Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2017 | May 10, 2017 | |
Document And Entity Information | ||
Entity Registrant Name | Surna Inc. | |
Entity Central Index Key | 1,482,541 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 183,294,028 | |
Trading Symbol | SRNA | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2,017 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) | Mar. 31, 2017 | Dec. 31, 2016 |
Current Assets | ||
Cash | $ 1,969,145 | $ 319,546 |
Accounts receivable (net of allowance for doubtful accounts of $91,000 and $91,000 respectively) | 63,183 | 47,166 |
Notes receivable | 80,000 | 157,218 |
Inventory | 774,044 | 747,905 |
Prepaid expenses | 125,191 | 84,976 |
Total Current Assets | 3,011,563 | 1,356,811 |
Noncurrent Assets | ||
Property and equipment, net | 83,002 | 93,565 |
Intangible assets, net | 670,732 | 667,445 |
Total Noncurrent Assets | 753,734 | 761,010 |
TOTAL ASSETS | 3,765,297 | 2,117,821 |
Current Liabilities | ||
Accounts payable and accrued liabilities | 1,076,205 | 1,337,853 |
Deferred revenue | 924,861 | 1,421,344 |
Notes Payable, net | 475,559 | |
Amounts due shareholders | 69,383 | 57,398 |
Convertible promissory notes, net | 761,440 | |
Convertible accrued interest | 161,031 | |
Derivative liability on warrants | 422,814 | 477,814 |
Total Current Liabilities | 2,968,822 | 4,216,880 |
Noncurrent Liabilities | ||
Amounts due shareholders-long term | 11,985 | |
Total Noncurrent Liabilities | 11,985 | |
TOTAL LIABILITIES | 2,968,822 | 4,228,865 |
SHAREHOLDERS’ EQUITY (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; 183,294,028 and 160,744,916 shares issued and outstanding, respectively | 1,832 | 1,607 |
Paid in capital | 16,130,912 | 12,222,789 |
Accumulated deficit | (15,337,041) | (14,336,212) |
Total Shareholders’ Equity (Deficit) | 796,475 | (2,111,044) |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ 3,765,297 | $ 2,117,821 |
Condensed Consolidated Balance3
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) | Mar. 31, 2017 | Dec. 31, 2016 |
Statement of Financial Position [Abstract] | ||
Allowance for doubtful accounts | $ 91,000 | $ 91,000 |
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 | 183,294,028 | 160,744,916 |
Common stock, shares outstanding | 183,294,028 | 160,744,916 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Income Statement [Abstract] | ||
Revenue | $ 1,593,092 | $ 2,498,604 |
Cost of revenue | 1,164,756 | 1,409,944 |
Gross margin | 428,336 | 1,088,660 |
Operating expenses: | ||
Advertising and marketing expenses | 106,205 | 48,065 |
Product development costs | 93,789 | 106,279 |
Selling, general and administrative expenses | 817,960 | 569,337 |
Total operating expenses | 1,017,954 | 723,681 |
Operating income (loss) | (589,618) | 364,979 |
Other income (expense): | ||
Interest and other income, net | 2,951 | 6,164 |
Interest expense | (27,114) | (272,972) |
Amortization of debt discount on convertible promissory notes | (27,048) | (422,668) |
Loss on extinguishment of debt | (415,000) | |
(Loss) gain on change in derivative liabilities | 55,000 | (421,717) |
Total other expense | (411,211) | (1,111,193) |
Loss from continuing operations before provision for income taxes | (1,000,829) | (746,214) |
Provision for Income taxes | ||
Net loss | (1,000,829) | (746,214) |
Other comprehensive income (expense) | ||
Comprehensive loss | $ (1,000,829) | $ (746,214) |
Loss per common share – basic and dilutive | $ (0.01) | $ (0.01) |
Weighted average number of shares outstanding, both basic and dilutive | 168,224,209 | 130,268,814 |
Condensed Consolidated Stateme5
Condensed Consolidated Statements of Changes in Shareholders' Deficit (Unaudited) - 3 months ended Mar. 31, 2017 - USD ($) | Preferred Stock [Member] | Common Stock [Member] | Paid In Capital [Member] | Accumulated Deficit [Member] | Total |
Balance at Dec. 31, 2016 | $ 772 | $ 1,607 | $ 12,222,789 | $ (14,336,212) | $ (2,111,044) |
Balance, shares at Dec. 31, 2016 | 77,220,000 | 160,744,916 | |||
Common shares issued on conversion of debt and accrued interest, net of unamortized debt discount | $ 50 | 995,105 | $ 995,155 | ||
Common shares issued on conversion of debt and accrued interest, net of unamortized debt discount, shares | 5,001,554 | 5,001,554 | |||
Value attributed to modification of warrants | 59,000 | $ 59,000 | |||
Common shares issued as compensation for services | $ 7 | 130,062 | 130,069 | ||
Common shares issued as compensation for services, shares | 740,000 | ||||
Common shares issued in connection with issuance of notes payable | $ 3 | 39,121 | 39,124 | ||
Common shares issued in connection with issuance of notes payable, shares | 250,000 | ||||
Common shares issued for cash | $ 167 | 2,684,833 | 2,685,000 | ||
Common shares issued for cash, shares | 16,781,250 | ||||
Other common shares | $ (2) | 2 | 0 | ||
Other common shares, shares | (223,692) | ||||
Net loss | (1,000,829) | (1,000,829) | |||
Balance at Mar. 31, 2017 | $ 772 | $ 1,832 | $ 16,130,912 | $ (15,337,041) | $ 796,475 |
Balance, shares at Mar. 31, 2017 | 77,220,000 | 183,294,028 |
