See the accompanying notes to these condensed
consolidated financial statements.
See the accompanying notes to these condensed
consolidated financial statements.
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, 2017, and the results of operations for the six months ended June 30, 2017 and cash flows for the six months
ended June 30, 2017. The results of operations for the six ended June 30, 2017 are not necessarily indicative of the operating
results for the full year ending December 31, 2017 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, 2016 and for the year then ended, which were filed with the Securities and Exchange Commission (“SEC”)
on Form 10-K on March 31, 2017.
NOTE 2 – SIGNIFICANT ACCOUNTING
POLICIES
Principles of Consolidation
The accompanying condensed consolidated
financial statements include the accounts of Sports Field Holdings, Inc. and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of
condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and
expenses during the periods. Actual results could differ from those estimates. The Company’s significant estimates and assumptions
include the accounts receivable allowance for doubtful accounts, percentage of completion revenue recognition method, the useful
life of fixed assets and assumptions used in the fair value of stock-based compensation.
Revenues and Cost Recognition
Revenues from construction contracts are
included in contract revenue in the condensed consolidated statements of operations and are recognized under the percentage-of-completion
accounting method. The percent complete is measured by the cost incurred to date compared to the estimated total cost of each project.
This method is used as management considers expended cost to be the best available measure of progress on these contracts, the
majority of which are completed within one year, but may occasionally extend beyond one year. Inherent uncertainties in estimating
costs make it at least reasonably possible that the estimates used will change within the near term and over the life of the contracts.
Contract costs include all direct material
and labor costs and those indirect costs related to contract performance and completion. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. General and administrative costs are charged to expense
as incurred.
Changes in job performance, job conditions
and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result
in revisions to costs and income. Such revisions are recognized in the period in which they are determined.
Costs and estimated earnings in excess
of billings are comprised principally of revenue recognized on contracts (on the percentage-of-completion method) for which billings
had not been presented to customers because the amounts were not billable under the contract terms at the balance sheet date. In
accordance with the contract terms, any unbilled receivables at period end will be billed subsequently. Amounts are billed based
on contractual terms. Billings in excess of costs and estimated earnings represent billings in excess of revenues recognized.
Inventory
Inventory is stated
at the lower of cost (first-in, first out) or net realizable value and consists primarily of construction materials.
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, 2017, and December 31, 2016, the Company’s
accounts receivable balance was $52,962 and $354,159, 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. However, based upon historical warranty issues, the Company has established a warranty reserve.
Fair Value of Financial
Instruments
Accounting Standards
Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain
financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities, and short-term
borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments.
All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed
in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest
rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined
and disclosed; otherwise only available information pertinent to fair value has been disclosed.
Beneficial Conversion
Feature
For conventional convertible
debt where the rate of conversion is below market value, the Company records a “beneficial conversion feature” (“BCF”)
and related debt discount.
When the Company records
a BCF the relative fair value of the BCF would be recorded as a debt discount against the face amount of the respective debt instrument.
The debt discount attributable to the BCF is amortized over the period from issuance to the date that the debt matures.
Derivative Instruments
The Company evaluates its convertible debt,
warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to
be separately accounted for in accordance with ASC 815-15. The result of this accounting treatment is that the fair value of the
embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is
recorded as a liability, the change in fair value is recorded in the statements of operations as other income or expense. Upon
conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that
fair value is reclassified to equity.
In circumstances where the embedded conversion
option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the
convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single,
compound derivative instrument.
The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting
period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to
liability at the fair value of the instrument on the reclassification date.
Net Income (Loss)
Per Common Share
The Company computes basic net income
(loss) per share by dividing net income (loss) per share available to common stockholders by the weighted average number of common
shares outstanding for the period and excludes the effects of any potentially dilutive securities. Diluted earnings per share,
if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities
into common stock using the “treasury stock” and/or “if converted” methods as applicable. The computation
of 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, 2017 and 2016,
respectively, are as follows:
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Warrants to purchase common stock
|
|
|
679,588
|
|
|
|
662,543
|
|
Options to purchase common stock
|
|
|
1,197,500
|
|
|
|
622,500
|
|
Unvested restricted common shares
|
|
|
-
|
|
|
|
100,000
|
|
Convertible Notes
|
|
|
2,032,152
|
|
|
|
679,498
|
|
Totals
|
|
|
3,909,240
|
|
|
|
2,064,541
|
|
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, 2017, the Company had
one customer representing 99% of the total accounts receivable balance.
At December 31, 2016, the Company had one
customer representing 91% of the total accounts receivable balance.
For the three months ended June 30, 2017,
the Company had 2 customers that represented 49% and 44%, respectively, of the total revenues and for the three months ended June
30, 2016, the Company had 3 customers that represented 46%, 16% and 26%, respectively, of the total revenues.
