Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2020 | Jun. 25, 2020 | |
Change in valuation | ||
Entity Registrant Name | Surna Inc. | |
Entity Central Index Key | 0001482541 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2020 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business Flag | true | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 236,526,638 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2020 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Current Assets | ||
Cash and cash equivalents | $ 194,290 | $ 922,177 |
Accounts receivable (net of allowance for doubtful accounts of $151,673 and $151,673, respectively) | 137,669 | 138,357 |
Inventory, net | 1,314,179 | 1,231,243 |
Prepaid expenses and other | 194,567 | 269,491 |
Total Current Assets | 1,840,705 | 2,561,268 |
Noncurrent Assets | ||
Property and equipment, net | 238,339 | 257,923 |
Goodwill | 631,064 | 631,064 |
Intangible assets, net | 7,661 | 11,930 |
Deposits | 51,000 | 51,000 |
Operating lease right-of-use asset | 487,467 | 534,133 |
Total Noncurrent Assets | 1,415,531 | 1,486,050 |
TOTAL ASSETS | 3,256,236 | 4,047,318 |
CURRENT LIABILITIES | ||
Accounts payable and accrued liabilities | 2,133,254 | 1,832,959 |
Deferred revenue | 1,153,368 | 1,444,472 |
Accrued equity compensation | 36,463 | 503,466 |
Current portion of operating lease liability | 222,397 | 217,843 |
Total Current Liabilities | 3,545,482 | 3,998,740 |
NONCURRENT LIABILITIES | ||
Operating lease liability, net of current portion | 346,806 | 404,209 |
Total Noncurrent Liabilities | 346,806 | 404,209 |
TOTAL LIABILITIES | 3,892,288 | 4,402,949 |
Commitments and Contingencies (Note 6) | ||
SHAREHOLDERS' (DEFICIT) EQUITY | ||
Preferred stock, $0.00001 par value; 150,000,000 shares authorized; 42,030,331 shares issued and outstanding | 420 | 420 |
Common stock, $0.00001 par value; 350,000,000 shares authorized; 236,526,638 and 228,216,638 shares issued and outstanding, respectively | 2,366 | 2,283 |
Additional paid in capital | 25,984,402 | 25,326,593 |
Accumulated deficit | (26,623,240) | (25,684,927) |
Total Shareholders' (Deficit) Equity | (636,052) | (355,631) |
TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY | $ 3,256,236 | $ 4,047,318 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Statement of Financial Position [Abstract] | ||
Allowance for doubtful accounts, net | $ 151,673 | $ 151,673 |
Preferred stock, par value | $ 0.00001 | $ 0.00001 |
Preferred stock, shares authorized | 150,000,000 | 150,000,000 |
Preferred stock, shares issued | 42,030,331 | 42,030,331 |
Preferred stock, shares outstanding | 42,030,331 | 42,030,331 |
Common stock, par value | $ 0.00001 | $ 0.00001 |
Common stock, shares authorized | 350,000,000 | 350,000,000 |
Common stock, shares issued | 236,526,638 | 228,216,638 |
Common stock, shares outstanding | 236,526,638 | 228,216,638 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Income Statement [Abstract] | ||
Revenue, net | $ 1,809,925 | $ 1,771,230 |
Cost of revenue | 1,353,401 | 1,281,157 |
Gross profit | 456,524 | 490,073 |
Operating expenses: | ||
Advertising and marketing expenses | 148,921 | 124,626 |
Product development costs | 144,948 | 116,933 |
Selling, general and administrative expenses | 1,108,993 | 1,170,586 |
Total operating expenses | 1,402,862 | 1,412,145 |
Operating loss | (946,338) | (922,072) |
Other (expense) income: | ||
Other (expense) income, net | 14,320 | 21,877 |
Interest expense | (6,295) | |
Total other (expense) income | 8,025 | 21,877 |
Loss before provision for income taxes | (938,313) | (900,195) |
Income taxes | ||
Net loss | $ (938,313) | $ (900,195) |
Loss per common share - basic and dilutive | $ 0 | $ 0 |
Weighted average number of common shares outstanding, basic and dilutive | 231,062,462 | 226,860,462 |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Changes in Shareholders' Equity (Deficit) (Unaudited) - USD ($) | Preferred Stock [Member] | Common Stock [Member] | Additional Paid in Capital [Member] | Accumulated Deficit [Member] | Total |
Balance at Dec. 31, 2018 | $ 420 | $ 2,250 | $ 24,538,027 | $ (24,346,361) | $ 194,336 |
Balance, shares to be issued at Dec. 31, 2018 | $ 1,000,000 | ||||
Balance, shares at Dec. 31, 2018 | 42,030,331 | 224,989,794 | |||
Common shares issued or to be issued on settlement of restricted stock units and award of stock bonuses | $ 15 | (15) | |||
Common shares issued or to be issued on settlement of restricted stock units and award of stock bonuses, shares to be issued | (880,000) | ||||
Common shares issued or to be issued on settlement of restricted stock units and award of stock bonuses, shares | 1,560,000 | ||||
Common shares issued as compensation for services | $ 10 | 74,990 | 75,000 | ||
Common shares issued as compensation for services, shares | 986,844 | ||||
Fair value of vested restricted stock units awarded to employees | 92,755 | 92,755 | |||
Fair value of vested stock options granted to employees, directors and consultants | 172,777 | 172,777 | |||
