Payment”:
a.
Installment Payment No. 1: Fifteen thousand U.S. dollars (USD 15,020) due on the Effective Date;
b.
Installment Payment Nos. 2-17: Six thousand one hundred twenty-eight U.S. dollars and thirty-three U.S. cents (USD 6,128) due
on or before the fifteenth calendar day of every month beginning June 15, 2012 and continuing until the last payment is due on
or before August 15, 2013.
As
of June 30, 2014 and December 31, 2013, the balance had been paid in its entirety.
Litigations
Company
is subject to certain legal proceedings and claims, which arise in the ordinary course of its business. Although occasional adverse
decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material
adverse effect on its financial position, results of operations or liquidity. As of filing date, there was no outstanding litigation.
Lease
Obligations
The
Company has entered into a lease agreement for its manufacturing and office space consisting of approximately 18,000 square feet.
The lease term extends through September 30, 2016 and calls for yearly payment as follows:
| Year ended June 30, 2015 | |
$ | 175,591 | |
| Year ended June 30, 2016 | |
| 184,538 | |
| July 1 through
September 30, 2016 | |
| 46,135 | |
| Total | |
$ | 406,264 | |
Subsequent
to June 30, 2014, Surna, Inc. assumed the lease obligations and acquired the Company (see following Note 10 - Subsequent Events).
NOTE
10 – SUBSEQUENT EVENTS
Effective
as of July 1, 2014, we entered into a Modification and Amendment (the “Hydro Amendment”) to the previously executed
March 31, 2014 Membership Purchase Agreement we entered into with Surna, Inc., a Nevada corporation (“Surna”), under
the terms of which Surna would acquire 100% of the Company. Pursuant to the terms of the Hydro Amendment, Surna is to pay the
Keens $250,000 by the delivery to the Keens of a $250,000 promissory note from Surna (the “Surna Note”). The Surna
Note bears interest at the rate of 6% per annum and is payable in monthly installments of $5,000 with a balloon payment for the
balance of accrued interest and principal due on July 18, 2016. The Surna Note may be prepaid in whole or in part at any time.
As
additional consideration for the purchase of Hydro, the Company entered into employment agreements with the Keens. Pursuant to
the terms of Brandy Keen’s employment agreement, the Company agreed to employ Brandy Keen as its Vice President of Operations
for a period of three years beginning on July 18, 2014 and pay her an annual base salary of $96,000 which is subject to review
annually by the Company’s Board of Directors. Brandy Keen will be entitled to stock compensation in an amount and on terms
to be agreed on at a later date, vacation, leave and other benefits as may be in effect at the Company’s discretion from
time to time and reimbursement of out of pocket expenses for business entertainment in connection with his duties. Brandy Keen’s
employment is at-will and may be terminated at any time, with or without cause. Brandy Keen is subject to a restriction on competition
following termination of her employment agreement for a period of one year.
Pursuant to the terms of Stephen Keen’s
employment agreement, the Company agreed to employ Stephen Keen as its Vice President of Research and Development for a period
of three years beginning on July 18, 2014 and pay him an annual base salary of $96,000 which is subject to review annually by
the Company’s Board of Directors. Stephen Keen will be entitled to stock compensation in an amount and on terms to be agreed
on at a later date, vacation, leave and other benefits as may be in effect at the Company’s discretion from time to time
and reimbursement of out of pocket expenses for business entertainment in connection with his duties. Stephen Keen’s employment
is at-will and may be terminated at any time, with or without cause. Stephen Keen is subject to a restriction on competition following
termination of his employment agreement for a period of one year.
Exhibit
99.3
Notes
to Condensed Combined Pro Forma Unaudited Financial Statements
On
July 25, 2014, Surna, Inc. (“Surna” or “the Company”) acquired Hydro Innovations LLC (“Hydro”),
a company that manufactures and sells equipment for the indoor gardening industry. The Company manufactures and/or assembles its
products (the “Acquisition”).