Condensed Consolidated Stateme6
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Cash Flows from Operating Activities: | ||
Net loss | $ (1,000,829) | $ (746,214) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||
Depreciation and intangible asset amortization expense | 11,752 | 13,579 |
Amortization of debt discounts on convertible notes | 20,181 | 422,668 |
Amortization of original issue discount on notes payable | 7,663 | 25,576 |
(Gain) loss on change in derivative liability | (55,000) | 421,717 |
Compensation paid in stock | 130,069 | 3,048 |
Non-cash interest expense | 141,228 | |
Provision for doubtful accounts | 44,127 | |
Loss on extinguishment of debt | 415,000 | |
Changes in operating assets and liabilities: | ||
Accounts and note receivable | 3,856 | (44,284) |
Inventory | (26,139) | 188,229 |
Prepaid expenses | (60,088) | 113,700 |
Accounts payable and accrued liabilities | (266,065) | (314,778) |
Deferred revenue | (496,483) | 409,373 |
Accrued interest | (22,060) | 105,955 |
Deferred compensation | (8,250) | |
Other liabilities | (1,294) | |
Cash (used in) provided by operating activities | (1,338,143) | 774,380 |
Cash Flows From Investing Activities: | ||
Purchase of intangible assets | (4,476) | (3,006) |
Purchase of property and equipment | (8,351) | |
Proceeds from the sale of property and equipment | 31,000 | |
Cash received on note receivable | 77,218 | 50,000 |
Cash provided by investing activities | 72,742 | 69,643 |
Cash Flows From Financing Activities: | ||
Proceeds from exercise of stock options | 358 | |
Cash proceeds from sale of stock and warrants | 2,685,000 | |
Payments on convertible notes payable | (270,000) | |
Proceeds from issuance of notes payable | 500,000 | |
Payments on loans | (34,115) | |
Cash provided by (used in) financing activities | 2,915,000 | (33,757) |
Net change in cash | 1,649,599 | 810,266 |
Cash, beginning of period | 319,546 | 330,557 |
Cash, end of period | 1,969,145 | 1,140,823 |
Supplemental cash flow information: | ||
Interest paid | 26,126 | |
Income tax paid | ||
Non-cash investing and financing activities: | ||
Conversions of promissory notes and accrued interest to common stock | 639,155 | 504,756 |
Derivative liability on convertible promissory notes and warrants | $ 431,259 |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2017 | |
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, the Company acquired Safari Resource Group, Inc. (“Safari”), a Nevada corporation, whereby the Company became the sole surviving corporation after the acquisition of Safari. In July 2014, the Company acquired 100% of the membership interests in Hydro Innovations, LLC, a Texas limited liability company (“Hydro”), pursuant to which Hydro became a wholly-owned subsidiary of the Company. The Company engineers and manufactures innovative technology and products that address the energy and resource intensive nature of indoor cultivation. The Company is focused on supplying industrial solutions to commercial indoor cannabis cultivation facilities. The Company’s engineering team is tasked with creating novel energy and resource efficient solutions, including the Company’s proprietary liquid-cooled climate control platform. The Company’s engineers continuously seek to create technologies that allow growers to meet the specific demands of a cannabis cultivation environment through temperature, humidity, light, and process control. The Company’s objective is to provide intelligent solutions that improve the quality, control and overall crop yield and efficiency of indoor cannabis cultivation. The Company is headquartered in Boulder, Colorado. The Company does not cultivate or distribute cannabis. Financial Statement Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Pursuant to these rules and regulations, certain information and note disclosures, normally included in financial statements prepared in accordance with GAAP, have been condensed or omitted. 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. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017. The balance sheet as of December 31, 2016 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2016. The notes to the unaudited condensed consolidated financial statements are presented on a continuing basis unless otherwise noted. Basis of Presentation: The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has experienced recurring losses since its inception. The Company incurred a net loss of approximately $1,001,000 for the three months ended March 31, 2017, and had an accumulated deficit of approximately $15,337,000 as of March 31, 2017. Since inception, the Company has financed its activities principally through debt and equity financing. Management expects to incur additional losses and cash outflows in the foreseeable future in connection with its operating activities. The Company’s consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company is subject to a number of risks similar to those of other similar stage companies, including dependence on key individuals, successful development, marketing