For the six months ended June 30, 2017, the Company had 2 customers that represented 63% and 26%, respectively,
of the total revenues and for the six months ended June 30, 2016, the Company had 3 customers that represented 24%, 51% and 17%,
respectively, of the total revenues.
Reclassifications
Certain items in the prior year financial
statements have been reclassified to conform to the current year presentation.
Recent Accounting Pronouncements 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 has completed its initial assessment of the new standard
and is in the process of assessing its contracts with customers. The Company will continue to assess the impact through its implementation
process. The adoption of ASU 2014-09 is not expected to have a material impact on our consolidated financial position, results
of operations or cash flows.
In July 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-11, “Simplifying
the Measurement of Inventory,” (“ASU 2015-11”). ASU 2015-11 simplifies the subsequent measurement of inventory
by using only the lower of cost or net realizable value. The ASU defines net realizable value as estimated selling prices in the
ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance is effective
for reporting periods beginning after December 15, 2017, for emerging growth companies, and interim periods within those fiscal
years with early adoption permitted. ASU 2015-11 should be applied prospectively. The adoption of this guidance did not have a
significant impact on the operating results for the three months or six months ended June 30, 2017.
Recent Accounting Guidance
Not Yet Adopted
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 on our consolidated financial statements.
In
April 2016, the Financial Accounting Standards Board (‘FASB”) issued Accounting Standards Update (“ASU”)
No. 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing” (topic 606).
In March 2016, the Financial Accounting Standards Board (‘FASB”) issued Accounting Standards Update (“ASU”)
No. 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross verses
Net)” (topic 606). These amendments provide additional clarification and implementation guidance on the previously issued
ASU 2014-09, “Revenue from Contracts with Customers”. The amendments in ASU 2016-10 provide clarifying guidance on
materiality of performance obligations; evaluating distinct performance obligations; treatment of shipping and handling costs;
and determining whether an entity's promise to grant a license provides a customer with either a right to use an entity's intellectual
property or a right to access an entity's intellectual property. The amendments in ASU 2016-08 clarify how an entity should identify
the specified good or service for the principal versus agent evaluation and how it should apply the control principle to certain
types of arrangements. The adoption of ASU 2016-10, ASU 2016-08 and ASU 2014-09 is not expected to have a material impact on our
consolidated financial position, results of operations or cash flows.
In August 2016, the Financial Accounting
Standards Board (‘FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15, "Statement of Cash
Flows - Classification of Certain Cash Receipts and Cash Payments." ASU No. 2016-15 addresses specific cash flow classification
issues where there is currently diversity in practice including debt prepayment and proceeds from the settlement of insurance claims.
ASU 2016-15 is effective for annual periods beginning after December 15, 2017, with early adoption permitted. The Company is currently
evaluating the impact of the new standard on our consolidated financial statements.
In November 2016, the FASB issued ASU
No. 2016-18 “Statement of Cash Flows (Topic 230), Restricted Cash” which provides guidance on the presentation of
restricted cash and restricted cash equivalents in the statements of cash flows. The new guidance requires restricted cash and
restricted cash equivalents to be included within the cash and cash equivalents balances when reconciling the beginning-of-period
and end-of-period amounts shown on the statements of cash flows. The ASU is effective for reporting periods beginning after December
15, 2017 with early adoption permitted. The Company is currently evaluating the impact of the new standard on our consolidated
financial statements.
In May 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-09, "Compensation
- Stock Compensation (Topic 718) - Scope of Modification Accounting." ASU No. 2017-09 provides clarity and reduces complexity
when applying the guidance in Topic 718 for changes in terms or conditions of share-based payment awards. It is effective for
annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact the adoption of this
new standard will have on its financial statements.
In
July 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-11, “Earnings Per Share (Topic
260), Part I. Accounting for Certain Financial Instruments with Down Round Features.” Part I of this Update addresses the
complexity of accounting for certain financial instruments with down round features. Down round features are features of certain
equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of
future equity offerings. Part I of this ASU 2017-11 change the classification analysis of certain equity-linked financial instruments
(or embedded features) with down round features, and clarifies existing disclosure requirements for equity-classified instruments.
The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.
Early adoption is permitted. The Company is currently evaluating the impact the adoption of this new standard will have on its
financial statements.
There were no other new accounting pronouncements
that were issued or became effective that management believes are expected to have, a material impact on our consolidated financial
position, results of operations or cash flows.
NOTE 3 – GOING
CONCERN
As reflected in the accompanying condensed
consolidated financial statements, as of June 30, 2017 the Company had a working capital deficit of $4,679,046. Furthermore, the
Company had a net loss of $1,172,460 for the six months ended June 30, 2017 and an accumulated deficit totaling $15,130,040. Management
has concluded that, due to these conditions, there is substantial doubt about the Company’s ability to continue as a going
concern through July 2018. We have evaluated the significance of these conditions in relation to our ability to meet our obligations.