The
unaudited condensed combined pro forma statements of operations are presented as if the Acquisition had been completed on January
1, 2013 combining Hydro’s condensed audited statement of operations for the year ended December 31, 2013 and Surna’s
audited condensed statement of operations for the year ended December 31, 2013. The unaudited condensed combined pro forma statements
of operations for the six months ended June 30, 2014 are presented as if the Acquisition had been completed on January 1, 2013
combining Hydro’s condensed unaudited statement of operations for the six months ended June 30, 2014 and Surna’s unaudited
condensed statement of operations for the six months ended June 30, 2014. The unaudited condensed combined pro forma balance sheet
gives effect to the acquisition as if the Acquisition had taken place on June 30, 2014 and combines Hydro’s unaudited condensed
balance sheet as of June 30, 2014 with Surna’s unaudited condensed balance sheet as of June 30, 2014.
The
unaudited pro forma combined statement of income is presented for illustrative purposes only and, therefore, is not necessarily
indicative of the operating results that might have been achieved had the transaction occurred as of an earlier date, nor is it
necessarily indicative of the operating results that may be achieved in the future. You should not rely on the pro forma condensed
combined financial information as being indicative of the historical results that would have been achieved had the companies always
been combined or the future results that the combined companies will experience after the Acquisition.
The
unaudited pro forma combined statement of income, including the notes thereto, should be read in conjunction with Surna’s
audited historical consolidated financial statements for the year ended December 31, 2013 included in our Annual Report on Form
10-K for the year ended December 31, 2013, the Form 10-Q for the quarterly periods ended March 31, 2014 and June 30, 2014 as well
as Hydro’s audited financial statements for the years ended December 31, 2013 and 2012 included in Exhibit 99.1 to this
Form 8-K/A.
Surna,
Inc.
Unaudited
Combined Pro Forma Balance Sheet
as
of June 30, 2014
| | |
June 30, 2014 | |
| | |
(Unaudited) | | |
Pro Forma (Unaudited) | |
| | |
Surna | | |
Hydro | | |
Adjustments | | |
Combined | |
| ASSETS | |
| | | |
| | | |
| | | |
| | |
| CURRENT ASSETS | |
| | | |
| | | |
| | | |
| | |
| Cash | |
$ | 214,067 | | |
$ | 2,637 | | |
$ | - | | |
$ | 216,704 | |
| Accounts receivable | |
| 68,399 | | |
| 76,444 | | |
| - | | |
| 144,843 | |
| Advance to related party | |
| 84,681 | | |
| - | | |
| (84,681 | ) | |
| - | |
| Assets held for sale | |
| - | | |
| - | | |
| - | | |
| - | |
| Inventory | |
| 2,507 | | |
| 17,631 | | |
| - | | |
| 20,138 | |
| Total current assets | |
| 369,654 | | |
| 96,712 | | |
| (84,681 | ) | |
| 381,685 | |
| | |
| | | |
| | | |
| | | |
| | |
| Property and equipment | |
| 128,188 | | |
| 72,617 | | |
| - | | |
| 200,805 | |
| Accumulated depreciation | |
| (5,366 | ) | |
| (42,809 | ) | |
| - | | |
| (48,175 | ) |
| | |
| 122,822 | | |
| 29,808 | | |
| - | | |
| 152,630 | |
| | |
| | | |
| | | |
| | | |
| | |
| Intangible assets | |
| 13,500 | | |
| 5,178 | (1)(2) | |
| 631,064 | | |
| 649,742 | |
| Accumulated amortization | |
| - | | |
| (3,747 | ) | |
| - | | |
| (3,747 | ) |
| | |
| 13,500 | | |
| 1,432 | | |
| 631,064 | | |
| 645,995 | |
| | |
| | | |
| | | |
| | | |
| | |
| TOTAL ASSETS | |
$ | 505,976 | | |
$ | 127,951 | | |
$ | 546,383 | | |
$ | 1,180,310 | |
| | |
| | | |
| | | |
| | | |
| | |
| LIABILITIES AND MEMBERS’ DEFICIT | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| CURRENT LIABILITIES | |
| | | |
| | | |
| | | |
| | |
| Accounts payable and accrued liabilities | |
$ | 62,469 | | |
$ | 46,992 | | |
$ | | | |
$ | 109,461 | |
| Payroll taxes payable | |
| | | |
| 54,138 | | |
| | | |
| 54,138 | |
| Short term line of credit | |
| | | |
| 21,386 | | |
| | | |
| 21,386 | |
| Short term loans | |
| | | |