and branding of products; uncertainty of product development and generation of revenues; dependence on outside sources of financing; risks associated with research, development; dependence on third-party, suppliers and collaborators; protection of intellectual property; and competition with larger, better-capitalized companies. Ultimately, the attainment of profitable operations is dependent on future events, including obtaining adequate financing to fund its operations and generating a level of revenues adequate to support the Company’s cost structure. During the three months ended March 31, 2017, the Company extinguished convertible promissory notes in the principal amount of $510,000 through the issuance of shares of its common stock (See Note 2) and raised $2,685,000 in a private placement of the Company’s common stock and attached warrants to accredited investors (see Note 5). The Company will need to raise debt and equity financing in the future in order to continue its operations, however, there can be no assurance that such financing will be available in sufficient amounts and on acceptable terms, when and if needed, or at all. If results of operations for 2017 do not meet management’s expectations, or additional capital is not available, management believes the Company has the ability to reduce certain expenditures. The precise amount and timing of the funding needs cannot be determined accurately at this time, and will depend on a number of factors, including market demand for the Company’s products and services, the success of product development efforts, the management of working capital, and the continuation of normal payment terms and conditions for purchase of goods and services. The Company is uncertain whether its cash balances and cash flow from operations will be sufficient to fund its operations for the next twelve months. If the Company is unable to substantially increase revenues, reduce expenditures, or otherwise generate cash flows from operations, then the Company will need to raise additional funding to continue as a going concern from investors or through other avenues. Basis of Consolidation and Reclassifications: The condensed consolidated financial statements include the accounts of the Company and its controlled and wholly-owned subsidiary. Intercompany transactions, profits, 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 revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that it believes 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 the Company’s operating results. Key estimates include: valuation of derivative liabilities, valuation of intangible assets, and valuation of deferred tax assets and liabilities. Recent Accounting Pronouncements: In January 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-01, Clarifying the Definition of a Business In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting In February 2016, the FASB issued ASU 2016-02, Leases In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers In March, April, May, and December 2016, the FASB issued the following updates, respectively, to provide supplemental adoption guidance and clarification to ASU 2014-09. These standards must be adopted concurrently upon the adoption of ASU 2014-09. The Company is currently evaluating the potential effects of adopting the provisions of these updates. ● ASU No. 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ● ASU No. 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing; ● ASU No. 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients; and ● ASU No. 2016-19, Technical Corrections and Improvements |
Convertible Promissory Notes
Convertible Promissory Notes | 3 Months Ended |
Mar. 31, 2017 | |
Debt Disclosure [Abstract] | |
Convertible Promissory Notes | NOTE 2 – CONVERTIBLE PROMISSORY NOTES During the three months ended March 31, 2017, the Company entered into note conversion and warrant amendment agreements (each an “Agreement” and together, the “Agreements”) to: (i) amend the convertible promissory notes – series 2 (“Original Notes”) to reduce the conversion price of such holder’s Original Note and simultaneously cause the conversion of the outstanding amount under such Original Note into shares of common stock of the Company (“Conversion Shares”); and (ii) reduce the exercise price of the original warrant (“Original Warrants” and together with the amended notes and the amended warrants, the “Amendments”). Each Agreement has been privately negotiated so the terms vary. Pursuant to the Agreements, the Original Notes have been amended to reflect a reduced conversion price per share between $0.09 and $0.22. Additionally, pursuant to the Agreements , Pursuant to the Agreements, the Company (i) converted Original Notes with an aggregate outstanding principal amount of $510,000 and accrued interest of $129,150 in exchange for the issuance of 5,011,554 shares of the Company’s common stock, and (ii) amended Original Warrants to reduce their exercise price. During the three months ended March 31, 2017, the Company also made payments of $314,150 