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, 2017 and December 31, 2016:
|
|
June 30,
|
|
December 31,
|
|
|
2017
|
|
2016
|
Costs incurred on contracts in progress
|
|
$
|
8,232,314
|
|
|
$
|
6,299,675
|
|
Estimated earnings (losses)
|
|
|
(72,368
|
)
|
|
|
(320,450
|
)
|
|
|
|
8,304,682
|
|
|
|
5,979,225
|
|
Less billings to date
|
|
|
(9,132,697
|
)
|
|
|
(6,344,596
|
)
|
|
|
$
|
(828,015
|
)
|
|
$
|
(365,371
|
)
|
The above accounts are shown in the accompanying
condensed consolidated balance sheet under these captions at June 30, 2017 and December 31, 2016:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Costs and estimated earnings in excess of billings
|
|
$
|
235,580
|
|
|
$
|
75,624
|
|
Billings in excess of costs and estimated earnings
|
|
|
(1,028,391
|
)
|
|
|
(374,916
|
)
|
Provision for estimated losses on uncompleted contracts
|
|
|
(35,204
|
)
|
|
|
(66,079
|
)
|
|
|
$
|
(828,015
|
)
|
|
$
|
(365,371
|
)
|
Warranty Costs
During the three months ended June 30, 2017
and June 30, 2016, the Company incurred costs of approximately $ 32,052 and $8,300, respectively. During the six months ended
June 30, 2017 and June 30, 2016, the Company incurred costs of approximately $50,048 and $17,554, respectively. The Company has
implemented policies and procedures to avoid or reduce 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.
However, based upon historical warranty issues, the Company has established a warranty reserve, which is $40,000 as of June 30,
2017 and $50,000 as of December 31, 2016.
NOTE 5 –
DEBT
Convertible Notes
On May 7, 2015, the Company issued unsecured convertible promissory notes (each a “Note” and
collectively the “Notes”) in an aggregate principal amount of $450,000 to three accredited investors (collectively
the “Note Holders”) through a private placement. The notes pay interest equal to 9% of the principal amount of the
notes, payable in one lump sum, and mature on February 1, 2016 unless the notes are converted into common stock if the Company
undertakes a qualified offering of securities of at least $2,000,000 (the “Qualified Offering”). The principal of
the notes is convertible into shares of common stock at a conversion price that is the lower of $1.00 per share or the price per
share offered in a Qualified Offering. In order to induce the investors to invest in the notes, one of the Company’s shareholders
assigned an aggregate of 45,000 shares of his common stock to such investors. The Company recorded a $45,000 debt discount relating
to the 45,000 shares of common stock issued with an offsetting entry to additional paid in capital. The debt discount was amortized
to interest expense over the contractual life of the notes. As part of the transaction, we incurred placement agent fees of $22,500
and legal fees of $22,500, which were recorded as debt issue costs and were amortized over the contractual life of the notes.
The outstanding principal balance on the notes at June 30, 2017 and December 31, 2016 was $522,668 including interest and penalty
as disclosed below.
The notes matured on February 1, 2016.
On March 31, 2016, the Note Holders entered into a letter agreement whereby, effective as of February 1, 2016, they waived any
and all defaults that may or may not have occurred prior to the date thereof (the “First Waiver”). As consideration
for the First Waiver, the Company issued the Note Holders an aggregate of 45,000 shares of the Company’s common stock. The
principal amount on the Notes increased from $450,000 to $490,500 as the initial interest amount, $40,500 as of February 1, 2016,
was added to the principal amount of the Notes. The maturity date of the Notes was extended to July 1, 2016 and the Notes shall
pay interest as of February 1, 2016 at a rate of 9% per annum, payable in one lump sum on the maturity date. In addition, on any
note conversion date from February 1, 2016 through July 1, 2016, the Notes are convertible into shares of the Company’s common
stock at a conversion price of $1.00 per share. On any Note conversion after July 1, 2016, the Notes are convertible into shares
of the Company’s common stock at a conversion price that is the lower of (i) $1.00 per share and (ii) the volume-weighted
average price for the last five trading days preceding the conversion date. All remaining terms of the Notes remained the same.
Subsequent to the First Waiver, the Notes
matured on July 1, 2016. On September 7, 2016, one Note Holder entered into a letter agreement whereby, effective as of August
1, 2016, they waived any and all defaults that may or may not have occurred prior to the date thereof (the “Second Waiver”).