| 260,000 | | |
| | | |
| 260,000 | |
| Advances from others | |
| | | |
| 28,186 | | |
| | | |
| 28,186 | |
| Advances from Surna, Inc. | |
| | | |
| 84,681
| (1)(2) | |
| (84,681 | ) | |
| - | |
| Current portion of promissory note | |
| | | |
| | (1) | |
| 60,000 | | |
| 60,000 | |
| Amounts due to related parties held for sale | |
| | | |
| - | | |
| | | |
| - | |
| Total current liabilities | |
| 62,469 | | |
| 495,383 | | |
| (24,681 | ) | |
| 533,171 | |
| | |
| | | |
| | | |
| | | |
| | |
| LONG TERM DEBT | |
| | | |
| | | |
| | | |
| | |
| Vehicle loan | |
| 46,571 | | |
| | | |
| | | |
| 46,571 | |
| Promissory note issued for purchase | |
| | | |
| | (1) | |
| 190,000 | | |
| 190,000 | |
| Long term line of credit | |
| | | |
| 13,632 | | |
| | | |
| 13,632 | |
| Convertible promissory notes | |
| 759,283 | | |
| | | |
| | | |
| 759,283 | |
| Debt discount on convertible notes | |
| (691,118 | ) | |
| | | |
| | | |
| (691,118 | ) |
| Total long term debt | |
| 114,736 | | |
| 13,632 | | |
| 190,000 | | |
| 318,368 | |
| | |
| | | |
| | | |
| | | |
| | |
| NONCURRENT LIABILITIES | |
| | | |
| | | |
| | | |
| | |
| Derivative liability on convertible debt | |
| 2,497,425 | | |
| | | |
| | | |
| 2,497,425 | |
| | |
| | | |
| | | |
| | | |
| | |
| TOTAL LIABILITIES | |
| 2,674,630 | | |
| 509,015 | | |
| 165,319 | | |
| 3,348,964 | |
| | |
| | | |
| | | |
| | | |
| | |
| COMMITMENTS AND CONTINGENCIES | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| SHAREHOLDERS’ AND MEMBERS’ DEFICIT | |
| | | |
| | | |
| | | |
| | |
| Members’ deficit | |
| | | |
| (381,064)
| (2) | |
| 381,064 | | |
| - | |
| Shareholders’ deficit | |
| (2,168,654 | ) | |
| - | | |
| | | |
| (2,168,654 | ) |
| | |
| (2,168,654 | ) | |
| (381,064 | ) | |
| 381,064 | | |
| (2,168,654 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| TOTAL LIABILITIES AND MEMBER’S DEFICIT | |
$ | 505,976 | | |
$ | 127,951 | | |
$ | 546,383 | | |
$ | 1,180,310 | |
See
accompanying notes to the financial statements
Exhibit
99.4
Surna,
Inc.
Unaudited
Condensed Combined Pro Forma Statement of Operations
Year
Ended December 31, 2013
| | |
Year Ended December 31, 2013 | |
| | |
(Audited) | | |
Pro Forma (Unaudited) | |
| | |
Surna | | |
Hydro | | |
Adjustments | | |
Combined | |
| | |
| | |
| | |
| | |
| |
| Revenue | |
$ | 50 | | |
$ | 695,031 | | |
$ | - | | |
$ | 695,081 | |
| Cost of Sales | |
| - | | |
| 334,719 | | |
| - | | |
| 334,719 | |
| Gross Margin | |
| 50 | | |
| 360,312 | | |
| - | | |
| 360,362 | |
| | |
| | | |
| | | |
| | | |
| | |
| Operating Expenses: | |
| | | |
| | | |
| | | |
| | |
| Depreciation Expense | |
| 13,332 | | |
| 14,257 | | |
| - | | |
| 27,589 | |
| Product Development Costs | |
| 100 | | |
| 39,985 | | |
| - | | |
| 40,085 | |
| General and Administrative Expenses | |
| 179,774 | | |
| 376,077 | | |
| - | | |
| 555,851 | |
| Total Operating Expenses | |
| 193,206 | | |
| 430,319 | | |
| - | | |
| 623,525 | |
| Operating Loss | |
| (193,156 | ) | |
| (70,007 | ) | |
| - | | |
| (263,163 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Other Income (Expense) | |
| | | |
| | | |
| | | |
| | |
| Interest Expense | |
| - | | |
| (8,360 | ) | |
| - | | |
| (8,360 | ) |
| Amortization of Debt Discount on Convertible Notes | |
| - | | |
| - | | |
| - | | |
| - | |
| Change in Derivative Liability | |
| - | | |
| - | | |
| - | | |
| - | |
| Loss
From Continuing Operations | |
| (193,156 | ) | |
| (78,367 | ) | |
| - | | |
| (271,523 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Loss From Discontinued
Operations | |
| | | |
| | | |
| | | |
| - | |
| Net Loss | |
| (193,156 | ) | |
| (78,367 | ) | |
| - | | |
| (271,523 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Comprehensive loss: | |
| | | |
| | | |
| | | |
| | |
| Foreign currency translation loss | |
| (6,946 | ) | |
| - | | |
| - | | |
| (6,946 | ) |
| Comprehensive
loss: | |
$ | (200,102 | ) | |
$ | (78,367 | ) | |
$ | - | | |
$ | (278,469 | ) |
See
accompanying notes to the financial statements
Surna,
Inc.