to settle convertible promissory notes in the principal amount of $270,000 and accrued interest of $44,150. As of March 31, 2017, the Company had no convertible notes outstanding. The Company has accounted for the Agreements as debt extinguishment in accordance with ASC 470 - Debt section 470-50-40-2 where by the difference between the reacquisition price of the debt and the net carrying amount of the extinguished debt was recognized as a loss during for the three months ended March 31, 2017. The following details the calculation of the loss on extinguishment of the notes payable – series 2: Carrying amount of debt Principal converted $ 510,000 Accrued interest converted 134,553 Unamortized debt discount (5,398 ) Total carrying amount of debt 639,155 Reacquisition price of debt Fair value of shares of common stock issued 995,155 Warrant modification value 59,000 Total reacquisition price of debt 1,054,155 Loss on extinguishment of debt $ (415,000 ) |
Promissory Notes
Promissory Notes | 3 Months Ended |
Mar. 31, 2017 | |
Debt Disclosure [Abstract] | |
Promissory Notes | NOTE 3 – PROMISSORY NOTES In February 2017, the Company entered into a securities purchase agreement with two accredited investors for the issuance of promissory notes in the aggregate original principal amount of $537,500. In addition, each investor received 125,000 shares, an aggregate of 250,000, shares of the Company’s common stock. The notes are unsecured, bear interest at 6%, per annum and are due and payable, with all accrued interest, on November 9, 2017. The total proceeds were approximately $500,000 with an original issue discount of approximately $37,500. In accordance with ASU 470, the Company has allocated the cash proceeds amount between the debt and shares issued on a relative fair value basis. Based on relative fair value, the Company allocated approximately $461,000 and $39,000 to the promissory notes and the shares of common stock, respectively. The original issue discount of $37,500 and fair value of the shares issued of $39,000 are being amortized and expensed over the term of the loans. For the three months ended March 31, 2017, the amortization expense was approximately $14,000. In the event of a default under the terms of the promissory notes, the interest rate automatically increases to 18% per annum, until as such time the default event is cured. The events of default include suspension from trading of the Company’s common stock, failure to pay principal or interest when due, commencement of bankruptcy or insolvency proceedings or a change of control. |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Mar. 31, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | NOTE 4 – COMMITMENTS AND CONTINGENCIES Litigation From time to time, in the normal course of its operations, the Company is subject to litigation matters and claims. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict and the Company’s view of these matters may change in the future as the litigation and events related thereto unfold. The Company expenses legal fees as incurred. The Company records a liability for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. An unfavorable outcome to any legal matter, if material, could have an adverse effect on the Company’s operations or its financial position, liquidity or results of operations. Stock Options of Former CEO In March 2017, a former CEO of the Company requested to exercise an option to purchase 3,000,000 shares of the Company’s common stock at an exercise price of $.00024 per share. The stock option expired in March 2017. The Company’s Board of Directors has not approved the request for the issuance of the common stock under the stock option. The Company’s Board of Directors is reviewing the and the prior relationship between the Company and the former CEO. |
Shareholders' Equity
Shareholders' Equity | 3 Months Ended |
Mar. 31, 2017 | |
Equity [Abstract] | |
Shareholders' Equity | NOTE 5 – SHAREHOLDERS’ EQUITY Shares Issued as Compensation for Services On March 14, 2017, Timothy J. Keating and the Company entered into a Board of Directors Agreement (the “Agreement”). Pursuant to the Agreement, as a non-executive director of the Company and non-employee Chairman of the Board, Mr. Keating is entitled to an annual retainer of $75,000, of which $60,000 is paid for serving as an independent director ($30,000 paid in cash and $30,000 paid in shares of common stock) and $15,000 is paid for serving as Chairman of the Board. The Company also issued Mr. Keating an equity retention payment of 1,400,000 shares of the Company’s restricted common stock (i) 700,000 shares which vested immediately (“Retention Shares”) and (ii) 700,000 shares (“Vesting Shares”) which will vest on March 1, 2018. In accordance with ASC 505-50 Stock-Based Compensation Issued to Nonemployees, the Retention Shares were valued, using the closing price for the Company’s common stock, as of the date of ratification for total value of approximately $122,000, which was expensed as compensation. The fair value of the Vesting Shares will be expensed