As consideration for the Second Waiver, the Company issued the Note Holder an aggregate of 40,000 shares of the Company’s
common stock and added $15,000 to the principal amount of the note. The principal amount on the Note increased from $218,000 to
$242,810 as the accrued interest amount, $9,810 as of August 1, 2016 and the aforementioned $15,000 of consideration, was added
to the principal amount of the Note. The maturity date of the Note was extended to January 1, 2017 and the Note shall pay interest
as of August 1, 2016 at a rate of 15% per annum, payable in one lump sum on the maturity date. In addition, on any note conversion
date from August 9, 2016 through January 1, 2017, the Note is convertible into shares of the Company’s common stock at a
conversion price of $1.00 per share. On any Note conversion after January 1, 2017, the Note is convertible into shares of the Company’s
common stock at a conversion price that is the lower of (i) $1.00 per share and (ii) the volume-weighted average price for the
last five trading days preceding the conversion date. All remaining terms of the Note remained the same.
On October 21, 2016, a second Note Holder
entered into a letter agreement whereby, effective as of August 1, 2016, they waived any and all defaults that may or may not have
occurred prior to the date thereof (the “Second Waiver”). As consideration for the Second Waiver, the Company issued
the Note Holder an aggregate of 30,000 shares of the Company’s common stock. The principal amount on the Note increased from
$163,500 to $170,858 as the accrued interest amount, $7,358 as of August 1, 2016, was added to the principal amount of the Note.
The maturity date of the Note was extended to January 1, 2017 and the Note shall pay interest as of August 1, 2016 at a rate of
15% per annum, payable in one lump sum on the maturity date. In addition, on any note conversion date from August 9, 2016 through
January 1, 2017, the Note is convertible into shares of the Company’s common stock at a conversion price of $1.00 per share.
On any Note conversion after January 1, 2017, the Note is convertible into shares of the Company’s common stock at a conversion
price that is the lower of (i) $1.00 per share and (ii) the volume-weighted average price for the last five trading days preceding
the conversion date. All remaining terms of the Note remained the same.
Glenn Tilley, a director of the Company,
is the holder of $170,858 of principal of the aforementioned Notes.
As of January 1, 2017, the Company was
not compliant with the repayment terms of all of the Notes but no defaults under the Notes have been called by the Note Holders.
As of June 30, 2017, and December 31, 2016, the outstanding principal balance on the Notes was $522,667. 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. The Company is currently accruing interest on the Notes at the default interest rate
of 15% per annum.
First Waiver
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 First Waiver as a debt modification.
Accordingly, the Company recorded a debt discount of $49,500 in the consolidated balance sheet. The debt discount was amortized
to interest expense over the life of the note.
The Company assessed the conversion feature
of the Note in default at the end of the reporting period and concluded that the conversion feature of the Note did not qualify
as a derivative because the settlement terms indicate that the Note is indexed to the entity’s underlying stock. The Company
will reassess the conversion feature of the Note for derivative treatment at the end of each subsequent reporting period.
On February 22, 2016 (the “Effective
Date”), the Company issued a convertible note in the principal aggregate amount of $170,000 to a private investor (the “February
2016 Note”). 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 i) $1.00 per share and ii) 65% of the volume-weighted average price for
the last twenty trading days preceding the conversion date.
The Company used the proceeds of the February
2016 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 February 2016 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
was amortized to interest expense over the life of the convertible note.
The intrinsic value of the February 2016
Note, when issued, gave rise to a beneficial conversion feature which was recorded as a discount to the note of $67,637 and was
amortized over the period from issuance to the date that the debt matured.
The Company assessed the conversion feature
of the February 2016 Note on the date of issuance, on the date of default and at the end of each subsequent reporting period through
September 30, 2016 and concluded the conversion feature of the note did not qualify as a derivative because there was no market
mechanism for net settlement and it was not readily convertible to cash.
The Company reassessed the conversion
feature of the note for derivative treatment on December 31, 2016. Due to the fact that this convertible note has an option to
convert at a variable amount, they are subject to derivative liability treatment. The Company has applied ASC No. 815, due to
the potential for settlement in a variable quantity of shares. The conversion feature has been measured at fair value using a
Black Scholes model at period end. The conversion feature, when reassessed, gave rise to a derivative liability of $204,300. In
accordance with ASC 815 the $204,300 was charged to paid in-capital due to the fact a beneficial conversion feature was recorded
on the original issue date. Gains and losses in future reporting periods from the change in fair value of the derivative liability
will be recognized on the statements of operations. For the three and six months ended June 30, 2017 the company recorded a loss
and a gain on the change in fair value of ($25,300) and $56,600, respectively. As of June 30, 2017, the derivative liability was
$147,700.
The Note holder converted a portion of the
principal $1,500 and accrued interest $1,748 to 16,901 shares of common stock during the second quarter.
The outstanding principal balance on the
February 2016 Note at June 30, 2017 and December 31, 2016 was $168,500 and $170,000, respectively.
