Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | Mar. 31, 2016 | Jun. 30, 2015 | |
Document And Entity Information | |||
Entity Registrant Name | Surna Inc. | ||
Entity Central Index Key | 1,482,541 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2015 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 2,162,404 | ||
Entity Common Stock, Shares Outstanding | 139,044,878 | ||
Trading Symbol | SRNA | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2,015 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Current Assets | ||
Cash | $ 330,557 | $ 689,963 |
Accounts receivable (net of allowance for doubtful accounts of $40,873 and $10,000, respectively) | 299,194 | 394,830 |
Note receivable | 207,218 | 100,000 |
Inventory | 1,261,802 | 264,031 |
Prepaid expenses | 193,969 | 57,089 |
Total Current Assets | 2,292,740 | 1,505,913 |
Noncurrent Assets | ||
Property and equipment, net | 162,530 | 163,815 |
Intangible assets, net | 647,464 | 651,564 |
Total Noncurrent Assets | 809,994 | 815,379 |
TOTAL ASSETS | 3,102,734 | 2,321,292 |
CURRENT LIABILITIES | ||
Accounts payable and accrued liabilities | 2,066,803 | 411,828 |
Deferred revenue | 986,445 | 408,199 |
Current portion of long term debt | 1,551 | 9,731 |
Amounts due to shareholders | 216,995 | $ 303,672 |
Convertible promissory notes, net | 1,227,761 | |
Convertible accrued interest | 201,257 | |
Derivative liability on conversion feature | 472,967 | $ 847,438 |
Derivative liability on warrants | 139,192 | 304,432 |
Total Current Liabilities | 5,312,971 | 2,285,300 |
NONCURRENT LIABILITIES | ||
Convertible promissory notes, net | 523,822 | 488,544 |
Convertible accrued interest | $ 80,674 | 89,311 |
Other accrued interest | 112,812 | |
Promissory note due shareholders | 195,759 | |
Vehicle loan | $ 32,564 | 33,318 |
Total Noncurrent Liabilities | 637,060 | 919,744 |
TOTAL LIABILITIES | $ 5,950,031 | $ 3,205,044 |
Commitments and Contingencies | ||
SHAREHOLDERS' DEFICIT | ||
Preferred stock, $0.00001 par value; 150,000,000 shares authorized; 77,220,000 shares issued and outstanding | $ 772 | $ 772 |
Common stock, $0.00001 par value; 350,000,000 shares authorized; 125,839,862 and 113,511,250 shares issued and outstanding, respectively | 1,259 | 1,135 |
Paid in capital | $ 8,214,271 | $ 4,881,918 |
Accumulated other comprehensive income | ||
Accumulated deficit | $ (11,063,599) | $ (5,767,577) |
Total Shareholders' Deficit | (2,847,297) | (883,752) |
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT | $ 3,102,734 | $ 2,321,292 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Statement of Financial Position [Abstract] | ||
Allowance for doubtful accounts | $ 40,873 | $ 10,000 |
Preferred stock, par value | $ 0.00001 | $ 0.00001 |
Preferred stock, shares authorized | 150,000,000 | 150,000,000 |
Preferred stock, shares issued | 77,220,000 | 77,220,000 |
Preferred stock, shares outstanding | 77,220,000 | 77,220,000 |
Common stock, par value | $ 0.00001 | $ 0.00001 |
Common stock, shares authorized | 350,000,000 | 350,000,000 |
Common stock, shares issued | 125,839,862 | 113,511,250 |
Common stock, shares outstanding | 125,839,862 | 113,511,250 |
Consolidated Statements of Oper
Consolidated Statements of Operations and Comprehensive Loss - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Income Statement [Abstract] | ||
Revenue | $ 7,865,243 | $ 1,838,912 |
Cost of revenue | 6,924,402 | 1,534,918 |
Gross margin | 940,841 | 303,994 |
Operating expenses: | ||
Advertising and marketing expenses | 309,620 | 240,784 |
Product development costs | 707,517 | 319,430 |
Selling, general and administrative expenses | 3,037,547 | 2,936,244 |
Total operating expenses | 4,054,684 | 3,496,458 |
Operating loss | (3,113,843) | (3,192,464) |
Other income (expense): | ||
Interest and other income (expense), net | 24,547 | |
Interest expense | (873,207) | (357,579) |
Amortization of debt discount on convertible promissory notes | (2,220,115) | $ (476,044) |
Loss on extinguishment of debt | (78,155) | |
Gain on change in derivative liabilities | 964,751 | $ 1,051,889 |
Total other income (expense) | (2,182,179) | 218,266 |
Loss from continuing operations before provision for income taxes | $ (5,296,022) | $ (2,974,198) |
Provision for income taxes | ||
Loss from continuing operations | $ (5,296,022) | $ (2,974,198) |
Loss from discontinued operations | (17,771) | |
Net loss | $ (5,296,022) | $ (2,991,969) |
Comprehensive loss | ||
Comprehensive loss | $ (5,296,022) | $ (2,991,969) |
Loss per common share from continuing operations - basic | $ (0.04) | $ (0.03) |
Loss per common share from discontinued operations - basic | 0 | 0 |
Loss per common share - basic | $ (0.04) | $ (0.03) |
Weighted average number of common shares outstanding, basic | 119,967,118 | 100,687,113 |
Consolidated Statements of Chan
Consolidated Statements of Changes in Shareholders' Deficit - USD ($) | Preferred Stock [Member] | Common Stock [Member] | Paid In Capital [Member] | Accumulated Deficit [Member] | Comprehensive Income (Loss) [Member] | Total |
Balance at Dec. 31, 2013 | $ 994 | $ 148,507 | $ (2,775,608) | $ (11,250) | $ (2,637,357) | |
Balance, shares at Dec. 31, 2013 | 99,375,000 | |||||
Cancellation of common shares in connection with the merger of Safari Resource Group | $ (772) | 772 | ||||
Cancellation of common shares in connection with the merger of Safari Resource Group, shares | (77,220,000) | |||||
Issuance of common and preferred shares in connection with the merger of Safari Resource Group | $ 772 | $ 802 | (1,574) | |||
Issuance of common and preferred shares in connection with the merger of Safari Resource Group, shares | 77,220,000 | 80,201,250 | ||||
Reclassifications due to sale of Surna Media | 2,643,878 | 11,250 | $ 2,655,128 | |||
Common shares issued for services | $ 30 | 1,359,370 | 1,359,400 | |||
Common shares issued for services | 3,030,000 | |||||
Sales of common shares, net | $ 81 | 730,965 | $ 731,046 | |||
Sales of common shares, net, shares | 8,125,000 | |||||
Imputed interest | ||||||
Cancellation of common shares in connection with officer termination, shares | ||||||
Net loss | (2,991,969) | 0 | $ (2,991,969) | |||
Balance at Dec. 31, 2014 | $ 772 | $ 1,135 | 4,881,918 | $ (5,767,577) | $ 0 | $ (883,752) |
Balance, shares at Dec. 31, 2014 | 77,220,000 | 113,511,250 | ||||
Issuance of common and preferred shares in connection with the merger of Safari Resource Group, shares | 4,556,250 | |||||
Reclassifications due to sale of Surna Media | ||||||
Common shares issued for services | $ 9 | 82,444 | $ 82,453 | |||
Common shares issued for services | 866,571 | |||||
Sales of common shares, net | $ 46 | 427,402 | 427,448 | |||
Sales of common shares, net, shares | 4,556,250 | |||||
Issuance of common shares in connection with exercises of stock options | $ 26 | 604 | 630 | |||
Issuance of common shares in connection with exercises of stock options, shares | 2,625,000 | |||||
Common shares issued pursuant to conversion of debt and accrued interest, net | $ 252 | 1,668,015 | 1,668,267 | |||
Common shares issued pursuant to conversion of debt and accrued interest, net, shares | 25,169,786 | |||||
Reclassification of derivative liability to equity pursuant to conversion of debt | 791,409 | 791,409 | ||||
Reclassification of derivative liability to equity pursuant change in classification | 119,348 | 119,348 | ||||
Non-cash settlement of debt to related parties | 194,958 | 194,958 | ||||
Imputed interest | 2,924 | 2,924 | ||||
Common shares issued to employees as compensation | $ 5 | 45,035 | $ 45,040 | |||
Common shares issued to employees as compensation, shares | 539,028 | |||||
Cancellation of common shares in connection with officer termination | $ (214) | 214 | ||||
Cancellation of common shares in connection with officer termination, shares | (21,428,023) | |||||
Net loss | $ (5,296,022) | $ (5,296,022) | ||||
Balance at Dec. 31, 2015 | $ 772 | $ 1,259 | $ 8,214,271 | $ (11,063,599) | $ (2,847,297) | |
Balance, shares at Dec. 31, 2015 | 77,220,000 | 125,839,862 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Cash Flows From Operating Activities: | ||
Net loss | $ (5,296,022) | $ (2,991,969) |
Loss from discontinued operations | (17,771) | |
Loss from continuing operations | $ (5,296,022) | (2,974,198) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||
Depreciation and intangible asset amortization expense | 67,766 | 28,774 |
Amortization of debt discounts | (2,220,115) | $ (476,044) |
Amortization of original issue discount on notes payable | 37,795 | |
Gain on change in derivative liability | (964,751) | $ (1,051,889) |
Consulting services paid in stock | 82,453 | $ 1,359,400 |
Employee compensation paid in stock | 45,040 | |
Non-cash interest expense | 750,640 | |
Provision for doubtful accounts | 30,873 | $ 10,000 |
Loss on extinguishment of debt | 78,155 | |
Changes in operating assets and liabilities: | ||
Accounts and notes receivable | 64,763 | $ (331,011) |
Inventory | (997,771) | (246,400) |
Prepaid expenses | (136,880) | (57,089) |
Accounts payable and accrued liabilities | 1,654,975 | 204,525 |
Deferred revenue | 578,246 | 408,199 |
Accrued interest | 80,760 | 202,123 |
Deferred compensation | 25,600 | |
Other | (7,115) | (22,749) |
Cash used in operating activities | $ (1,685,358) | (1,994,271) |
Cash Flows From Investing Activities | ||
Purchases of intangible assets | (20,500) | |
Purchases of property and equipment | $ (62,381) | (115,495) |
Loans to Agrisoft | (160,000) | $ (100,000) |
Payments received from Agrisoft | 65,000 | |
Other | (12,218) | |
Cash used in investing activities | (169,599) | $ (235,995) |
Cash Flows From Financing Activities | ||
Proceeds from issuance of convertible notes | 1,781,250 | $ 2,961,783 |
Payments of financing fees | (27,146) | |
Proceeds from exercises of stock options | $ 630 | |
Proceeds from related parties | $ 28,186 | |
Payments on loans | $ (145,153) | (4,237) |
Payments to related parties | (114,030) | (66,255) |
Cash provided by financing activities | 1,495,551 | 2,919,477 |
Net increase (decrease) in cash | (359,406) | 689,211 |
Cash, beginning of period | 689,963 | 752 |
Cash, end of period | 330,557 | 689,963 |
Supplemental cash flow information: | ||
Interest paid | $ 26,126 | $ 3,607 |
Income taxes paid | ||
Non-cash investing and financial activities: | ||
Sale of subsidiary to related party, credited to APIC account | $ 2,655,128 | |
Conversions of promissory note balances to common stock | $ 1,336,783 | |
Increase in paid in capital in connection with conversions of notes | 1,242,241 | |
Derivative liability on convertible notes and warrants | (1,335,797) | $ 2,203,759 |
Debt retirement to former Chief Executive Officer | $ 194,858 | |
Intangible assets acquired by debt to related parties | $ 631,064 | |
Tangible assets acquired by debt to related parties | 121,258 | |
Vehicle purchase by loan | $ 47,286 |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2015 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Company: Surna Inc. incorporated in Nevada on October 15, 2009. On March 26, 2014, we acquired Safari Resource Group, Inc. (Safari), a Nevada Corporation, whereby we became the sole surviving corporation after the acquisition of Safari. In July 2014, we acquired 100% of the membership interest in Hydro Innovations, LLC, a Colorado limited liability company, (Hydro), pursuant to which Hydro became a wholly-owned subsidiary of the Company. We engineer and manufacture innovative technology and products that address the energy and resource intensive nature of indoor cultivation. Our focus lies in supplying industrial solutions to commercial indoor cannabis cultivation facilities. The engineering team is tasked with creating novel energy and resource efficient solutions, including our signature liquid-cooled climate control platform. Our engineers continuously seek to create technologies that allow growers to easily meet the highly specific demands of a cannabis cultivation environment through temperature, humidity, light, and process control. Our objective is to provide intelligent solutions that improve the quality, control and overall yield and efficiency of indoor cannabis cultivation. We are headquartered in Boulder, Colorado. The Companys operations exclude the production or sale of marijuana. History: On September 1, 2011, Surna Inc. acquired Surna Media, Inc. (Surna Media) for 20,000,000 shares of its common stock. The merger with Surna Media was accounted for as among entities under common control. Surna Medias predecessor entity, Surna Hong Kong Limited (Surna HK), was formed on June 14, 2010. Surna Media was formed October 29, 2010 by the same owners and Surna HK became a wholly-owned subsidiary. Flying Cloud Information Technology Co. Ltd. was incorporated in China in April 2011 as a wholly owned subsidiary of Surna HK (Flying Cloud). All of the Surna HK, Surna Media, and Flying Cloud transactions are consolidated with those of the Company beginning at the formation of Surna HK on June 14, 2010. Surna Networks, Inc. (Surna Networks I) and Surna Networks Ltd. (Surna Networks II) are wholly owned subsidiaries of the Company, formed on July 19, 2011 and August 2, 2011, respectively. On March 27, 2012, the Company sold Surna Networks I and Surna Networks II to Chan Kam Ming for a total sales price of US$1 and assumption of liability related to those companies. The Company assumed the liabilities of Surna Networks I and Surna Networks II, which totaled US$9,286. All significant intercompany transactions are eliminated. We sold Surna Media and its subsidiaries in 2014. Financial Statement Presentation: The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect reported amounts and related disclosures. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. 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. The Company has not generated sufficient revenue and has funded its operating losses through the sale of common stock and the issuance of debt. The Company has a limited operating history and its prospects are subject to risks, expenses and uncertainties frequently encountered by companies in the industry. (See Note 2.) Basis of Consolidation and Reclassifications: The consolidated financial statements include the accounts of the Company and its controlled and wholly-owned subsidiaries. Intercompany transactions, profit, and balances are eliminated in consolidation. Certain reclassifications have been made to amounts in prior periods to conform to the current period presentation. All reclassifications have been applied consistently to the periods presented. The reclassifications had no impact on net loss or total assets and liabilities. Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and that affect the reported amounts of revenue and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. In addition, any change in these estimates or their related assumptions could have an adverse effect on our operating results. Key estimates include: valuation of derivative liabilities, valuation of intangible assets, and valuation of deferred tax assets and liabilities. Cash and Cash Equivalents: All highly liquid investments with original maturities of three months or less at the date of purchase are considered to be cash equivalents. The Company may, from time to time, have deposits in one financial institution that exceeds the federally insured amount. Accounts Receivable and Allowance for Doubtful Accounts: Accounts receivable are recorded at invoiced amount and generally do not bear interest. An allowance for doubtful accounts is established, as necessary, based on past experience and other factors, which, in managements judgment, deserve current recognition in estimating bad debts. Such factors include growth and composition of accounts receivable, the relationship of the allowance for doubtful accounts to accounts receivable and current economic conditions. The determination of the collectability of amounts due from customer accounts requires the Company to make judgments regarding future events and trends. Allowances for doubtful accounts are determined based on assessing the Companys portfolio on an individual customer and on an overall basis. This process consists of a review of historical collection experience, current aging status of the customer accounts, and the financial condition of the Companys customers. Based on a review of these factors, the Company establishes or adjusts the allowance for specific customers and the accounts receivable portfolio as a whole. As of December 31, 2015 and 2014 the allowance for doubtful accounts was $40,873 and $10,000, respectively. Inventory: Inventory is stated at the lower of cost or market. The majority of inventory is valued based on a first-in, first-out (FIFO) basis. Lower of cost or market is evaluated by considering obsolescence, excessive levels of inventory, deterioration and other factors. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated excess, obsolescence or impaired inventory. Excess and obsolete inventory is charged to cost of revenue and a new lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. Property and Equipment: Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For financial statement purposes, property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives, which is generally five years. Leasehold improvements are amortized on a straight-line basis over the lesser of their useful lives or the life of the lease. Upon sale or retirement of assets, the cost and related accumulated depreciation and amortization are removed from the balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repairs are charged to operations as incurred. Impairment of Long-Lived Assets: Long-lived tangible assets are reviewed for impairment whenever events or changes in business circumstances indicate the carrying value of the assets may not be recoverable. When such an event occurs, management determines whether there has been impairment by comparing the anticipated undiscounted future net cash flows to the related assets carrying value. If an asset is considered impaired, the asset is written down to fair value, which is determined based either on discounted cash flows or appraised value, depending on the nature of the asset. The Company has not identified any such impairment losses to date. Goodwill and Other Intangible Assets: Goodwill is reviewed for impairment annually or more frequently when events or changes in circumstances indicate that fair value of the reporting unit has been reduced to less than its carrying value. We perform our impairment test annually during the fourth quarter. First, the Company assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. If, after assessing qualitative factors, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. If deemed necessary, a two-step test is used to identify the potential impairment and to measure the amount of goodwill impairment, if any. The first step is to compare the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is considered not impaired; otherwise, there is an indication that goodwill may be impaired and the amount of the loss, if any, is measured by performing step two. Under step two, the impairment loss, if any, is measured by comparing the implied fair value of the reporting unit goodwill with the carrying amount of goodwill. We completed this assessment as of December 31, 2015, and concluded that no impairment existed. Separable intangible assets that have finite useful lives continue to be amortized over their respective useful lives. All of the Companys identifiable intangible assets are subject to amortization on a straight-line basis over their estimated useful lives. Identifiable intangibles consist of intellectual property such as patents and trademarks, and capitalized software. Identifiable intangibles are also subject to evaluation for potential impairment if events or circumstances indicate the carrying value may not be recoverable. Fair Value Measurement: The accounting standards regarding fair value of financial instruments and related fair value measurements define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements for fair value measures. ASC Topic 820 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1 - inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 - inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 - inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. On a Recurring Basis: A financial asset or liabilitys classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement. The Companys assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. The Company has determined that the convertible debt instruments outstanding as of the date of these financial statements include an exercise price reset adjustment that qualifies as derivative financial instruments under the provisions of ASC 815-40, Derivatives and Hedging - Contracts in an Entitys Own Stock (ASC 815-40). See Note 11 for discussion of the impact the derivative financial instruments had on the Companys consolidated financial statements and results of operations. Financial assets and liabilities carried at fair value, measured on a recurring basis as of December 31, 2015 and 2014 are: December 31, 2015 Description Level 1 Level 2 Level 3 Gains (Losses) (1) Derivative liability on conversion feature $ - $ - $ 472,967 $ 383,049 Derivative liability on warrants - - 139,192 106,829 Total $ - $ - $ 612,159 $ 489,878 (1) The gain on change in derivative liabilities of $964,751 presented in the statement of operations for the fiscal year ended December 31, 2015 also includes gains on derivatives associated with convertible promissory note balances outstanding at various dates during fiscal year 2015, which were converted to common stock prior to