If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box.
x
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check
the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering.
¨
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
¨
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
¨
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer or
a smaller reporting company. See definitions of “large
accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the
Exchange Act.
PROSPECTUS
SUMMARY
This summary
highlights selected information appearing elsewhere in this
prospectus. While this summary highlights what we consider to be
important information about us, you should carefully read this
entire prospectus before investing in our common stock and
warrants, especially the risks and other information we discuss
under the headings “Risk Factors” and
“Management’s Discussion and Analysis of Financial
Condition and Results of Operation” and our consolidated
financial statements and related notes beginning on page F-1. Our
fiscal year end is December 31 and our fiscal years ended December
31, 2014 and 2015 and our fiscal year ending December 31, 2016 are
sometimes referred to herein as fiscal years 2014, 2015 and 2016,
respectively. Some of the statements made in this prospectus
discuss future events and developments, including our future
strategy and our ability to generate revenue, income and cash flow.
These forward-looking statements involve risks and uncertainties
which could cause actual results to differ materially from those
contemplated in these forward-looking statements. See
“Cautionary Note Regarding Forward-Looking Statements”.
Unless otherwise indicated or the context requires otherwise, the
words “we,” “us,” “our”, the
“Company” or “our Company” and
“Sports Field” refer to Sports Field Holdings, Inc., a
Nevada corporation, and our wholly owned subsidiary, FirstForm,
Inc.
This prospectus
assumes the over-allotment option of the underwriters has not been
exercised, unless otherwise indicated.
Overview
Sports Field Holdings, Inc. (the “Company” or
“Sports Field”), through its wholly owned subsidiary
FirstForm, Inc. (formerly SportsField Engineering, Inc.,
“FirstForm”), is an innovative product development
company engaged in the design, engineering and construction of
athletic fields 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. 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.
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
1
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
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.
Our 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. 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 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.
2
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.
3
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.
4
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 is
www.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.
5
THE OFFERING
Securities offered by us:
|
|
________ shares of our common stock and warrants
to purchase ______ 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.
|
|
|
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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.
|
|
|
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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 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.
6
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 elsewhere 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 or 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
|
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For
the Six Months
Ended June 30,
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Fiscal Years Ended
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|
|
|
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Total Revenues
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$
|
1,278,558
|
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$
|
1,413,894
|
|
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$
|
3,941,833
|
|
|
$
|
1,228,188
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Cost of Sales
|
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1,289,080
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|
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1,471,090
|
|
|
|
4,519,997
|
|
|
|
1,716,511
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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
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|
Research and Development expenses
|
|
|
88,447
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Depreciation
|
|
|
2,028
|
|
|
|
14,451
|
|
|
|
28,044
|
|
|
|
67,212
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|
Separation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
228,414
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Other income (expense) net
|
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(272,362
|
)
|
|
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(11,927
|
)
|
|
|
(54,425
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)
|
|
|
(41,397
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)
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Net (Loss) Income
|
|
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(2,144,962
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)
|
|
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(1,298,172
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)
|
|
|
(3,338,157
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)
|
|
|
(3,832,856
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)
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Net (Loss) Income available to common
shareholders
|
|
$
|
(2,144,962
|
)
|
|
$
|
(1,298,172
|
)
|
|
$
|
(3,338,157
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)
|
|
$
|
(3,832,856
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)
|
Basic & Diluted Net Income (Loss) per
share:
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$
|
(0.14
|
)
|
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$
|
(0.10
|
)
|
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$
|
(0.24
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)
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$
|
(0.29
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)
|
Weighted Average
shares outstanding
|
|
|
15,622,456
|
|
|
|
13,552,568
|
|
|
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13,698,354
|
|
|
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13,194,055
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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 $_____ per warrant
after deducting underwriting discounts and commissions and
estimated offering expenses.
The pro forma as adjusted information set forth below is
illustrative only and will be adjusted based on the actual public
offering price and other terms of this offering determined at
pricing.
7
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Consolidated Balance Sheets Data:
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|
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Cash and cash equivalents
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$
|
—
|
|
|
$
|
840,856
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|
|
$
|
|
Working Capital (deficit)
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(2,257,979
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)
|
|
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(1,427,916
|
)
|
|
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Total assets
|
|
|
477,440
|
|
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|
1,318,296
|
|
|
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Total liabilities
|
|
|
2,735,419
|
|
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|
3,413,151
|
|
|
|
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Total stockholders’ equity
(deficit)
|
|
|
(2,257,979
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)
|
|
|
(2,094,855
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)
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|
8
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 included in this prospectus before deciding 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 harmed by any of these risks. This could cause the
trading price of our securities to decline, and you may lose all 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.
Risks Related To Our COMPANY
WE ARE NOT YET PROFITABLE AND MAY NEVER BE PROFITABLE.
Since inception through June 30, 2016, Sports Field has raised
approximately $7,000,000 in capital. During this same period, we
have recorded net accumulated losses totaling $12,414,480. As of
June 30, 2016, we had a working capital deficit of $2,257,979. Our
net losses for the two most recent fiscal years ended December 31,
2015 and 2014 have been $3,338,157 and $3,832,856, 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 RECEIVED A GOING CONCERN OPINION FROM OUR
AUDITORS.
As reflected in the financial statements we have received a going
concern opinion from our auditors. As of June 30, 2016, the Company
has a cash overdraft of $3,518 and working capital deficit of
$2,257,979. Furthermore, the Company had a net loss and net cash
used in operations of $2,144,962 and $1,393,016, respectively, for
the six months ended June 30, 2016 and an accumulated deficit
totaling $12,414,480. Accordingly, these factors raise substantial
doubt about the Company’s ability to continue as a going
concern.
The ability of the Company to continue its operations as a going
concern is dependent on management’s plans, which include the
raising of capital through debt and/or equity markets with some
additional funding from other traditional financing sources,
including term notes, until such time that funds provided by
operations are sufficient to fund working capital requirements.
WE HAVE A LIMITED OPERATING HISTORY.
We have been in existence for approximately four 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
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). 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.
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 is 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, 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, the Company has
begun to hire additional staff to facilitate greater segregation of
duties. Management intends to begin documenting and formalizing
controls and procedures.
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.
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 manufacturers of our products depend on raw
materials derived from petrochemicals such as yarn, backing and
infill. If the prices of these raw materials 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
not subcontract design responsibility as we have our own architects
and engineers in-house. 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.
Many 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 for our business depends in part on our ability to retain
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 11,000 synthetic turf fields
installed in the U.S. and approximately 1,000 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 of
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 intensive business and we do 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
number 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.
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
•
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 Related to the Offering
Investors in this offering will experience immediate and
substantial dilution in net tangible book value.
The public offering price will be substantially higher than the net
tangible book value per share of our outstanding shares of common
stock. As a result, investors in this offering will incur immediate
dilution of $ per share,
based on the assumed public offering price of $ _____ per share.
Investors in this offering will pay a price per share that
substantially exceeds the book value of our assets after
subtracting our liabilities. See “Dilution” for a more
complete description of how 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 use of the net proceeds from this
offering and may not use them effectively.
Our management will have broad discretion in 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
following this offering may adversely affect the market price of
our common stock and the issuance of additional shares will dilute
all other stockholders.
Sales of a substantial number of shares of our common stock in the
public market or otherwise following this offering, or the
perception that such sales could occur, could adversely affect the
market price of our 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 exercise of the underwriters’ over-allotment option.
After completion of this offering at an assumed offering price of
$ per share there will be
shares of our common stock outstanding.
In addition, our certificate of incorporation, as amended, permits
the issuance of up to approximately
additional shares of common stock after the completion of this
offering. Thus, we have the ability to issue substantial amounts of
common stock in the future, which would dilute the percentage
ownership held by the investors who purchase shares of our common
stock 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 representative
of the underwriters, during the period ending 180 days from the
date of this offering 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
17
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.
After the lock-up agreements with our principal stockholders
pertaining to this offering expire 90 days from the date of this
offering unless waived earlier by the representative, up to
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
will ever equal or exceed the exercise price of the warrants, and
consequently, whether it will ever be profitable for holders of the
warrants to exercise the warrants.
18
USE OF
PROCEEDS
We estimate that the net proceeds from the sale of the 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.
We currently expect to use the net proceeds of this offering
primarily for the following purposes:
•
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 timing 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, and 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
outstanding. As of August 26, 2016, there were approximately 234
holders of record of our common stock, and the last reported sale
price of our common stock on the OTCQB was $0.51 per share.
Our common stock was initially quoted on the OTCQB in 2014 and the
following table sets forth the high and low sales price of our
common stock on the OTCQB 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.
|
|
|
|
|
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
Policy
To date, we have not paid any dividends on our common stock and do
not anticipate paying any such dividends in the foreseeable future.
The declaration and payment of dividends on the common stock is at
the discretion of our board of directors and will depend on, among
other things, our operating results, financial condition, capital
requirements, contractual restrictions or such other factors as our
board of directors may deem relevant. We currently expect to use
all available funds to finance the future development and expansion
of our business and do not anticipate paying dividends on our
common stock in the foreseeable future.
20
CAPITALIZATION
The following table sets forth our consolidated cash 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 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 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’s Discussion and
Analysis of Financial Condition and Results of Operations”
and our audited and unaudited consolidated financial statements and
the related notes appearing elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
Pro forma,
as Adjusted
(1)
|
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
|
|
|
|
21
|
|
|
|
|
|
|
|
|
Pro forma,
as Adjusted
(1)
|
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
|
|
|
$
|
|
22
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.
23
CAUTIONARY NOTE
REGARDING FORWARD-LOOKING STATEMENTS
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.
24
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 operations should be read in conjunction with our consolidated
financial statements and the 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, uncertainties and
assumptions. Our actual results and the timing of events may 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 9 entitled “Risk
Factors”.
Business
Overview
The Company, through its wholly owned subsidiary 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.
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
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 and engineered and constructed concession
stands with full kitchen facilities, restroom structures, press
boxes, baseball dugouts, bleacher seating, ticket booths, locker
room facilities and gymnasium expansion projects.
During fiscal 2016, the Company has completed some very important
projects and initiatives including the completion of a
lacrosse/soccer field at IMG. In addition to creating a very
important reference site, we have also built out a series of
research and development plots to allow for continuous product
trials and development opportunities at IMG.
Additionally, our largest facilities design build project to date
is currently underway at St. Josephs by-the-Sea High School in
Staten Island, NY. With the design and engineering portions of the
project completed we will be moving into phase two construction
during the third quarter of 2016. We believe that this project will
represent a new benchmark for our facilities construction
capabilities.
Furthermore, we maintain a number of contracts for projects that
were originally slated to commence in the second quarter of 2016.
However, due to mobilization delays, 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, 2016 and
2015:
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
467,483
|
|
|
$
|
896,034
|
|
Gross profit (loss)
|
|
$
|
(57,737
|
)
|
|
$
|
(173,318
|
)
|
Operating expenses
|
|
$
|
(846,087
|
)
|
|
$
|
(780,101
|
)
|
Loss from operations
|
|
$
|
(903,824
|
)
|
|
$
|
(953,419
|
)
|
Other income (expense)
|
|
$
|
(113,364
|
)
|
|
$
|
(15,042
|
)
|
Net loss
|
|
$
|
(1,017,188
|
)
|
|
$
|
(968,461
|
)
|
Loss per common share – basic and
diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(0.07
|
)
|
25
Revenue
Revenue was $467,483 for the three months ended June 30, 2016, as
compared to $896,034 for the three months ended June 30, 2015, a
decrease of $428,551. The substantial decrease in revenue was
primarily due to contracts entered into during prior quarters
winding down during the current quarter. Contracted projects with
expected start dates in second quarter have been delayed and we
expect will commence in the third quarter.