As of August 19, 2016, the Company was
not compliant with the repayment terms of this note but no defaults under the note have been called by the note holder. The Company
is currently conducting good faith negotiations with the note holder to further extend the maturity date, however, there can be
no assurance that a further extension will be granted. Accrued interest on this note including default rate interest at 18% is
$36,417 and $23,667 as of June 30, 2017 and December 31, 2016, respectively.
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
was payable upon the Company raising $500,000 in a qualified offering (as defined therein). The remaining balance was 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 amortized over the life of the loan. On May
3, 2016, the Company paid $10,000 in note principal and $10,000 of accrued interest on the loan and the Company entered into a
promissory note with the lender for the remaining principal amount of $190,000. Pursuant to the terms of the promissory note agreement,
the note bears interest at a rate of 8% and requires the Company to make one monthly principal payment of $10,000, one monthly
principal payment of $12,500, eleven monthly principal payments of $15,000 and one monthly principal payment of $2,500, all along
with interest starting on June 1, 2016. The note matures on July 1, 2017 and is unsecured. The outstanding principal balance on
the note at June 30, 2017 and December 31, 2016 was $0 and $82,500, respectively.
On July 14, 2016, the Company closed
a Credit Agreement (the “Credit Agreement”) by and among the Company, First Form, Inc. (the
“Borrowers”) and Genlink Capital, LLC, as lender (“Genlink”). Pursuant to the Credit Agreement,
Genlink agreed to loan the Company up to a maximum of $1 million for general operating expenses. An initial amount of
$670,000 was funded by Genlink at the closing of the Credit Agreement. Any increase in the amount extended to the Borrowers
shall be at the discretion of Genlink.
The amounts borrowed pursuant to the
Credit Agreement are evidenced by a Revolving Note (the “Revolving Note”) and the repayment of the Revolving Note
is secured by a first position security interest in substantially all of the Company’s assets in favor of Genlink, as
evidenced by a Security Agreement by and among the Borrowers and Genlink (the “Security Agreement”). The
Revolving Note is due and payable, along with interest thereon, on December 20, 2017, and bears interest at the rate of 15%
per annum, increasing to 19% upon the occurrence of an event of default. The Company incurred loan fees of $44,500 for
entering into the Credit Agreement. The loan fees shall be amortized to interest expense over the life of the notes. The
Company must pay a minimum of $75,000 in interest over the life of the loan. As of June 30, 2017, the outstanding balance
related to this finance agreement was $1,000,000.
On January 26, 2017, 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 $54,139, which would accrue interest at 3.95% 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 $6,115, including
interest starting on February 27, 2017. As of June 30, 2017, the outstanding balance related to this finance agreement was $24,462.
On December 28, 2016, the Company entered
into finance agreement with First Insurance Funding (“FIF”). Pursuant to the terms of the agreement, FIF loaned the
Company the principal amount of $31,492, which would accrue interest at 4.05% 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 ten monthly payments of $3,208,
including interest starting on January 3, 2017. As of June 30, 2017, the outstanding balance related to this finance agreement
was $19,248.
Debt under promissory notes is as follows:
|
|
June 30,
2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Promissory notes payable
|
|
$
|
1,026,783
|
|
|
$
|
1,082,500
|
|
|
|
|
|
|
|
|
|
|
Less: Current maturities
|
|
|
(1,009,857
|
)
|
|
|
(1,052,410
|
)
|
|
|
|
|
|
|
|
|
|
Less: Debt issuance costs
|
|
|
(16,926
|
)
|
|
|
(30,090
|
)
|
|
|
|
|
|
|
|
|
|
Promissory notes payable, net of Current maturities and debt issuance costs
|
|
$
|
0
|
|
|
$
|
0
|
|
Future minimum principal payments under
promissory notes are as follows:
Year ending December 31:
|
|
|
|
|
|
|
|
2017
|
|
$
|
1,026,783
|
|
|
|
|
|
|
2018 and thereafter
|
|
|
-
|
|
|
|
|
|
|
|
|
$
|
1,026,783
|
|
NOTE 6 – 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. Advances from the Factor are collateralized
by all accounts receivable of the Company. The agreement terminated during 2016.
NOTE 7 – STOCKHOLDERS
EQUITY (DEFICIT)
Preferred Stock
The Company has authorized
20,000,000 shares of preferred stock, with a par value of $0.00001 per share. As of June 30, 2017, and December 31, 2016, 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, 2017, and December 31, 2016, the Company
has 17,141,583 and 17,074,470 shares of common stock issued and outstanding, respectively.
Common stock issued for services
During the three and six months ended June
30, 2017, 1,500 and 3,000 shares of common stock were granted to a certain employee with a fair value of $495 and $1,080, respectively
During the three and six months ended
June 30, 2017, 72,427 and 139,540 shares of common stock valued at $23,424 and $45,262, respectively, were issued to various consultants
for professional services provided to the Company.