December 31, 2015. December 31, 2014 Description Level 1 Level 2 Level 3 Gains (Losses) Derivative liability on conversion feature $ - $ - $ 847,438 $ 1,051,889 Derivative liability on warrants - - 304,432 - Total $ - $ - $ 1,151,870 $ 1,051,889 Our Level 3 fair value liabilities represent contingent consideration recorded related to the embedded conversion features in the convertible notes issued in 2014 and 2015. The change in the balance of the conversion feature derivative liabilities and warrant liabilities during the fiscal years ended December 31, 2015 and 2014 was calculated using the Black-Scholes Model, which is classified as gain on change in derivative liabilities in the consolidated statement of operations. The Black-Scholes Model does take into consideration the Companys stock price, historical volatility, and risk-free interest rate, which do have observable Level 1 or Level 2 inputs. During the fiscal year ended December 31, 2015, the Company converted all of the Series 1 convertible promissory notes (see Note 10) issued in 2014 into common stock, which gave rise to the fair value liabilities for the embedded conversion features. At conversion, the balance of the derivative liability of, $791,409 has been credited to additional paid in capital in the consolidated balance sheet. Additionally, the Series 2 convertible promissory notes derivative liability balance of $119,348 was also credited to additional paid in capital. The Series 2 notes embedded conversion features were classified as derivative liabilities solely due to sequencing such that, when the Series 1 notes were converted the Series 2 notes are no longer derivatives. On a Non-Recurring Basis: In accordance with the provisions of ASC Topic 350, Intangibles Goodwill and Other (ASC Topic 350), the Company estimates the fair value of reporting units, utilizing unobservable Level 3 inputs. Level 3 inputs require significant management judgment due to the absence of quoted market prices or observable inputs for assets of a similar nature. The Company utilizes a discounted cash flow analysis to estimate the fair value of reporting units utilizing unobservable inputs. The fair value measurements for goodwill under the step-one and step-two analysis of the quantitative goodwill impairment test are classified as Level 3 inputs. Intangible assets that are amortized are evaluated for recoverability whenever adverse effects or changes in circumstances indicate that the carrying value may not be recoverable. The recoverability test consists of comparing the undiscounted projected cash flows with the carrying amount. Should the carrying amount exceed undiscounted projected cash flows, an impairment loss would be recognized to the extent the carrying amount exceeds fair value. For the Companys indefinite-lived intangible asset, the impairment test consists of comparing the fair value, determined using the market value method, with its carrying amount. An impairment loss would be recognized for the carrying amount in excess of its fair value. As of December 31, 2015, the Company concluded that no indicators of impairment relating to intangible assets or goodwill existed and an interim test was not performed. Due to their short-term nature, the carrying values of cash and equivalents, accounts receivable, accounts payable, and accrued expenses, approximate fair value. Based on borrowing rates currently available to the Company for loans with similar terms, the carrying value of the notes payable approximates fair value. There were no changes in valuation technique from prior periods. Derivative Financial Instruments: We evaluate our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses the Black-Scholes Option Pricing Model to value the derivative instruments. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. We have determined that certain convertible debt instruments outstanding as of the date of these financial statements include an exercise price reset adjustment that qualifies as derivative financial instruments under the provisions of ASC 815-40, Derivatives and Hedging - Contracts in an Entitys Own Stock (ASC 815-40). Certain of the convertible debentures have a variable exercise price, thus are convertible into an indeterminate number of shares for which we cannot determine if we have sufficient authorized shares to settle the transaction with. Accordingly, the embedded conversion option is a derivative liability and is marked to market through earnings at the end of each reporting period. We evaluate the application of ASC 815-40-25 to the warrants to purchase common stock issued with the convertible notes, and determined that the warrants were required to be accounted for as derivatives due to the provisions in certain convertible notes that result in our being unable to determine if we have sufficient authorized shares to settle the instrument. See Note 11 for discussion of the impact the derivative financial instruments had on the Companys consolidated financial statements and results of operations. Accordingly, the embedded conversion option and the warrants are derivative liabilities and are marked to market through earnings at the end of each reporting period. Any change in fair value during the period recorded in earnings as Other income (expense) - gain (loss) on change in derivative liabilities. Revenue Recognition: We recognize revenue from the sale of our products, which we primarily manufacture. Revenue is recognized when products are shipped or delivered and title passes to the customer, provided that persuasive evidence of an arrangement exists, the price is fixed or determinable, and collection of the resulting receivable is reasonably assured. Sales of our products are not subject to regulatory requirements that vary from state to state. We generally do not provide our customers with a contractual right of return. In certain limited circumstances, revenue could be recognized using the percentage-of-completion method as performance occurs. Management believes that all relevant criteria and conditions are considered when recognizing revenue. Sales arrangements sometimes involve delivering multiple elements, including services such as installation. In these instances, the revenue assigned to each element is based on vendor-specific objective evidence, third-party evidence or a management estimate of the relative selling price. Revenue is recognized individually for delivered elements only if they have value to the customer on a stand-alone basis and the performance of the undelivered items is probable and substantially in our control, or the undelivered elements are inconsequential or perfunctory and there are no unsatisfied contingencies related to payment. We had no revenue arise from qualifying sales arrangements that include the delivery of multiple elements in fiscal year 2015 or 2014. The vast majority of these deliverables are tangible products, with a small portion attributable to installation. We do not provide any separate maintenance. Generally, contract duration is short term and cancellation, termination or refund provisions apply only in the event of contract breach, and have historically not been invoked. The Company provides climate control equipment and installation services designed for the controlled environment agriculture industry through construction-type contracts with contract terms typically less than one year. Advance payments received from customers are included in deferred revenue, a component of current liabilities, until such time that all criteria are met, as noted above, and revenue is recognized. Shipping and handling costs are reported within cost of sales in the consolidated statements of operations. The Company accounts for sales taxes and other related taxes on a net basis, excluding such taxes from revenue. Product Warranty: Warranties vary by product line and are competitive for the markets in which the Company operates. Products are generally subject to a one to two year warranty, which provides for the repair, rework, or replacement of products (at the Companys option) that fail to perform within stated specification. We assessed the historical claims and, to date, product warranty claims have not been significant. We will continue to assess the need to record a warranty accrual at the time of sale going forward. Accordingly no separate provision was deemed necessary as of December 31, 2015 or 2014, respectively. Concentrations: One customer accounted for 10% of the Companys revenue or the year ended December 31, 2015. One customer accounted for 11% of the Companys revenue for the year ended December 31, 2014. The Companys accounts receivable from four customers make up 89% of the total balance as of December 31, 2015. The Companys accounts receivable from two customers make up 58% of the total balance as of December 31, 2014. The Company purchased 75% of it cost of revenue from four vendors during the year ended December 31, 2015. The Company purchased 75% of it cost of revenue from four vendors during the year ended December 31, 2014. Each vendor comprised greater than 10% of the purchases. Product Development: The Company accounts for product development cost in accordance with Accounting Standards Codification subtopic 730-10, Research and Development (ASC 730-10). ASC 730-10 requires such costs be charged to expenses as incurred. Accordingly, internal product development costs are expensed as incurred. Third-party product developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. For the years ended December 31, 2015 and 2014, we incurred $707,517 and $319,430, respectively, on product development, which is included in the consolidated statements of operations. Accounting for Stock-Based Compensation: Share-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as expense over the employees service period. The Company recognizes compensation expense on a straight-line basis over the requisite service period of the award. We determined that the Black-Scholes Option Pricing Model is the most appropriate method for determining the estimated fair value for stock options or warrants. The Black-Scholes Model requires the use of highly subjective and complex assumptions that determine the fair value of share-based awards, including the equity instruments expected term and the price volatility of the underlying stock. Equity instruments issued to nonemployees are recorded at their fair value on the measurement date and are subject to periodic adjustment as the underlying equity instruments vest. Share-based payments to employees for compensation and nonemployees for services provided to the Company totaled $127,493 and $1,359,400 for the years ended December 31, 2015 and 2014, respectively. Income Taxes: The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax basis of the Companys assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. A valuation allowance is recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. We must assess the likelihood that the Companys deferred tax assets will be recovered from future taxable income, and to the extent the Company believes that recovery is not likely, we establish a valuation allowance. Management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against the net deferred tax assets. We recorded a full valuation allowance as of December 31, 2015 and 2014. Based on the available evidence, the Company believes it is more likely than not that it will not be able to utilize its deferred tax assets in the future. We intend to maintain valuation allowances until sufficient evidence exists to support the reversal of such valuation allowances. We make estimates and judgments about its future taxable income that are based on assumptions that are consistent with our plans. Should the actual amounts differ from our estimates, the carrying value of our deferred tax assets could be materially impacted. We recognize in the financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The Companys policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of operating expense. We do not believe there are any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within twelve months of the reporting date. There were no penalties or interest liabilities accrued as of fiscal year end December 31, 2015 or 2014, nor were any penalties or interest costs included in expense for the years ended December 31, 2015 and 2014. The years under which we conducted our evaluation coincided with the tax years currently still subject to examination by major federal and state tax jurisdictions, those being 2009 through 2015 for federal purposes and 2013 through 2015 for state purposes. Comprehensive Income (Loss): Comprehensive income (loss) represents the change in shareholders equity (deficit) of an enterprise, other than those resulting from shareholder transactions. Accordingly, comprehensive income (loss) may include certain changes in shareholders equity (deficit) that are excluded from net income (loss). For the years ended December 31, 2015 and 2014, the Companys comprehensive loss is the same as its net loss. Basic and Diluted Net Loss per Common Share: Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. Potential participating securities deemed to be anti-dilutive as of December 31, 2015 and 2014 are: 2015 2014 Convertible promissory notes 19,032,063 10,852,708 Stock options 7,671,000 10,296,000 Warrants 5,161,250 2,536,625 Diluted shares outstanding 31,864,313 23,685,333 Commitments and Contingencies: In the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations, environment liability and tax matters. An accrual for a loss contingency is recognized when it is probable that an asset had been impaired or a liability had been incurred and the amount of loss can be reasonably estimated. Other Risks and Uncertainties: To achieve profitable operations, the Company must successfully develop, manufacture, and market its products. There can be no assurance that any such products can be developed or manufactured at an acceptable cost and with appropriate performance characteristics, or that such products will be successfully marketed. These factors could have a material adverse effect upon the Companys financial results, financial position, and future cash flows. The Company is subject to risks common to companies who supply the cannabis industry including, but not limited to, new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, uncertainty of market acceptance of products, product liability, and the need to obtain additional financing. The Companys ultimate success is dependent upon its ability to raise additional capital and to successfully develop and market its products. Segment Information: Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Companys chief operating decision maker is its senior management team. The Company has one operating segment that is dedicated to the manufacture and sale of its products. Recent Accounting Pronouncements: In March 2016, accounting guidance was issued to improve the accounting for employee stock-based payments. The guidance simplifies accounting for stock-based award transactions specific to income tax consequences, the classification of awards as equity or liabilities, and the classification of award payments on the statement of cash flows. The guidance is effective for interim and annual periods beginning on or after December 15, 2016. The Company is currently assessing the impact that the adoption of this new guidance will have on its consolidated financial statements. In March 2016, accounting guidance was issued pertaining to accounting for derivatives and hedging activity. The guidance amends existing U.S. GAAP by clarifying that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument does not, in and of itself, require dedesignation of that hedging relationship, provided that all other hedge accounting criteria continue to be met. The amendment improves prior guidance by eliminating diversity in practice. The guidance is effective for interim and annual periods beginning on or after December 15, 2016. The guidance may be applied prospectively or using a modified retrospective approach to adjust retained earnings. The Company is currently evaluating the impact of this guidance on its consolidated financial statements. In March 2 |
Going Concern
Going Concern | 12 Months Ended |
Dec. 31, 2015 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Going Concern | NOTE 2 - GOING CONCERN The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. In the course of its development activities, the Company has sustained and continues to sustain losses. The Company cannot predict if and when the Company will generate profit. The Company has a deficit in working capital of $3,020,231. Additionally, the Company has generated cumulative net losses of $11,063,599 during the period from inception through December 31, 2015. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on us obtaining the adequate capital to fund operating losses until it becomes profitable. Managements plans to continue as a going concern to achieve a profitable level of operations include generating cash through increased product sales, reducing planned expenditures, if necessary, and raising capital from investors. While Management plans to take the steps necessary to extend the time period over which the then-available resources would be able to fund the operations, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. Additionally, there can be no assurance that, if such efforts are successful, the terms and conditions of such financing will be favorable. If the Company is unable to obtain adequate capital, it could be forced to cease operations. As further discussed in Note 10, during the year ended 2015, we raised a total of $1,781,250 in connection with issuances of three series of convertible promissory notes. During the year ended 2014, we raised $2,961,783 in connection with issuances of two series of convertible promissory notes. The Company has been in discussion with several investment firms and is evaluating the Companys options for additional funding. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish its plans and eventually secure other sources of financing and attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. |
Acquisitions and Divestitures
Acquisitions and Divestitures | 12 Months Ended |
Dec. 31, 2015 | |
Acquisitions And Divestitures - Unaudited Supplemental Pro Forma Financial Information Details | |
Acquisitions and Divestitures | NOTE 3 - ACQUISITIONS AND DIVESTITURES Qoo Games Limited (Qoo Games) was incorporated in Hong Kong on February 21, 2012. It was intended that this company operate as the publisher of mobile games, including the iOS and Android operating systems, but this restructuring did not take place. Surna Media disposed of Qoo Games on January 24, 2014 for HK$1 (par value of the shares), and there were no assets, liabilities or any transactions for Qoo Games during its existence. Effective March 25, 2014, the Company completed the issuance of a dividend of all of our ownership in Trebor Resource Management Group, Inc. (Trebor), a wholly owned subsidiary, to our shareholders, resulting in Trebor becoming a separate entity. The dividend shares of Trebor are and shall remain restricted securities as defined in Rule 144, promulgated under the Securities Act of 1933, as amended. The issuance of Trebor restricted stock was completed on a one for one basis to the Companys shareholders of record on March 21, 2014. Trebor is a party to a Memorandum of Understanding (MOU) dated March 24, 2014, with RMA Holdings, an entity formed under the laws of the Philippines (RMA). RMA and its associated companies are in the mining and smelting business with existing assets and operating permits for mineral extraction and refining in the Philippines. The MOU requires the parties to work together to identify and develop joint opportunities in the mining business in the Philippines, including a specific gold mining property (the Pargum Mine). The MOU also requires the parties to develop a plan of operation for the Pargum Mine, including financing and expansion. It is expected that RMA will secure necessary permits required for the development, construction and operations of the plant. It is expected that Trebor will provide the necessary financing and technology for the anticipated operations at Pargum Mine. In addition to the Pargum Mine, the MOU contemplates that the parties will jointly work to identify and develop other mining opportunities. See Item 1A - Risk Factors If it were determined that our spin-off of Trebor Resource Management Group, Inc. in March, 2014 violated federal or state securities laws, we could incur monetary damages, fines or other damages that could have a material adverse effect on our financial condition and Prospects. Acquisition of Safari Resource Group, Inc. As a result of our merger with Safari, whereby we became the sole surviving corporation, Safaris shareholder group received eighty million two hundred and one thousand two hundred and fifty (80,201,250) newly issued shares of our common stock and seventy-seven million two hundred twenty thousand (77,220,000) newly issued shares of our series A preferred stock. In connection with the merger, 77,220,000 shares of issued and outstanding common stock were returned to the Company and canceled. Additionally, Safari had stock options that had previously been granted to its founders totaling 10,000 shares, and were fully vested. At the date of grant, Safari had no operations and nominal assets. As a result, the options were deemed to have no value and no charge was made to the income statement. The options were converted at the same rate as the common shares resulting