on a prorated basis over the vesting period. The fair value will be equal to the fair value of the Vesting Shares on the date the service period ends. As of March 31, 2017, the fair value was estimated to be approximately $127,000. As of March 31, 2017, the compensation expense for the Vesting Shares was approximately $6,000. During the three months ended March 31, 2017, the Company also issued 40,000 shares of common stock to an employee which were valued at $8,840 on the date of issuance. Stock Options of Current CEO In March 2017, in a private transaction, Stephen and Brandy Keen, principal shareholders of the Company (“Keens”), assigned to Trent Doucet, the Company’s current CEO, stock options to purchase an aggregate of 3,088,800 shares of the Company’s common stock at a purchase price of $0.00024 per share (the “Stock Option”). The Keens have informed the Company that they agreed to assign the Stock Options as an incentive (i) for the CEO to complete the negotiations with the Company’s existing convertible noteholders to convert their notes into shares of the Company’s common stock, and (ii) for the CEO to complete a private placement of the Company’s common stock of at least $2,225,000. The CEO thereupon delivered a purported notice of exercise of the Stock Option to the Company just prior to the expiration of the Stock Option. The Company erroneously reported in its Form 10-K for the year ended December 31, 2016 that 3,088,800 shares of common stock underlying the Stock Option had been issued during the three months ended March 31, 2017. Prior to the Company’s acceptance of the notice of exercise and issuances of the shares in response thereto, in May 2017, Mr. Doucet and the Keens entered into a rescission agreement to nullify the March 2017 assignment transaction. Pursuant to its terms, the Stock Option has since expired. Private Placement In March 2017, the Company entered into a Securities Purchase Agreement (the “Agreement”) with certain accredited investors (the “Investors”). The Company issued an aggregate of 16,781,250 investment units (the “Units”), for aggregate gross proceeds of $2,685,000. Each Unit consisted of one share of the Company’s common stock and one warrant for the purchase of one share of the Company’s common stock; however, one investor declined receipt of the warrant to purchase 468,750 shares of the Company’s common stock. Pursuant to each of the warrants, the holder thereof may, subject to the terms of the warrant, at any time on or after six months after the date of the warrant and on or prior to the close of business on the date that is the third anniversary of the date of the warrant, purchase up to the number of shares of the Company’s common stock as set forth in the respective warrant. The exercise price per share of the common stock under each warrant is $0.26, subject to adjustment as provided in the warrant. Each warrant is callable at the Company’s option commencing six months from the date of the warrant, provided the Company’s common stock trades at a volume weighted average price (“VWAP”) of $0.42 or greater (subject to adjustment) for five consecutive trading days (the “Call Condition”). Commencing at any time after the date on which the Call Condition is satisfied, the Company has the right, upon 30 days’ notice to the holder given not later than 30 trading days after the date on which the Call Condition is satisfied, to redeem the number of warrant shares specified in the applicable Call Condition at a price of $0.01 per warrant share, subject to the terms of the warrant. |
Subsequent Events
Subsequent Events | 3 Months Ended |
Mar. 31, 2017 | |
Subsequent Events [Abstract] | |
Subsequent Events | NOTE 6 – SUBSEQUENT EVENTS In accordance with ASC 855, “Subsequent Events”, the Company has evaluated all subsequent events through May 10, 2017, the date the financial statements were available to be issued. The following significant events occurring after March 31, 2017 are discussed below. Keen Consulting Agreement On May 10, 2017, the Company’s board of directors approved a three-year consulting agreement between the Company and Stephen Keen, a principal shareholder of the Company and a former officer and director. Under the consulting agreement, Mr. Keen will provide certain consulting services to the Company including research and development, new product design and innovations, existing product enhancements and improvements, and other technology advancements with respect to the Company’s business and products in exchange for an annual consulting fee of $30,000 per year. The consulting agreement also includes certain activity restrictions which prohibit Mr. Keen from competing with the Company. In connection with the execution of this consulting agreement, Mr. Keen resigned as a director of the Company on May 10, 2017. Mr. Keen’s employment with the Company ceased as of April 28, 2017. Sterling Pharms Equipment Agreement On May 10, 2017, the Company’s board of directors approved a three-year equipment, demonstration and product testing agreement between the Company