Fair value of vested incentive stock bonuses awarded to employees | 15,199 | 15,199 | |||
Net loss | (900,195) | (900,195) | |||
Balance at Mar. 31, 2019 | $ 420 | 2,275 | 24,893,733 | (25,246,556) | (350,128) |
Balance, shares to be issued at Mar. 31, 2019 | $ 120,000 | ||||
Balance, shares at Mar. 31, 2019 | 42,030,331 | 227,536,638 | |||
Balance at Dec. 31, 2019 | $ 420 | $ 2,283 | 25,326,593 | (25,684,927) | (355,631) |
Balance, shares to be issued at Dec. 31, 2019 | $ 1,560,000 | ||||
Balance, shares at Dec. 31, 2019 | 42,030,331 | 228,216,638 | |||
Common shares issued or to be issued on settlement of restricted stock units and award of stock bonuses | $ 83 | (83) | |||
Common shares issued or to be issued on settlement of restricted stock units and award of stock bonuses, shares to be issued | (1,560,000) | ||||
Common shares issued or to be issued on settlement of restricted stock units and award of stock bonuses, shares | 8,310,000 | ||||
Fair value of vested restricted stock units awarded to employees | 18,872 | 18,872 | |||
Fair value of vested stock options granted to employees, directors and consultants | 639,020 | 639,020 | |||
Net loss | (938,313) | (938,313) | |||
Balance at Mar. 31, 2020 | $ 420 | 2,366 | $ 25,984,402 | $ (26,623,240) | $ (636,052) |
Balance, shares to be issued at Mar. 31, 2020 | |||||
Balance, shares at Mar. 31, 2020 | 42,030,331 | 236,526,638 |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Cash Flows From Operating Activities: | ||
Net loss | $ (938,313) | $ (900,195) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||
Depreciation and intangible asset amortization expense | 30,735 | 48,859 |
Compensation paid in equity | 657,892 | 355,731 |
Provision for doubtful accounts | (27,802) | |
Provision for excess and obsolete inventory | (11,657) | 4,092 |
Loss on disposal of assets | 4,124 | |
Changes in operating assets and liabilities: | ||
Accounts receivable | 688 | (28,056) |
Inventory | (71,279) | 191,503 |
Prepaid expenses and other | 74,924 | 6,800 |
Accounts payable and accrued liabilities | 289,289 | 136,635 |
Deferred revenue | (291,104) | 428,827 |
Lease liability, net | (6,183) | (4,421) |
Accrued equity compensation | (467,003) | |
Net cash provided by (used in) operating activities | (727,887) | 211,973 |
Cash Flows From Investing Activities | ||
Net cash used in investing activities | ||
Cash Flows From Financing Activities | ||
Net cash provided by financing activities | ||
Net increase (decrease) in cash | (727,887) | 211,973 |
Cash, beginning of period | 922,177 | 253,387 |
Cash, end of period | 194,290 | 465,360 |
Non-cash investing and financing activities: | ||
Interest paid | ||
Income taxes paid |
General
General | 3 Months Ended |
Mar. 31, 2020 | |
Accounting Policies [Abstract] | |
General | Note 1 – General Description of Business Surna Inc. (the “Company”) was incorporated in Nevada on October 15, 2009. The Company designs, engineers and sells cultivation technologies for controlled environment agriculture including: (i) liquid-based process cooling systems and other climate control systems, (ii) air handling equipment and systems, (iii) a full-service engineering package for designing and engineering commercial scale thermodynamic systems specific to cannabis cultivation facilities, and (iv) automation and control devices, systems and technologies used for environmental, lighting and climate control. Our customers include commercial, state- and provincial-regulated cannabis growers in the U.S. and Canada as well as other international locations, including those growers building new facilities and those expanding or retrofitting existing facilities. Currently, our revenue stream is derived primarily from supplying our products, services and technologies to commercial indoor and hybrid sealed greenhouse facilities ranging from several thousand to more than 100,000 square feet. Headquartered in Boulder, Colorado, we leverage our experience in this space to bring value-added climate control solutions to our customers that help improve their overall crop quality and yield, optimize energy and water efficiency, and satisfy the evolving state and local codes, permitting and regulatory requirements. Although our customers do, we neither produce nor sell cannabis. Financial Statement Presentation The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“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. 