in 10,296,000 options, with an exercise price of $0.00024. Acquisition of Hydro Innovations, LLC On March 31, 2014, we entered into a binding membership interest purchase agreement with Hydro and its owners, Stephen Keen and Brandy Keen (collectively referred to as the Keens), pursuant to which we agreed to acquire 100% of the membership interests of Hydro, as well as all assets of Hydro, including all intellectual property, trade names, customer lists, physical properties and any and all leasehold interests. The purchase of Hydro was completed on July 25, 2014. Effective as of July 1, 2014, we entered into a modification and amendment (the Hydro Amendment) to the previously disclosed March 31, 2014 membership purchase agreement we entered into with Hydro to acquire a 100% interest in Hydro. The transaction closed on July 25, 2014 at which day we acquired 100% of the Hydro membership interests and Hydro became our wholly owned subsidiary. Pursuant to the terms of the Hydro Amendment, we paid to the Keens $250,000 by the delivery to the Keens of a $250,000 promissory note from the Company. The note bears interest at the rate of 6% per annum and is payable in monthly installments of $5,000 with a balloon payment for the balance of accrued interest and principal due on July 18, 2016. The note may be prepaid in whole or in part at any time. As additional consideration for the purchase of Hydro, the Company entered into employment agreements with the Keens. Pursuant to the terms of the employment agreements, the Company agreed to employ Ms. Keen as Vice President of Sales and Mr. Keen as Vice President of Product Development, each for a period of three years beginning on July 25, 2014 and at an annual base salary of $96,000, which is subject to review annually by the Board of Directors. Each Mr. and Ms. Keen will be entitled to stock compensation in an amount and on terms to be agreed on at a later date, vacation, leave, and other benefits as may be in effect at the Companys discretion from time to time and reimbursement of out of pocket expenses for business entertainment in connection with his/her duties. Notwithstanding the 3-year term, both of the Keens employment agreements are at-will and may be terminated at any time, with or without cause. The Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price was allocated to the assets acquired and liabilities assumed based on their estimated fair values. The fair value measurements utilize estimates based on key assumptions of the Acquisition, and historical and current market data. The excess of the purchase price over the total of estimated fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed is recognized as goodwill. The Company has estimated the purchase price allocations based on historical inputs and data as of June 30, 2014. The fair values of the Hydro assets acquired and liabilities assumed as of the effective acquisition date of June 30, 2014 are: Purchase price: Promissory note $ 250,000 Liabilities assumed 509,015 Total purchase price $ 759,015 Fair value of assets: Current assets $ 96,712 Property and equipment 29,808 Other assets 1,431 Goodwill 631,064 Fair value of assets acquired $ 759,015 All of the assets were recorded at book value, which approximated fair value, and are amortized or depreciated at their respective existing rates at the acquisition date. The goodwill is not amortizable but subject to an annual impairment review, as prescribed by the Accounting Standards Codification (ASC) 350 (formerly SFAS No. 142). No impairment has been recognized for either the year ended December 31, 2015 or 2014. Unaudited supplemental pro forma financial information: The unaudited supplemental pro forma financial information below represents the consolidated results of operations of the Company as if the Hydro acquisition had occurred as of the beginning of January 1, 2014. The unaudited supplemental pro forma financial information is not necessarily indicative of what the Companys consolidated results of operations actually would have been had it completed the Hydro acquisition at the beginning of the period. In addition, the unaudited supplemental pro forma financial information does not attempt to project the Companys future results of operations after the Hydro acquisition. Revenue $ 2,488,837 Cost of revenue 1,908,234 Gross margin 580,603 Operating expenses: Advertising and marketing expenses 281,127 Product development costs 341,642 Selling, general and administrative expenses 3,412,483 Total operating expenses 4,035,252 Operating loss (3,454,649 ) Other income (expense) Interest expense (1) (359,245 ) Amortization of debt discount on convertible promissory notes (476,044 ) Gain on change in derivative liability 1,051,889 Loss from continuing operations (3,238,049 ) Loss from discontinued operations (17,771 ) Net loss (3,255,820 ) Comprehensive loss - Comprehensive loss $ (3,255,820 ) Loss per common share - basic $ (0.03 ) (1) Interest related to the promissory note issued for the Hydro acquisition of $7,500 was eliminated in connection with the purchase of Hydro. On June 30, 2014, the Company executed a separation agreement (Separation Agreement) with Lead Focus Limited, a British Virgin Islands company and a related party (LFL), whereby the Company sold 100% of the issued and outstanding stock of Surna Media to LFL, along with Surna Medias subsidiaries Surna HK, and Surna HKs subsidiary Flying Cloud (collectively Surna Media Entities). The sales price for the Surna Media Entities was $2,643,878, comprising a payment of $1 in cash and LFLs assumption of all of the liabilities of the Surna Media Entities. The $2,643,878 represented amounts due to related parties and is recorded as a capital transaction in the statement of changes in shareholders equity. As a result of this sale, the Company eliminated from its balance sheet all assets and liabilities associated with the Surna Media Entities and recorded a credit of $2,643,878 to its additional paid in capital. The Company began accounting for the Surna Media Entities business as a discontinued operation; therefore, the operating results of our Surna Media business were included in discontinued operations in our consolidated financial statements for all periods presented. There was immaterial operating activity in the first quarter of 2014 and none in 2015. |
Inventory
Inventory | 12 Months Ended |
Dec. 31, 2015 | |
Inventory Disclosure [Abstract] | |
Inventory | NOTE 4 - INVENTORY As of December 31, 2015 and 2014, inventory consists of: 2015 2014 Finished goods $ 619,319 $ 56,297 Work in progress 43,466 - Raw materials 599,017 207,734 Total inventory $ 1,261,802 $ 264,031 Overhead expenses of $73,125 and $1,629 were included in the inventory balance as of December 31, 2015 and 2014, respectively. This includes depreciation expense of $5,869 and $130 as of December 31, 2015 and 2014, respectively. |
Property and Equipment
Property and Equipment | 12 Months Ended |
Dec. 31, 2015 | |
Property, Plant and Equipment [Abstract] | |
Property and Equipment | NOTE 5 - PROPERTY AND EQUIPMENT As of December 31, 2015 and 2014, property and equipment consists of: 2015 2014 Furniture and equipment $ 168,899 $ 106,844 Molds 31,063 31,063 Vehicles 62,286 62,286 Leasehold Improvements 35,804 32,994 298,052 233,187 Accumulated depreciation 135,522 (69,372 ) Property and equipment, net $ 162,530 $ 163,815 Depreciation expense |
Intangible Assets
Intangible Assets | 12 Months Ended |
Dec. 31, 2015 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Intangible Assets | NOTE 6 - INTANGIBLE ASSETS As of December 31, 2015 and 2014, intangible assets consist of: 2015 2014 Intellectual property $ 22,712 $ 22,712 Accumulated amortization (6,312 ) (2,212 ) 16,400 20,500 Goodwill 631,064 631,064 Intangible assets, net $ 647,464 $ 651,564 Goodwill of an acquired company is neither amortized nor deductible for tax purposes and is primarily related to expected improvements in sales growth from future product and service offerings, new customers and productivity. Intangible assets have an estimated life of 5 years. Amortization expense for the intangible assets was $4,100 and $2,212 for the years ended December 31, 2015 and 2014, respectively. Expected future amortization expense of acquired intangible assets as of December 31, 2015 is as follows: Year Ended December 31, 2016 $ 4,100 2017 4,100 2018 4,100 2019 4,100 Total $ 16,400 |
Accounts Payable and Accrued Li
Accounts Payable and Accrued Liabilities | 12 Months Ended |
Dec. 31, 2015 | |
Payables and Accruals [Abstract] | |
Accounts Payable and Accrued Liabilities | NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES As of December 31, 2015 and 2014, accounts payable and accrued liabilities consist of: 2015 2014 Accounts payable $ 1,849,544 $ 368,281 Sales commissions payable 73,711 - Sales tax payable 65,758 - Accrued payroll liabilities 34,965 - Accrued accounting fees 15,000 - Other accrued expenses 27,825 43,547 Total $ 2,066,803 $ 411,828 |
Promissory Notes
Promissory Notes | 12 Months Ended |
Dec. 31, 2015 | |
Debt Disclosure [Abstract] | |
Promissory Notes | NOTE 8 - PROMISSORY NOTES In July and September 2015, the Company issued secured promissory notes (the July 2015 Note and September 2015 Note) in the aggregate original principal amount of $464,400 with an aggregate discount of $34,400. The notes each have a term of five months, carry an interest charge of two percent (2%) per month on the outstanding balance and can be prepaid in whole or part without penalty. The notes are secured by a purchase money security agreement under which the Company granted a security interest in: (i) inventory purchased or assembled using the proceeds of the Notes and (ii) an assignment of payment from the customer purchasing the inventory. Additionally, the Company has reserved 8,000,000 shares of its common stock as additional security for these notes. All or a portion of the reserved shares would be available to the investor to satisfy a default by the Company. As of December 31, 2015, the September 2015 Note in the amount of $226,800 has not been funded. On December 18, 2015, the July 2015 Notes current balance of $100,273 and accrued interest of $3,046 was mutually extended to a new Maturity Date from December 22, 2015 to April, 30 2016. The accounting for the extended note (the Amended 2015 Note) is further described in Note 10 Convertible Promissory Notes. |
Related Party Transactions
Related Party Transactions | 12 Months Ended |
Dec. 31, 2015 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | NOTE 9 - RELATED PARTY TRANSACTIONS In connection with the purchase of Hydro (see Note 1 - Summary of Significant Accounting Policies) the Company issued a $250,000 promissory note (Hydro2 Note) to Stephen and Brandy Keen, the Chief Executive Officer and his wife, who is Vice President of Sales as part of the purchase price. The Hydro2 Note bears interest at the rate of 6% per annum and is payable in monthly installments of $5,000 with a balloon payment for the balance of accrued interest and principal due on July 18, 2016. The Company is currently in discussions with Stephen and Brandy Keen to extend the Hydro2 Note on similar terms. As of December 31, 2015, the Hydro2 Note had a current balance of $190,443 and accrued interest of $952 and as of December 31, 2014 a balance of $248,240 with $52,481 and $195,759 reflected on the balance sheet as current and long-term respectively. Additionally, the Company assumed a Note Payable to the former owners of Hydro, Stephen and Brandy Keen, (the Note). The Note, with a due date of February 1, 2016, bears interest at the rate of 10%, per annum, with interest due and payable monthly. The Note was paid off during 2015, leaving no balance as of December 31, 2015. The $26,593 balance as of December 31, 2014 was reflected as a current liability on the balance sheet. As of December 31, 2015, the Company had a balance due to related parties of $216,995, $191,395 of this balance is related to the purchase of Hydro Innovations, LLC (Hydro2 Note). The Hydro2 Note is payable to Stephen and Brandy Keen, the Chief Executive Officer and his spouse, who is Vice President of Sales. The balance of $25,600 represents deferred compensation due to Stephen and Brandy Keen. As of December 31, 2014, the Company had a balance due to related parties of $499,431, and $230,357 of this balance was from various advances from the Companys former Chief Executive Officer, which were non-interest bearing, unsecured, and accounted for as though due on demand. The balance of $269,074 was due to key employees (our current Chief Executive Officer and Vice President of Sales) and their affiliates. (See Note 3.) During the year ended December 31, 2015, $194,958 of debt due to the Companys former Chief Executive Officer, Tom Bollich, was retired for a one-time, immediate cash payment of $100. The related party extinguishment has been recognized as a credit to additional paid in capital. The debt had a balance of $230,357 as of December 31, 2014, was non - interest bearing, unsecured, and due on demand. |
Convertible Promissory Notes
Convertible Promissory Notes | 12 Months Ended |
Dec. 31, 2015 | |
Debt Disclosure [Abstract] | |
Convertible Promissory Notes | NOTE 10 - CONVERTIBLE PROMISSORY NOTES The following table summarizes the convertible promissory notes movement for the fiscal years ended December 31, 2015 and 2014: Balance January 1, 2014 $ - Convertible notes issued (Series 1) 1,336,783 Convertible notes issues (Series 2) 1,625,000 Convertible notes converted - Total 2,961,783 Less: debt discount (2,473,239 ) Balance December 31, 2014 488,544 Less: current portion - Long-term portion $ 488,544 Balance January 1, 2015 $ 488,544 Convertible notes issued (Series 2) 911,250 Convertible notes issued (Series 3) 711,000 Convertible note issued (Series 4) 103,319 Convertible notes converted (Series 1) (1,336,783 ) Total 877,330 Less: Debt discount 882,269 Less: Deferred finance charges (8,016 ) Balance December 31, 2015 1,751,583 Less: current portion (1,227,761 ) Long-term portion $ 523,822 Convertible Promissory Notes Series 1 During the period ended December 31, 2014, the Company issued Series 1 convertible promissory notes (Series 1 Notes) to investors in the aggregate principal amount of $1,336,783. The Series 1 Notes (i) were unsecured, (ii) bore interest at the rate of 10% per annum, and (iii) were due two years from the date of issuance. The Series 1 Notes were convertible at any time at the option of the investor into a number of shares of the Companys common stock that is determined by dividing the amount to be converted by the lesser of (i) $1.00 per share or (ii) eighty percent (80%) of the prior thirty-day weighted average market price for the Companys common stock. During the fiscal year ended December 31, 2015, all of the Series 1 Notes were converted into 25,169,786 shares of common stock. Due to the variable conversion price, the number of shares issuable upon conversion was variable and the fact that there was no cap on the number of shares that could have been issued in exchange for these convertible promissory notes, the Company determined that the conversion feature was considered a derivative liability. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the convertible promissory notes and to adjust the fair value as of each subsequent balance sheet date. Upon the issuance of the Series 1 Notes, the Company determined a fair value of $1,324,283 of the embedded derivative. The fair value of the embedded derivative was determined using intrinsic value up to the face amount of the Series 1 Notes. The initial fair value of the embedded debt derivative of $1,324,283 was allocated as a debt discount and a conversion feature derivative liability. The debt discount was being amortized over the two-year term of the Series 1 Notes. Upon conversion of each Series 1 Note, the unamortized portion of the debt discount was recorded as amortization of debt discount on convertible notes. The Company recognized a charge of $916,094 and $374,481 for the years ended December 31, 2015 and 2014, respectively, for amortization of this debt discount. As a result of the conversion of all of the Series 1 Notes during the year ended December 31, 2015, all of the accrued interest was converted along with the principal balance of the respective notes. Interest expense for the years ended December 31, 2015 and 2014 is $161,762 and $188,020, respectively. During the year ended December 31, 2015, the Company issued 25,169,786 shares of its common stock in connection with conversions of the Series 1 Notes for $1,336,783 principal amount and $216,141 accrued interest. The total of $1,668,267 was allocated to common stock and additional paid in capital as a result of the conversion. Convertible Promissory Notes Series 2 In October 2014, the Company engaged a placement agent to act on a best efforts basis for the Company in connection with the structuring, issuance, and private placement for the sale of debt and/or equity securities. The Company offered up to 60 investment units (each, a Unit) with each Unit sold at a price of $50,000 and consisting of (i) two hundred fifty thousand (250,000) shares of the Companys common stock, par value $0.00001; (ii) a $50,000 10% convertible promissory note, (Series 2 Note); and (iii) warrants for the purchase of 50,000 shares of the Companys common stock. The Series 2 Notes (i) are unsecured, (ii) bear interest at the rate of 10% per annum, and (iii) are due two years from the date of issuance. The Series 2 Notes are convertible after 360 days from the issuance date at the option of the investor into a number of shares of the Companys common stock that is determined by dividing the amount to be converted by the $0.60 conversion price. If not converted, the debt is payable in full twenty-four months from the issuance date. Additionally, the entire principal amount due on each Series 2 Note shall be automatically converted into common stock at the automatic conversion price (the greater of $0.50 per share or 75% of the public offering price per share) without any action of the purchaser on the earlier of: (x) the date on which the Company closes on a financing transaction involving the sale of the Companys common stock at a price of no less than $2.00 per share with gross proceeds to the Company of no less than $5,000,000; or (y) the date which is three (3) days after the common stock shall have traded at a VWAP of at least $2.00 per share for a period of ten (10) consecutive trading days. The Company raised $2,536,250 from the sale of these Units. The gross proceeds from the sale of the Series 2 Notes are recorded net of a discount related to the conversion feature of the embedded conversion option. When the fair value of conversion options is in excess of the debt discount the amount has been included as a component of interest expense in the statement of operations. The fair value of the embedded conversion option and the fair value of the warrants underlying the Series 2 Note issued at the time of their issuance was calculated pursuant to the Black-Scholes Model. The fair value was recorded as a reduction to the Series 2 Notes payable and was charged to operations as interest expense in accordance with the effective interest method within the period of the Series 2 Notes. Transaction costs are apportioned to Series 2 Notes payable, common stock, warrants and derivative liabilities. The portion of transaction costs attributed to the conversion feature, warrants and common stock are immediately expensed, because the derivative liabilities are accounted for at fair value through the statement of operations. Any non-cash issuance costs are accounted for separately and apart from the allocation of proceeds. However, if the non-cash issuance costs are paid in the form of convertible instruments, the convertible instruments issued are subject to the same accounting guidance as those sold to investors after first applying the guidance of ASC 505-50 (Stock-Based Compensation Issued to Nonemployees). There were no non-cash issuance costs. The following table sets forth the initial carrying value of the Series 2 Notes: Proceeds from sale of Units in 2014 $ 1,625,000 Less: Fair value of warrants (393,240 ) Less: Fair value assigned to common stock (803,951 ) Less: Debt discount - conversion feature (427,809 ) Initial carrying value of notes as of December 31, 2014 $ - Proceeds from sale of Units in 2015 $ 911,250 Less: Fair value of warrants (135,581 ) Less: Fair value assigned to common stock (446,988 ) Less: Debt discount - conversion feature (98,180 ) Less: Transaction fees (9,865 ) Initial carrying value of notes as of December 31, 2015 $ 220,636 The Company recognized a charge of $1,082,788 and $101,563 for the years ended December 31, 2015 and 2014, respectively, for amortization of this debt discount. Additionally, a charge of $82,105 for transaction costs was recognized for the year ended December 31, 2014. As of December 31, 2015 and 2014, the carrying value of the Series 2 Notes was $1,141,852 and $101,563, respectively, and the unamortized debt discount was $1,121,398 and $1,523,437, respectively. Accrued interest on the Series 2 Notes is $257,277 and $14,103 as of December 31, 2015 and 2014, respectively. Interest expense for the year ended December 31, 2015 and 2014 is $243,174 and $14,103, respectively. Convertible Notes Series 3 Starting in the third fiscal quarter of 2015, the Company entered into Securities Purchase Agreements (the SPAs) with three accredited investors (each a Purchaser and together the Purchasers), pursuant to which the Company sold and the Purchasers purchased convertible notes with a one year term in the aggregate original