Unaudited
Condensed Combined Pro Forma Statement Of Operations
Six
Months Ended June 30, 2014
| | |
Six
Months Ended June 30, 2014 | |
| | |
(Unaudited) | | |
Pro
Forma (Unaudited) | |
| | |
Surna | | |
Hydro | | |
Adjustments | | |
Combined | |
| | |
| | |
| | |
| | |
| |
| Revenue | |
$ | 346,559 | | |
$ | 649,925 | | |
$ | - | | |
$ | 996,484 | |
| Cost of Sales | |
| 282,606 | | |
| 373,316 | | |
| - | | |
| 655,922 | |
| Gross Margin | |
| 63,953 | | |
| 276,609 | | |
| - | | |
| 340,562 | |
| | |
| | | |
| | | |
| | | |
| | |
| Operating Expenses: | |
| | | |
| | | |
| | | |
| | |
| Depreciation Expense | |
| 5,366 | | |
| 6,167 | | |
| - | | |
| 11,533 | |
| Product Development Costs | |
| 7,768 | | |
| 22,212 | | |
| - | | |
| 29,980 | |
| General
and Administrative Expenses | |
| 399,535 | | |
| 510,415 | | |
| - | | |
| 909,950 | |
| Total Operating
Expenses | |
| 412,669 | | |
| 538,794 | | |
| - | | |
| 951,463 | |
| Operating Loss | |
| (348,716 | ) | |
| (262,185 | ) | |
| - | | |
| (610,901 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Other Income (Expense) | |
| | | |
| | | |
| | | |
| | |
| Interest Expense | |
| (13,633 | ) | |
| (9,166 | ) | |
| - | | |
| (22,799 | ) |
| Amortization of Debt Discount on
Convertible Notes | |
| (68,165 | ) | |
| - | | |
| - | | |
| (68,165 | ) |
| Change in
Derivative Liability | |
| (1,738,141 | ) | |
| - | | |
| - | | |
| (1,738,141 | ) |
| Loss From Continuing Operations | |
| (2,168,655 | ) | |
| (271,351 | ) | |
| - | | |
| (2,440,006 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Loss From Discontinued
Operations | |
| (6,521 | ) | |
| - | | |
| - | | |
| (6,521 | ) |
| Net Loss | |
| (2,175,176 | ) | |
| (271,351 | ) | |
| - | | |
| (2,446,527 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Comprehensive loss: | |
| | | |
| | | |
| | | |
| | |
| Foreign currency translation loss | |
| | | |
| | | |
| | | |
| | |
| Comprehensive loss: | |
$ | (2,175,176 | ) | |
$ | (271,351 | ) | |
$ | - | | |
$ | (2,446,527 | ) |
See
accompanying notes to the financial statements
SURNA,
INC.
NOTES
TO CONDENSED PRO FORMA COMBINED
UNAUDITED
FINANCIAL STATEMENTS
Unaudited
Pro Forma Condensed Financial Information.