Gross Profit (Loss)
The Company generated a gross profit (loss) of $(57,737), resulting
in a gross profit margin of (12.35%), during the three months ended
June 30, 2016 as compared to a gross profit (loss) of $(173,318)
and a gross profit margin of (19.34%), during the three months
ended June 30, 2015. Negative gross profit percentage decreased
from (19.34%) for the three months ended June 30, 2015 to (12.35%)
for the three months ended June 30, 2016 due to an increase in
overall estimated profit margins on jobs entered into subsequent to
June 30, 2015. During the prior period projects were bid at lower
than current acceptable margins in order to place fields in certain
strategic geographic locations that the Company believed could be
used as a marketing tool in the future.
Operating Expenses
Operating expenses consist primarily of compensation and related
costs for personnel and facilities, and include costs related to
our facilities, finance, human resources, and fees for professional
services. Professional services are principally comprised of
outside legal, audit, marketing, investor relations and outsourcing
services.
Operating expenses increased by 8% during the three months ended
June 30, 2016, as compared to the three months ended June 30, 2015.
The overall $65,986 increase in operating expenses is primarily
attributable to the following approximate net increases (decreases)
in operating expenses:
•
An increase in stock based compensation expense of $240,500. The
increase was primarily due to an increase in stock based awards
issued subsequent to June 30, 2015 which are being expensed over
the term of the contract.
•
An increase of research and development expenses of $28,674.
Research and development expenses consist primarily of costs
incurred at our field testing sites. We expense research and
development costs as incurred.
•
A decrease in professional fees of $21,000 (excluding stock based
compensation). In the current period the Company incurred a
decrease in legal fees, fees for investor relations and financial
advisory service fees. These increases were partially offset by an
increase in consulting fees related to business development and
sales consultants along with increases in accounting and auditing
fees.
•
A decrease in travel and travel related expenses of $35,000 as a
result of decreased sales and project management travel
expenses.
•
A decrease in warranty expenses of $198,000. During the prior
period the Company incurred warranty costs relating to the faulty
installation of materials by a subcontractor that has been released
from the Company.
•
An increase in advertising, marketing and marketing related
expenses of $48,000. The Company is focusing on building name
recognition in the industry.
Other Income (Expenses)
Other income (expense) consists of interest expense related to the
Company’s notes payable.
Other income (expenses), net for the three months ended June 30,
2016, were $(113,364), as compared to $(15,042) for the three
months ended June 30, 2015.
26
Net Loss
The net loss for the three months ended June 30, 2016 was
$(1,017,188), or a basic and diluted loss per share of $(0.06), as
compared to a net loss of $(968,461), or a basic and diluted loss
per share of $(0.07), for the three months ended June 30, 2015. The
increase in the loss compared to the prior period is primarily
attributable to the increase in operating expenses and increase in
other income (expense) items discussed above.
Summary of Statements of
Operations for the Six Months Ended June 30, 2016 and
2015:
|
|
|
|
|
|
|
|
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.
27
•
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, 2015 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
|
)
|
Revenue
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
28
ended December 31, 2015. The Company recorded losses on three
projects started during the 1
st
and 2
nd
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, compared to December 31,
2015:
|
|
|
|
|
|
|
Current Assets
|
|
$
|
463,129
|
|
|
$
|
359,930
|
|
|
$
|
103,199
|
|
Current Liabilities
|
|
$
|
2,735,419
|
|
|
$
|
2,876,965
|
|
|
$
|
(141,546
|
)
|
Working Capital (Deficit)
|
|
$
|
(2,272,290
|
)
|
|
$
|
(2,517,035
|
)
|
|
$
|
(244,745
|
)
|
At June 30, 2016, we had a working capital deficit of $(2,272,290)
as compared to working capital deficit of $(2,517,035) at December
31, 2015, a working capital deficit decrease of $244,745. During
the six months ended June 30, 2016 the Company received
approximately $1,478,000 in net proceeds from the private placement
of common stock through Spartan Capital. The Company used the
proceeds to pay down debt and vendor liabilities and to fund
operations due to the Company’s continued operating losses
during the six months ended June 30, 2016.
29
Summary Cash flows for
the six months ended June 30, 2016 and 2015:
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
$
|
(1,393,016
|
)
|
|
$
|
(667,194
|
)
|
Net cash used in investing activities
|
|
$
|
—
|
|
|
|
—
|
|
Net cash provided by financing
activities
|
|
$
|
1,331,616
|
|
|
$
|
405,000
|
|
Cash Used in Operating
Activities
Our primary uses of cash from operating activities include payments
to contractors for project costs, consultants, legal and
professional fees, marketing expenses and other general corporate
expenditures.
Cash used in operating activities consist of net loss adjusted for
certain non-cash items, primarily equity-based compensation
expense, depreciation expense, gains and losses on dispositions of
fixed assets, amortization of debt issuance costs and amortization
of debt discount, as well as the effect of changes in working
capital and other activities.
The adjustments for the non-cash items increased from the six
months ended June 30, 2015 to the six months ended June 30, 2016
due primarily to an increase in equity-based compensation and the
amortization of debt discount on debt agreements entered into
during the 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.
Cash Used in Financing
Activities
Net cash provided by financing activities for the six months ended
June 30, 2016 and 2015 was $1,331,616 and $405,000, respectively.
During the six months ended June 30, 2016, the Company had the
following financing transactions: i) received $150,000 in gross
proceeds from the issuance of convertible notes and repaid
$(150,000) towards convertible notes; ii) repaid $202,924 in
promissory notes; iii) received $1,478,284 in net proceeds from
common stock subscriptions; and iv) net proceeds/repayments from/to
the factor amounted to $56,256. During the six months ended June
30, 2015, the Company had the following financing transactions:
received $450,000 in gross proceeds from the issuance of
convertible notes and paid $45,000 in debt issuance costs.
Going Concern
As reflected in the accompanying condensed consolidated financial
statements, as of June 30, 2016 the Company had a cash deficit of
$(3,518) and a working capital deficit of $(2,272,290).
Furthermore, the Company had a net loss and net cash used in
operations of $(2,144,962) and $(1,393,016), respectively, for the
six months ended June 30, 2016 and an accumulated deficit totaling
$(12,414,480). These factors raise substantial doubt about the
Company’s ability to continue as a going concern.
The ability of the Company to continue its operations as a going
concern is dependent on Management’s plans, which include the
raising of capital through debt and/or equity markets with some
additional funding from other traditional financing sources,
including term notes, until such time that funds provided by
operations are sufficient to fund working capital requirements.
The Company will require additional funding to finance the growth
of its current and expected future operations as well as to achieve
its strategic objectives. The Company believes its current
available cash along with anticipated revenues may be insufficient
to meet its cash needs for the near future. There can be no
assurance that financing will be available in amounts or terms
acceptable to the Company, if at all.
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 efforts private placement (the
“2015 Financing”) of up to $3.5 million or 3,181,819
shares (the “Shares”) of the common stock of the
Company at $1.10 per Share. Spartan shall have the right to place
up to an additional $700,000 or 636,364 Shares in the 2015
Financing to cover over-allotments at the same price and on the
same terms as the other Shares sold in the 2015 Financing. The 2015
Spartan Advisory Agreement expires on January 1, 2019.
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 shares of common stock of the Company
that can be purchased with 5.5% of the amount of cash funded
pursuant to such debt financing, based on the highest trading price
of the Company’s common stock as of the trading date
immediately preceding the date of such closing. The GP Warrants
shall (i) be exercisable commencing on the date of issuance at a
price equal to the lower of (x) $0.70 per share and (y) the market
price equal to the trailing volume weighted average price (VWAP)
for the seven trading days immediately preceding the date of such
closing, (ii) expire seven years after the date of issuance, and
(iii) include the most favorable anti-dilution protection contained
in the Company’s current securities or included in any
security issued by the Company during the term of the Warrants, a
cashless and automatic exercise provision, customary registration
rights, and shall be non-redeemable.
(C)
If within twenty-four months from the date of the agreement, the
Company completes any financing of equity or debt with any
Investors who participated in a financing, the Company will pay to
GP upon the closing of such financing all compensation set forth in
the GP Agreement.
(D)
If at any time within the twelve months following the expiration of
the GP Agreement, the Company completes a transaction or receives
consideration from any person (i) who has issued a term sheet to
the Company through GP during the GP Term; (ii) with whom the
Company or GP had discussions during the GP Term, then, the Company
shall pay GP the cash fee described above.
On July 14, 2016, the Company closed a Credit Agreement (the
“Credit Agreement”) by and among the Company and
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
31
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.
Critical Accounting
Policies
We believe that the following accounting policies are the most
critical to aid you in fully understanding and evaluating this
“Management’s Discussion and Analysis of Financial
Condition and Results of Operation.”
Revenue and Cost
Recognition
Revenues from construction contracts are included in contract
revenue in the condensed consolidated statements of operations and
are recognized under the percentage-of-completion accounting
method. The percent complete is measured by the cost incurred to
date compared to the estimated total cost of each project. This
method is used as management considers expended cost to be the best
available measure of progress on these contracts, the majority of
which are completed within one year, but may occasionally extend
beyond one year. Inherent uncertainties in estimating costs make it
at least reasonably possible that the estimates used will change
within the near term and over the life of the contracts.
Contract costs include all direct material and labor costs and
those indirect costs related to contract performance and
completion. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are
determined. General and administrative costs are charged to expense
as incurred.
Changes in job performance, job conditions and estimated
profitability, including those arising from contract penalty
provisions and final contract settlements, may result in revisions
to costs and income. Such revisions are recognized in the period in
which they are determined.
Costs and estimated earnings in excess of billings are comprised
principally of revenue recognized on contracts (on the
percentage-of-completion method) for which billings had not been
presented to customers because the amounts were not billable under
the contract terms at the balance sheet date. In accordance with
the contract terms, any unbilled receivables at period end will be
billed subsequently. Amounts are billed based on contractual terms.
Billings in excess of costs and estimated earnings represent
billings in excess of revenues recognized.
Use of Estimates
The preparation of condensed consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of
the condensed consolidated financial statements and the reported
amounts of revenue and
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.
Off-Balance Sheet
Arrangements
As of June 30, 2016, we did not have any off-balance sheet
arrangements.
33
BUSINESS
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, Merger Sub, Sports
Field Private Co, and the Majority Shareholders, entered into 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. 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.
Upon completion of the Short Form Merger, the Company became the
parent company of the Sport Field Private Co’s then wholly
owned subsidiaries, Sports Field Contractors LLC, FirstForm, Inc.
(formerly SportsField Engineering, Inc.) and Athletic Construction
Enterprises, Inc. In connection with the Short Form Merger,
Anglesea changed its name 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 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. 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.
34
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
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 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.
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, 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
35
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.
36
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
37
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.
38
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 four (4) discrete
units, our direct sales representatives, distribution group
partners, deal finders 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 total 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 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 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
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.
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
39
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 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, 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”.
40
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.
41
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, or until his successor is
duly elected and qualified or his earlier resignation, removal or
disqualification. The business experience of each of our directors
and executive officers for the following:
Jeromy Olson, Chief
Executive Officer and Chairman
Mr. Jeromy Olson, age 46, combines over 19 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.