principal amount of $711,000, with an aggregate original issue discount of $61,000 (each a Note and together the Notes), and warrants to purchase up to an aggregate of 2,625,000 shares of the Companys common stock, subject to adjustment, for aggregate cash proceeds of $656,250. The conversion price is equal to 80% of the lowest trading price of our common stock as reported on the OTCQB for the fifteen prior trading days. These convertible notes and the Amended 2015 Note (see Note 8) have an embedded conversion option that qualifies for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. Pursuant to ASC 815, Derivatives and Hedging, the Company recognized the fair value of the embedded conversion feature as a derivative liability upon issuance of the Notes. The following table outlines the key terms of the Notes: Note 1 Note 2 Note 3 Note 4 Note 5 Total Term 1 year 1 year 1 year 1 year 1 year Origination Date Jul 2015 Jul 2015 Sept 2015 Sept 2015 Sept 2015 Cash Received $ 150,000 $ 100,000 $ 200,000 $ 100,000 $ 100,000 $ 650,000 Note Face Value $ 165,000 $ 106,000 $ 220,000 $ 110,000 $ 110,000 $ 711,000 Original Issue Discount $ 15,000 $ 6,000 $ 20,000 $ 10,000 $ 10,000 $ 61,000 Financing Expense $ - $ - $ 6,000 $ 3,000 $ 13,000 $ 22,000 Interest Rate 10 % 11 % 10 % 10 % 10 % Conversion % of Stock Value 80 % 80 % 80 % 80 % 80 % Share Reserve Minimum 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 50,000,000 Warrants 500,000 375,000 750,000 500,000 500,000 2,625,000 Warrant Exercise Price $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 0.25 Warrant Term 5 Years 5 Years 5 Years 5 Years 5 Years The following table sets forth the initial carrying value of the Series 3 Notes: Balance January 1, 2015 $ - Issuance of Notes 711,000 Less: Fair value of warrants (246,020 ) Less: Original issue discount (61,000 ) Less: Debt discount - conversion feature (403,980 ) Initial carrying value of Notes as of December 31, 2015 $ - The gross proceeds from the sale of the debentures are recorded net of a discount of related to the embedded conversion feature. When the fair value of conversion options is in excess of the debt discount the amount has been included as a component of interest expense in the statement of operations. During the year ended December 31, 2015, the Company recorded $373,881 of interest expense relating to the excess fair value of the conversion option over the face value of the debentures. The fair value of the embedded conversion option and the warrants associated with the promissory notes at the time of their issuance was calculated pursuant to the Black-Scholes Model. The fair value was recorded as a reduction to the promissory notes payable and was charged to operations as interest expense in accordance with effective interest method within the period of the promissory notes. Transaction costs are apportioned to the debt liability, common stock and derivative liabilities. The portion of transaction costs attributed to the conversion feature, warrants and common stock are immediately expensed, because the derivative liabilities are accounted for at fair value through the statement of operations. Any non-cash issuance costs are accounted for separately and apart from the allocation of proceeds. However, if the non-cash issuance costs are paid in the form of convertible instruments, the convertible instruments issued are subject to the same accounting guidance as those sold to investors after first applying the guidance of ASC 505-50 (Stock-Based Compensation Issued to Nonemployees). There were no non-cash issuance costs. Upon issuance of the Notes, the Company determined a fair value of $1,023,881 for the derivative liabilities. The fair value of the warrants was determined to be $246,020 and the fair value of the conversion feature was $777,861. The aggregate debt discount is being amortized over the one year term of the convertible promissory notes. The Company recognized a charge of $221,233 for the year ended December 31, 2015 for amortization of this debt discount. Accrued interest expense on the above Series 3 notes as of December 31, 2015 and 2014 is $24,654 and nil respectively. Interest expense for the year ended December 31, 2015 and 2014 is $24,654 and nil, respectively. Convertible Note Series 4 On December 18, 2015, the July 2015 Secured Note (see Note 8) balance of $103,319 ($100,273 principal and accrued interest of $3,046) was mutually extended to a new Maturity Date from December 22, 2015 to April 30, 2016 (the Amended 2015 Note). In consideration of the extension the Company amended the terms to include a conversion feature. The Amended 2015 Note is convertible into shares of our common stock at any time following the Extension and Amendment Agreement date. The conversion price is equal to 70% of the lowest trading price of our common stock as reported on the OTCQB for the twenty prior trading days. The Amended 2015 Note has an embedded conversion option that qualifies for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. Pursuant to ASC 815, Derivatives and Hedging, the Company recognized the fair value of the embedded conversion feature as a derivative liability when the Amended 2015 Note became convertible on December 18, 2015. The increase in the fair value of the embedded note conversion liability was $78,155, calculated using the Black-Scholes Option Pricing Model. In accordance with ASC 470, since the present value of the cash flows under the new debt instrument was 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 amendment as a debt extinguishment. Accordingly the Company recorded a $78,155 loss on extinguishment of debt in the consolidated statement of operations. As of December 31, 2015, future principal payments for our long-term convertible promissory notes were as follows: Year Ended December 31, 2016 $ 2,436,273 Thereafter 911,250 $ 3,347,523 |
Derivative Liabilities
Derivative Liabilities | 12 Months Ended |
Dec. 31, 2015 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Derivative Liabilities | NOTE 11 - DERIVATIVE LIABILITIES The Series 1 convertible promissory notes discussed in Note 10 have a variable conversion price, which results in a variable number of shares needed for settlement that gave rise to a derivative liability for the embedded conversion feature. Due to the variable conversion price in the Series 1 convertible notes, the warrants to purchase shares of common stock are also classified as a liability. The fair value of the conversion feature derivative liability is recorded and shown separately under noncurrent liabilities. Changes in the fair values of the derivative liabilities related to the embedded conversion feature and the warrants are recorded in the statement of operations under other income (expense). During the year ended December 31, 2015, the Company converted all of the Series 1 convertible promissory notes issued in 2014 into common stock, which gave rise to fair value liabilities for the embedded conversion features. At conversion, the balance of the derivative liability of $791,409 was credited to additional paid in capital in the consolidated balance sheet. Additionally, the Series 2 convertible promissory notes derivative liability balance of $119,348 was also credited to additional paid in capital. The Series 2 notes embedded conversion features were classified as a derivative liability solely due to sequencing such that, when the Series 1 notes were converted the Series 2 notes are no longer considered a derivative. Additionally, the Series 3 and 4 convertible promissory notes discussed in Note 10 have a variable conversion price, which results in a variable number of shares needed for settlement that gave rise to a derivative liability for the embedded conversion feature. Both the variable conversion price in the Series 3 convertible notes as well as a Half Ratchet or Down Round Protection clause in the warrant agreements require classification of the warrants as a derivative liability. The fair value of the conversion feature derivative liability and the warrant liability are recorded and shown separately under current liabilities. Changes in the fair values of the derivative liabilities related to the embedded conversion feature and the warrants are recorded in the statement of operations under other income (expense). The following table sets forth movement in the derivative liability from the initial measurement at issuance date through December 31, 2015: Balance January 1, 2014 $ - Initial measurement at issuance date of convertible promissory notes 2,203,759 Change in derivative liability (1,051,889 ) Balance December 31, 2014 1,151,870 Initial measurement at issuance date of convertible promissory notes 1,335,797 Change in derivative liability (1,875,508 ) Balance December 31, 2015 $ (612,159 ) |
Vehicle Loan
Vehicle Loan | 12 Months Ended |
Dec. 31, 2015 | |
Vehicle Loan | |
Vehicle Loan | NOTE 12 - VEHICLE LOAN During the year ended December 31, 2014, the Company financed a vehicle. The original balance of the loan was $47,286. The loan bears interest at the rate of 3.99% and is payable in installments of $872 per month for 60 months. The balance of the loan as of December 31, 2015 and 2014 was $34,115 and $ 43,049, respectively. As of December 31, 2015, future principal payments on the vehicle loan are: Year Ended December 31, 2016 $ 10,084 2017 9,664 2018 10,057 2019 4,310 Thereafter - Total $ 34,115 |
Income Taxes
Income Taxes | 12 Months Ended |
Dec. 31, 2015 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | NOTE 13 - INCOME TAXES In 2015 and 2014, we recorded net tax provisions of nil. The components of the provision for income taxes, net for the fiscal years ended December 31, 2015 and 2014 are: 2015 2014 Current taxes: U.S. Federal $ - $ - U.S. State - - International - - Current taxes - - Deferred taxes: U.S. Federal - - U.S. State - - International - - Deferred taxes - - Provision for income taxes, net $ - $ - Differences between income taxes computed at the federal statutory rate and the provision recorded for income taxes are comprised of the follow items: 2015 2014 Income taxes computed at the federal statutory rate $ (1,800,647 ) $ (1,017,269 ) Effect of: State taxes, net of federal benefits (161,836 ) (91,429 ) Loss of net operating losses from discontinued operations - 720,631 Loss of net operating losses due to 382 limitations 596,311 - Nondeductible expenses 500,488 (191,395 ) Other, net 113,848 - Change in valuation allowance 751,836 579,464 Total $ - $ - As of December 31, 2015, the Company has approximately $5,579,000 in net operating losses carried forward for federal and state income tax purposes, which will expire, if not utilized, in 2035. As a result of the Safari acquisition (see Note 1), there was a change of control (greater than 50% ownership change) and a change in lines of business, thus utilization of prior year net operations losses will be limited. Deferred income tax assets as of December 31, 2015 and 2014 are as follows: 2015 2014 Deferred tax assets: Net operating losses $ 2,155,247 $ 1,216,297 Consultant Expenses 7,229 127,475 Federal utilization of state benefits (81,447 ) (55,230 ) Fixed asset basis difference (41,024 ) - Other items 11,926 11,552 Total gross deferred tax assets 2,051,931 1,300,095 Less valuation allowance (2,051,931 ) (1,300,095 ) Deferred tax assets, net of valuation allowance $ - $ - We are under examination, or may be subject to examination, by the Internal Revenue Service (IRS) for the calendar year 2009 and thereafter. These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes or our net operating losses with respect to years under examination as well as subsequent periods. We have not filed our past years federal corporate income tax returns and may be subject to penalties for non-compliance; however, we believe that we had no taxable income in US or in any foreign jurisdiction. We are in process of completing our US federal and state tax returns. The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued. |
Commitments and Contingencies
Commitments and Contingencies | 12 Months Ended |
Dec. 31, 2015 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | NOTE 14 - COMMITMENTS AND CONTINGENCIES Operating Leases In connection with its acquisition of Hydro in July 2014 (see Note 3 Acquisitions and Divestitures), the Company assumed a lease agreement for its manufacturing and office space consisting of approximately 18,000 square feet. The lease term extends through September 30, 2016 and calls for payment as follows: Year Ended December 31, 2016 $ 146,646 Total $ 146,646 Rent expense for office space amounted to $237,617 and $105,128 for the years ended December 31, 2015 and 2014, respectively. Employment agreements In connection with the closing of the Hydro acquisition as discussed in Note 3, the Company entered into employment agreements with Brandy Keen as its Vice President of Sales and Stephen Keen as its Vice President of Product Development to pay each an annual base salary of $96,000. The Company agreed to employ Mr. and Ms. Keen for a period of three years beginning on July 25, 2014. Notwithstanding the 3-year term, each of the Keens employment agreements are at-will and may be terminated at any time, with or without cause. The committed amount payable over the remaining term of the Keens agreements totals $304,000. The terms of these agreements and the acquisition are discussed in Note 3. Other Commitments In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of the Companys breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with its directors and certain of its officers and employees that will require the Company to, among other things, indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers, or employees. The Company has also agreed to indemnify certain former officers, directors, and employees of acquired companies in connection with the acquisition of such companies. The Company maintains director and officer insurance, which may cover certain liabilities arising from its obligation to indemnify its directors and certain of its officers and employees, and former officers, directors, and employees of acquired companies, in certain circumstances. It is not possible to determine the maximum potential amount of exposure under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements may not be subject to maximum loss clauses. Litigation From time to time, the Company may become subject to legal proceedings, claims, and litigation arising in the ordinary course of business. In addition, the Company may receive letters alleging infringement of patent or other intellectual property rights. The Company is not currently a party to any material legal proceedings, nor is the Company aware of any pending or threatened litigation that would have a material adverse effect on the Companys business, operating results, cash flows, or financial condition should such litigation be resolved unfavorably. |
Patents and Trademarks
Patents and Trademarks | 12 Months Ended |
Dec. 31, 2015 | |
Patents And Trademarks | |
Patents and Trademarks | NOTE 15 - PATENTS AND TRADEMARKS Surna relies on a combination of patent and trademark rights, trade secrets, laws that protect intellectual property, confidentiality procedures, and contractual restrictions with its employees and others to establish and protect its intellectual property rights. As of March 31, 2016, the Company has eight pending patent applications and four issued patents. The pending patent applications are a combination of PCT, provisional, utility and design patent applications that are directed to certain core Company technology. The Companys four issued patents are U.S. design patents related to the Companys Reflector. The U.S. design patents provide protection for 14 years from the date of issue. Utility patents provide protection for 20 years from the earliest non-provisional application filing date. The Company also is actively pursuing trademark registration around its core brand (Surna) in the United States and select foreign jurisdictions, as well as the Surna logo and the combined Surna logo and name in the United States. These are contained in three applications with the United States Patent and Trademark Office (USPTO). Subject to ongoing use and renewal, trademark protection is potentially perpetual. |
Preferred and Common Stock
Preferred and Common Stock | 12 Months Ended |
Dec. 31, 2015 | |
Equity [Abstract] | |
Preferred and Common Stock | NOTE 16 - PREFERRED AND COMMON STOCK Preferred Stock As of December 31, 2015 and 2014, there were 77,220,000 shares of Series A Preferred Stock issued and outstanding, respectively. The Series A Preferred Stock has no conversion rights, liquidation priorities, or other preferences; it only has voting rights equal to the common stock. During 2014, at the closing of the merger with Safari Resources Group (see Note 3 Acquisitions and Divestitures), Safaris shareholders received seventy-seven million two hundred twenty thousand (77,220,000) newly issued shares of our Series A Preferred Stock. Common Stock As of December 31, 2015 and 2014, there were 125,839,862 and 113,511,250 shares of common stock issued and outstanding, respectively. During the year ended December 31, 2015, the Company issued shares of its common stock as follows: A total of 1,000,000 shares of our common stock were issued on January 7, 2015 in connection with a consulting agreement. These shares, valued at $330,000, were authorized in 2014 and deemed issued as of December 31, 2014, however were not issued by the stock transfer agent until January 7, 2015. The consulting agreement called for the consultant to provide business advisory and related consulting services, including but not limited to: study and review of the business, operations, and financial performance and development initiatives, and formulating the optimal strategy to meet working capital needs. During the period from January 1, 2015 through December 31, 2015, the Company issued 4,556,250 shares of its common stock in connection with the issuance of convertible promissory notes. (See Note 10 Convertible Promissory Notes.) $427,448 of the proceeds, which is net of transaction costs of $19,042, was allocated to common stock and additional paid in capital. Also during the period from January 1, 2015 through December 31, 2015, the Company issued 25,169,786 shares of its common stock as a result of conversions of Series 1 convertible promissory notes. (See Note 10 Convertible Promissory Notes.) $1,668,267 of the proceeds was allocated to common stock and additional paid in capital. On August 10, 2015, Mr. Bollich transferred 21,408,023 shares of the Companys common stock to the Company. This transfer was not the result of any agreements between the Company and Mr. Bollich. On August 11, 2015, the Company authorized cancellation of the shares. During the year ended December 31, 2015, the Company issued 539,028 shares of its common stock to employees as compensation and 866,571 shares of its common stock for nonemployee services provided to the Company. In December 2015, stock option holders gave the Company notice of their intent to exercise a sum of 2,625,000 options to purchase the Companys common shares. The issuance was accounted for as though completed in 2015, however the issuance of those shares was not actually completed until subsequent to December 31, 2015. Between January 1, 2016 and March 31, 2016, a total balance of $445,926 of the Companys issued and outstanding Series 3 convertible promissory notes and the entire balance of the Companys issued and outstanding Series 4 promissory note (amended to be convertible at the holders option) were converted by the holders thereof into 9,947,281 shares of the Companys common stock. |
Warrants and Options
Warrants and Options | 12 Months Ended |
Dec. 31, 2015 | |
Warrants And Options | |