The
pro forma Combined Unaudited Condensed Financial Statements have been prepared in order to present combined financial position
and results of operations of Surna, Inc. (“Surna”) and Hydro Innovations, LLC (“Hydro”) as if the Acquisition
had occurred as of June 30, 2014 for the pro forma condensed combined balance sheet and to give effect to the Acquisition by Surna
, as if the transaction had taken place at January 1, 2013 for the pro forma condensed combined statement of income for the year
ended December 31, 2013 and the six months ended June 30, 2014.
The
following pro forma adjustments are incorporated into the pro forma condensed combined balance sheet as of December 31, 2013 and
the pro forma condensed combined statement of operations for the year ended December 31, 2013 and six months ended June 30, 2014,
respectively.
| (1) | To
record the issuance of a promissory note in the amount of $250,000 to purchase Hydro. |
The
Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the
total acquisition consideration price was allocated to the assets acquired and liabilities assumed based on their preliminary
estimated fair values. The fair value measurements utilize estimates based on key assumptions of the Acquisition, and historical
and current market data. The excess of the purchase price over the total of estimated fair values assigned to tangible and identifiable
intangible assets acquired and liabilities assumed is recognized as goodwill. In order to ultimately determine the fair values
of tangible and intangible assets acquired and liabilities assumed for Hydro, we may engage a third party independent valuation
specialist, however as of the date of this report, the valuation has not been undertaken. The Company has estimated the preliminary
purchase price allocations based on historical inputs and data as of June 30, 2014. The preliminary allocation of the purchase
price is based on the best information available and is pending, amongst other things: (i) the finalization of the valuation of
the fair values and useful lives of property and equipment acquired; (ii) finalization of the valuations and useful lives for
intangible assets; (iii) finalization of the valuation of accounts payable and accrued expenses; and (iv) finalization of the
fair value of non-cash consideration.
During
the measurement period (which is the period required to obtain all necessary information that existed at the acquisition date,
or to conclude that such information is unavailable, not to exceed one year), additional assets or liabilities may be recognized,
or there could be changes to the amounts of assets or liabilities previously recognized on a preliminary basis, if new information
is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition
of those assets or liabilities as of that date. The Company expects the purchase price allocations for the acquisition of Hydro
to be completed by the end of the fourth quarter of 2014.
The
following table summarizes the preliminary fair values of the Hydro assets acquired and liabilities assumed as of the effective
acquisition date of June 30, 2014:
| Purchase price: | |
| |
| Promissory Note | |
$ | 250,000 | |
| Liabilities assumed | |
| 509,015 | |
| Total purchase price | |
$ | 759,015 | |
| | |
| | |
| Fair value of assets: | |
| | |
| Current assets | |
$ | 96,712 | |
| Property and equipment | |
| 29,808 | |
| Other assets | |
| 1,432 | |
| Excess-identifiable intangible assets | |
| 631,064 | |
| Fair value of assets acquired | |
$ | 759,015 | |
This
pro forma adjustments do not reflect the amortization of intangible assets acquired, if any , in the Acquisition.
| (2) | To
eliminate Hydro accumulated deficit and capital structure |
FOR IMMEDIATE
RELEASE
Surna
Reports Hydro’s Pro Forma Combined Results;
Surna
Posts Prelim Nine Months Gross Revenue
Boulder,
CO – October 8, 2014 — Surna Inc. (OTCQB: SRNA), a company that develops,
acquires, produces and sells equipment for the legal marijuana industry with a focus on disruptive technology, today announced
it has filed the audited FY 2013 and 2012 financial results for its July 1, 2014 acquisition of Hydro Innovations (“Hydro”)
as well as its unaudited, pro forma combined financial results for the six months ended June 30, 2014. Additionally, the Company
reports its preliminary proforma gross revenue for the nine months ended September 30, 2014.
The
financial results presented herein are summary highlights. Readers are encouraged to read the complete report Surna is filing
today on Form 8-K/A with the SEC, under the Company’s website “Investors” tab at www.surna.com, along with its
other relevant reports on Forms 10-Q and 10-K.