and Sterling Pharms, LLC (“Sterling”), an entity controlled by Mr. Keen, which operates a Colorado-regulated cannabis cultivation facility. Under this agreement, the Company has agreed to provide to Sterling certain lighting, environmental control, and air sanitation equipment for use at the Sterling facility in exchange for a quarterly fee of $16,500. Also, under this agreement, Sterling has agreed to allow the Company and its existing and prospective customers to have access to the Sterling facility for demonstration tours in a working environment, which the Company believes will assist it in the sale of its products. Sterling has also agreed to monitor, test and evaluate the Company’s products installed at the Sterling facility and to collect data and provide feedback to the Company on the energy and operational efficiency and efficacy of the installed products, which the Company intends to use to improve, enhance and develop new or additional product features, innovations and technologies. In consideration for access to the Sterling facility to conduct demonstration tours and for the product testing and data to be provided by Sterling, the Company will pay Sterling a quarterly fee of $12,000. |
Related Party Transactions
Related Party Transactions | 3 Months Ended |
Mar. 31, 2017 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | NOTE 7 – RELATED PARTY TRANSACTIONS On May 10, 2017, the Company entered into a three-year consulting agreement with Mr. Keen, a principal shareholder of the Company and a former officer and director (see Note 6-Subsequent Events-Keen Consulting Agreement). On May 10, 2017, the Company entered into a three-year equipment, demonstration and product testing agreement with Sterling, an entity controlled by Mr. Keen, which operates a Colorado-regulated cannabis cultivation facility (see Note 6-Subsequent Events-Sterling Pharms Equipment Agreement). |
Summary of Significant Accoun14
Summary of Significant Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2017 | |
Accounting Policies [Abstract] | |
Company | Company: Surna Inc. incorporated in Nevada on October 15, 2009. On March 26, 2014, the Company acquired Safari Resource Group, Inc. (“Safari”), a Nevada corporation, whereby the Company became the sole surviving corporation after the acquisition of Safari. In July 2014, the Company acquired 100% of the membership interests in Hydro Innovations, LLC, a Texas limited liability company (“Hydro”), pursuant to which Hydro became a wholly-owned subsidiary of the Company. The Company engineers and manufactures innovative technology and products that address the energy and resource intensive nature of indoor cultivation. The Company is focused on supplying industrial solutions to commercial indoor cannabis cultivation facilities. The Company’s engineering team is tasked with creating novel energy and resource efficient solutions, including the Company’s proprietary liquid-cooled climate control platform. The Company’s engineers continuously seek to create technologies that allow growers to meet the specific demands of a cannabis cultivation environment through temperature, humidity, light, and process control. The Company’s objective is to provide intelligent solutions that improve the quality, control and overall crop yield and efficiency of indoor cannabis cultivation. The Company is headquartered in Boulder, Colorado. The Company does not cultivate or distribute cannabis. |
Financial Statement Presentation | Financial Statement Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Pursuant to these rules and regulations, certain information and note disclosures, normally included in financial statements prepared in accordance with GAAP, have been condensed or omitted. 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. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017. The balance sheet as of December 31, 2016 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2016. The notes to the unaudited condensed consolidated financial statements are presented on a continuing basis unless otherwise noted. |
Basis of Presentation | Basis of Presentation: The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has experienced recurring losses since its inception. The Company incurred a net loss of approximately $1,001,000 for the three months ended March 31, 2017, and had an accumulated deficit of approximately $15,337,000 as of March 31, 2017. Since inception, the Company has financed its activities principally through debt and equity financing. Management expects to incur additional losses and cash outflows in the foreseeable future in connection with its operating activities. The Company’s consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company is subject to a number of risks similar to those of other similar stage companies, including dependence on key individuals, successful development, marketing and branding of products; uncertainty of product development and generation of revenues; dependence on outside sources of financing; risks associated with research, development; dependence