Warrants and Options | NOTE 17 - WARRANTS AND OPTIONS Warrants for common stock Warrant activity during the years ended December 31, 2015 and 2014 is as follows: Number of Warrants Weighted-Average Aggregate Intrinsic Value Outstanding and exercisable January 1, 2014 - $ - Granted (with Series 2 convertible notes) 1,625,000 3.00 Exercised - - Expired - - Outstanding and exercisable December 31, 2014 1,625,000 $ 3.00 $ 515,125 Granted (with Series 2 convertible notes) 911,250 3.00 Granted (with Series 3 convertible notes) 2,625,000 0.25 Exercised - - Expired - - Outstanding and exercisable December 31, 2015 5,161,250 $ 1.60 $ 350,788 As of December 31, 2015, there were outstanding warrants to purchase an aggregate of 5,161,250 shares of common stock. The warrants expire between October 2018 and September 2020. Those issued in connection with the Series 2 convertible promissory notes expire within four years from the date of issue. Those issued in connection with the Series 3 convertible promissory notes expire five years from the issuance date. Stock Option Plan At the closing of the merger with Safari Resource Group (see Note 3 Acquisitions and Divestitures), Safari had stock options that had previously been granted to its founders totaling 10,000 shares, and were fully vested. At the date of grant, Safari had no operations and nominal assets. As a result, the options were deemed to have no value and no charge was made to the income statement. The options were converted at the same rate as the common shares resulting in 10,296,000 options, with an exercise price of $0.00024. Stock option holders exercised 2,625,000 stock options in 2015. No new options were granted during the year ended December 31, 2015. There were no stock options exercised in 2014 and no new options granted during the year ended December 31, 2014. The following table summarizes our stock option activity: Number of Options Weighted Average Grant-Date Fair Value Outstanding as of January 1, 2014 - $ - Options granted 10,296,000 0.00024 Options exercised - - Options forfeited - - Outstanding as of December 31, 2014 10,296,000 $ 0.00024 Options granted - - Options exercised (2,625,000 ) 0.00024 Options forfeited - - Outstanding as of December 31, 2015 7,671,000 $ 0.00024 The Companys stock option activity and related information for 2015 and 2014 is summarized as follows: Year Ended December 31, 2015 Year Ended December 31, 2014 Weighted Weighted Average Average Weighted Remaining Weighted Remaining Number Average Contractual Aggregate Number Average Contractual Aggregate of Exercise Term Intrinsic of Exercise Term Intrinsic Options outstanding, beginning of year 10,296,000 $ 0.00024 2.2 $ 3,263,832 - $ - - $ - Options granted - - - - - - - - Options exercised (2,625,000 ) 0.00024 - 183,750 - - - - Options canceled - - - - - - - - Options outstanding, end of year 7,671,000 $ 0.00024 1.2 $ 536,970 10,296,000 (1) $ 0.00024 2.2 $ 3,263,832 Vested and exercisable and expected to vest, end of year 7,671,000 $ 0.00024 1.2 $ 536,970 10,296,000 $ 0.00024 2.2 $ 3,263,832 (1) The stock options outstanding were issued under the 2014 Stock Ownership Plan of Safari. Upon the acquisition of Safari on March 26, 2014, the existing stock options in Safari were converted into stock options in Surna. All options were fully vested at the date of the acquisition. Accordingly, there was no unrecognized compensation. The options expire in March 2017. Stock options outstanding and exercisable as of December 31, 2015 are as follows: Options Outstanding Options Exercisable Weighted Average Weighted Weighted Remaining Average Average Contractual Weighted Exercise Number Exercise Term Number Exercise Price Outstanding Price (in years) Exercisable Price $ 0.00024 7,671,000 $ 0.00024 1.2 7,671,000 $ 0.00024 |
Subsequent Events
Subsequent Events | 12 Months Ended |
Dec. 31, 2015 | |
Subsequent Events [Abstract] | |
Subsequent Events | NOTE 18 - SUBSEQUENT EVENTS Between January 1, 2016 and March 31, 2016, a portion of the Companys Series 3 Notes and the entire balance of the Series 4 Note for a total of $445,926 were converted by the holders thereof into 9,947,281 shares of the Companys common stock. |
Summary of Significant Accoun25
Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2015 | |
Accounting Policies [Abstract] | |
Company | Company: Surna Inc. incorporated in Nevada on October 15, 2009. On March 26, 2014, we acquired Safari Resource Group, Inc. (Safari), a Nevada Corporation, whereby we became the sole surviving corporation after the acquisition of Safari. In July 2014, we acquired 100% of the membership interest in Hydro Innovations, LLC, a Colorado limited liability company, (Hydro), pursuant to which Hydro became a wholly-owned subsidiary of the Company. We engineer and manufacture innovative technology and products that address the energy and resource intensive nature of indoor cultivation. Our focus lies in supplying industrial solutions to commercial indoor cannabis cultivation facilities. The engineering team is tasked with creating novel energy and resource efficient solutions, including our signature liquid-cooled climate control platform. Our engineers continuously seek to create technologies that allow growers to easily meet the highly specific demands of a cannabis cultivation environment through temperature, humidity, light, and process control. Our objective is to provide intelligent solutions that improve the quality, control and overall yield and efficiency of indoor cannabis cultivation. We are headquartered in Boulder, Colorado. The Companys operations exclude the production or sale of marijuana. |
History | History: On September 1, 2011, Surna Inc. acquired Surna Media, Inc. (Surna Media) for 20,000,000 shares of its common stock. The merger with Surna Media was accounted for as among entities under common control. Surna Medias predecessor entity, Surna Hong Kong Limited (Surna HK), was formed on June 14, 2010. Surna Media was formed October 29, 2010 by the same owners and Surna HK became a wholly-owned subsidiary. Flying Cloud Information Technology Co. Ltd. was incorporated in China in April 2011 as a wholly owned subsidiary of Surna HK (Flying Cloud). All of the Surna HK, Surna Media, and Flying Cloud transactions are consolidated with those of the Company beginning at the formation of Surna HK on June 14, 2010. Surna Networks, Inc. (Surna Networks I) and Surna Networks Ltd. (Surna Networks II) are wholly owned subsidiaries of the Company, formed on July 19, 2011 and August 2, 2011, respectively. On March 27, 2012, the Company sold Surna Networks I and Surna Networks II to Chan Kam Ming for a total sales price of US$1 and assumption of liability related to those companies. The Company assumed the liabilities of Surna Networks I and Surna Networks II, which totaled US$9,286. All significant intercompany transactions are eliminated. We sold Surna Media and its subsidiaries in 2014. |
Financial Statement Presentation | Financial Statement Presentation: The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect reported amounts and related disclosures. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. 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. The Company has not generated sufficient revenue and has funded its operating losses through the sale of common stock and the issuance of debt. The Company has a limited operating history and its prospects are subject to risks, expenses and uncertainties frequently encountered by companies in the industry. (See Note 2.) |
Basis of Consolidation and Reclassifications | Basis of Consolidation and Reclassifications: The consolidated financial statements include the accounts of the Company and its controlled and wholly-owned subsidiaries. Intercompany transactions, profit, and balances are eliminated in consolidation. Certain reclassifications have been made to amounts in prior periods to conform to the current period presentation. All reclassifications have been applied consistently to the periods presented. The reclassifications had no impact on net loss or total assets and liabilities. |
Use of Estimates | Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and that affect the reported amounts of revenue and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. In addition, any change in these estimates or their related assumptions could have an adverse effect on our operating results. Key estimates include: valuation of derivative liabilities, valuation of intangible assets, and valuation of deferred tax assets and liabilities. |
Cash and Cash Equivalents | Cash and Cash Equivalents: All highly liquid investments with original maturities of three months or less at the date of purchase are considered to be cash equivalents. The Company may, from time to time, have deposits in one financial institution that exceeds the federally insured amount. |
Accounts Receivable and Allowance for Doubtful Accounts | Accounts Receivable and Allowance for Doubtful Accounts: Accounts receivable are recorded at invoiced amount and generally do not bear interest. An allowance for doubtful accounts is established, as necessary, based on past experience and other factors, which, in managements judgment, deserve current recognition in estimating bad debts. Such factors include growth and composition of accounts receivable, the relationship of the allowance for doubtful accounts to accounts receivable and current economic conditions. The determination of the collectability of amounts due from customer accounts requires the Company to make judgments regarding future events and trends. Allowances for doubtful accounts are determined based on assessing the Companys portfolio on an individual customer and on an overall basis. This process consists of a review of historical collection experience, current aging status of the customer accounts, and the financial condition of the Companys customers. Based on a review of these factors, the Company establishes or adjusts the allowance for specific customers and the accounts receivable portfolio as a whole. As of December 31, 2015 and 2014 the allowance for doubtful accounts was $40,873 and $10,000, respectively. |
Inventory | Inventory: Inventory is stated at the lower of cost or market. The majority of inventory is valued based on a first-in, first-out (FIFO) basis. Lower of cost or market is evaluated by considering obsolescence, excessive levels of inventory, deterioration and other factors. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated excess, obsolescence or impaired inventory. Excess and obsolete inventory is charged to cost of revenue and a new lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. |
Property and Equipment | Property and Equipment: Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For financial statement purposes, property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives, which is generally five years. Leasehold improvements are amortized on a straight-line basis over the lesser of their useful lives or the life of the lease. Upon sale or retirement of assets, the cost and related accumulated depreciation and amortization are removed from the balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repairs are charged to operations as incurred. |
Impairment of Long-Lived Assets | Impairment of Long-Lived Assets: Long-lived tangible assets are reviewed for impairment whenever events or changes in business circumstances indicate the carrying value of the assets may not be recoverable. When such an event occurs, management determines whether there has been impairment by comparing the anticipated undiscounted future net cash flows to the related assets carrying value. If an asset is considered impaired, the asset is written down to fair value, which is determined based either on discounted cash flows or appraised value, depending on the nature of the asset. The Company has not identified any such impairment losses to date. |
Goodwill and Other Intangible Assets | Goodwill and Other Intangible Assets: Goodwill is reviewed for impairment annually or more frequently when events or changes in circumstances indicate that fair value of the reporting unit has been reduced to less than its carrying value. We perform our impairment test annually during the fourth quarter. First, the Company assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. If, after assessing qualitative factors, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. If deemed necessary, a two-step test is used to identify the potential impairment and to measure the amount of goodwill impairment, if any. The first step is to compare the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is considered not impaired; otherwise, there is an indication that goodwill may be impaired and the amount of the loss, if any, is measured by performing step two. Under step two, the impairment loss, if any, is measured by comparing the implied fair value of the reporting unit goodwill with the carrying amount of goodwill. We completed this assessment as of December 31, 2015, and concluded that no impairment existed. Separable intangible assets that have finite useful lives continue to be amortized over their respective useful lives. All of the Companys identifiable intangible assets are subject to amortization on a straight-line basis over their estimated useful lives. Identifiable intangibles consist of intellectual property such as patents and trademarks, and capitalized software. Identifiable intangibles are also subject to evaluation for potential impairment if events or circumstances indicate the carrying value may not be recoverable. |
Fair Value Measurements | Fair Value Measurement: The accounting standards regarding fair value of financial instruments and related fair value measurements define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements for fair value measures. ASC Topic 820 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1 - inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 - inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 - inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. On a Recurring Basis: A financial asset or liabilitys classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement. The Companys assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. The Company has determined that the convertible debt instruments outstanding as of the date of these financial statements include an exercise price reset adjustment that qualifies as derivative financial instruments under the provisions of ASC 815-40, Derivatives and Hedging - Contracts in an Entitys Own Stock (ASC 815-40). See Note 11 for discussion of the impact the derivative financial instruments had on the Companys consolidated financial statements and results of operations. Financial assets and liabilities carried at fair value, measured on a recurring basis as of December 31, 2015 and 2014 are: December 31, 2015 Description Level 1 Level 2 Level 3 Gains (Losses) (1) Derivative liability on conversion feature $ - $ - $ 472,967 $ 383,049 Derivative liability on warrants - - 139,192 106,829 Total $ - $ - $ 612,159 $ 489,878 (1) The gain on change in derivative liabilities of $964,751 presented in the statement of operations for the fiscal year ended December 31, 2015 also includes gains on derivatives associated with convertible promissory note balances outstanding at various dates during fiscal year 2015, which were converted to common stock prior to December 31, 2015. December 31, 2014 Description Level 1 Level 2 Level 3 Gains (Losses) Derivative liability on conversion feature $ - $ - $ 847,438 $ 1,051,889 Derivative liability on warrants - - 304,432 - Total $ - $ - $ 1,151,870 $ 1,051,889 Our Level 3 fair value liabilities represent contingent consideration recorded related to the embedded conversion features in the convertible notes issued in 2014 and 2015. The change in the balance of the conversion feature derivative liabilities and warrant liabilities during the fiscal years ended December 31, 2015 and 2014 was calculated using the Black-Scholes Model, which is classified as gain on change in derivative liabilities in the consolidated statement of operations. The Black-Scholes Model does take into consideration the Companys stock price, historical volatility, and risk-free interest rate, which do have observable Level 1 or Level 2 inputs. During the fiscal year ended December 31, 2015, the Company converted all of the Series 1 convertible promissory notes (see Note 10) issued in 2014 into common stock, which gave rise to the fair value liabilities for the embedded conversion features. At conversion, the balance of the derivative liability of, $791,409 has been credited to additional paid in capital in the consolidated balance sheet. Additionally, the Series 2 convertible promissory notes derivative liability balance of $119,348 was also credited to additional paid in capital. The Series 2 notes embedded conversion features were classified as derivative liabilities solely due to sequencing such that, when the Series 1 notes were converted the Series 2 notes are no longer derivatives. On a Non-Recurring Basis: In accordance with the provisions of ASC Topic 350, Intangibles Goodwill and Other (ASC Topic 350), the Company estimates the fair value of reporting units, utilizing unobservable Level 3 inputs. Level 3 inputs require significant management judgment due to the absence of quoted market prices or observable inputs for assets of a similar nature. The Company utilizes a discounted cash flow analysis to estimate the fair value of reporting units utilizing unobservable inputs. The fair value measurements for goodwill under the step-one and step-two analysis of the quantitative goodwill impairment test are classified as Level 3 inputs. Intangible assets that are amortized are evaluated for recoverability whenever adverse effects or changes in circumstances indicate that the carrying value may not be recoverable. The recoverability test consists of comparing the undiscounted projected cash flows with the carrying amount. Should the carrying amount exceed undiscounted projected cash flows, an impairment loss would be recognized to the extent the carrying amount exceeds fair value. For the Companys indefinite-lived intangible asset, the impairment test consists of comparing the fair value, determined using the market value method, with its carrying amount. An impairment loss would be recognized for the carrying amount in excess of its fair value. As of December 31, 2015, the Company concluded that no indicators of impairment relating to intangible assets or goodwill existed and an interim test was not performed. Due to their short-term nature, the carrying values of cash and equivalents, accounts receivable, accounts payable, and accrued expenses, approximate fair value. Based on borrowing rates currently available to the Company for loans with similar terms, the carrying value of the notes payable approximates fair value. There were no changes in valuation technique from prior periods. |
Derivative Financial Instruments | Derivative Financial Instruments: We evaluate our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses the Black-Scholes Option Pricing Model to value the derivative instruments. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. We have determined that certain convertible debt instruments outstanding as of the date of these financial statements include an exercise price reset adjustment that qualifies as derivative financial instruments under the provisions of ASC 815-40, Derivatives and Hedging - Contracts in an Entitys Own Stock (ASC 815-40). Certain of the convertible debentures have a variable exercise price, thus are convertible into an indeterminate number of shares for which we cannot determine if we have sufficient authorized shares to settle the transaction with. Accordingly, the embedded conversion option is a derivative liability and is marked to market through earnings at the end of each reporting period. We evaluate the application of ASC 815-40-25 to the warrants to purchase common stock issued with the convertible notes, and determined that the warrants were required to be accounted for as derivatives due to the provisions in certain convertible notes that result in our being unable to determine if we have sufficient authorized shares to settle the instrument. See Note 11 for discussion of the impact the derivative financial instruments had on the Companys consolidated financial statements and results of operations. Accordingly, the embedded conversion option and the warrants are derivative liabilities and are marked to market through earnings at the end of each reporting period. Any change in fair value during the period recorded in earnings as Other income (expense) - gain (loss) on change in derivative liabilities. |
Revenue Recognition | Revenue Recognition: We recognize revenue from the sale of our products, which we primarily manufacture. Revenue is recognized when products are shipped or delivered and title passes to the customer, provided that persuasive evidence of an arrangement exists, the price is fixed or determinable, and collection of the resulting receivable is reasonably assured. Sales of our products are not subject to regulatory requirements that vary from state to state. We generally do not provide our customers with a contractual right of return. In certain limited circumstances, revenue could be recognized using the percentage-of-completion method as performance occurs. Management believes that all relevant criteria and conditions are considered when recognizing revenue. Sales arrangements sometimes involve delivering multiple elements, including services such as installation. In these instances, the revenue assigned to each element is based on vendor-specific objective evidence, third-party evidence or a management estimate of the relative selling price. Revenue is recognized individually for delivered elements only if they have value to the customer on a stand-alone basis and the performance of the undelivered items is probable and substantially in our control, or the undelivered elements are inconsequential or perfunctory and there are no unsatisfied contingencies related to payment. We had no revenue arise from qualifying sales arrangements that include the delivery of multiple elements in fiscal year 2015 or 2014. The vast majority of these deliverables are tangible products, with a small portion attributable to installation. We do not provide any separate maintenance. Generally, contract duration is short term and cancellation, termination or refund provisions apply only in the event of contract breach, and have historically not been invoked. The Company provides climate control equipment and installation services designed for the controlled environment agriculture industry through construction-type contracts with contract terms typically less than one year. Advance payments received from customers are included in deferred revenue, a component of current liabilities, until such time that all criteria are met, as noted above, and revenue is recognized. Shipping and handling costs are reported within cost of sales in the consolidated statements of operations. The Company accounts for sales taxes and other related taxes on a net basis, excluding such taxes from revenue. |