42
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, 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 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, Director
of Project Management
Mr. John Rombold, age 46, combines over 20 years of experience in
Construction Management including a 10 year career in Athletic
Field Construction. Previously, he had been involved in 4 companies
in the Commercial Construction Industry holding positions including
Director 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,
and a Licensed Pennsylvania Real Estate Agent. He is also a member
of the Pittsburgh Green Building Alliance. He has an undergraduate
degree in Business Administration from Clarion University of
Pennsylvania.
Scott Douglas Allen,
Director of Architecture & Engineering
Mr. Scott Douglas Allen, AIA NCARB, Age 45, combines over 23 years
of experience in the Architecture / Engineering / Construction
Industry, including 10 years in senior management positions. In
addition to his current, Director of Architecture & Engineering
for FirstForm Inc., Mr. Allen has been Managing Principal at S|D|A
Architects from 2005 to 2016 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 renowned and awarding
winning firm of Bohlin Cywinski Jackson. Mr. Allen complemented his
design and engineering background with onsite construction
experience from 1988–1995.
Mr. Allen has an Associate of Specialized Technology Degree from
Johnson College and a Professional Bachelor or Architecture Degree
from the University of Kansas.
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 board of directors consists
of four members: Jeromy Olson, Tracy Burzycki, Glenn Appel, and
Glenn Tilley. 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”. 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, Glenn Appel and Glenn Tilley are qualified as independent
and that none of them have any material relationship with us that
might interfere with his or her exercise of independent
judgment.
Board Committees
We have established an audit committee, a compensation committee
and a nominating and corporate governance committee. The Board
intends for each committee to have its own charter prior to the
effectiveness 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 members 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 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.
44
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
relating to the compensation of the board of directors and our
executive officers. Tracy Burzycki will serve as Chairman of our
Compensation Committee.
The Committee’s compensation-related responsibilities
include, but are not limited to:
•
reviewing and approving on an annual basis the corporate goals and
objectives with respect to compensation for our Chief Executive
Officer;
•
reviewing, approving and recommending to our board 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 officers recommended by the Chief
Executive Officer or board of directors;
•
providing oversight 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 such 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.
45
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 requirements in the Committee charter;
•
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.
46
EXECUTIVE
COMPENSATION
The following table provides each element of compensation paid or
granted to each Executive officer and director, for service
rendered during the fiscal years ended December 31, 2015 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
|
Compensation-Setting
Process/Role of Our Compensation Committee
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.
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:
•
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.
47
Executive Compensation Program
Components
Base Salary
We provide base salary as a fixed source of compensation for our
executive officers, allowing them a degree of certainty when having
a meaningful portion of their compensation “at risk” in
the form of equity awards covering the shares of a company for
whose shares there has been limited liquidity to date. The board of
directors recognizes the importance of base salaries as an element
of compensation that helps to attract highly qualified executive
talent.
Base salaries for our executive officers were established primarily
based on individual negotiations with the executive officers when
they joined us and reflect the scope of their anticipated
responsibilities, the individual experience they bring, the board
members’ experiences and knowledge in compensating similarly
situated individuals at other companies, our then-current cash
constraints, and a general sense of internal pay equity among our
executive officers.
The board does not apply specific formulas in determining base
salary increases. In determining base salaries for 2015 for our
continuing named executive officers, no adjustments were made to
the base salaries of any of our named executive officers as the
board determined, in their independent judgment and without
reliance on any survey data, that existing base salaries, taken
together with other elements of compensation, provided sufficient
fixed compensation for retention purposes.
Outstanding Equity Awards at December 31,
2015
The Company had no outstanding equity awards 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.
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)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
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
48
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 receive 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. The
exercise price of the Tilley Options shall be One Dollar ($1.00)
per share and are exercisable for 5 years. The Tilley 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 fourth fiscal quarter
of 2015.
Employment Agreement
Jeromy Olson, Chief Executive Officer
On September 18, 2014, Sports Field Holdings, Inc. (the
“Company”) entered into an employment agreement (the
“Olson 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-year
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. “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.
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 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.
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.
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
SECURITY OWNERSHIP OF
CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of our common stock as of August 24, 2016 by
(a) each stockholder who is known to us to own beneficially 5% or
more of our outstanding 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, 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.
For purposes of this table, a person or group of persons is deemed
to have “beneficial ownership” of any shares of common
stock that such person has the right to acquire within 60 days of
August 24, 2016. For purposes of computing the percentage of
outstanding shares of our common 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, 2016 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, 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
|
%
|
|
51
CERTAIN RELATIONSHIPS
AND RELATED PARTY TRANSACTIONS
Jeromy Olson, the CEO of the Company, owns 33.3% of a sales
management and consulting firm, NexPhase Global, which provides
sales services to the Company. Consulting expenses pertaining to
the firm’s services were $161,000 for the year ended December
31, 2015, of which $41,000 was stock based compensation for the
year ended December 31, 2015.
On May 7, 2015, the Company issued an unsecured promissory note in
the principal amount of $150,000 (the “Tilley Note”) to
Glenn Tilley. The Tilley Note pays interest equal to 9% of the
principal amount of the Tilley Note, payable in one lump sum. On
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, the Company issued Mr. Tilley an additional 15,000 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 added to the
principal amount of the Tilley Note. Pursuant to the Waiver, the
maturity date of the Tilley Note was extended to July 1, 2016, and
the Tilley Note shall pay interest as of February 1, 2016, at 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.
Mr. Tilley was appointed as a director of the Company on January 4,
2016.
Policy on Future Related Party Transactions
All future transactions between us and our officers, directors,
principal stockholders and their affiliates will be approved by 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,
53
elect to exercise the warrant through a cashless exercise, in which
case the holder would receive upon such exercise the net number 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 of 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
determined in accordance with 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 listing will be approved or that a trading market will
develop.
Fundamental
Transactions.
In the event of a fundamental
transaction, 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.
54
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 majority of disinterested
stockholders or meets various fair price criteria.
For purposes of this statute, a “resident domestic
corporation” is a domestic corporation that has 200 or more
stockholders of record. An “interested stockholder”
generally means any person that (i) is 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.
55
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,” 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% of the number of shares of our common stock then outstanding,
which will equal approximately [•] shares immediately after
this offering; or
•
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. Of
the total number of shares of our common stock issuable 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.
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.
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.
56
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.
57
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.
58
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
59
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
60
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
61
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.
62
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.
63
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.
64
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 at
www.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.
65
SPORTS FIELD HOLDINGS,
INC
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of June
30, 2016 (Unaudited) and
December 31, 2015
|
|
F-2
|
Unaudited Condensed Consolidated Statements of
Operations for the Three and Six Months ended June 30, 2016 and
2015
|
|
F-3
|
Unaudited Condensed Consolidated Statements of
Cash Flows for the Six Months ended June 30, 2016 and
2015
|
|
F-4
|
Notes to the Unaudited Condensed Consolidated
Financial Statements
|
|
F-5
|
|
|
|
Report of Independent Registered Public
Accounting Firm
|
|
F-25
|
Consolidated Balance Sheets as of December 31,
2015 and 2014
|
|
F-26
|
Consolidated Statements of Operations for the
Year ended December 31, 2015 and 2014
|
|
F-27
|
Consolidated Statements of Stockholders’
Equity (Deficit) for the Years ended December 31, 2015 and
2014
|
|
F-28
|
Consolidated Statements of Cash Flows for the
Years ended December 31, 2015 and 2014
|
|
F-29
|
Notes to Consolidated Financial
Statements
|
|
F-31
|
F-1
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
|
|
See the accompanying notes to these condensed consolidated
financial statements
F-2
SPORTS FIELD HOLDINGS,
INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three
Months Ended
June 30,
|
|
Six
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
|
|
See the accompanying notes to these condensed consolidated
financial statements
F-3
SPORTS FIELD HOLDINGS,
INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Six
Months Ended
June 30,
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,144,962
|
)
|
|
$
|
(1,298,172
|
)
|
Adjustments to reconcile net loss to net cash
used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,028
|
|
|
|
14,451
|
|
Amortization of debt issuance costs
|
|
|
23,037
|
|
|
|
8,967
|
|
Amortization of debt discount
|
|
|
148,023
|
|
|
|
8,967
|
|
Accretion of original issue discount
|
|
|
4,913
|
|
|
|
—
|
|
Common stock and options issued to consultants
and employees
|
|
|
761,621
|
|
|
|
48,200
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
Cash overdraft
|
|
|
3,518
|
|
|
|
—
|
|
Accounts receivable
|
|
|
(36,034
|
)
|
|
|
(85,042
|
)
|
Prepaid expenses
|
|
|
(73,079
|
)
|
|
|
(16,625
|
)
|
Inventory
|
|
|
—
|
|
|
|
62,289
|
|
Accounts payable and accrued expenses
|
|
|
(132,892
|
)
|
|
|
381,370
|
|
Costs and estimated earnings in excess of
billings
|
|
|
39,220
|
|
|
|
(44,765
|
)
|
Billings in excess of costs and estimated
earnings
|
|
|
82,322
|
|
|
|
20,209
|
|
Provision for estimated losses on uncompleted
contracts
|
|
|
(70,731
|
)
|
|
|
232,957
|
|
Net cash used in operating activities
|
|
|
(1,393,016
|
)
|
|
|
(667,194
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds of convertible notes
|
|
|
150,000
|
|
|
|
450,000
|
|
Repayments of convertible notes
|
|
|
(150,000
|
)
|
|
|
|
|
Debt issuance costs
|
|
|
—
|
|
|
|
(45,000
|
)
|
Repayments of promissory notes
|
|
|
(202,924
|
)
|
|
|
—
|
|
Proceeds from (repayments to)
factoring
|
|
|
56,256
|
|
|
|
—
|
|
Proceeds from common stock
subscriptions
|
|
|
1,478,284
|
|
|
|
—
|
|
Net cash provided by financing
activities
|
|
|
1,331,616
|
|
|
|
405,000
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
|
(61,400
|
)
|
|
|
(262,194
|
)
|
Cash, beginning of period
|
|
|
61,400
|
|
|
|
523,492
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
—
|
|
|
$
|
261,298
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow
information:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
53,345
|
|
|
$
|
—
|
|
Taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Non cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
Notes issued for insurance premiums
|
|
$
|
94,706
|
|
|
$
|
—
|
|
Debt discount – beneficial conversion
feature
|
|
$
|
67,637
|
|
|
$
|
—
|
|
Debt discount paid in the form of common
shares
|
|
$
|
80,137
|
|
|
$
|
45,000
|
|
Stock issuance costs paid in the form of
warrants
|
|
$
|
69,147
|
|
|
$
|
—
|
|
Increase in principal amount of convertible
notes in conjunction with debt modification
|
|
$
|
40,500
|
|
|
$
|
—
|
|
See the accompanying notes to these condensed consolidated
financial statements
F-4
SPORTS FIELD HOLDINGS,
INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 —
DESCRIPTION OF BUSINESS
Sports Field Holdings, Inc. (the “Company”,
“Sports Field Holdings”, “we”,
“our”, or “us”) is a Nevada corporation
engaged in product development, engineering, manufacturing, and the
construction, design and building of athletic facilities, as well
as supplying its own proprietary high end synthetic turf products
to the sports industry.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America
(“GAAP”) for interim financial information.
Accordingly, they do not include all of the information and
disclosures required by GAAP for annual financial statements. In
the opinion of management, such statements include all adjustments
(consisting only of normal recurring items) which are considered
necessary for a fair presentation of the condensed financial
position of the Company as of June 30, 2016 and the results of
operations for the three and six months ended June 30, 2016 and
cash flows for the six months ended June 30, 2016. The results of
operations for the three and six months ended June 30, 2016 are not
necessarily indicative of the operating results for the full year
ending December 31, 2016 or any other period.