on third-party, suppliers and collaborators; protection of intellectual property; and competition with larger, better-capitalized companies. Ultimately, the attainment of profitable operations is dependent on future events, including obtaining adequate financing to fund its operations and generating a level of revenues adequate to support the Company’s cost structure. During the three months ended March 31, 2017, the Company extinguished convertible promissory notes in the principal amount of $510,000 through the issuance of shares of its common stock (See Note 2) and raised $2,685,000 in a private placement of the Company’s common stock and attached warrants to accredited investors (see Note 5). The Company will need to raise debt and equity financing in the future in order to continue its operations, however, there can be no assurance that such financing will be available in sufficient amounts and on acceptable terms, when and if needed, or at all. If results of operations for 2017 do not meet management’s expectations, or additional capital is not available, management believes the Company has the ability to reduce certain expenditures. The precise amount and timing of the funding needs cannot be determined accurately at this time, and will depend on a number of factors, including market demand for the Company’s products and services, the success of product development efforts, the management of working capital, and the continuation of normal payment terms and conditions for purchase of goods and services. The Company is uncertain whether its cash balances and cash flow from operations will be sufficient to fund its operations for the next twelve months. If the Company is unable to substantially increase revenues, reduce expenditures, or otherwise generate cash flows from operations, then the Company will need to raise additional funding to continue as a going concern from investors or through other avenues. |
Basis of Consolidation and Reclassifications | Basis of Consolidation and Reclassifications: The condensed consolidated financial statements include the accounts of the Company and its controlled and wholly-owned subsidiary. Intercompany transactions, profits, 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 revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that it believes 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 the Company’s operating results. Key estimates include: valuation of derivative liabilities, valuation of intangible assets, and valuation of deferred tax assets and liabilities. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements: In January 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-01, Clarifying the Definition of a Business In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting In February 2016, the FASB issued ASU 2016-02, Leases In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers In March, April, May, and December 2016, the FASB issued the following updates, respectively, to provide supplemental adoption guidance and clarification to ASU 2014-09. These standards must be adopted concurrently upon the adoption of ASU 2014-09. The Company is currently evaluating the potential effects of adopting the provisions of these updates. ● ASU No. 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ● ASU No. 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing; ● ASU No. 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients; and ● ASU No. 2016-19, Technical Corrections and Improvements |
Convertible Promissory Notes (T
Convertible Promissory Notes (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Debt Disclosure [Abstract] | |
Schedule of Loss on Extinguishment of Notes Payable | The following details the calculation of the loss on extinguishment of the notes payable – series 2: Carrying amount of debt Principal converted $ 510,000 Accrued interest converted 134,553 Unamortized debt discount (5,398 ) Total carrying amount of debt 639,155 Reacquisition price of debt Fair value of shares of common stock issued 995,155 Warrant modification value 59,000 Total reacquisition price of debt 1,054,155 Loss on extinguishment of debt $ (415,000 ) |
Summary of Significant Accoun16
Summary of Significant Accounting Policies (Details Narrative) - USD ($) | 3 Months Ended | |||
Mar. 31, 2017 | Mar. 31, 2016 | Dec. 31, 2016 | Jul. 31, 2014 | |
Net loss incurred | $ 1,000,829 | $ 746,214 | ||
Accumulated deficit | 15,337,041 | $ 14,336,212 | ||
Convertible promissory notes principal amount | 510,000 | |||
Cash proceeds from sale of stock and warrants | $ 2,685,000 | |||
Hydro Innovations, LLC [Member] | ||||
Percentage of interest acquired | 100.00% |
Convertible Promissory Notes (D
Convertible Promissory Notes (Details Narrative) | 3 Months Ended |
Mar. 31, 2017USD ($)$ / sharesshares | |
Common shares issued pursuant to conversion of debt and accrued interest, net, shares | shares | 5,001,554 |
Accrued interest | $ | $ 129,150 |
Convertible promissory notes principal amount | $ | 510,000 |
Convertible Notes Payable [Member] | |
Accrued interest | $ | 44,150 |