Surna
Gross Revenues
Beginning
with the third quarter of 2014, the Company will report consolidated financial results combining Surna and Hydro. Surna’s
unaudited combined pro forma growth is as follows:
| |
● |
$380,000
in gross revenues for the three months ended March 31, 2014, |
| |
|
|
| |
● |
$996,000
in gross revenues for the six months ended June 30, 2014, |
| |
|
|
| |
● |
$1,800,000
in gross revenues estimated for the nine months ended September 30, 2014. |
Surna’s
Robust Growth: On Plan
“One
of the most exciting aspects of the Company’s robust growth is that we have accelerated revenues from the first quarter
simply from our existing infrastructure and product offerings,” said Tom Bollich, Surna Chairman and Chief Executive Officer.
“Although still operating at a loss, Surna has a tremendous opportunity in front of us with states such as Nevada and Illinois
initiating legal sales soon and Washington just beginning to develop its infrastructure. We are successfully executing on an aggressive
business plan that calls for investing heavily in people, R&D, technology, products and marketing — to quickly capture
a leading share of the incipient but burgeoning North American legal cannabis market.
“This
includes the Company’s recent announcement of hiring Todd Whitaker, a veteran design engineer with extensive NASA project
experience who joins us as sixth professional in the engineering department,” Mr. Bollich added. “We are focused on
creating a technological lead over the rest of the industry so wide that, by the time the industry begins to realize its full
potential, our position will have reached a critical mass that dominates the tech side of this business. We now have a sales and
marketing department of five savvy professionals complementing the rapid growth of our team, we’ve more than doubled the
size of our corporate headquarters and have obtained the support of Newbridge Financial for M&A and financial advisory services.
Add to this several patent filings made, or in process, and the products slated for launch throughout 2015, we are blazing the
trail with disruptive, high-end, cultivation technology.
“We
are confident that with those new products and others in the development pipeline, combined with ramping up our robust multi-channel
marketing campaign, that Surna is well-positioned for accelerating financial performance into 2015.
“Both
our challenge, and our opportunity,” Mr. Bollich concluded, “Will be keeping up to capitalize on the exponential industry
growth over the next few years — which is why we are investing heavily today.”
According
to Bloomberg Industries, national legalization has the potential to start a $35 billion to $45 billion a year industry. At that
level, the Company noted, cannabis would eclipse the US wine market’s $34.6 billion – which is the world’s largest
wine market.
HI-14 Combined Pro Forma Operations
The unaudited, condensed, combined, pro forma
operations of Surna and Hydro for the six months ended June 30, 2014 had combined gross revenues of $996,484 with an operating
loss of ($610,901).
About
Surna, Inc.
Led
by Tom Bollich, the visionary technologist who co-founded famed gaming company Zynga which ultimately rose to a $10 billion market
valuation, Surna’s mission is to acquire intellectual property and scalable operating companies in the nascent, legal marijuana
industry with a focus on disruptive technology, equipment and related support services (www.surna.com) Through its wholly
owned subsidiary, Hydro Innovations, the Company offers a comprehensive line of commercial and small business indoor agriculture
equipment (www.hydroinnovations.com).
The Company represents a pure play on explosive
growth in the cannabis industry, while being agnostic as to the escalating proliferation of regulated, commodity cannabis growers
& seller, winners or losers; its business model excludes the production or sale of marijuana.
Safe
Harbor Statement
This
news release contains statements that involve expectations, plans or intentions (such as those relating to future business or
financial results, new features or services, or management strategies) and other factors discussed from time to time in the Company’s
Securities and Exchange Commission filings. These statements are forward-looking and are subject to risks and uncertainties, so
actual results may vary materially. You can identify these forward-looking statements by words such as “may” “should,”
“expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan”
and other similar expressions. Our actual results, such as the Company’s ability to finance, complete and consolidate acquisition
of IP, assets and operating companies, could differ materially from those anticipated in these forward-looking statements as a
result of certain factors not within the control of the company such as a result of various factors, including future economic,
competitive, regulatory, and market conditions. The company cautions readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. The company disclaims any obligation subsequently to revise any forward-looking
statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
Investor
Relations
David
Kugelman
Atlanta
Capital Partners, LLC
(404)
856-9157
(866)
692-6847 Toll Free - U.S. And Canada
At
the Company
Tae
Darnell
VP
and General Counsel
(303)
993-5271
tae@surna.com