Sale of common stock
During the six months ended June 30, 2017,
the Company did not sell any shares of common stock to investors.
2016 Incentive Stock Option Plan
On October 4, 2016, the Board approved
the Sports Field 2016 Incentive Stock Option Plan (the “2016 Plan”). The Plan provides for the issuance of up to 2,500,000
shares of common stock of the Company through the grant of non-qualified options (the “Non-qualified Options”), incentive
options (the “Incentive Options” and together with the Non-qualified Options, the “Options”) and restricted
stock (the “Restricted Stock”) and unrestricted stock (the “Unrestricted Stock”) to directors, officers,
consultants, attorneys, advisors and employees. The 2,500,000 shares available under the 2016 Plan represent approximately 15%
of the Company’s issued and outstanding common stock as of October 4, 2016. The Board believes the 2,500,000 shares that
may be awarded under the 2016 Plan should be sufficient to cover grants through at least the end of the fiscal year 2018.
Stock options issued for services
On January 4, 2016, the Company issued
a board member 200,000 common stock options for services. These options expire on January 4, 2021.
On November 3, 2016, the Company issued
our CEO 175,000 common stock options for services. These options expire on November 3, 2021.
On November 3, 2016, the Company issued
Nexphase Global 175,000 common stock options for services. These options expire on November 3, 2021.
On March 31, 2017, the Company issued our
CEO 25,000 common stock options for services. These options expire on March 31, 2022.
On May 15, 2017, the Company issued a
board member 200,000 common stock options for services. These options expire on May 15, 2022.
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,
2017
|
|
|
For the Year Ended
December 31,
2016
|
|
|
|
|
|
|
|
|
Risk free interest rate
|
|
|
1.5-1.6
|
%
|
|
|
1.26-1.73
|
%
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected volatility
|
|
|
41.1-43
|
%
|
|
|
40% - 45
|
%
|
Expected life in years
|
|
|
2.5-2.8
|
|
|
|
2.5 - 5
|
|
Forfeiture Rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Since the Company has limited trading history,
volatility was determined by averaging volatilities of comparable companies.
The expected term of the option, taking
into account both the contractual term of the option and the effects of employees’ expected exercise and post-vesting employment
termination behavior: The expected life of options and similar instruments represents the period of time the option and/or warrant
are expected to be outstanding. Pursuant to paragraph 718-10-S99-1, it may be appropriate to use 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, 2017:
|
|
Number of
Options
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Life
|
|
Outstanding – December 31, 2016
|
|
|
972,500
|
|
|
|
1.23
|
|
|
|
4.00
|
|
Granted
|
|
|
225,000
|
|
|
|
1.08
|
|
|
|
5.00
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding - June 30, 2017
|
|
|
1,197,500
|
|
|
|
1.20
|
|
|
|
3.75
|
|
Exercisable - June 30, 2017
|
|
|
1,005,000
|
|
|
|
1.25
|
|
|
|
3.55
|
|
At June 30, 2017 and 2016, the total intrinsic
value of options outstanding was $0 and $0, respectively.
At June 30, 2017 and 2016, the total intrinsic
value of options exercisable was $0 and $0, respectively.
Stock-based
compensation for stock options has been recorded in the condensed consolidated statements of operations and totaled $6,174 and
$15,866 for the three and six months ended June 30, 2017, respectively, and $35,150 and $69,721 for the three and six months ended
June 30, 2016, respectively. There is approximately $4,800 amortization of stock option compensation left to be recognized over
the next 2 years.
Stock Warrants
The following is a summary of the Company’s
stock warrant activity during the three months ended June 30, 2017:
|
|
Number of Warrants
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Life
|
|
Outstanding - January 1, 2017
|
|
|
679,588
|
|
|
|
1.03
|
|
|
|
2.66
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding - June 30, 2017
|
|
|
679,588
|
|
|
|
1.03
|
|
|
|
2.16
|
|
Exercisable - June 30, 2017
|
|
|
679,588
|
|
|
|
1.03
|
|
|
|
2.16
|
|
At June 30, 2017 and 2016, the total intrinsic
value of warrants outstanding and exercisable was $0 and $0, respectively.
NOTE 8 – RELATED
PARTY TRANSACTIONS
Jeromy Olson, the Chief Executive Officer
of the Company, owns 50.0% of a sales management and consulting firm, NexPhase Global, LLC (“NexPhase”) that provides
sales services to the Company. These services include the retention of two full-time senior sales representatives including the
current National Sales Director of the Company. Consulting expenses pertaining to the firm’s services were $93,300 and $187,200
for the three and six months ended June 30, 2017, respectively. 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, 2017 were shares of common stock valued at $3,300 and $7,200, respectively, issued to Nexphase Global.