These condensed consolidated
financial statements should be read in conjunction with the
consolidated financial statements and related disclosures of the
Company as of December 31, 2015 and for the year then ended, which
were filed with the Securities and Exchange Commission
(“SEC”) on Form 10-K on April 12, 2016.
NOTE 2 —
SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The accompanying condensed consolidated financial statements
include the accounts of Sports Field Holdings, Inc. and its wholly
owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of
Estimates
The preparation of condensed consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of
the condensed consolidated financial statements and the reported
amounts of revenue and expenses during the periods. Actual results
could differ from those estimates. The Company’s significant
estimates and assumptions include the accounts receivable allowance
for doubtful accounts, percentage of completion revenue recognition
method, the useful life of fixed assets and assumptions used in the
fair value of stock-based compensation.
Revenues and
Cost Recognition
Revenues from construction contracts are included in contract
revenue in the condensed consolidated statements of operations and
are recognized under the percentage-of-completion accounting
method. The percent complete is measured by the cost incurred to
date compared to the estimated total cost of each project. This
method is used as management considers expended cost to be the best
available measure of progress on these contracts, the majority of
which are completed within one year, but may occasionally extend
beyond one year. Inherent uncertainties in estimating costs make it
at least reasonably possible that the estimates used will change
within the near term and over the life of the contracts.
Contract costs include all
direct material and labor costs and those indirect costs related to
contract performance and completion. Provisions for estimated
losses on uncompleted contracts are made in the period in which
such losses are determined. General and administrative costs are
charged to expense as incurred.
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 are recognized in the period in
which they are determined.
Costs and estimated earnings in excess of billings are comprised
principally of revenue recognized on contracts (on the
percentage-of-completion method) for which billings had not been
presented to customers because the amounts were not billable under
the contract terms at the balance sheet date. In accordance with
the contract terms, any unbilled receivables at period end will be
billed subsequently. Amounts are billed based on contractual terms.
Billings in excess of costs and estimated earnings represent
billings in excess of revenues recognized.
Cash and
Cash Equivalents
The Company considers all short-term highly liquid investments with
a remaining maturity at the date of purchase of three months or
less to be cash equivalents. As of June 30, 2016 and December 31,
2015 the company did not have any cash equivalents.
Property,
Plant and Equipment
Property, plant and equipment are carried at cost less accumulated
depreciation and amortization. Depreciation and amortization are
calculated using the straight-line method over the estimated useful
lives of the assets, which generally range from 3 to 5 years. Gains
and losses from the retirement or disposition of property and
equipment are included in operations in the period incurred.
Maintenance and repairs are expensed as incurred.
Stock-Based
Compensation
The Company measures the cost of services received in exchange for
an award of equity instruments based on the fair value of the
award. For employees, the fair value of the award is measured on
the grant date and for non-employees, the fair value of the award
is generally re-measured on vesting dates and interim financial
reporting dates until the service period is complete. The fair
value amount is then recognized over the period during which
services are required to be provided in exchange for the award,
usually the vesting period. Awards granted to directors are treated
on the same basis as awards granted to employees.
Concentrations
of Credit Risk
Financial instruments and related items, which potentially subject
the Company to concentrations of credit risk, consist primarily of
cash and cash equivalents. The Company places its cash and
temporary cash investments with credit quality institutions. At
times, such amounts may be in excess of the FDIC insurance
limit.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts receivable are stated at the amount management expects to
collect from outstanding balances. The Company generally does not
require collateral to support customer receivables. The Company
provides an allowance for doubtful accounts based upon a review of
the outstanding accounts receivable, historical collection
information and existing economic conditions. The Company
determines if receivables are past due based on days outstanding,
and amounts are written off when determined to be uncollectible by
management. The maximum accounting loss from the credit risk
associated with accounts receivable is the amount of the receivable
recorded, which is the face amount of the receivable, net of the
allowance for doubtful accounts. As of June 30, 2016 and December
31, 2015, the Company’s accounts receivable balance was
$187,202 and $151,168, respectively, and the allowance for doubtful
accounts is $0 in each period.
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, 2016 and 2015, the
Company incurred research and development expenses of $28,674 and
$0, respectively. For the six months ended June 30, 2016 and 2015,
the Company incurred research and development expenses of $88,447
and $0, respectively.
Warranty
Costs
The Company generally provides a warranty on the products installed
for up to 8 years with certain limitations and exclusions based
upon the manufacturer’s product warranty; therefore the
Company does not believe a warranty reserve is required as of June
30, 2016 and December 31, 2015.
Fair Value
of Financial Instruments
Accounting Standards Codification subtopic 825-10, Financial
Instruments (“ASC 825-10”) requires disclosure of the
fair value of certain financial instruments. The carrying value of
cash and cash equivalents, accounts payable and accrued
liabilities, and short-term borrowings, as reflected in the balance
sheets, approximate fair value because of the short-term maturity
of these instruments. All other significant financial assets,
financial liabilities and equity instruments of the Company are
either recognized or disclosed in the financial statements together
with other information relevant for making a reasonable assessment
of future cash flows, interest rate risk and credit risk. Where
practicable the fair values of financial assets and financial
liabilities have been determined and disclosed; otherwise only
available information pertinent to fair value has been
disclosed.
Beneficial
Conversion Feature
For conventional convertible debt where the rate of conversion is
below market value, the Company records a “beneficial
conversion feature” (“BCF”) and related debt
discount.
When the Company records a BCF the relative fair value of the BCF
would be recorded as a debt discount against the face amount of the
respective debt instrument. The debt discount attributable to the
BCF is amortized over the period from issuance to the date that the
debt matures.
Derivative
Instruments
The Company evaluates its convertible debt, warrants or other
contracts to determine if those contracts or embedded components of
those contracts qualify as derivatives to be separately accounted
for in accordance with ASC 815-15. The result of this accounting
treatment is that the fair value of the embedded derivative is
marked-to-market each balance sheet date and recorded as a
liability. In the event that the fair value is recorded as a
liability, the change in fair value is recorded in the statements
of operations as other income or expense. Upon conversion or
exercise of a derivative instrument, the instrument is marked to
fair value at the conversion date and then that fair value is
reclassified to equity.
In circumstances where the embedded conversion option in a
convertible instrument is required to be bifurcated and there are
also other embedded derivative instruments in the convertible
instrument that are required to be bifurcated, the bifurcated
derivative instruments are accounted for as a single, compound
derivative instrument.
The classification of derivative instruments, including whether
such instruments should be recorded as liabilities or as equity, is
re-assessed at the end of each reporting period. Equity instruments
that are initially classified as equity that become subject to
reclassification are reclassified to liability at the fair value of
the instrument on the reclassification date.
F-7
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
2 — SIGNIFICANT ACCOUNTING POLICIES
(cont.)
Net Income
(Loss) Per Common Share
The Company computes basic net income (loss) per share by dividing
net income (loss) per share available to common stockholders by the
weighted average number of common shares outstanding for the period
and excludes the effects of any potentially dilutive securities.
Diluted earnings per share, if presented, would include the
dilution that would occur upon the exercise or conversion of all
potentially dilutive securities into common stock using the
“treasury stock” and/or “if converted”
methods as applicable. The computation of basic and diluted loss
per share excludes potentially dilutive securities because their
inclusion would be anti-dilutive. Anti-dilutive securities excluded
from the computation of basic and diluted net loss per share for
the six months ended June 30, 2016 and 2015, respectively, are as
follows:
|
|
|
|
|
|
|
|
Warrants to purchase common stock
|
|
662,543
|
|
500,000
|
Options to purchase common stock
|
|
622,500
|
|
230,000
|
Unvested restricted common shares
|
|
100,000
|
|
—
|
Convertible Notes
|
|
679,498
|
|
456,075
|
Totals
|
|
2,064,541
|
|
1,186,075
|
Shares outstanding
Shares outstanding include shares of unvested restricted stock.
Unvested restricted stock included in reportable shares outstanding
was 100,000 and 0 shares as of June 30, 2016 and 2015,
respectively. Shares of unvested restricted stock are excluded from
our calculation of basic weighted average shares outstanding, but
their dilutive impact is added back in the calculation of diluted
weighted average shares outstanding.
Significant
Customers
The Company’s business focuses on securing a smaller number
of high quality, highly profitable projects, which sometimes
results in having a concentration of sales and accounts receivable
among a few customers. This concentration is customary among the
design and build industry for a company of our size. As we continue
to grow and are awarded more projects, this concentration will
continue to decrease.
At June 30, 2016, the Company had three customers representing
100.0% of the total accounts receivable balance.
At December 31, 2015, the Company had two customers representing
94% of the total accounts receivable balance.
For the three months ended June 30, 2016, the Company had three
customers that represented 46%, 16% and 26% of the total revenue
and for the three months ended June 30, 2015, the Company had two
customers that represented 74% and 16% of the total revenue.
For the six months ended June 30, 2016, the Company had three
customers that represented 24%, 51% and 17% of the total revenue
and for the six months ended June 30, 2015, the Company had two
customers that represented 45% and 49% of the total revenue.
Reclassifications
Certain items in the prior year financial statements have been
reclassified to conform to the current year presentation.
F-8
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 Adopted
During May 2014, the FASB issued ASU No. 2014-09, “Revenue
from Contracts with Customers” (“ASU 2014-09”),
which requires entities to recognize revenue in a way that depicts
the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects
to be entitled to in exchange for those goods or services. The new
guidance also requires additional disclosure about the nature,
amount, timing and uncertainty of revenue and cash flows arising
from customer contracts, including significant judgments and
changes in judgments and assets recognized from costs incurred to
obtain or fulfill a contract. In July 2015, the FASB voted to delay
the effective date of ASU 2014-09 by one year to the first quarter
of 2018 to provide companies sufficient time to implement the
standards. Early Adoption will be permitted, but not before the
first quarter of 2017. Adoption can occur using one of two
prescribed transition methods. The Company is currently evaluating
the impact of the new standard.
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 for annual periods and interim periods thereafter. The adoption
of ASU 2014-15 is not expected to have a material impact on our
financial position, results of operations or cash flows.
In February 2016, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) No. 2016-02, “Leases” (topic 842).
The FASB issued this update to increase transparency and
comparability among organizations by recognizing lease assets and
lease liabilities on the balance sheet and disclosing key
information about leasing arrangements. The updated guidance is
effective for annual periods beginning after December 15, 2018,
including interim periods within those fiscal years. Early adoption
of the update is permitted. The Company is currently evaluating the
impact of the new standard.
In March 2016, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) No. 2016-06, “Derivatives and
Hedging” (topic 815). The FASB issued this update to clarify
the requirements for assessing whether contingent call (put)
options that can accelerate the payment of principal on debt
instruments are clearly and closely related to their debt hosts. An
entity performing the assessment under the amendments in this
update is required to assess the embedded call (put) options solely
in accordance with the four-step decision sequence. The updated
guidance is effective for annual periods beginning after December
15, 2016, including interim periods within those fiscal years.
Early adoption of the update is permitted. The Company is currently
evaluating the impact of the new standard.
In April 2016, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) No. 2016-09, “Compensation — Stock
Compensation” (topic 718). The FASB issued this update to
improve the accounting for employee share-based payments and affect
all organizations that issue share-based payment awards to their
employees. Several aspects of the accounting for share-based
payment award transactions are simplified, including: (a) income
tax consequences; (b) classification of awards as either equity or
liabilities; and (c) classification on the statement of cash flows.