Product Warranty | Product Warranty: Warranties vary by product line and are competitive for the markets in which the Company operates. Products are generally subject to a one to two year warranty, which provides for the repair, rework, or replacement of products (at the Companys option) that fail to perform within stated specification. We assessed the historical claims and, to date, product warranty claims have not been significant. We will continue to assess the need to record a warranty accrual at the time of sale going forward. Accordingly no separate provision was deemed necessary as of December 31, 2015 or 2014, respectively. |
Concentrations | Concentrations: One customer accounted for 10% of the Companys revenue or the year ended December 31, 2015. One customer accounted for 11% of the Companys revenue for the year ended December 31, 2014. The Companys accounts receivable from four customers make up 89% of the total balance as of December 31, 2015. The Companys accounts receivable from two customers make up 58% of the total balance as of December 31, 2014. The Company purchased 75% of it cost of revenue from four vendors during the year ended December 31, 2015. The Company purchased 75% of it cost of revenue from four vendors during the year ended December 31, 2014. Each vendor comprised greater than 10% of the purchases. |
Product Development | Product Development: The Company accounts for product development cost in accordance with Accounting Standards Codification subtopic 730-10, Research and Development (ASC 730-10). ASC 730-10 requires such costs be charged to expenses as incurred. Accordingly, internal product development costs are expensed as incurred. Third-party product developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. For the years ended December 31, 2015 and 2014, we incurred $707,517 and $319,430, respectively, on product development, which is included in the consolidated statements of operations. |
Accounting for Stock-Based Compensation | Accounting for Stock-Based Compensation: Share-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as expense over the employees service period. The Company recognizes compensation expense on a straight-line basis over the requisite service period of the award. We determined that the Black-Scholes Option Pricing Model is the most appropriate method for determining the estimated fair value for stock options or warrants. The Black-Scholes Model requires the use of highly subjective and complex assumptions that determine the fair value of share-based awards, including the equity instruments expected term and the price volatility of the underlying stock. Equity instruments issued to nonemployees are recorded at their fair value on the measurement date and are subject to periodic adjustment as the underlying equity instruments vest. Share-based payments to employees for compensation and nonemployees for services provided to the Company totaled $127,493 and $1,359,400 for the years ended December 31, 2015 and 2014, respectively. |
Income Taxes | Income Taxes: The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax basis of the Companys assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. A valuation allowance is recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. We must assess the likelihood that the Companys deferred tax assets will be recovered from future taxable income, and to the extent the Company believes that recovery is not likely, we establish a valuation allowance. Management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against the net deferred tax assets. We recorded a full valuation allowance as of December 31, 2015 and 2014. Based on the available evidence, the Company believes it is more likely than not that it will not be able to utilize its deferred tax assets in the future. We intend to maintain valuation allowances until sufficient evidence exists to support the reversal of such valuation allowances. We make estimates and judgments about its future taxable income that are based on assumptions that are consistent with our plans. Should the actual amounts differ from our estimates, the carrying value of our deferred tax assets could be materially impacted. We recognize in the financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The Companys policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of operating expense. We do not believe there are any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within twelve months of the reporting date. There were no penalties or interest liabilities accrued as of fiscal year end December 31, 2015 or 2014, nor were any penalties or interest costs included in expense for the years ended December 31, 2015 and 2014. The years under which we conducted our evaluation coincided with the tax years currently still subject to examination by major federal and state tax jurisdictions, those being 2009 through 2015 for federal purposes and 2013 through 2015 for state purposes. |
Comprehensive Income (Loss) | Comprehensive Income (Loss): Comprehensive income (loss) represents the change in shareholders equity (deficit) of an enterprise, other than those resulting from shareholder transactions. Accordingly, comprehensive income (loss) may include certain changes in shareholders equity (deficit) that are excluded from net income (loss). For the years ended December 31, 2015 and 2014, the Companys comprehensive loss is the same as its net loss. |
Basic and Diluted Net Loss per Common Share | Basic and Diluted Net Loss per Common Share: Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. Potential participating securities deemed to be anti-dilutive as of December 31, 2015 and 2014 are: 2015 2014 Convertible promissory notes 19,032,063 10,852,708 Stock options 7,671,000 10,296,000 Warrants 5,161,250 2,536,625 Diluted shares outstanding 31,864,313 23,685,333 |
Commitments and Contingencies | Commitments and Contingencies: In the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations, environment liability and tax matters. An accrual for a loss contingency is recognized when it is probable that an asset had been impaired or a liability had been incurred and the amount of loss can be reasonably estimated. |
Other Risks and Uncertainties | Other Risks and Uncertainties: To achieve profitable operations, the Company must successfully develop, manufacture, and market its products. There can be no assurance that any such products can be developed or manufactured at an acceptable cost and with appropriate performance characteristics, or that such products will be successfully marketed. These factors could have a material adverse effect upon the Companys financial results, financial position, and future cash flows. The Company is subject to risks common to companies who supply the cannabis industry including, but not limited to, new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, uncertainty of market acceptance of products, product liability, and the need to obtain additional financing. The Companys ultimate success is dependent upon its ability to raise additional capital and to successfully develop and market its products. |
Segment Information | Segment Information: Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Companys chief operating decision maker is its senior management team. The Company has one operating segment that is dedicated to the manufacture and sale of its products. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements: In March 2016, accounting guidance was issued to improve the accounting for employee stock-based payments. The guidance simplifies accounting for stock-based award transactions specific to income tax consequences, the classification of awards as equity or liabilities, and the classification of award payments on the statement of cash flows. The guidance is effective for interim and annual periods beginning on or after December 15, 2016. The Company is currently assessing the impact that the adoption of this new guidance will have on its consolidated financial statements. In March 2016, accounting guidance was issued pertaining to accounting for derivatives and hedging activity. The guidance amends existing U.S. GAAP by clarifying that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument does not, in and of itself, require dedesignation of that hedging relationship, provided that all other hedge accounting criteria continue to be met. The amendment improves prior guidance by eliminating diversity in practice. The guidance is effective for interim and annual periods beginning on or after December 15, 2016. The guidance may be applied prospectively or using a modified retrospective approach to adjust retained earnings. The Company is currently evaluating the impact of this guidance on its consolidated financial statements. In March 2016, additional accounting guidance was issued pertaining to accounting for derivatives and hedging activity. The guidance clarifies the steps required when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. The amendment improves prior guidance by eliminating diversity in practice in assessing embedded contingent call (put) options in debt instruments. The guidance is effective for interim and annual periods beginning on or after December 15, 2016. The Company is currently assessing the impact that the adoption of this new guidance will have on its consolidated financial statements. In January 2016, accounting guidance was issued on the classification and measurement of financial assets and liabilities (equity securities and financial liabilities) under the fair value option, and the presentation and disclosure requirements for financial instruments. The guidance modifies how an entity measures entities measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, an entity will have to measure equity investments that do not result in consolidation and are not accounted under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicality exception. An exception will apply to those equity investments that do not have a readily determinable fair value and do not qualify for the practical expedient to estimate fair value under the guidance and, as such, these investments may be measured at cost. The guidance will be effective on January 1, 2018. The Company is currently assessing the impact that the adoption of this new guidance will have on its consolidated financial statements. In November 2015, accounting guidance was issued on the classification of deferred taxes in the balance sheet. The guidance amends existing guidance to require that deferred income tax liabilities and assets be classified as noncurrent in a classified balance sheet, and eliminates the prior guidance, which required an entity to separate deferred tax liabilities and assets into a current amount and a noncurrent amount in a classified balance sheet. The guidance will be effective for the Companys fiscal year beginning January 1, 2017, though early adoption is permitted. The Company early-adopted this guidance, applying the guidance retrospectively to all periods for which the tax provision is presented. As the Company has a full valuation allowance against the deferred assets, there is no impact to the consolidated financial statements. The Company has reflected the change of this pronouncement in Note 13 to the consolidated financial statements. In July 2015, accounting guidance was issued regarding simplifying the measurement of inventory. The guidance requires that inventory accounted for on a FIFO basis be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This guidance will be effective for the Companys fiscal year beginning January 1, 2017 and subsequent interim periods, with earlier adoption permitted. The Company is currently evaluating the effect of the adoption of this guidance on its consolidated financial statements. In April 2015, accounting guidance was issued addressing simplification of the presentation of debt issuance costs. The guidance requires 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. The guidance is effective for the Companys fiscal year beginning January 1, 2016 and subsequent interim periods, with earlier adoption permitted. We will adopt this guidance in the first quarter of 2016. The Company does not expect the adoption of this guidance to have a material effect on its consolidated financial statements. In August 2014, accounting guidance was issued regarding disclosures of uncertainties about an entitys ability to continue as a going concern. The guidance applies prospectively to all entities, requiring management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entitys ability to continue as a going concern and disclose certain information when substantial doubt is raised. The guidance is effective for interim and annual periods beginning on or after December 15, 2016. The Company is currently evaluating the impact of this guidance on its consolidated financial statements and disclosures. In June 2014, accounting guidance was issued pertaining to recognition of stock-based compensation with a performance condition. The guidance provides for the recognition of compensation cost in the period in which it becomes probable that the performance target will be achieved. The guidance is effective for interim and annual periods beginning on or after December 15, 2016. As the Company has no outstanding stock-based awards with a performance condition, the Company does not expect this guidance to impact its consolidated financial statements. In May 2014, accounting guidance was issued concerning the accounting for revenue from contracts with customers. In March 2016, further clarification of this guidance was issued. The new guidance sets forth a new five-step revenue recognition model, which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. The guidance provides alternative methods of initial adoption and is effective for interim and annual periods beginning on or after December 15, 2017. The guidance may be applied retrospectively or using a modified retrospective approach to adjust retained earnings. The Company is currently evaluating the impact of this guidance on its consolidated financial statements. There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Companys consolidated financial position, results of operations or cash flows. |
Summary of Significant Accoun26
Summary of Significant Accounting Policies (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Accounting Policies [Abstract] | |
Schedule of Financial Assets and Liabilities Carried at Fair Value, Measured On a Recurring Basis | Financial assets and liabilities carried at fair value, measured on a recurring basis as of December 31, 2015 and 2014 are: December 31, 2015 Description Level 1 Level 2 Level 3 Gains (Losses) (1) Derivative liability on conversion feature $ - $ - $ 472,967 $ 383,049 Derivative liability on warrants - - 139,192 106,829 Total $ - $ - $ 612,159 $ 489,878 (1) The gain on change in derivative liabilities of $964,751 presented in the statement of operations for the fiscal year ended December 31, 2015 also includes gains on derivatives associated with convertible promissory note balances outstanding at various dates during fiscal year 2015, which were converted to common stock prior to December 31, 2015. December 31, 2014 Description Level 1 Level 2 Level 3 Gains (Losses) Derivative liability on conversion feature $ - $ - $ 847,438 $ 1,051,889 Derivative liability on warrants - - 304,432 - Total $ - $ - $ 1,151,870 $ 1,051,889 |
Schedule of Anti-dilutive Shares Outstanding | Potential participating securities deemed to be anti-dilutive as of December 31, 2015 and 2014 are: 2015 2014 Convertible promissory notes 19,032,063 10,852,708 Stock options 7,671,000 10,296,000 Warrants 5,161,250 2,536,625 Diluted shares outstanding 31,864,313 23,685,333 |
Acquisitions and Divestitures (
Acquisitions and Divestitures (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Acquisitions And Divestitures - Unaudited Supplemental Pro Forma Financial Information Details | |
Fair Values of Hydro Assets Acquired and Liabilities Assumed of Acquisition (June 30, 2014) | The fair values of the Hydro assets acquired and liabilities assumed as of the effective acquisition date of June 30, 2014 are: Purchase price: Promissory note $ 250,000 Liabilities assumed 509,015 Total purchase price $ 759,015 Fair value of assets: Current assets $ 96,712 Property and equipment 29,808 Other assets 1,431 Goodwill 631,064 Fair value of assets acquired $ 759,015 |
Unaudited Supplemental Pro Forma Financial Information | Revenue $ 2,488,837 Cost of revenue 1,908,234 Gross margin 580,603 Operating expenses: Advertising and marketing expenses 281,127 Product development costs 341,642 Selling, general and administrative expenses 3,412,483 Total operating expenses 4,035,252 Operating loss (3,454,649 ) Other income (expense) Interest expense (1) (359,245 ) Amortization of debt discount on convertible promissory notes (476,044 ) Gain on change in derivative liability 1,051,889 Loss from continuing operations (3,238,049 ) Loss from discontinued operations (17,771 ) Net loss (3,255,820 ) Comprehensive loss - Comprehensive loss $ (3,255,820 ) Loss per common share - basic $ (0.03 ) (1) Interest related to the promissory note issued for the Hydro acquisition of $7,500 was eliminated in connection with the purchase of Hydro. |
Inventory (Tables)
Inventory (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Inventory Disclosure [Abstract] | |
Schedule of Inventory | As of December 31, 2015 and 2014, inventory consists of: 2015 2014 Finished goods $ 619,319 $ 56,297 Work in progress 43,466 - Raw materials 599,017 207,734 Total inventory $ 1,261,802 $ 264,031 |
Property and Equipment (Tables)
Property and Equipment (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Property, Plant and Equipment [Abstract] | |
Schedule of Property and Equipment | As of December 31, 2015 and 2014, property and equipment consists of: 2015 2014 Furniture and equipment $ 168,899 $ 106,844 Molds 31,063 31,063 Vehicles 62,286 62,286 Leasehold Improvements 35,804 32,994 298,052 233,187 Accumulated depreciation 135,522 (69,372 ) Property and equipment, net $ 162,530 $ 163,815 |
Intangible Assets (Tables)
Intangible Assets (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Schedule of Intangible Assets | As of December 31, 2015 and 2014, intangible assets consist of: 2015 2014 Intellectual property $ 22,712 $ 22,712 Accumulated amortization (6,312 ) (2,212 ) 16,400 20,500 Goodwill 631,064 631,064 Intangible assets, net $ 647,464 $ 651,564 |
Schedule of Expected Future Amortization Expense | Expected future amortization expense of acquired intangible assets as of December 31, 2015 is as follows: Year Ended December 31, 2016 $ 4,100 2017 4,100 2018 4,100 2019 4,100 Total $ 16,400 |
Accounts Payable and Accrued 31
Accounts Payable and Accrued Liabilities (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Payables and Accruals [Abstract] | |
Schedule of Accounts Payable and Accrued Liabilities | As of December 31, 2015 and 2014, accounts payable and accrued liabilities consist of: 2015 2014 Accounts payable $ 1,849,544 $ 368,281 Sales commissions payable 73,711 - Sales tax payable 65,758 - Accrued payroll liabilities 34,965 - Accrued accounting fees 15,000 - Other accrued expenses 27,825 43,547 Total $ 2,066,803 $ 411,828 |
Convertible Promissory Notes (T
Convertible Promissory Notes (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Debt Disclosure [Abstract] | |
Schedule of Convertible Promissory Notes Movement | The following table summarizes the convertible promissory notes movement for the fiscal years ended December 31, 2015 and 2014: Balance January 1, 2014 $ - Convertible notes issued (Series 1) 1,336,783 Convertible notes issues (Series 2) 1,625,000 Convertible notes converted - Total 2,961,783 Less: debt discount (2,473,239 ) Balance December 31, 2014 488,544 Less: current portion - Long-term portion $ 488,544 Balance January 1, 2015 $ 488,544 Convertible notes issued (Series 2) 911,250 Convertible notes issued (Series 3) 711,000 Convertible note issued (Series 4) 103,319 Convertible notes converted (Series 1) (1,336,783 ) Total 877,330 Less: Debt discount 882,269 Less: Deferred finance charges (8,016 ) Balance December 31, 2015 1,751,583 Less: current portion (1,227,761 ) Long-term portion $ 523,822 |
Schedule of Initial Carrying Value of Series 2 Convertible Promissory Notes | The following table sets forth the initial carrying value of the Series 2 Notes: Proceeds from sale of Units in 2014 $ 1,625,000 Less: Fair value of warrants (393,240 ) Less: Fair value assigned to common stock (803,951 ) Less: Debt discount - conversion feature (427,809 ) Initial carrying value of notes as of December 31, 2014 $ - Proceeds from sale of Units in 2015 $ 911,250 Less: Fair value of warrants (135,581 ) Less: Fair value assigned to common stock (446,988 ) Less: Debt discount - conversion feature (98,180 ) Less: Transaction fees (9,865 ) Initial carrying value of notes as of December 31, 2015 $ 220,636 |
Schedule of Convertible Note payable | The following table outlines the key terms of the Notes: Note 1 Note 2 Note 3 Note 4 Note 5 Total Term 1 year 1 year 1 year 1 year 1 year Origination Date Jul 2015 Jul 2015 Sept 2015 Sept 2015 Sept 2015 Cash Received $ 150,000 $ 100,000 $ 200,000 $ 100,000 $ 100,000 $ 650,000 Note Face Value $ 165,000 $ 106,000 $ 220,000 $ 110,000 $ 110,000 $ 711,000 Original Issue Discount $ 15,000 $ 6,000 $ 20,000 $ 10,000 $ 10,000 $ 61,000 Financing Expense $ - $ - $ 6,000 $ 3,000 $ 13,000 $ 22,000 Interest Rate 10 % 11 % 10 % 10 % 10 % Conversion % of Stock Value 80 % 80 % 80 % 80 % 80 % Share Reserve Minimum 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 50,000,000 Warrants 500,000 375,000 750,000 500,000 500,000 2,625,000 Warrant Exercise Price $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 0.25 Warrant Term 5 Years 5 Years 5 Years 5 Years 5 Years |