Included in consulting expense for the three and six months ended June 30, 2016 were shares of common stock valued at $11,000
and $22,000, 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 9 – EMPLOYEE SEPARATION
On December 30, 2016, the Company entered
into a mutual general release and settlement agreement (the "Settlement Agreement") with the former employee. As of June
30, 2017, and December 31, 2016 the Company had accrued a liability of $45,000 related to the Settlement Agreement which has been
included in accounts payable and accrued expenses in the accompanying condensed consolidated Balance Sheet.
NOTE 10 –
COMMITMENTS AND CONTINGENCIES
Sports Field
Contractors LLC, a subsidiary of the Company, is a guarantor 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,
the Company believes that it does not have any financial exposure in connection with the Illini Loan.
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 issued an additional 100,000 shares of the Company’s common stock as per the terms
of the agreement. Unvested shares are revalued at the end of each reporting period until they vest and are expensed on a straight-line
basis over the term of the agreement. The Company has recorded expense relating to this agreement of $28,361 during the six months
ended June 30, 2016. The contract expired during the third quarter of 2016.
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 contract
was terminated during the fourth quarter of 2016. Unvested shares are revalued at the end of each reporting period until they
vest and are expensed on a straight-line basis over the term of the agreement. The Company has recorded compensation expense relating
to the equity portion of the agreement of $0 during the six months ended June 30, 2017.
On July 19, 2017 retroactively
effective to November 1, 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 July 31, 2018. As compensation for the services, the Company shall pay the consultant $3,000 per month and is
obligated to issue $3,000 in shares of the Company common stock to be issued monthly in arrears based on a share price equal
to the 5-day moving average share price. The Company may terminate this agreement by providing 21 days advance written notice
for the duration of the agreement.
On December 20, 2016, the Company entered
into a Services Agreement with a consulting firm. The consulting firm agreed to provide investor relations services to the
Company for a period of 6 months. As compensation for the services, the Company shall pay the consultant $6,500 per month and is
obligated to issue 100,000 fully vested shares of the Company common stock to be issued within 30 days of execution of the agreement.
The Company may terminate the agreement during the first 2 months of the term with or without reason by providing 7 days written
notice.
Consulting Agreements
In March 2014, the Company reached an
agreement with NexPhase Global, LLC (“NexPhase”), a consulting firmed owned by the CEO of the Company and 50% by the
Company’s head of sales, 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, NexPhase 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, NexPhase is to be issued qualified stock
options in accordance with the following:
|
●
|
100,000 stock options at an exercise price of $1.50 per share that vest on December 31, 2015
|
|
●
|
100,000 stock options at an exercise price of $1.75 per share that vest on December 31, 2016
|
|
●
|
100,000 stock options at an exercise price of $2.50 per share that vest on December 31, 2017
|
On November 3, 2016, the Board, pursuant
to the consulting agreement, approved the issuance of (i) qualified options to purchase 100,000 shares of the Company’s Common
Stock at a price of $1.50 vesting immediately with a grant date of November 3, 2016, (ii) qualified options to purchase 75,000
shares of the Company’s Common Stock at a price of $1.75 vesting on December 31, 2016, and (iii) qualified options to purchase
25,000 shares of the Company’s Common Stock at a price of $1.75 vesting on December 31, 2016, which options were to be have
and have been issued in the first quarter of 2017.
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.
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. Unvested shares are revalued at the end of each
reporting period until they vest and are expensed on a straight-line basis over the term of the agreement.
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.
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. Unvested shares
are revalued at the end of each reporting period until they vest and are expensed on a straight-line basis over the term of the
agreement.
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. Unvested shares are revalued at the end of each reporting period until they vest and are expensed
on a straight-line basis over the term of the agreement.
In March 2016, the Company reached an agreement
with an individual to provide non-exclusive sales services with an effective date of March 15, 2016 (the “Effective
Date”). The individual will receive up to 1% commissions on sales referred to the Company. The term of the agreement is for
one year, and automatically renews for successive one year terms unless either party notifies the other, in writing, of its intention
not to renew at least 60 days before the end of the initial term of this agreement or any renewal term. As compensation for the
services, the Company is obligated to issue 4,000 shares of the Company common stock on the 15th day of each month for the first
4 months of this agreement; and (ii) 10,000 shares of the Company common stock for every $1 million in gross revenue earned by
the Company attributable to projects sold by the individual. Unvested shares are revalued at the end of each reporting period until
they vest and are expensed on a straight-line basis over the term of the agreement.