The updated guidance is effective for annual periods beginning
after December 15, 2016, including interim periods within those
fiscal years. Early adoption of the update is permitted. The
Company is currently evaluating the impact of the new standard.
In April 2016, the Financial Accounting Standards Board
(‘FASB”) issued Accounting Standards Update
(“ASU”) No. 2016-10, “Revenue from Contracts with
Customers: Identifying Performance Obligations and Licensing”
(topic 606). In March 2016, the Financial Accounting Standards
Board (‘FASB”) issued Accounting Standards Update
(“ASU”) No. 2016-08, “Revenue from Contracts with
Customers: Principal versus Agent Considerations (Reporting Revenue
Gross verses Net)” (topic 606). These amendments provide
additional clarification and implementation guidance on the
previously issued ASU 2014-09, “Revenue from Contracts with
Customers”. The amendments in ASU 2016-10 provide clarifying
guidance on materiality of performance obligations; evaluating
distinct performance obligations; treatment of shipping and
handling costs; and determining whether an entity’s promise
to grant a license provides a customer with either a right to use
an entity’s intellectual property or a right to access an
entity’s intellectual property. The amendments in ASU 2016-08
clarify how an entity should identify the specified
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 condensed consolidated financial position, results of
operations or cash flows.
Subsequent
Events
Management has evaluated subsequent events or transactions
occurring through the date on which the financial statements were
issued. Based upon the evaluation, the Company did not identify any
recognized or non-recognized subsequent events that would have
required adjustment or disclosure in the condensed consolidated
financial statements, except as disclosed.
NOTE 3 — GOING
CONCERN
As reflected in the accompanying condensed consolidated financial
statements, as of June 30, 2016 the Company had a cash deficit of
$(3,518) and a working capital deficit of $(2,272,290).
Furthermore, the Company had a net loss and net cash used in
operations of $(2,144,962) and (1,393,016), respectively, for the
six months ended June 30, 2016 and an accumulated deficit totaling
$(12,414,480). These factors raise substantial doubt about the
Company’s ability to continue as a going concern.
The ability of the Company to continue its operations as a going
concern is dependent on Management’s plans, which include the
raising of capital through debt and/or equity markets with some
additional funding from other traditional financing sources,
including but not limited to term notes, until such time that funds
provided by operations are sufficient to fund working capital
requirements.
The Company will require additional funding to finance the growth
of its current and expected future operations as well as to achieve
its strategic objectives. The Company believes its current
available cash along with anticipated revenues may be insufficient
to meet its cash needs for the near future. There can be no
assurance that financing will be available in amounts or terms
acceptable to the Company, if at all.
The accompanying condensed consolidated financial statements have
been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. These financial statements do not
include any adjustments relating to the recovery of the recorded
assets or the classification of the liabilities that might be
necessary should the Company be unable to continue as a going
concern.
NOTE 4 — COSTS AND
ESTIMATED EARNINGS ON CONTRACTS IN PROCESS
Following is a summary of costs, billings, and estimated earnings
on contracts in process as of June 30, 2016 and December 31,
2015:
|
|
|
|
|
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-11
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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, 2016
and December 31, 2015:
|
|
|
|
|
Costs and estimated earnings in excess of
billings
|
|
$
|
97,796
|
|
|
$
|
137,016
|
|
Billings in excess of costs and estimated
earnings
|
|
|
(82,322
|
)
|
|
|
—
|
|
Provision for estimated losses on uncompleted
contracts
|
|
|
(59,315
|
)
|
|
|
(130,046
|
)
|
|
|
$
|
(43,841
|
)
|
|
$
|
6,970
|
|
Warranty
Costs
During the three and six months ended June 30, 2016 the Company
incurred costs of approximately $8,300 and $17,500, respectively.
During the three and six months ended June 30, 2015 the Company
incurred costs of approximately $206,000 and $206,000,
respectively, relating to the installation of materials by a
subcontractor that has been released from the Company. The Company
has implemented policies and procedures to avoid these costs in the
future. The Company generally provides a warranty on the products
installed for up to 8 years with certain limitations and exclusions
based upon the manufacturer’s product warranty; therefore,
the Company does not believe a warranty reserve is required as of
June 30, 2016.
NOTE 5 — PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
|
|
|
|
|
Furniture and equipment
|
|
$
|
20,278
|
|
|
$
|
20,278
|
|
Total
|
|
|
20,278
|
|
|
|
20,278
|
|
Less: accumulated depreciation
|
|
|
(8,057
|
)
|
|
|
(6,029
|
)
|
|
|
$
|
12,221
|
|
|
$
|
14,249
|
|
Depreciation expense for the three and six months ended June 30,
2016 was $1,014 and $2,028, respectively.
Depreciation expense for the three and six months ended June 30,
2015 was $7,225 and $14,451, respectively.
NOTE 6 —
DEBT
Convertible
Notes
On May 7, 2015, the Company issued unsecured convertible promissory
notes (collectively the “Notes”) in an aggregate
principal amount of $450,000 to three accredited investors
(collectively the “Note Holders”) through a private
placement. The notes pay interest equal to 9% of the principal
amount of the notes, payable in one lump sum, and mature on
February 1, 2016 unless the notes are converted into common stock
if the Company undertakes a qualified offering of securities of at
least $2,000,000 (the “Qualified Offering”). The
principal of the notes are convertible into shares of common stock
at a conversion price that is the lower of $1.00 per share or the
price per share offered in a Qualified Offering. In order to induce
the investors to invest in the notes, one of the Company’s
shareholders assigned an aggregate of 45,000 shares of his common
stock to such investors. The Company recorded a $45,000 debt
discount relating to the 45,000 shares of common stock issued with
an offsetting entry to additional paid in capital. The debt
discount shall be amortized to interest expense over the life of
the notes. As part of the transaction, we incurred placement agent
fees of $22,500 and legal fees of $22,500 which were recorded as
debt issue
F-12
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
6 — DEBT
(cont.)
costs and shall be amortized over the life of the notes. The
outstanding principal balance on the notes at December 31, 2015 was
$450,000.
The notes matured on February 1, 2016. On March 31, 2016, the Note
Holders entered into a letter agreement whereby, effective as of
February 1, 2016, they waived any and all defaults that may or may
not have occurred prior to the date thereof (the
“Waiver”). As consideration for the Waiver, the Company
issued the Note Holders an aggregate of 45,000 shares of the
Company’s common stock. The principal amount on the Notes
increased from $450,000 to $490,500 as the initial interest amount,
$40,500 as of February 1, 2016, was added to the principal amount
of the Notes. The maturity date of the Notes was extended to July
1, 2016 and the Notes shall pay interest as of February 1, 2016 at
a rate of 9% per annum, payable in one lump sum on the maturity
date. In addition, on any note conversion date from February 1,
2016 through July 1, 2016, the Notes are convertible into shares of
the Company’s common stock at a conversion price of $1.00 per
share. On any Note conversion after July 1, 2016, the notes are
convertible into shares of the Company’s common stock at a
conversion price that is the lower of (i) $1.00 per share and (ii)
the volume-weighted average price for the last five trading days
preceding the conversion date. All remaining terms of the Notes
remained the same.
Glenn Tilley, a director of the Company, is the holder of $163,500
of principal of the aforementioned Notes.
As of July 1, 2016, the Company is not compliant with the repayment
terms of the Notes but no defaults under the Notes have been called
by the Note Holders. As of that date, the outstanding principal
balance on the Notes was $450,000. The Company is currently
conducting good faith negotiations with the Note Holders to further
extend the maturity date, however, there can be no assurance that a
further extension will be granted.
In accordance with ASC 470, since the present value of the cash
flows under the new debt instrument was not at least ten percent
different from the present value of the remaining cash flows under
the terms of the original debt instrument, the Company accounted
for the Waiver as a debt modification. Accordingly, the Company
recorded a debt discount of $49,500 in the condensed consolidated
balance sheet. The debt discount shall be amortized to interest
expense over the life of the note.
On August 19, 2015, we entered into a Securities Purchase Agreement
(the “Agreement”) with a private investor (the
“Investor”). Under the Agreement, the Investor agreed
to purchase convertible debentures in the aggregate principal
amount of up to $450,000 (together the “Debentures” and
each individual issuance a “Debenture”), bearing
interest at a rate of 0% per annum, with maturity on the thirty-six
(36) month anniversary of the respective date of issuance.
On the Initial Closing Date, we issued and sold to the Investor,
and the Investor purchased from us, a first Debenture in the
principal amount of $150,000 for a purchase price of $135,000.
$15,000 was recorded as an original issue discount and will be
accreted over the life of the note to interest expense. The
Agreement provides that, subject to our compliance with certain
conditions to closing, at the request of the Company and approval
by the Investor, (i) we will issue and sell to the Investor, and
the Investor will purchase from us, a second Debenture in the
principal amount of $150,000 for a purchase price of $135,000 and
(ii) thereafter, we will issue and sell to the Investor, and the
Investor will purchase from us, a third Debenture in the principal
amount of $150,000 for a purchase price of $135,000.
The principal amount of the Debentures can be converted at the
option of the Investor into shares of our common stock at a
conversion price per share of $1.00 until the six month anniversary
of each closing date. If the Debenture is not repaid within six
months, the Investor will be able to convert such Debenture at a
conversion price equal to 65% of the lowest closing bid price for
our common stock during the previous 20 trading days, subject to
the terms and conditions contained in the Debenture. If the
Debentures are repaid within 90 days of the date of issuance, there
is no prepayment penalty or premium. Following such time, a
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 assessed the conversion feature of the Debentures on
the date of issuance and at end of each subsequent reporting period
and concluded the conversion feature of the Debentures do not
qualify as a derivative because there is no market mechanism for
net settlement and it is not readily convertible to cash. The
Company will reassess the conversion feature of the Debentures for
derivative treatment at the end of each subsequent reporting
period.
The outstanding principal balance on the Debentures at December 31,
2015 was $150,000. On February 19, 2016, the Company paid the
Debentures in full along with a prepayment penalty in the amount of
$45,000.
On February 22, 2016 (the “Effective Date”), the
Company issued a convertible note in the principal aggregate amount
of $170,000 to a private investor. The note pays interest at a rate
of 12% per annum and matures on August 19, 2016 (the
“Maturity Date”). The Note is convertible into shares
of the Company’s common stock at a conversion price equal to:
(i) from the Effective Date through the Maturity Date at $1.00 per
share; and (ii) beginning one day after the Maturity Date, or
notwithstanding the foregoing, at any time after the Company has
registered shares of its common stock underlying the note in a
registration statement on Form S-1 or any other form applicable
thereto, the lower of $1.00 per share or the variable conversion
price (as defined in the note).
The Company used the proceeds of the note to pay off a debenture
issued in favor of a private investor on August 19, 2015. The
debenture was in the principal amount of $150,000 and as of the
date of this filing the investor has been paid all principal and
interest due in full satisfaction thereof.
As additional consideration for issuing the note, on the Effective
Date the Company issued to the investor 35,000 shares of the
Company’s restricted common stock. The Company recorded a
$30,637 debt discount relating to the 35,000 shares of common stock
issued. The debt discount shall be amortized to interest expense
over the life of the convertible note.
The intrinsic value of the convertible note, when issued, gave rise
to a beneficial conversion feature which was recorded as a discount
to the note of $67,637 to be amortized over the period from
issuance to the date that the debt matures.
The Company assessed the conversion feature of the note on the date
of issuance and at end of each subsequent reporting period and
concluded the conversion feature of the note did not qualify as a
derivative because there is no market mechanism for net settlement
and it is not readily convertible to cash. The Company will
reassess the conversion feature of the note for derivative
treatment at the end of each subsequent reporting period.