Schedule of Initial Carrying Value of Series 3 Convertible Promissory Notes | The following table sets forth the initial carrying value of the Series 3 Notes: Balance January 1, 2015 $ - Issuance of Notes 711,000 Less: Fair value of warrants (246,020 ) Less: Original issue discount (61,000 ) Less: Debt discount- conversion feature (403,980 ) Initial carrying value of Notes $ - |
Schedule of Future Principal Payments of Convertible Loan | As of December 31, 2015, future principal payments for our long-term convertible promissory notes were as follows: Year Ended December 31, 2016 $ 2,436,273 Thereafter 911,250 $ 3,347,523 |
Derivative Liabilities (Tables)
Derivative Liabilities (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Schedule of Derivative Liabilities Activity | The following table sets forth movement in the derivative liability from the initial measurement at issuance date through December 31, 2015: Balance January 1, 2014 $ - Initial measurement at issuance date of convertible promissory notes 2,203,759 Change in derivative liability (1,051,889 ) Balance December 31, 2014 1,151,870 Initial measurement at issuance date of convertible promissory notes 1,335,797 Change in derivative liability (1,875,508 ) Balance December 31, 2015 $ (612,159 ) |
Vehicle Loan (Tables)
Vehicle Loan (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Vehicle Loan | |
Schedule of Future Principal Payments of Convertible Notes | As of December 31, 2015, future principal payments on the vehicle loan are: Year Ended December 31, 2016 $ 10,084 2017 9,664 2018 10,057 2019 4,310 Thereafter - Total $ 34,115 |
Income Taxes (Tables)
Income Taxes (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Income Tax Disclosure [Abstract] | |
Components of Provision for Income Taxes | The components of the provision for income taxes, net for the fiscal years ended December 31, 2015 and 2014 are: 2015 2014 Current taxes: U.S. Federal $ - $ - U.S. State - - International - - Current taxes - - Deferred taxes: U.S. Federal - - U.S. State - - International - - Deferred taxes - - Provision for income taxes, net $ - $ - |
Schedule of Income Taxes Computed at Federal Statutory Rate and Provision for Income Taxes | Differences between income taxes computed at the federal statutory rate and the provision recorded for income taxes are comprised of the follow items: 2015 2014 Income taxes computed at the federal statutory rate $ (1,800,647 ) $ (1,017,269 ) Effect of: State taxes, net of federal benefits (161,836 ) (91,429 ) Loss of net operating losses from discontinued operations - 720,631 Loss of net operating losses due to 382 limitations 596,311 - Nondeductible expenses 500,488 (191,395 ) Other, net 113,848 - Change in valuation allowance 751,836 579,464 Total $ - $ - |
Schedule of Deferred Income Tax Assets and Liabilities | Deferred income tax assets as of December 31, 2015 and 2014 are as follows: 2015 2014 Deferred tax assets: Net operating losses $ 2,155,247 $ 1,216,297 Consultant Expenses 7,229 127,475 Federal utilization of state benefits (81,447 ) (55,230 ) Fixed asset basis difference (41,024 ) - Other items 11,926 11,552 Total gross deferred tax assets 2,051,931 1,300,095 Less valuation allowance (2,051,931 ) (1,300,095 ) Deferred tax assets, net of valuation allowance $ - $ - |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Commitments and Contingencies Disclosure [Abstract] | |
Schedule of Lease Yearly Payment | Year Ended December 31, 2016 $ 146,646 Total $ 146,646 |
Warrants and Options (Tables)
Warrants and Options (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Warrants And Options | |
Schedule of Stock Warrants Activity | Warrant activity during the years ended December 31, 2015 and 2014 is as follows: Number of Warrants Weighted-Average Aggregate Intrinsic Value Outstanding and exercisable January 1, 2014 - $ - Granted (with Series 2 convertible notes) 1,625,000 3.00 Exercised - - Expired - - Outstanding and exercisable December 31, 2014 1,625,000 $ 3.00 $ 515,125 Granted (with Series 2 convertible notes) 911,250 3.00 Granted (with Series 3 convertible notes) 2,625,000 0.25 Exercised - - Expired - - Outstanding and exercisable December 31, 2015 5,161,250 $ 1.60 $ 350,788 |
Schedule of Stock Options Activity | The following table summarizes our stock option activity: Number of Options Weighted Average Grant-Date Fair Value Outstanding as of January 1, 2014 - $ - Options granted 10,296,000 0.00024 Options exercised - - Options forfeited - - Outstanding as of December 31, 2014 10,296,000 $ 0.00024 Options granted - - Options exercised (2,625,000 ) 0.00024 Options forfeited - - Outstanding as of December 31, 2015 7,671,000 $ 0.00024 |
Schedule of Stock Options Activity and Related Information | The Companys stock option activity and related information for 2015 and 2014 is summarized as follows: Year Ended December 31, 2015 Year Ended December 31, 2014 Weighted Weighted Average Average Weighted Remaining Weighted Remaining Number Average Contractual Aggregate Number Average Contractual Aggregate of Options Exercise Price Term (in years) Intrinsic Value of Options Exercise Price Term (in years) Intrinsic Value Options outstanding, beginning of year 10,296,000 $ 0.00024 2.2 $ 3,263,832 - $ - - $ - Options granted - - - - - - - - Options exercised (2,625,000 ) 0.00024 - 183,750 - - - - Options canceled - Options outstanding, end of year 7,671,000 $ 0.00024 1.2 $ 536,970 10,296,000 (1) $ 0.00024 2.2 $ 3,263,832 Vested and exercisable and expected to vest, end of year 7,671,000 $ 0.00024 1.2 $ 536,970 10,296,000 $ 0.00024 2.2 $ 3,263,832 (1) The stock options outstanding were issued under the 2014 Stock Ownership Plan of Safari. Upon the acquisition of Safari on March 26, 2014, the existing stock options in Safari were converted into stock options in Surna. All options were fully vested at the date of the acquisition. Accordingly, there was no unrecognized compensation. The options expire in March 2017. |
Schedule of Stock Options Outstanding and Exercisable | Stock options outstanding and exercisable as of December 31, 2015 are as follows: Options Outstanding Options Exercisable Weighted Average Weighted Weighted Remaining Average Average Contractual Weighted Exercise Number Exercise Term Number Exercise Price Outstanding Price (in years) Exercisable Price $ 0.00024 7,671,000 $ 0.00024 1.2 7,671,000 $ 0.00024 |
Summary of Significant Accoun38
Summary of Significant Accounting Policies (Details Narrative) | Mar. 27, 2012USD ($) | Sep. 01, 2011shares | Dec. 31, 2015USD ($)Integer | Dec. 31, 2014USD ($)Integer | Jul. 25, 2014 |
Allowance for doubtful accounts | $ 40,873 | $ 10,000 | |||
Impairment of Goodwill | 0 | ||||
Derivative liability | 791,409 | 1,151,870 | |||
Provision for product warranty | 0 | ||||
Product development | 707,517 | 319,430 | |||
Share-based compensation | 127,493 | 1,359,400 | |||
Penalties or interest accrued for uncertain tax positions | $ 0 | $ 0 | |||
Number of reportable segment | Integer | 1 | 1 | |||
Series 2 Convertible Notes [Member] | |||||
Derivative liability | $ 119,348 | ||||
Hydro Innovations, LLC [Member] | |||||
Percentage of interest acquired | 100.00% | ||||
Surna Media Inc [Member] | |||||
Stock issued during period, shares, acquisitions | shares | 20,000,000 | ||||
Surna Networks Inc And Surna Networks Ltd [Member] | |||||
Sale of a subsidiary company | $ 1 | ||||
Liabilities Assumed | $ 9,286 |
Summary of Significant Accoun39
Summary of Significant Accounting Policies (Business Acquisitions) (Details Narrative) | Jun. 30, 2014 | Oct. 15, 2009 |
Business acquisition effective date of acquisition | Jun. 30, 2014 | |
Safari Resource Group Inc [Member] | ||
Business acquisition effective date of acquisition | Mar. 26, 2014 |
Summary of Significant Accoun40
Summary of Significant Accounting Policies (Concentrations) (Details Narrative) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
One Customer [Member] | Revenue [Member] | ||
Risk Percentage | 10.00% | |
One Customer [Member] | Revenue [Member] | ||
Risk Percentage | 11.00% | |
Four Customers [Member] | Accounts Receivable Member] | ||
Risk Percentage | 89.00% | |
Two Customers [Member] | Accounts Receivable Member] | ||
Risk Percentage | 58.00% | |
Four Vendors [Member] | Cost of Revenue [Member] | ||
Risk Percentage | 75.00% | 75.00% |
Vendors [Member] | Maximum [Member] | ||
Risk Percentage | 10.00% | 10.00% |
Summary of Significant Accoun41
Summary of Significant Accounting Policies (Taxes) (Details Narrative) | 12 Months Ended |
Dec. 31, 2015 | |
Minimum [Member] | Federal Purposes [Member] | |
Tax years subject to examination | 2,009 |
Minimum [Member] | State Purposes [Member] | |
Tax years subject to examination | 2,013 |
Maximum [Member] | Federal Purposes [Member] | |
Tax years subject to examination | 2,015 |
Maximum [Member] | State Purposes [Member] | |
Tax years subject to examination | 2,015 |
Summary of Significant Accoun42
Summary of Significant Accounting Policies - Schedule of Financial Assets and Liabilities Carried at Fair Value, Measured On a Recurring Basis (Details) - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | ||
Derivative liability on conversion feature | $ 472,967 | $ 847,438 | |
Derivative liability on warrants | 139,192 | 304,432 | |
Total | 791,409 | 1,151,870 | |
Gains (Losses) Derivative liability on conversion feature | 383,049 | [1] | $ 1,051,889 |
Gains (Losses) Derivative liability on warrants | 106,829 | [1] | |
Gains (Losses) Derivative liability | $ 964,751 | $ 1,051,889 | |
Level 1 [Member] | |||
Derivative liability on conversion feature | |||
Derivative liability on warrants | |||
Total | |||
Level 2 [Member] | |||
Derivative liability on conversion feature | |||
Derivative liability on warrants | |||
Total | |||
Level 3 [Member] | |||
Derivative liability on conversion feature | $ 472,967 | $ 847,438 | |
Derivative liability on warrants | 139,192 | 304,432 | |
Total | $ 612,159 | $ 1,151,870 | |
[1] | The gain on change in derivative liabilities of $964,751 presented in the statement of operations for the fiscal year ended December 31, 2015 includes gains on derivatives associated with convertible promissory note balances outstanding at various dates during fiscal year 2015 converted to common stock prior to December 31, 2015. |
Summary of Significant Accoun43
Summary of Significant Accounting Policies - Schedule of Financial Assets and Liabilities Carried at Fair Value, Measured On a Recurring Basis (Details) (Parenthetical) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Accounting Policies [Abstract] | ||
Gain on change in derivative liabilities | $ 964,751 | $ 1,051,889 |
Summary of Significant Accoun44
Summary of Significant Accounting Policies - Schedule of Anti-dilutive Shares Outstanding (Details) - shares | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Diluted shares outstanding | 31,864,313 | 23,685,333 |
Convertible Notes [Member] | ||
Diluted shares outstanding | 19,032,063 | 10,852,708 |
Stock Options [Member] | ||
Diluted shares outstanding | 7,671,000 | 10,296,000 |
Warrant [Member] | ||
Diluted shares outstanding | 5,161,250 | 2,536,625 |
Going Concern (Details Narrativ
Going Concern (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Working capital deficits | $ 3,020,231 | |
Cumulative net losses | 11,063,599 | $ 5,767,577 |
Three Series of Convertible Promissory Notes [Member] | ||
Proceeds from issuance of debt | $ 1,781,250 | |
Two Series of Convertible Promissory Notes [Member] | ||
Proceeds from issuance of debt | $ 2,961,783 |
Acquisitions and Divestitures46
Acquisitions and Divestitures (Details Narrative) - USD ($) | Jul. 25, 2014 | Jun. 30, 2014 | Jun. 30, 2014 | Dec. 31, 2015 | Dec. 31, 2014 | Jan. 24, 2014 |
Number of Options Vested and exercisable and expected to vest, end of year | 7,671,000 | 10,296,000 | ||||
Business combination consideration transferred liabilities incurred | $ 250,000 | |||||
Reclassifications due to sale of Surna Media | $ 2,655,128 | |||||
Surna Media Inc [Member] | ||||||
Sales price of divested subsidiary | $ 2,643,878 | |||||
Payment of sale price in cash | $ 1 | |||||
Reclassifications due to sale of Surna Media | 2,643,878 | |||||
Separation Agreement [Member] | Surna Media Inc [Member] | ||||||
Percentage of ownership divested | 100.00% | |||||
Stephen Keen [Member] | ||||||
Annual base salary | $ 96,000 | |||||
Brandy Keen [Member] | ||||||
Annual base salary | $ 96,000 | $ 96,000 | ||||
Common Stock [Member] | ||||||
Issuance of common and preferred shares in connection with the merger of Safari Resource Group | 4,556,250 | 80,201,250 | ||||
Cancellation of common shares in connection with the merger of Safari Resource Group, shares | (77,220,000) | |||||
Preferred Stock Series A [Member] | ||||||
Issuance of common and preferred shares in connection with the merger of Safari Resource Group | 77,220,000 | |||||
Qoo Games Limited [Member] | Hong Kong Dollar [Member] | ||||||
Par value of shares | $ 1 | |||||
Safari Resource Group Inc [Member] | ||||||
Stock option exercise price | $ 0.00024 | |||||
Safari Resource Group Inc [Member] | Stock Option [Member] | ||||||
Cancellation of stock options in connection with the merger of Safari Resource Group | 10,000 | |||||
Safari Resource Group Inc [Member] | Common Stock [Member] | ||||||
Issuance of common and preferred shares in connection with the merger of Safari Resource Group | (80,201,250) | |||||
Cancellation of common shares in connection with the merger of Safari Resource Group, shares | (77,220,000) | |||||
Safari Resource Group Inc [Member] | Preferred Stock Series A [Member] | ||||||
Issuance of common and preferred shares in connection with the merger of Safari Resource Group | 77,220,000 | |||||
Hydro Innovations, LLC [Member] | ||||||
Business acquisition date of acquisition agreement | Jul. 25, 2014 | |||||
Number of Options Vested and exercisable and expected to vest, end of year | 10,296,000 | |||||
Equity ownership percentage | 100.00% | |||||
Percentage of interest acquired | 100.00% | |||||
Note bear interest rate | 6.00% | |||||
Note payable in monthly installment | $ 5,000 | |||||
Debt due date | Jul. 18, 2016 | |||||
Business combination consideration transferred liabilities incurred | $ 250,000 |
Acquisitions and Divestitures -
Acquisitions and Divestitures - Fair Values of Hydro Assets Acquired and Liabilities Assumed of Acquisition (June 30, 2014) (Details) | Jun. 30, 2014USD ($) |
Acquisitions And Divestitures - Unaudited Supplemental Pro Forma Financial Information Details | |
Promissory note | $ 250,000 |
Liabilities assumed | 509,015 |
Total purchase price | 759,015 |
Current assets | 96,712 |
Property and equipment | 29,808 |
Other assets | 1,431 |
Goodwill | 631,064 |
Fair value of assets acquired | $ 759,015 |
Business acquisition effective date of acquisition | Jun. 30, 2014 |
Acquisitions and Divestitures48
Acquisitions and Divestitures - Unaudited Supplemental Pro Forma Financial Information (Details) | 12 Months Ended |
Dec. 31, 2014USD ($)$ / shares | |
Acquisitions And Divestitures - Unaudited Supplemental Pro Forma Financial Information Details | |
Revenue | $ 2,488,837 |
Cost of revenue | 1,908,234 |
Gross margin | 580,603 |
Advertising and marketing expenses | 281,127 |
Product development costs | 341,642 |
Selling, general and administrative expenses | 3,412,483 |
Total operating expenses | 4,035,252 |
Operating loss | (3,454,649) |
Interest expense | (359,245) |
Amortization of debt discount on convertible promissory notes | (476,044) |
Gain on change in derivative liability | 1,051,889 |
Loss from continuing operations | (3,238,049) |
Loss from discontinued operations | (17,771) |
Net loss | $ (3,255,820) |
Comprehensive loss | |
Comprehensive loss | $ (3,255,820) |
Loss per common share - basic | $ / shares | $ (0.03) |
Acquisitions and Divestitures49
Acquisitions and Divestitures - Unaudited Supplemental Pro Forma Financial Information (Details) (Parenthetical) | 12 Months Ended |
Dec. 31, 2014USD ($) | |
Acquisitions And Divestitures - Unaudited Supplemental Pro Forma Financial Information Details | |
Interest related to promissory note issued | $ 7,500 |
Inventory (Details Narrative)
Inventory (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Inventory Disclosure [Abstract] | ||
Overhead expenses | $ 73,125 | $ 1,629 |
Depreciation expense allocated to inventory | $ 5,869 | $ 130 |
Inventory - Schedule of Invento
Inventory - Schedule of Inventory (Details) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Inventory Disclosure [Abstract] | ||
Finished goods | $ 619,319 | $ 56,297 |
Work in progress | 43,466 | |
Raw materials | 599,017 | $ 207,734 |
Total inventory | $ 1,261,802 | $ 264,031 |
Property and Equipment (Details
Property and Equipment (Details Narrative) - Property And Equipment [Member] - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Depreciation expense | $ 59,168 | $ 26,478 |
Depreciation expense allocated to cost of revenue and inventory | $ 16,322 | $ 11,266 |
Property and Equipment - Schedu
Property and Equipment - Schedule of Property and Equipment (Details) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Property and equipment, Gross | $ 298,052 | $ 233,187 |
Accumulated depreciation | 135,522 | (69,372) |
Property and equipment, net | 162,530 | 163,815 |
Furniture And Equipment [Member] | ||
Property and equipment, Gross | 168,899 | 106,844 |
Molds [Member] | ||
Property and equipment, Gross | 31,063 | 31,063 |
Vehicles [Member] | ||
Property and equipment, Gross | 62,286 | 62,286 |
Leasehold Improvements [Member] | ||
Property and equipment, Gross | $ 35,804 | $ 32,994 |
Intangible Assets (Details Narr
Intangible Assets (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Amortization expense | $ 4,100 | $ 2,212 |
Intangible assets estimated life | 5 years |
Intangible Assets - Schedule of
Intangible Assets - Schedule of Intangible Assets (Details) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Accumulated amortization | $ (6,312) | $ (2,212) |
Intangible assets, Net | 16,400 | |
Intangible assets net including goodwill | 647,464 | 651,564 |
Intellectual Property [Member] | ||
Intangible assets | 22,712 | 22,712 |
Intangible assets, Net | 16,400 | 20,500 |
Goodwill | $ 631,064 | $ 631,064 |
Intangible Assets - Schedule 56
Intangible Assets - Schedule of Expected Future Amortization Expense (Details) | Dec. 31, 2015USD ($) |
Goodwill and Intangible Assets Disclosure [Abstract] | |
2,016 | $ 4,100 |
2,017 | 4,100 |
2,018 | 4,100 |
2,019 | 4,100 |
Total | $ 16,400 |
Accounts Payable and Accrued 57
Accounts Payable and Accrued Liabilities - Schedule of Accounts Payable and Accrued Liabilities (Details) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Payables and Accruals [Abstract] | ||
Accounts payable | $ 1,849,544 | $ 368,281 |
Sales commissions payable | 73,711 | |
Sales tax payable | 65,758 | |
Accrued payroll liabilities | 34,965 | |
Accrued accounting fees | 15,000 | |
Other accrued expenses | 27,825 | $ 43,547 |
Total | $ 2,066,803 | $ 411,828 |
Promissory Notes (Details Narra
Promissory Notes (Details Narrative) - USD ($) | Dec. 18, 2015 | Dec. 31, 2015 | Dec. 31, 2014 |
Accrued interest | $ 201,257 | ||
July 2015 Note and September 2015 Note [Member] | |||
Issuance of promissory notes | 464,400 | ||
Promissory note aggregate discount | $ 34,400 | ||
Promissory note term | 5 months | ||
Monthly interest on promissory note | 2.00% | ||
Shares are reserved as security | 8,000,000 | ||
September 2015 Note [Member] | |||
Amount has not been funded | $ 226,800 | ||
July 2015 Note [Member] | |||
Promissory note current | $ 100,273 | ||
Accrued interest | $ 3,046 | ||
Promissory note extended maturity date description | December 22, 2015 due date extended to April 30, 2016 |
Related Party Transaction (Deta
Related Party Transaction (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Accrued interest | $ 201,257 | |
Amounts due to shareholders | 216,995 | $ 303,672 |
Non-cash settlement of debt to related parties | 194,958 | |
Payments to related parties | 114,030 | 66,255 |
Stephen and Brandy Keen [Member] | ||
Amounts due to shareholders | 216,995 | 269,074 |
Deferred compensation | 25,600 | |
Tom Bollich [Member] | ||
Due to related Parties | 230,357 | |
Non-cash settlement of debt to related parties | 194,958 | |
Payments to related parties | $ 100 | |
Due to Related Parties [Member] | ||
Amounts due to shareholders | 499,431 | |
Hydro Note [Member] | ||
Annual interest rate on promissory note | 10.00% | |
Maturity date of promissory note | Feb. 1, 2016 | |
Notes payable balance | 26,593 | |
Hydro2 Note [Member] | ||
Promissory note | $ 250,000 | |
Annual interest rate on promissory note | 6.00% | |
Payable in monthly installments amount | $ 5,000 | |
Maturity date of promissory note | Jul. 18, 2016 | |
Notes payable balance | $ 190,443 | 52,481 |
Accrued interest | 952 | |
Long term debt | $ 191,395 | 195,759 |
Amounts due to shareholders | $ 248,240 |
Convertible Promissory Notes (D
Convertible Promissory Notes (Details Narrative) - USD ($) | Dec. 18, 2015 | Oct. 16, 2014 | Oct. 31, 2014 | Sep. 30, 2015 | Dec. 31, 2015 | Dec. 31, 2015 | Dec. 31, 2014 |
Convertible promissory notes | $ 1,751,583 | $ 1,751,583 | $ 488,544 | ||||
Amortization of debt discount | 2,220,115 | $ 476,044 | |||||
Conversion of Convertible notes to Common Shares | $ 1,336,783 | ||||||
Interest expense | $ 7,500 | ||||||
Common stock shares, issued | 125,839,862 | 125,839,862 | 113,511,250 | ||||
Common stock par value | $ 0.00001 | $ 0.00001 | $ 0.00001 | ||||
Loss on extinguishment of debt | $ (78,155) | ||||||
Series 1 Notes [Member] | |||||||
Convertible promissory notes | $ 1,336,783 | ||||||
Note bear interest rate | 10.00% | ||||||
Convertible promissory notes, duration period | 2 years | ||||||