Convertible promissory notes | $ | 314,150 |
Convertible promissory notes principal amount | $ | $ 270,000 |
Note Conversion Agreements [Member] | Minimum [Member] | |
Conversion price per share | $ / shares | $ 0.09 |
Note Conversion Agreements [Member] | Maximum [Member] | |
Conversion price per share | $ / shares | 0.22 |
Warrant Amendment Agreements [Member] | Minimum [Member] | |
Exercise price of warrants | $ / shares | 0.30 |
Warrant Amendment Agreements [Member] | Minimum [Member] | One Original Warrants [Member] | |
Exercise price of warrants | $ / shares | 0.15 |
Warrant Amendment Agreements [Member] | Maximum [Member] | |
Exercise price of warrants | $ / shares | $ 0.35 |
Convertible Promissory Notes -
Convertible Promissory Notes - Schedule of Loss on Extinguishment of Notes Payable (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Carrying Amount of debt Unamortized debt discount | $ 37,500 | |
Reacquisition price of debt Fair value of shares issued | 39,000 | |
Reacquisition price of debt Warrant modification value | 59,000 | |
Loss on Extinguishment | (415,000) | |
Series 2 Notes [Member] | ||
Carrying Amount of debt Principal converted | 510,000 | |
Carrying Amount of debt Interest converted | 134,553 | |
Carrying Amount of debt Unamortized debt discount | (5,398) | |
Carrying Amount of debt | 639,155 | |
Reacquisition price of debt Fair value of shares issued | 995,155 | |
Reacquisition price of debt Warrant modification value | 59,000 | |
Reacquisition price of debt | 1,054,155 | |
Loss on Extinguishment | $ (415,000) |
Promissory Notes (Details Narra
Promissory Notes (Details Narrative) - USD ($) | Feb. 28, 2017 | Feb. 28, 2017 | Mar. 31, 2017 | Nov. 09, 2017 |
Number of common stock shares issued for debt | 5,001,554 | |||
Interest rate on promissory note | 6.00% | |||
Proceeds from issuance of notes payable | $ 500,000 | |||
Issued discount | 37,500 | |||
Promissory notes, fair value | 461,000 | |||
Fair value of shares issued | 39,000 | |||
Amortization expenses | $ 14,000 | |||
Maximum [Member] | ||||
Interest rate on promissory note | 18.00% | |||
Two Accredited Investors [Member] | ||||
Convertible promissory notes | $ 537,500 | $ 537,500 | ||
Number of common stock shares issued for debt | 250,000 | |||
Accredited Investors 1[Member] | ||||
Number of common stock shares issued for debt | 125,000 | |||
Accredited Investors 2 [Member] | ||||
Number of common stock shares issued for debt | 125,000 |
Commitments and Contingencies (
Commitments and Contingencies (Details Narrative) | 3 Months Ended |
Mar. 31, 2017$ / sharesshares | |
Commitments and Contingencies Disclosure [Abstract] | |
Lease expiration date | Mar. 31, 2017 |
Stock option exercise for payment | shares | 3,000,000 |
Common stock, exercise price | $ / shares | $ 0.00024 |
Shareholders' Equity (Details N
Shareholders' Equity (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Share based compensation expense | $ 130,069 | $ 3,048 |
Number of common shares issued, value | $ 2,685,000 | |
Chief Executive Officer [Member] | ||
Common stock purchase price per share | $ 0.00024 | |
Employee [Member] | ||
Number of common shares issued | 40,000 | |
Number of common shares issued, value | $ 8,840 | |
Board of Directors Agreement [Member] | Timothy J. Keating [Member] | ||
Officer compensation | $ 75,000 | |
Number of restricted common stock issued for equity retention payment | 1,400,000 | |
Share based compensation expense | $ 122,000 | |
Fair value of vesting shares | $ 127,000 | |
Board of Directors Agreement [Member] | Timothy J. Keating [Member] | Retention Shares [Member] | ||
Number of restricted common stock issued for equity retention payment | 700,000 | |
Board of Directors Agreement [Member] | Timothy J. Keating [Member] | Vesting Retention Shares [Member] | ||
Number of restricted common stock issued for equity retention payment | 700,000 | |
Share based compensation expense | $ 6,000 | |
Board of Directors Agreement [Member] | Timothy J. Keating [Member] | Independent Director [Member] | ||
Officer compensation | 60,000 | |
Compensation paid in cash | $ 30,000 | |
Number of Common shares issued for compensation | 30,000 | |
Board of Directors Agreement [Member] | Timothy J. Keating [Member] | Chairman of Board [Member] | ||
Compensation paid in cash | $ 15,000 | |
Securities Purchase Agreement [Member] | Investors [Member] | ||
Number of common shares issued | 16,781,250 | |
Cash proceeds from sale of stock and warrants | $ 2,685,000 | |
Number of warrants issued to purchase shares of common stock | 16,312,500 | |
Stock option weighted average exercise price | $ 0.42 | |
Warrant redemption price | $ 0.01 |
Subsequent Events (Details Narr
Subsequent Events (Details Narrative) - Subsequent Event [Member] | May 10, 2017USD ($) |
Consulting Agreement [Member] | |
Annual consulting fee | $ 30,000 |
Equipment Demonstration And Product Testing Agreement [Member] | |
Quarterly fee | 16,500 |
Equipment Demonstration And Product Testing Agreement [Member] | Sterling Pharms, LLC [Member] | |
Quarterly fee | $ 12,000 |