The outstanding principal balance on the convertible note at June
30, 2016 was $170,000.
Promissory
Notes
On September 15, 2015, the Company entered into a short term loan
agreement with an investor. The principal amount of the loan was
$200,000. The first $100,000 of the loan is payable upon the
Company raising $500,000 in a qualified offering. The remaining
balances is payable upon the Company raising $1,000,000 in a
qualified offering. The loan bears interest at a rate of 8%. As
part of the transaction, we incurred placement agent fees of
$10,000 which were recorded as debt issue costs and shall be
amortized
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 Company paid 10,000
in note principal and $10,000 of accrued interest on the loan and
the Company entered into a promissory note with the lender for the
remaining principal amount of $190,000. Pursuant to the terms of
the promissory note agreement, the note bears interest at a rate of
8% and requires the Company to make one monthly principal payment
of $10,000, one monthly principal payment of $12,500, eleven
monthly principal payments of $15,000 and one monthly principal
payment of $2,500, all along with interest starting on June 1,
2016. The note matures on July 1, 2017 and is unsecured. The
outstanding principal balance on the note at June 30, 2016 was
$170,000.
On September 21, 2015, the Company entered into a promissory note
with an investor in the principal amount of $163,993. The Company
received proceeds of $155,993 and $8,000 was recorded as an
original issue discount which will be accreted over the life of the
note to interest expense. The promissory note is due on demand and
carries a 5.0% interest rate. The promissory note is secured by all
assets of the Company. On November 17, 2015, the Company paid
$50,000 of principal on the note. The outstanding principal balance
on the note at December 31, 2015 was $113,993. During the six
months ended June 30, 2016, the Company paid the remaining note
principal of $113,993 in full. As of June 30, 2016, accrued
interest due was $2,486.
On January 26, 2016, the Company entered into a finance agreement
with IPFS Corporation (“IPFS”). Pursuant to the terms
of the agreement, IPFS loaned the Company the principal amount of
$65,006, which would accrue interest at 3.5% per annum, to
partially fund the payment of the premium of the Company’s
general liability insurance. The agreement requires the Company to
make nine monthly payments of $7,328.66, including interest
starting on February 27, 2016.
As of June 30, 2016, the outstanding balance related to this
finance agreement was $29,102.
On November 30, 2015, the Company entered into a finance agreement
with First Insurance Funding (“FIF”). Pursuant to the
terms of the agreement, FIF loaned the Company the principal amount
of $29,700, which would accrue interest at 3.8% per annum, to
partially fund the payment of the premium of the Company’s
directors and officers insurance. The agreement requires the
Company to make nine monthly payments of $3,352.47, including
interest starting on January 3, 2016.
As of June 30, 2016, the outstanding balance related to this
finance agreement was $6,673.
NOTE 7 — FACTOR
AGREEMENT
On March 28, 2016, the Company entered into an agreement with a
financial services company (the “Factor”) for the
purchase and sale of accounts receivables. The financial services
company advances up to 80% of qualified customer invoices and holds
the remaining 20% as a reserve until the customer pays the
financial services company. The released reserves are returned to
the Company, less applicable discount fees. The Company is
initially charged 2.0% on the face value of each invoice purchased
and 0.008% for every 30 days the invoice remains outstanding.
Uncollectable customer invoices are charged back to the Company
after 90 days. During the six months ended June 30, 2016, accounts
receivable purchased by the Factor amounted to $353,648 and
advances from the Factor amounted to $282,917. At June 30, 2016 the
advances from the factor, inclusive of fees, amounted to $58,788.
Advances from the Factor are collateralized by all accounts
receivable of the Company.
NOTE 8 —
STOCKHOLDERS EQUITY (DEFICIT)
There is not yet a viable market for the Company’s common
stock to determine its fair value, therefore management is required
to estimate the fair value to be utilized in the determining
stock-based compensation costs. In estimating the fair value,
management considers recent sales of its common stock to
independent qualified investors and other factors. Considerable
management judgment is necessary to estimate the fair value.
Accordingly, actual results could vary significantly from
management’s estimates.
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, 2016 and
December 31, 2015, the Company has -0- shares of preferred stock
issued and outstanding.
Common
Stock
The Company has authorized 250,000,000 shares of common stock, with
a par value of $0.00001 per share. As of June 30, 2016 and December
31, 2015, the Company has 16,281,571 and 13,915,331 shares of
common stock issued and outstanding, respectively.
Common stock
issued in placement of debt
As part of a securities purchase agreement entered into on February
19, 2016, we agreed to issue an investor 35,000 shares of our
common stock.
Common stock
issued in debt modification
As part of a debt modification entered into on March 31, 2016, we
agreed to issue three investors an aggregate of 45,000 shares of
our common stock.
Common stock
issued for services
On March 31, 2016, 1,000 shares of common stock were granted to a
certain employee with a fair value of $1,100.
On June 30, 2016, 1,500 shares of common stock were granted to a
certain employee with a fair value of $1,650.
During the six months ended June 30, 2016, 489,000 shares of common
stock valued at $524,150 were issued to various consultants for
professional services provided to the Company.
As discussed in Note 10, Jeromy Olson was issued 250,000 shares of
common stock valued at $275,000 as per the terms of his employment
agreement with the company as Chief Executive Officer.
Sale of
common stock
During the six months ended June 30, 2016, the Company sold
1,544,740 shares of common stock to investors in exchange for
$1,699,214 in gross proceeds in connection with the private
placement of the Company’s stock.
In connection with the private placement the Company incurred fees
of $220,929. In addition, 154,475 five year warrants with an
exercise price of $1.10 were issued to the placement agent. The
Company valued the warrants at $69,147 on the commitment date using
a Black-Scholes-Merton option pricing model. The value of the
warrants was a direct cost of the private placement and has been
recorded as a reduction in additional paid in capital.
Stock options issued for
services
During the six months ended June 30, 2016, the Company’s
board of directors authorized the grant of 200,000 stock options,
having a total fair value of approximately $97,500, with a vesting
period of 2.00 years. These options expire on January 4, 2021.
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 Six Months Ended June 30, 2016
|
Risk free interest rate
|
|
1.73
|
%
|
Dividend yield
|
|
0.00
|
%
|
Expected volatility
|
|
45.25
|
%
|
Expected life in years
|
|
5
|
|
Forfeiture Rate
|
|
0.00
|
%
|
Since the Company has limited trading history, volatility was
determined by averaging volatilities of comparable companies.
The expected term of the option, taking into account both the
contractual term of the option and the effects of employees’
expected exercise and post-vesting employment termination behavior:
The expected life of options and similar instruments represents the
period of time the option and/or warrant are expected to be
outstanding. Pursuant to paragraph 718-10-S99-1, it may be
appropriate to use the
simplified
method
,
i.e., expected term =
((vesting term + original contractual term) / 2)
, if (i) A
company does not have sufficient historical exercise data to
provide a reasonable basis upon which to estimate expected term due
to the limited period of time its equity shares have been publicly
traded; (ii) A company significantly changes the terms of its share
option grants or the types of employees that receive share option
grants such that its historical exercise data may no longer provide
a reasonable basis upon which to estimate expected term; or (iii) A
company has or expects to have significant structural changes in
its business such that its historical exercise data may no longer
provide a reasonable basis upon which to estimate expected term.
The Company uses the simplified method to calculate expected term
of share options and similar instruments as the Company does not
have sufficient historical exercise data to provide a reasonable
basis upon which to estimate expected term. The contractual term is
used as the expected term for share options and similar instruments
that do not qualify to use the simplified method.
The following is a summary of
the Company’s stock option activity during the six months
ended June 30, 2016:
|
|
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual
Life
|
Outstanding – January 31, 2016
|
|
430,000
|
|
|
$
|
1.03
|
|
5.00
|
Granted
|
|
200,000
|
|
|
|
1.00
|
|
5.00
|
Exercised
|
|
—
|
|
|
|
—
|
|
—
|
Forfeited/Cancelled
|
|
(7,500
|
)
|
|
|
1.50
|
|
—
|
Outstanding – June 30, 2016
|
|
622,500
|
|
|
$
|
1.02
|
|
4.07
|
Exercisable – June 30, 2016
|
|
355,000
|
|
|
$
|
1.04
|
|
3.95
|
At June 30, 2016 and 2015, the total intrinsic value of options
outstanding was $60,000 and $0, respectively.
At June 30, 2016 and 2015, the total intrinsic value of options
exercisable was $32,500 and $0, respectively.
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 for the three and six months ended June 30, 2016,
respectively, and $12,317 and $23,201 for the three and six months
ended June 30, 2015, respectively. As of June 30, 2016, the
remaining balance of unamortized expense is $134,564 and is
expected to be amortized over a remaining period of 1.25 years.
Stock
Warrants
The following is a summary of
the Company’s stock warrant activity during the six months
ended June 30, 2016:
|
|
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual
Life
|
Outstanding – January 1, 2016
|
|
508,068
|
|
$
|
1.00
|
|
3.13
|
Granted
|
|
154,475
|
|
|
1.10
|
|
|
Exercised
|
|
—
|
|
|
—
|
|
|
Forfeited/Cancelled
|
|
—
|
|
|
—
|
|
|
Outstanding – June 30, 2016
|
|
662,543
|
|
$
|
1.03
|
|
3.12
|
Exercisable – June 30, 2016
|
|
662,543
|
|
$
|
1.03
|
|
3.12
|
At June 30, 2016 and 2015, the total intrinsic value of warrants
outstanding and exercisable was $49,625 and $0, respectively.
NOTE 9 — RELATED
PARTY TRANSACTIONS
Jeromy Olson, the Chief Executive Officer of the Company, owns
33.3% of a sales management and consulting firm, NexPhase Global
that provides sales services to the Company. These services include
the retention of two full-time senior sales representatives
including the current National Sales Director of the Company.
Consulting expenses pertaining to the firm’s services were
$61,000 and $122,000 for the three and six months ended June 30,
2016, respectively. Included in consulting expense for the three
and six months ended June 30, 2016 were 10,000 and 20,000 shares of
common stock valued at $11,000 and $22,000, respectively, issued to
Nexphase Global.
Consulting expenses pertaining to the firm’s services were
$40,000 and $80,000 for the three and six months ended June 30,
2015. Included in consulting expense for the three and six months
ended June 30, 2015 were 10,000 and 20,000 shares of common stock
valued at $10,000 and $20,000, respectively, issued to Nexphase
Global.
Glenn Tilley, a director of the Company, was issued 15,000 shares
of our common stock as part of a Waiver entered into with Mr.
Tilley on March 31, 2016. (See Note 6 – Convertible Notes
– May 7, 2015 Notes).
NOTE 10 —
COMMITMENTS AND CONTINGENCIES
Services
Agreements
On August 12, 2015, the Company entered into a Services Agreement
with Aranea Partners. Aranea Partners agreed to provide investor
relations services to the Company for a period of 12 months. As
compensation for the services, the Company issued 50,000 shares of
the Company common stock on August 12, 2015. On August 12, 2016,
the Company is obligated to issue an additional 100,000 shares of
the Company’s common
F-18
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
10 — 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.
On August 4, 2015, the Company entered into a Services Agreement
with a consultant. The consultant agreed to provide investor
relations services to the Company for a period of 12 months. As
compensation for the services, the Company was obligated to issue
62,500 shares of the Company common stock on August 16, 2015. On
November 15, 2016, the Company is obligated to issue an additional
62,500 shares of the Company’s common stock. The Company has
recorded compensation expense relating to the agreement of $32,633
and $65,266 during the three and six months ended June 30, 2016,
respectively.