Convertible promissory notes, conversion description | The Series 1 Notes were convertible at any time at the option of the investor into shares of the Companys common stock that is determined by dividing the amount to be converted by the lesser of (i) $1.00 per share or (ii) eighty percent (80%) of the prior thirty-day weighted average market price for the Companys common stock. | ||||||
Fair value of embedded derivative | $ 1,324,283 | ||||||
Convertible promissory notes, amortization discount period | 2 years | ||||||
Amortization of debt discount | 916,094 | $ 374,481 | |||||
Accrued interest | $ 216,141 | $ 216,141 | |||||
Common shares issued pursuant to conversion of debt and accrued interest, net, shares | 25,169,786 | ||||||
Conversion of Convertible notes to Common Shares | $ 1,336,783 | ||||||
Common stock and additional paid in capital | 1,668,267 | 1,668,267 | |||||
Interest expense | 161,762 | 188,020 | |||||
Series 2 Notes [Member] | |||||||
Convertible promissory notes | $ 50,000 | ||||||
Convertible promissory notes, conversion description | The Series 2 Notes are convertible after 360 days from the issuance date at the option of the investor into a shares of the Companys ccommon stock that is determined by dividing the amount to be converted by the $0.60 conversion price. If not converted, the debt is payable in full twenty-four months from the issuance date. Additionally, the entire principal amount due on each Series 2 Note shall be automatically converted into common stock at the automatic conversion price (the greater of $0.50 per share or 75% of the public offering price per share) without any action of the purchaser on the earlier of: (x) the date on which the company closes a financing transaction involving the sale of the Companys common stock at a price of no less than $2.00 per share with gross proceeds to the Compansy of no less than $5,000,000; or (y) the date which is three days after the common stock shall have traded at a VWAP of at least $2.00 per share for a period of ten consecutive trading days. | ||||||
Amortization of debt discount on convertible notes | 1,121,398 | 1,121,398 | 1,523,437 | ||||
Amortization of debt discount | 1,082,788 | 101,563 | |||||
Transaction cost | 82,105 | ||||||
Accrued interest | 257,277 | 257,277 | 14,103 | ||||
Interest expense | 243,174 | 14,103 | |||||
Number of units sold | 60 | ||||||
Sale price of debt and equity unit | $ 50,000 | ||||||
Common stock shares, issued | 250,000 | ||||||
Common stock par value | $ 0.00001 | ||||||
Warrants for the purchase of shares of common stock | 50,000 | ||||||
Conversion price per share | $ 0.60 | ||||||
Proceeds from sale of Units | $ 2,536,250 | ||||||
Convertible note payable carrying value | 1,141,852 | 1,141,852 | 101,563 | ||||
Fair value of warrants | 135,581 | $ 393,240 | |||||
Series 3 Notes [Member] | |||||||
Convertible promissory notes, conversion description | The conversion price is equal to 80% of the lowest trading price of our Common Stock as reported on the QTCQB for the fifteen prior trading days. | ||||||
Fair value of embedded derivative upon issuance of notes | 1,023,881 | 1,023,881 | |||||
Amortization of debt discount on convertible notes | $ 61,000 | 61,000 | 61,000 | ||||
Amortization of debt discount | 221,233 | ||||||
Debt face value | 711,000 | 711,000 | |||||
Accrued interest | 24,654 | 24,654 | |||||
Interest expense | $ 373,881 | 24,654 | |||||
Warrants for the purchase of shares of common stock | 2,625,000 | ||||||
Proceeds from sale of Units | $ 656,250 | ||||||
Fair value of warrants | 246,020 | ||||||
Fair value of the conversion feature | $ 777,861 | ||||||
Series 4 Notes [Member] | |||||||
Convertible promissory notes | $ 100,273 | ||||||
Convertible promissory notes, conversion description | The conversion price is equal to 70% of the lowest trading price of our Common Stock as reported on the QTCQB for the twenty prior trading days. | ||||||
Fair value of embedded derivative | $ 78,155 | ||||||
Accrued interest | 3,046 | ||||||
Convertible note payable carrying value | $ 103,319 | ||||||
Promissory note extended maturity date description | December 22, 2015 to April, 30 2016 |
Convertible Promissory Notes -
Convertible Promissory Notes - Schedule of Convertible Promissory Notes Movement (Details) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Convertible promissory notes | $ 1,751,583 | $ 488,544 |
Less: debt discount | 882,269 | (2,473,239) |
Less: Deferred finance charges | (8,016) | $ 488,544 |
Less: current portion | (1,227,761) | |
Long-term portion | 523,822 | $ 488,544 |
Convertible Notes Issued Series 1 [Member] | ||
Convertible promissory notes | 1,336,783 | |
Convertible Notes Issued Series 2 [Member] | ||
Convertible promissory notes | 911,250 | $ 1,625,000 |
Convertible Notes Converted [Member] | ||
Convertible promissory notes | ||
Convertible Debt [Member] | ||
Convertible promissory notes | 877,330 | $ 2,961,783 |
Convertible Notes Issued Series 3 [Member] | ||
Convertible promissory notes | 711,000 | |
Convertible Notes Issued Series 4 [Member] | ||
Convertible promissory notes | 103,319 | |
Convertible Notes Converted Series 1 [Member] | ||
Convertible promissory notes | $ (1,336,783) |
Convertible Promissory Notes 62
Convertible Promissory Notes - Schedule of Initial Carrying Value of Series 2 Convertible Promissory Notes (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Proceeds from sale of Units | $ 1,781,250 | $ 2,961,783 |
Series 2 Notes [Member] | ||
Proceeds from sale of Units | 911,250 | 1,625,000 |
Less: Fair value of warrants | (135,581) | (393,240) |
Less: Fair value assigned to common stock | (446,988) | (803,951) |
Less: Debt discount- conversion feature | (98,180) | $ (427,809) |
Less: Transaction fees | (9,865) | |
Initial carrying value of notes | $ 220,636 |
Convertible Promissory Notes 63
Convertible Promissory Notes - Schedule of Convertible Note payable (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Warrant Exercise Price | $ 0.00024 | $ 0.00024 |
Convertible Note 1 [Member] | ||
Term | 1 year | |
Origination Date | Jul. 31, 2015 | |
Cash Received | $ 150,000 | |
Note Face Value | 165,000 | |
Original Issue Discount | $ 15,000 | |
Financing Expense | ||
Interest Rate | 10.00% | |
Conversion % of Stock Value | 80.00% | |
Share Reserve Minimum | 10,000,000 | |
Warrants | 500,000 | |
Warrant Exercise Price | $ 0.25 | |
Warrant Term | 5 years | |
Convertible Note 2 [Member] | ||
Term | 1 year | |
Origination Date | Jul. 31, 2015 | |
Cash Received | $ 100,000 | |
Note Face Value | 106,000 | |
Original Issue Discount | $ 6,000 | |
Financing Expense | ||
Interest Rate | 11.00% | |
Conversion % of Stock Value | 80.00% | |
Share Reserve Minimum | 10,000,000 | |
Warrants | 375,000 | |
Warrant Exercise Price | $ 0.25 | |
Warrant Term | 5 years | |
Convertible Note 3 [Member] | ||
Term | 1 year | |
Origination Date | Sep. 30, 2015 | |
Cash Received | $ 200,000 | |
Note Face Value | 220,000 | |
Original Issue Discount | 20,000 | |
Financing Expense | $ 6,000 | |
Interest Rate | 10.00% | |
Conversion % of Stock Value | 80.00% | |
Share Reserve Minimum | 10,000,000 | |
Warrants | 750,000 | |
Warrant Exercise Price | $ 0.25 | |
Warrant Term | 5 years | |
Convertible Note 4 [Member] | ||
Term | 1 year | |
Origination Date | Sep. 30, 2015 | |
Cash Received | $ 100,000 | |
Note Face Value | 110,000 | |
Original Issue Discount | 10,000 | |
Financing Expense | $ 3,000 | |
Interest Rate | 10.00% | |
Conversion % of Stock Value | 80.00% | |
Share Reserve Minimum | 10,000,000 | |
Warrants | 500,000 | |
Warrant Exercise Price | $ 0.25 | |
Warrant Term | 5 years | |
Convertible Note 5 [Member] | ||
Term | 1 year | |
Origination Date | Sep. 30, 2015 | |
Cash Received | $ 100,000 | |
Note Face Value | 110,000 | |
Original Issue Discount | 10,000 | |
Financing Expense | $ 13,000 | |
Interest Rate | 10.00% | |
Conversion % of Stock Value | 80.00% | |
Share Reserve Minimum | 10,000,000 | |
Warrants | 500,000 | |
Warrant Exercise Price | $ 0.25 | |
Warrant Term | 5 years | |
Convertible Note [Member] | ||
Cash Received | $ 650,000 | |
Note Face Value | 711,000 | |
Original Issue Discount | 61,000 | |
Financing Expense | $ 22,000 | |
Share Reserve Minimum | 50,000,000 | |
Warrants | 2,625,000 |
Convertible Promissory Notes 64
Convertible Promissory Notes - Schedule of Initial Carrying Value of Series 3 Convertible Promissory Notes (Details) - Series 3 Notes [Member] - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Sep. 30, 2015 | |
Balance at January 1, 2014 | ||
Issuance of promissory notes | $ 711,000 | |
Less: Fair value of warrants | (246,020) | |
Less: Original issue discount | (61,000) | $ (61,000) |
Less: Debt discount- conversion feature | $ (403,980) | |
Initial carrying value of notes |
Convertible Promissory Notes 65
Convertible Promissory Notes - Schedule of Future Principal Payments of Convertible Loan (Details) | Dec. 31, 2015USD ($) |
Debt Disclosure [Abstract] | |
2,016 | $ 2,436,273 |
Thereafter | 911,250 |
Long term convertible loan | $ 3,347,523 |
Derivative Liabilities (Details
Derivative Liabilities (Details Narrative) | 12 Months Ended |
Dec. 31, 2015USD ($) | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Reclassification of derivative liability to equity pursuant to conversion of debt | $ 791,409 |
Reclassification of derivative liability to equity pursuant change in classification | $ 119,348 |
Derivative Liabilities - Schedu
Derivative Liabilities - Schedule of Derivative Liabilities Activity (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||
Derivative liabilities balance, beginning | $ 1,151,870 | |
Derivative liability as of issuance of the notes | 1,335,797 | $ 2,203,759 |
Change in derivative liability during the period | (1,875,508) | (1,051,889) |
Derivative liabilities balance, ending | $ (612,159) | $ 1,151,870 |
Vehicle Loan (Details Narrative
Vehicle Loan (Details Narrative) - Vehicle Loan [Member] - USD ($) | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2015 | |
Loan orginal balance amount | $ 47,286 | |
Loan interest rate | 3.99% | |
Loan monthly payment | $ 872 | |
Loan term | 60 months | |
Balance on loan | $ 43,049 | $ 34,115 |
Vehicle Loan - Schedule of Futu
Vehicle Loan - Schedule of Future Principal Payments (Details) | Dec. 31, 2015USD ($) |
2,016 | $ 2,436,273 |
Vehicle Loan [Member] | |
2,016 | 10,084 |
2,017 | 9,664 |
2,018 | 10,057 |
2,019 | $ 4,310 |
Thereafter | |
Total | $ 34,115 |
Income Taxes (Details Narrative
Income Taxes (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Net operating loss carry forward amount | $ 5,579,000 | |
Net operating loss expiration date | Dec. 31, 2035 | |
Safari Resource Group Inc [Member] | Minimum [Member] | ||
Percentage of ownership change | 50.00% |
Income Taxes - Components of Pr
Income Taxes - Components of Provision for Income Taxes (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Current Taxes | ||
U.S. Federal | ||
U.S. State | ||
International | ||
Current taxes | ||
Deferred Taxes | ||
U.S. Federal | ||
U.S. State | ||
International | ||
Deferred taxes | ||
Provision for income taxes |
Income Taxes - Schedule of Inco
Income Taxes - Schedule of Income Taxes Computed at Federal Statutory Rate and Provision for Income Taxes (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Income Tax Disclosure [Abstract] | ||
Income taxes computed at the federal statutory rate | $ (1,800,647) | $ (1,017,269) |
State taxes, net of federal benefits | $ (161,836) | (91,429) |
Loss of net operating losses from discontinued operations | $ 720,631 | |
Loss of net operating losses due to 382 limitations | $ 596,311 | |
Nondeductible expenses | 500,488 | $ (191,395) |
Other, net | 113,848 | |
Change in valuation allowance | $ 751,836 | $ 579,464 |
Total |
Income Taxes - Schedule of Defe
Income Taxes - Schedule of Deferred Income Tax Assets and Liabilities (Details) - Deferred Tax Asset [Member] - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Net operating losses | $ 2,155,247 | $ 1,216,297 |
Consultant expenses | 7,229 | 127,475 |
Federal utilization of state benefits | (81,447) | $ (55,230) |
Fixed asset basis difference | (41,024) | |
Other items | 11,926 | $ 11,552 |
Total gross deferred tax assets | 2,051,931 | 1,300,095 |
Less valuation allowance | $ (2,051,931) | $ (1,300,095) |
Deferred tax assets, net of valuation allowance |
Commitments and Contingencies74
Commitments and Contingencies (Details Narrative) | Jul. 25, 2014USD ($) | Dec. 31, 2015USD ($)ft² | Dec. 31, 2014USD ($) |
Lease agreement, manufacturing and office space, square feet | ft² | 18,000 | ||
Lease expiration date | Sep. 30, 2016 | ||
Rent expense | $ 237,617 | $ 105,128 | |
Therefore Remaining Contractual Obligation [Member] | |||
Compensation payable | 304,000 | ||
Stephen [Member] | |||
Annual base salary | 96,000 | ||
Brandy Keen [Member] | |||
Annual base salary | $ 96,000 | $ 96,000 |
Commitments and Contingencies -
Commitments and Contingencies - Schedule of Lease Yearly Payment (Details) | Dec. 31, 2015USD ($) |
Commitments and Contingencies Disclosure [Abstract] | |
2,016 | $ 146,646 |
Total | $ 146,646 |
Patents and Trademarks (Details
Patents and Trademarks (Details Narrative) - Patents [Member] - March 31, 2016 [Member] | 12 Months Ended |
Dec. 31, 2015Integer | |
Number of pending patent applications | 8 |
Number of patents issued | 4 |
Design patents protected years from date of issue | 14 years |
Utility patent application granted years from application filing date | 20 years |
Preferred and Common Stock (Det
Preferred and Common Stock (Details Narrative) - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Aug. 10, 2015 | |
Preferred stock, shares issued | 77,220,000 | 77,220,000 | |
Preferred stock, shares outstanding | 77,220,000 | 77,220,000 | |
Number of common stock issued during period | 4,556,250 | ||
Common stock, shares issued | 125,839,862 | 113,511,250 | |
Common stock, shares outstanding | 125,839,862 | 113,511,250 | |
Issuance of common shares in connection with exercises of stock options | (2,625,000) | ||
Issuance of common stock for services is applied to this amount. | $ 82,453 | $ 1,359,400 | |
Common shares issued pursuant to conversion of debt and accrued interest, net | 1,668,267 | ||
Sales of common shares, net | $ 427,448 | $ 731,046 | |
Convertible Promissory Notes [Member] | |||
Sales of common shares, net | 4,556,250 | ||
Transaction costs | $ 19,042 | ||
Convertible Promissory Notes [Member] | January 1, 2016 and March 31, 2016 [Member] | |||
Common shares issued pursuant to conversion of debt and accrued interest, net, shares | 9,947,281 | ||
Common shares issued pursuant to conversion of debt and accrued interest, net | $ 445,926 | ||
Convertible Promissory Notes One [Member] | |||
Common shares issued pursuant to conversion of debt and accrued interest, net, shares | 25,169,786 | ||
Common shares issued pursuant to conversion of debt and accrued interest, net | $ 1,668,267 | ||
Newbridge Financial [Member] | |||
Common shares issued for services | 1,000,000 | ||
Issuance of common stock for services is applied to this amount. | $ 330,000 | ||
Mr. Bollich [Member] | |||
Common stock, shares issued | (21,408,023) | ||
Preferred Stock Series A [Member] | |||
Preferred stock, shares issued | 77,220,000 | 77,220,000 | |
Preferred stock, shares outstanding | 77,220,000 | 77,220,000 | |
Stock issued during period, shares, acquisitions | 77,220,000 | ||
Common Stock [Member] | |||
Preferred stock, shares issued | 0 | 0 | |
Preferred stock, shares outstanding | 0 | 0 | |
Stock issued during period, shares, acquisitions | 4,556,250 | 80,201,250 | |
Common shares issued to employees as compensation | 539,028 | ||
Cancellation of common shares in connection with officer termination, shares | (21,428,023) | ||
Common shares issued for services | 866,571 | 3,030,000 | |
Issuance of common shares in connection with exercises of stock options | 2,625,000 | ||
Issuance of common stock for services is applied to this amount. | $ 9 | $ 30 | |
Sales of common shares, net | 4,556,250 | 8,125,000 | |
Common shares issued pursuant to conversion of debt and accrued interest, net, shares | 25,169,786 | ||
Common shares issued pursuant to conversion of debt and accrued interest, net | $ 252 | ||
Sales of common shares, net | $ 46 | $ 81 |
Warrants and Options (Details N
Warrants and Options (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Warrants And Options | ||
Outstanding warrants to purchase an aggregate of shares of common stock | 5,161,250 | |
Warrant expiration term | October 2018 and September 2020. | |
Number of stock option had at the closing of the merger | 10,000 | |
Stock option converted to common stock | 10,296,000 | |
Option exercise price per share | $ 0.00024 | |
Options exercised | (2,625,000) | |
Intrinsic value of granted stock options | ||
Option expire on | Mar. 18, 2017 |
Warrants and Options - Schedule
Warrants and Options - Schedule of Stock Warrants Activity (Details) - Warrant [Member] - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Number of Warrants Outstanding Beginning Balance | $ 1,625,000 | |
Number of Warrants Exercised | ||
Number of Warrants Expired | ||
Number of Warrants Outstanding Ending Balance | $ 5,161,250 | $ 1,625,000 |
Weighted Average Exercise Price, Outstanding, Beginning | $ 3 | |
Weighted Average Exercise Price, Granted | $ 3 | |
Weighted Average Exercise Price, Exercised | ||
Weighted Average Exercise Price, Expired | ||
Weighted Average Exercise Price, Outstanding, Ending | $ 1.60 | $ 3 |
Aggregate Intrinsic Value, Outstanding, Beginning Balnace | $ 515,125 | |
Aggregate Intrinsic Value, Outstanding, Ending Balance | $ 350,788 | $ 515,125 |
Series 2 Convertible Notes [Member] | ||
Number of Warrants Granted | 911,250 | 1,625,000 |
Weighted Average Exercise Price, Granted | $ 3 | |
Series 3 Convertible Notes [Member] | ||
Number of Warrants Granted | 2,625,000 | |
Weighted Average Exercise Price, Granted | $ 0.25 |
Warrants and Options - Schedu80
Warrants and Options - Schedule of Stock Options Activity (Details) - $ / shares | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Warrants And Options | ||
Number of Options Outstanding, Beginning | 10,296,000 | |
Number of Options granted | 10,296,000 | |
Number of Options exercised | (2,625,000) | |
Number of Options canceled | ||
Number of Options Outstanding, Ending | 7,671,000 | 10,296,000 |
Weighted-Average Grand-Date Fair Value, Outstanding, Beginning | ||
Weighted-Average Grand-Date Fair Value, granted | $ 0.00024 | |
Weighted-Average Grand-Date Fair Value, exercised | $ 0.00024 | |
Weighted-Average Grand-Date Fair Value, forfeited | ||
Weighted-Average Grand-Date Fair Value, Outstanding, Ending | $ 0.00024 | $ 0.00024 |
Warrants and Options - Schedu81
Warrants and Options - Schedule of Stock Options Activity and Related Information (Details) - USD ($) | 12 Months Ended | |||
Dec. 31, 2015 | Dec. 31, 2014 | |||
Warrants And Options | ||||
Options Outstanding, beginning of year | 10,296,000 | [1] | ||
Options granted | 10,296,000 | |||
Options exercised | (2,625,000) | |||
Options canceled | ||||
Options Outstanding, Ending of year | 7,671,000 | 10,296,000 | [1] | |
Options Vested and exercisable and expected to vest, end of year | 7,671,000 | 10,296,000 | ||
Weighted Average Exercise Price Options outstanding, beginning of year | $ 0.00024 | |||
Weighted Average Exercise Price Options exercised | 0.00024 | |||
Weighted Average Exercise Price Options outstanding, end of year | 0.00024 | $ 0.00024 | ||
Weighted Average Exercise Price Vested and exercisable and expected to vest, end of year | $ 0.00024 | $ 0.00024 | ||
Weighted Average Remaining Contractual Term (Years) Options Outstanding, beginning of year | 2 years 2 months 12 days | 0 years | ||
Weighted Average Remaining Contractual Term (Years) Options Outstanding, Ending of year | 1 year 2 months 12 days | 2 years 2 months 12 days | ||
Weighted Average Remaining Contractual Term (Years) Vested and exercisable and expected to vest, end of year | 1 year 2 months 12 days | 2 years 2 months 12 days | ||
Aggregate Intrinsic Value, Outstanding Beginning | $ 3,263,832 | |||
Aggregate Intrinsic Value, Options exercised | 183,750 | |||
Aggregate Intrinsic Value, Outstanding Ending | 536,970 | $ 3,263,832 | ||
Aggregate Intrinsic Value, Vested and exercisable and expected to vest, end of year | $ 536,970 | $ 3,263,832 | ||
[1] | The stock options outstanding are the result of converting the existing options in Safari into options in Surna as a result of the Safari acquisition. The options were all fully vested at the date of the acquisition. Accordingly, there was no unrecognized compensation. The options expire in March 2017. |
Warrants and Options - Schedu82
Warrants and Options - Schedule of Stock Options Outstanding and Exercisable (Details) | 12 Months Ended |
Dec. 31, 2015$ / sharesshares | |
Stock option exercise price | $ 0.00024 |
Stock Option [Member] | |
Stock option exercise price | $ 0.00024 |
Options Outstanding Number of Outstanding shares | shares | 7,671,000 |
Options Outstanding Weighted Average Exercise Price | $ 0.00024 |
Options Outstanding Weighted Average Remaining Contractual Term (Years) | 1 year 2 months 12 days |
Options Exercisable Number of Exercisable shares | shares | 7,671,000 |
Options Exercisable Weighted Average Exercise Price | $ 0.00024 |
Subsequent Events (Details Narr
Subsequent Events (Details Narrative) - USD ($) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2016 | Dec. 31, 2015 | |
Common shares issued pursuant to conversion of debt and accrued interest, net | $ 1,668,267 | |
Subsequent Event [Member] | Series 3 Convertible Notes [Member] | ||
Common shares issued pursuant to conversion of debt and accrued interest, net | $ 445,926 | |
Common shares issued pursuant to conversion of debt and accrued interest, net, shares | 9,947,281 |