In April 2016, the Company reached an agreement
with an individual to provide non-exclusive sales services with an effective date of April 20, 2016 (the “Effective
Date”). The individual will receive up to 4% commissions on sales referred to the Company. The term of the agreement is for
one year, and automatically renews for successive one year terms. The Company may terminate this agreement by providing 60 days
advance written notice for the duration of the agreement. As compensation for the services, the Company is obligated to issue 4,000
shares of the Company common stock on the 15th day of each month for the first 6 months of this agreement; and (ii) 10,000 shares
of the Company common stock for every $1 million in gross revenue earned by the Company attributable to projects sold by the individual.
Unvested shares are revalued at the end of each reporting period until they vest and are expensed on a straight-line basis over
the term of the agreement. This agreement has been extended on similar terms.
Employment Agreements
In September 2014,
Jeromy Olson entered into a 40-month employment agreement to serve in the capacity of CEO, with subsequent one year renewal periods
(the “Olson Employment Agreement”). The CEO will receive a monthly salary of $10,000 that (1) will increase to $13,000
upon the Company achieving gross revenues of at least $10,000,000, as amended, and an operating margin of at least 15%, and (2)
will increase to $16,000 per month upon the Company achieving gross revenues of at least $15,000,000 and an operating margin of
at least 15%. The agreement provides for cash bonuses of 15% of the annual Adjusted EBITDA between $1 and $1,000,000, 10% of the
annual Adjusted EBITDA between $1,000,001 and $2,000,000 and 5% of the annual Adjusted EBITDA greater than $2,000,000. For purposes
of the agreement, Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization less share based
payments, gains or losses on derivative instruments and other non-cash items approved by the Board of Directors. The CEO was issued
250,000 shares of common stock on the date of the agreement and received 250,000 shares of common stock on January 1, 2016. Lastly,
the CEO will be issued qualified stock options as follows:
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100,000 stock options at an exercise price of $1.50 per share that vest on December 31, 2015
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100,000 stock options at an exercise price of $1.75 per share that vest on December 31, 2016
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100,000 stock options at an exercise price of $2.50 per share that vest on December 31, 2017
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On November 3, 2016, the Board, pursuant
to the Olson Employment Agreement (as defined above), approved the issuance of (i) qualified options to purchase 100,000 shares
of the Company’s Common Stock at a price of $1.50 vesting immediately with a grant date of November 3, 2016 and (ii) qualified
options to purchase 75,000 shares of the Company’s Common Stock at a price of $1.75 vesting on December 31, 2016, and (iii)
qualified options to purchase 25,000 shares of the Company’s Common Stock at a price of $1.75 vesting on December 31, 2016,
which options were to be have and have been issued in the first quarter of 2017.
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.
Supply Agreement
On December 2, 2015, IMG Academy LLC (“IMG”)
and the Company entered into an Official Supplier Agreement (the “Agreement”). The term of the Agreement is January
1, 2016 through December 31, 2019 (the “Term”). Under the Agreement, The Company is to be the “Official Supplier”
of IMG in connection with certain of the Company’s products and related services during the Term. Additionally, the Agreement
provides the Company with certain promotional opportunities and supplier benefits including but not limited to (i) on-site signage
and Company brand exposure (ii) the opportunity to install up to 4 test turf plots (the “Test Plots”) in order for
the Company to conduct research on its turf products and the ability to use IMG athletes as participants in such testing (ii) opportunity
to schedule site visits of test plots for potential Company customers and (iv) access to IMG’s personnel to include Head
Coaches, Athletic Director and Administrators, subject to clearances and applicable rules of governing bodies such as NCAA. As
consideration for its designation as IMG’s “Official Supplier” the Company must pay IMG three installments of
$208,000 during the Term as specified in the Agreement. As of the three and six month periods ended June 30, 2017, the Company
has recorded $39,126 and $78,252 of expense related to the agreement, respectively.
Placement Agent
and Finders Agreements
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, among other things
Spartan will act as the Company’s exclusive financial advisor and provide investment banking services. Spartan is to be paid
(i) 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 Spartan Advisory Agreement (ii) a monthly fee of $5,000 for 6 months for
the period commencing February 1, 2016 through July 1, 2016; (iii) 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; and (vi) 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. The 2015 Spartan Advisory Agreement
expires on January 1, 2019.
As of June 30, 2017, and December 31, 2016,
Spartan was owed fees of $113,750 and $17,500, respectively.
Litigation
The Company had 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. In February 2017, the Company was informed by NexxField that it had settled its dispute
with Brock. The Company was never named as a defendant in Brock’s patent infringement action and believes this matter to
be resolved with no adverse effects to its business.
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. No amounts are owed or expected to be owed on this lease.
On October 2, 2016,
the Company entered into a new lease agreement for its office space in Illinois. The lease commences on January 1, 2017 and expires
on December 31, 2017. The lease has minimum monthly payments of $1,045. 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.
Rent expense was $3,135
and $6,270 for the three and six months ended June 30, 2017, respectively.