On February 19, 2016 (the “Effective Date”), the
Company entered into a Services Agreement with a consultant. The
consultant agreed to provide investor relations services to the
Company for a period of 12 months. As compensation for the
services, the Company shall pay the consultant $12,000 per month
and is obligated to issue 62,500 shares of the Company common stock
upon the 90-day anniversary of the Effective Date and on the
180-day, 270-day and 360-day anniversary of the Effective Date, if
the agreement is renewed as outline in the terms of the service.
The Company may terminate this agreement by providing 5 days
advance written notice in the first 60 days of entering into this
agreement and with 30 days advance written notice thereafter for
the duration of the agreement. The Company has recorded
compensation expense relating to the equity portion of the
agreement of $68,374 and $99,180 during the three and six months
ended June 30, 2016, respectively.
On April 14, 2016 (the “Effective Date”), the Company
entered into a Services Agreement with a consultant. The consultant
agreed to provide financial and operational services to the
Company. The agreement terminates on March 31, 2017. As
compensation for the services, the Company shall pay the consultant
$2,400 per month and is obligated to issue $1,000 in shares of the
Company common stock to be issued quarterly in arrears based on a
share price equal to the 30-day moving average share price. The
Company may terminate this agreement by providing 21 days advance
written notice for the duration of the agreement. The Company has
recorded compensation expense relating to the equity portion of the
agreement of $2,500 and $2,500 during the three and six months
ended June 30, 2016, respectively.
Consulting
Agreements
In March 2014, the Company reached an agreement with a consulting
firm owned by the CEO of the Company to provide non-exclusive sales
services. The consulting firm will receive between 3.5% and 5%
commissions on sales referred to the Company. In addition, the
consulting firm will receive a monthly fee of $6,000, 50,000 shares
of common stock upon execution of the agreement, and 10,000 shares
of common stock at the beginning of each three month period for the
term of the agreement and any renewal periods thereafter. The
agreement is for 18 months, and is renewable for successive 18
month terms. On December 10, 2014, the consulting agreement was
amended. The monthly fee was increased to $10,000 per month
retroactive to September 1, 2014 and 50,000 additional shares of
common stock were issued. In addition, the consulting firm will be
issued qualified stock options as follows:
•
100,000 stock options at an exercise price of $1.50 per share that
vest on December 31, 2015
•
100,000 stock options at an exercise price of $1.75 per share that
vest on December 31, 2016
•
100,000 stock options at an exercise price of $2.50 per share that
vest on December 31, 2017
The options will be issued after the Company adopts a formal option
plan that is approved by the Board of Directors.
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 agreement with a consulting
firm to provide non-exclusive sales services. The consulting firm
will receive up to 5% commissions on sales referred to the Company.
The term of the agreement is for one year, and automatically renews
for successive one year terms unless either party notifies the
other, in writing, of its intention not to renew at least 60 days
before the end of the initial term of this agreement or any renewal
term. As compensation for the services, the Company shall pay the
consultant $2,500 per month and is obligated to issue 50,000 shares
of the Company common stock upon execution of the agreement and
10,000 shares of the Company common stock at the beginning of each
three month period for the term of the agreement and any renewal
periods thereafter. The Company may terminate this agreement by
providing 5 days advance written notice in the first 60 days of
entering into this agreement and with 30 days advance written
notice thereafter for the duration of the agreement. The Company
has recorded compensation expense relating to the equity portion of
the agreement of $11,000 and $22,000 during the three and six
months ended June 30, 2016, respectively.
In February 2015, the Company reached an agreement with a
consulting firm to provide non-exclusive sales services with an
effective date of February 10, 2015 (the “Effective
Date”). The agreement expires on December 31, 2017 and
automatically renews for successive one year terms unless either
party notifies the other, in writing, of its intention not to renew
at least 15 days before the end of the initial term of this
agreement or any renewal term. As compensation for the services,
the consultant will receive (i) 5% commissions on sales of products
or services other than turf referred to the Company; (ii)
commission based on square footage of turf sold to certain parties
as outlined in the agreement; (iii) 100,000 shares of the Company
common stock (the “Payment Shares”) upon execution of
the agreement, which shall be subject to certain Clawback
provisions. “Clawback” means (i) if this agreement is
terminated by the Company prior to December 31, 2016, then 50,000
of the Payment Shares shall be forfeited, and cancelled by the
Company; and (i) if this Agreement is terminated by the Company
prior to December 31, 2017, then 25,000 of the Payment Shares shall
be forfeited, and cancelled by the Company. No equity compensation
will be owed in connection with any renewal term. The Company has
recorded compensation expense relating to the equity portion of the
agreement of $9,057 and $18,114 during the three and six months
ended June 30, 2016, respectively.
In February 2015, the Company reached an agreement with an
individual to provide non-exclusive sales services with an
effective date of January 1, 2015 (the “Effective
Date”). The individual will receive up to 5% commissions on
sales referred to the Company. The term of the agreement is for 18
months from the date of execution, and automatically renews for
successive one year terms unless either party notifies the other,
in writing, of its intention not to renew at least 90 days before
the end of the initial term of this agreement or any renewal term.
As compensation for the services, the Company shall pay the
consultant $5,000 per month and is obligated to issue 25,000 shares
of the Company common stock within 30 days of execution of the
agreement, 25,000 shares of the Company common stock within 15 days
of the date of execution and delivery of a certain synthetic turf
contract and 20,000 shares of the Company common stock upon
reaching certain sales milestones. The Company has recorded
compensation expense relating to the equity portion of the
agreement of $4,166 and $8,333 during the three and six months
ended June 30, 2016, respectively.
In November 2015, the Company reached an agreement with an
individual to provide non-exclusive sales services with an
effective date of January 1, 2015 (the “Effective
Date”). The term of the agreement is for 3 years from the
date of execution, and automatically renews for successive one year
terms unless either party notifies the other, in writing, of its
intention not to renew at least 90 days before the end of the
initial term of this agreement or any renewal term. As compensation
for the services, the Company is obligated to issue 75,000 shares
of the Company common stock (the “Payment Shares”)
within 30 days of execution
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
15
th
day of each month for the first 4 months of this agreement; and
(ii) 10,000 shares of the Company common stock for every $1 million
in gross revenue earned by the Company attributable to projects
sold by the individual. The Company has recorded compensation
expense relating to the equity portion of the agreement of $4,387
and $5,159 during the three and six months ended June 30, 2016,
respectively.
In April 2016, the Company reached an agreement with an individual
to provide non-exclusive sales services with an effective date of
April 20, 2016 (the “Effective Date”). The individual
will receive up to 4% commissions on sales referred to the Company.
The term of the agreement is for one year, and automatically renews
for successive one year terms. The Company may terminate this
agreement by providing 60 days advance written notice for the
duration of the agreement. As compensation for the services, the
Company is obligated to issue 4,000 shares of the Company common
stock on the 15
th
day of each month for the first 6 months of this agreement; and
(ii) 10,000 shares of the Company common stock for every $1 million
in gross revenue earned by the Company attributable to projects
sold by the individual. The Company has recorded compensation
expense relating to the equity portion of the agreement of $4,387
and $5,159 during the three and six months ended June 30, 2016,
respectively.
Employment
Agreements
In September 2014, Jeromy Olson entered into a 40 month employment
agreement to serve in the capacity of CEO, with subsequent one year
renewal periods. The CEO will receive a monthly salary of $10,000
that (1) will increase to $13,000 upon the Company achieving gross
revenues of at least $10,000,000, as amended, and an operating
margin of at least 15%, and (2) will increase to $16,000 per month
upon the Company achieving gross revenues of at least $15,000,000
and an operating margin of at least 15%. The agreement provides for
cash bonuses of 15% of the annual Adjusted EBITDA between $1 and
$1,000,000, 10% of the
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 receive 250,000 shares of common stock on January 1, 2016
provided the agreement is still in effect. Lastly, the CEO will be
issued qualified stock options as follows:
•
100,000 stock options at an exercise price of $1.50 per share that
vest on December 31, 2015
•
100,000 stock options at an exercise price of $1.75 per share that
vest on December 31, 2016
•
100,000 stock options at an exercise price of $2.50 per share that
vest on December 31, 2017
The options will be issued after the Company adopts a formal option
plan that is approved by the Board of Directors.
Director
Agreements
On January 4, 2016, the Company entered into a director agreement
with Glenn Tilley, concurrent with Mr. Tilley’s appointment
to the Board of Directors of the Company (the “Board”)
effective January 4, 2016. The director agreement may, at the
option of the Board, be automatically renewed on such date that Mr.
Tilley is re-elected to the Board. Pursuant to the director
agreement, Mr. Tilley is to be paid a stipend of One Thousand
Dollars ($1,000) per meeting of the Board, which shall be
contingent upon his attendance at the meetings being in person,
rather than via telephone or some other electronic medium.
Additionally, Mr. Tilley shall receive non-qualified stock options
(the “Options”) to purchase Two Hundred Thousand
(200,000) shares of the Company’s common stock. The exercise
price of the Options shall be One Dollar ($1.00) per share. The
Options shall vest in equal amounts over a period of two (2) years
at the rate of Twenty Five Thousand (25,000) shares per fiscal
quarter on the last day of each such quarter, commencing January 4,
2016. The total grant date value of the options was $97,535 which
shall be expensed over the vesting period.
Advisory
Board Agreements
On February 11, 2016, the Company entered into an advisory board
agreement with John Brenkus, effective June 1, 2016 (the
(“Effective Date”). The term of the agreement is for a
period of 24 months commencing on the Effective Date. Pursuant to
the agreement, Mr. Brenkus is to be issued 25,000 shares of the
Company common stock at the beginning of each quarter starting on
the Effective Date through the term of the agreement. The Company
has recorded compensation expense relating to the agreement of
$8,740 and $8,740 during the three and six months ended June 30,
2016, respectively.
Supply
Agreement
On December 2, 2015, IMG Academy LLC (“IMG”) and the
Company entered into an Official Supplier Agreement (the
“Agreement”). The term of the Agreement is January 1,
2016 through December 31, 2019. The Agreement grants SFE certain
defined promotional opportunities and supplier benefits. For the
exclusive rights given to SFE in the Agreement, SFE will pay IMG
$626,000. The payment terms are 1/3 after completion and acceptance
of the lacrosse field built by SFE, 1/3 fifteen (15) months later
and 1/3 30 months later plus IMG is capped on the price per square
ft it will pay for future turf fields. If the Agreement is
terminated at any time, the unpaid balance on the $626,000 owed to
IMG still remains payable. As of June 30, 2016 the Company has
accrued a liability of $78,250 related to the Agreement and is
included in accounts payable and accrued expenses at June 30,
2016.
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 10
th
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.
F-38
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
F-39
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.
F-40
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
F-41
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.
F-42
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 Ended
December 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
|
%
|
F-43
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 the
simplified
method
,
i.e., expected term =
((vesting term + original contractual term) / 2)
, if (i) A
company does not have sufficient historical exercise data to
provide a reasonable basis upon which to estimate expected term due
to the limited period of time its equity shares have been publicly
traded; (ii) A company significantly changes the terms of its share
option grants or the types of employees that receive share option
grants such that its historical exercise data may no longer provide
a reasonable basis upon which to estimate expected term; or (iii) A
company has or expects to have significant structural changes in
its business such that its historical exercise data may no longer
provide a reasonable basis upon which to estimate expected term.
The Company uses the simplified method to calculate expected term
of share options and similar instruments as the Company does not
have sufficient historical exercise data to provide a reasonable
basis upon which to estimate expected term.
The 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.
F-44
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.
F-45
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
F-46
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 (the “2015
Spartan Advisory Agreement”). Pursuant to the 2015 Spartan
Advisory Agreement, Spartan will act as the Company’s
exclusive financial advisor and placement agent to assist the
Company in connection with a best efforts private placement (the
“2015 Financing”) of up to $3.5 million or 3,181,819
shares (the “Shares”) of the common stock of the
Company at $1.10 per Share. Spartan shall have the right to place
up to an additional $700,000 or 636,364 Shares in the 2015
Financing to cover over-allotments at the same price and on the
same terms as the other Shares sold in the 2015 Financing. The 2015
Spartan Advisory Agreement expires on January 1, 2019.
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.
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
February 1, 2016 through July 1, 2016; (v) a monthly fee of $7,500
for 6 months for the period commencing August 1, 2016 through
January 1, 2017; (vi) a monthly fee of $10,000 for 12 months for
the period commencing February 1, 2017 through January 1, 2018;
(vii) a monthly fee of $13,700 for 12 months for the period
commencing February 1, 2018 through January 1, 2019. The obligation
to pay the monthly fee shall survive any termination of this
agreement.
As of December 31, 2015 and 2014, Spartan was owed fees of $17,500
and $0, respectively.
Litigation
On May 5, 2014, Sports Field was named as a defendant in a civil
lawsuit in the Circuit Court of the Seventh Judicial Circuit in
Sangamon County, Illinois (“the Court”). Sallenger
Incorporated, as plaintiff, is making certain claims against the
Company in connection with a mechanics lien and for unjust
enrichment. The matter was settled on December 18, 2014. The
Company agreed to pay Sallenger a total of $210,000, 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 obligations of the Lease
Agreement (the “Lease Litigation”). Pursuant to the
East Point Settlement Agreement, the Company and the Landlord
agreed to the following: a settlement payment in the amount of
$12,943 to be paid in 2 payments within 60 days (the
“Settlement Amount”); transfer of all right, title and
interest in and to the furniture, fixtures and equipment in the
premises to Landlord; and forfeiture of the last month’s rent
and security deposit held by the Landlord. Upon performance of the
obligations set forth in the East Point Settlement Agreement, the
Landlord releases and forever discharges the Company from any and
all claims and causes of action, excepting only claims arising out
of third-party liability claims. The Settlement Amount was paid in
full as of December 31, 2015.
On December 17, 2015, the Company and 308, LLC (the
“Parties”) entered into a settlement and release
agreement (the “Settlement Agreement”). Whereas, on
April 15, 2013, 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”). Pursuant to the Settlement Agreement,
the Parties wish to mutually terminate the License Agreement and to
dismiss the Litigation. As mutual consideration for entering into
the Settlement Agreement 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. As
F-51
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE
11 — COMMITMENTS AND CONTINGENCIES
(cont.)
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.
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.
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, 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 $1,140. The rents for the first and
seventh months of 2016 are free. The lease automatically renews for
periods of 12 months unless three months 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
December 31, 2015 was immaterial.
Rent expense was $33,215 and $28,951 for the years ended December
31, 2015 and 2014, respectively.
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, the Company has no uncertain tax positions that qualify
for either recognition or disclosure in the financial statements.
The Company’s 2015, 2014, 2013 and 2012 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.
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
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
|
%
|
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, 2015 unused federal and
state net operating loss carry forwards totaling approximately
$6,600,000 that may be applied against future taxable income that
expire through 2024. 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 and
$1,166,000 for the years ended December 31, 2015 and 2014,
respectively.
NOTE 13 —
SUBSEQUENT EVENTS
Subsequent to December 31, 2015, the Company sold 1,266,259 shares
of common stock to investors in exchange for $1,392,885 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 $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 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.
F-53
SPORTS FIELD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE
13 — SUBSEQUENT EVENTS
(cont.)
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.
On February 22, 2016 (the “Effective Date”), the
Company issued a convertible note in the principal aggregate amount
of $170,000 to a private investor. The note pays interest at a rate
of 12% per annum and matures on August 19, 2016 (the
“Maturity Date”). The Note is convertible into shares
of the Company’s common stock at a conversion price equal to:
(i) from the Effective Date through the Maturity Date at $1.00 per
share; and (ii) beginning one day after the Maturity Date, or
notwithstanding the foregoing, at any time after the Company has
registered shares of its common stock underlying the note in a
registration statement on Form S-1 or any other form applicable
thereto, the lower of $1.00 per share or the variable conversion
price (as defined in the note).
The Company used the proceeds of the note to pay off a debenture
issued in favor of a private investor on August 19, 2015. The
debenture was in the principal amount of $150,000 and as of the
date of this filing the investor has been paid all principal and
interest due in full satisfaction thereof.
As additional consideration for issuing the note, on the Effective
Date the Company issued to the investor 35,000 shares of the
Company’s restricted common stock.
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
15
th
day of each month for the first 4 months of this agreement; and
(ii) 10,000 shares of the Company common stock for every $1 million
in gross revenue earned by the Company attributable to projects
sold by the individual.
F-54
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.
F-55
Warrants to Purchase
Shares of Common
Stock
_______________________
PROSPECTUS
_______________________
Joseph Gunnar & Co.
[•], 2016
Through and including _________, 2016 (the 25
th
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
PART II
INFORMATION NOT REQUIRED
IN PROSPECTUS
Item 13. Other Expenses
of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, to be paid by the
Registrant in connection with the issuance and distribution of the
common stock and warrants being registered. All amounts other than
the SEC 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
|
|
$
|
|
*
|
Item 14. Indemnification
of Directors and Officers
Under the General Corporation Law of the State of Nevada, we can
indemnify our directors and officers against liabilities they may
incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the “Securities
Act”). Our articles of incorporation provide that, pursuant
to Nevada law, our directors shall not be liable for monetary
damages for breach of the directors’ fiduciary duty of care
to us and our stockholders. This provision in the articles of
incorporation does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as injunctive or
other forms of non-monetary relief will remain available under
Nevada law. In addition, each director will continue to be subject
to liability for breach of the director’s duty of loyalty to
us or our stockholders, for acts or omissions not in good faith or
involving intentional misconduct or knowing violations 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. 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
officers 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 behalf 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.
II-1
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.
Issuance of Common Stock in Exchange for Services
During the period January 1, 2013 through December 31, 2013, 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 250,000 shares of its common
stock at a fair value of $250,000 for services related 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.
II-2
On March 31, 2016, the Company issued 1,000 shares of common stock
to an employee for services at a fair value of $1,100. The shares
were valued based on the most recent sales of its common stock to
independent qualified investors.
On June 30, 2016, the Company issued 1,500 shares of common stock
to an employee for services at a fair value of $1,650. The shares
were valued based on the most recent sales of its common stock to
independent qualified investors.
During the period January 1, 2016 through June 30, 2016, the
Company issued 339,000 shares of common stock to 9 sales
consultants, for services rendered at a fair value of $365,650. The
shares were valued based on the most recent sales of its common
stock to independent qualified investors.
On June 1, 2016 the Company issued 25,000 shares of its common
stock at a fair value of $27,500 to an advisory board member
pursuant to his agreement with the Company and service in such
capacity. The shares were valued based on the most recent sales of
its common stock to independent qualified investors.
During the period January 1, 2016 through June 30, 2016 the Company
issued 125,000 shares of its common stock at a fair value of
$131,000 for services related to investor relations. The shares
were valued based on the most recent sales of its common stock to
independent qualified investors.
The foregoing issuances of the shares of common stock was deemed to
be exempt from the registration requirements of the Securities Act
of 1933, as amended, by virtue of Section 4(a)(2) thereof, as
transactions by an issuer not involving a public offering.
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, 2014 through December 31, 2014, 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.
II-3
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 1,874 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. The
II-4
shares were valued based 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.
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 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 issue 25,000 shares of our
Common Stock for certain due diligence and other transaction
related costs at a fair value of $25,000. The shares were valued
based on the most recent sales of its common stock to independent
qualified investors.
On February 22, 2016 (the “Effective Date”), the
Company issued a convertible note in the principal aggregate amount
of $170,000 to a private investor. The note pays interest at a rate
of 12% per annum and matures on August 19, 2016 (the
“Maturity Date”). The Note is convertible into shares
of the Company’s common stock at a conversion price equal to:
(i) from the Effective Date through the Maturity Date at $1.00 per
share; and (ii) beginning one day after the Maturity Date, or
notwithstanding the foregoing, at any time after the Company has
registered shares of its common stock underlying the note in a
registration statement on Form S-1 or any other form applicable
thereto, the lower of $1.00 per share or the variable conversion
price (as defined in the note).
As additional consideration for issuing the note, on the Effective
Date the Company issued to the investor 35,000 shares of the
Company’s restricted common stock at a fair value of $38,500.
The shares were valued based on the most recent sales of its common
stock to independent qualified investors.
All of the aforementioned issuances were made in reliance on an
exemption from registration set forth in Section 4(a)(2) of the
Securities Act of 1933, as amended, and/or Regulation D promulgated
thereunder.
II-5
Item 16. Exhibits and
Financial Statement Schedules
(a) EXHIBITS
We have filed the exhibits listed on the accompanying Exhibit Index
of this registration statement and below in this Item 16:
|
|
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1.1†
|
|
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)
|
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3.1
|
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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).
|
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3.2
|
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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).
|
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4.1†
|
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Form of Common Stock Purchase Warrant
|
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4.2
|
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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)
|
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4.3†
|
|
Form of Underwriters’ Warrant
|
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5.1†
|
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Opinion of Lucosky Brookman LLP
|
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|
10.1
|
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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).
|
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10.2
|
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Director Agreement, dated January 29, 2015,
between the Company and Tracy Burzycki (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 February 4,
2015).
|
|
|
|
10.3
|
|
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).
|
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10.4
|
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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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10.5
|
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Director Agreement, dated January 4, 2014,
between the Company and Glenn Tilley (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 January 1,
2016).
|
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II-6
|
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10.6
|
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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).
|
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10.7
|
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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).
|
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10.8
|
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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).
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21.1
|
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List of Subsidiaries*
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23.1
|
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Consent of Rosenberg Rich Baker Berman &
Company*
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23.2†
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Consent of Lucosky Brookman LLP (reference is
made to Exhibit 5.1)
|
Item 17.
Undertakings
The undersigned registrant hereby undertakes:
(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 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
II-7
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
may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described in Item 14
above, or otherwise, the Registrant has been advised that in the
opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of
the Registrant 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
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act
and will be governed by the final adjudication of such issue.
(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.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized in the
City of Warrenville, Illinois, on August 30, 2016.
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Sports Field Holdings, Inc.
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By:
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/s/ Jeromy Olson
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Name: Jeromy Olson
Title: Chief Executive Officer
(Principal Executive Officer and Principal Accounting and Financial
Officer)
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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
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 been signed by the following persons in
the capacities and on the dates indicated:
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/s/ Jeromy Olson
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Chief Executive Officer (Principal
Executive
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August 30, 2016
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Jeromy Olson
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Officer and Principal Accounting and Financial
Officer), Chairman of the Board
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/s/ Tracy Burzycki
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Director
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August 30, 2016
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Tracy Burzycki
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/s/ Glenn Appel
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Director
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August 30, 2016
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Glenn Appel
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/s/ Glenn Tilley
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Director
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August 30, 2016
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Glenn Tilley
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II-9