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, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020. The balance sheet as of December 31, 2019 has been derived from the audited financial statements at that date but does not include all 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, 2019. The notes to the unaudited condensed consolidated financial statements are presented on a going concern basis. Basis of Consolidation and Reclassifications The condensed consolidated financial statements include the accounts of the Company and its controlled and wholly owned subsidiary, Hydro Innovations, LLC (“Hydro”). Intercompany transactions, profit, and balances are eliminated in consolidation. Going Concern The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has experienced recurring losses since its inception. Since inception, the Company has financed its activities principally through debt and equity financing, customer deposits and revenues from completed contracts. Management expects to incur additional losses and cash outflows in the foreseeable future in connection with its operating activities. Management believes that the economic dislocations in the overall economy, in the near term, will adversely impact our revenues, losses and cash flows. There can be no assurance that the Company will be able to raise debt or equity financing in sufficient amounts, when and if needed, on acceptable terms or at all. If results of operations for 2020 do not meet management’s expectations, or additional capital is not available, management believes it 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 the overall economy, market demand for the Company’s products and services, the quality of product development efforts, management of working capital, and continuation of normal payment terms and conditions for purchase of the Company’s products. The Company believes its cash balances and cash flow from operations will be insufficient to fund its operations for the next 12 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. The foregoing factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date the financial statements are issued. These condensed consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty. Use of Estimates Management makes 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. 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. Key estimates include: allocation of transaction prices to performance obligations under contracts with customers, standalone selling prices, timing of expected revenue recognition on remaining performance obligations under contracts with customers, valuation of intangible assets, valuation of equity-based compensation, valuation of deferred tax assets and liabilities, warranty accruals, accounts receivable and inventory allowances, and legal contingencies. Income (Loss) Per Common Share Basic income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period without consideration of common stock equivalents. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding and potentially dilutive common stock equivalents, including stock options, warrants and restricted stock units and other equity-based awards, except in cases where the effect of the common stock equivalents would be antidilutive. Potential common stock equivalents consist of common stock issuable upon exercise of stock options and warrants and the vesting of restricted stock units using the treasury method. Goodwill The Company recorded goodwill in connection with its acquisition of Hydro Innovations, LLC in July 2014. 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. The Company performs a quantitative impairment test annually on December 31 by comparing 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. An impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The Company determined that it has one reporting unit. During the three months ended March 31, 2020, the Company concluded that the projected impact of the COVID-19 pandemic on its sales, contract completion and revenues in the near term, together with the volatility in its share price during the quarter represented potential indicators of impairment. Accordingly, the Company performed an interim impairment analysis at March 31, 2020, and concluded that no impairment relating to goodwill existed at March 31, 2020. Revenue Recognition On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 (Topic 606), Revenue from Contracts with Customers Under the revenue standard, a performance obligation is a promise in a contract with a customer to transfer a distinct good or service to the customer. Most of the Company’s contracts contain multiple performance obligations that include engineering and technical services as well as the delivery of a diverse range of climate control system equipment and components, which can span multiple phases of a customer’s project life-cycle from facility design and construction to equipment delivery and system installation and start-up. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. When there are multiple performance obligations within a contract, the Company allocates the transaction price to each performance obligation based on standalone selling price. . When estimating the selling price, the Company uses various observable inputs. The best observable input is the Company’s actual selling price for the same good or service, however, this input is generally not available for the Company’s contracts containing multiple performance obligations. For engineering services, the Company estimates the standalone selling price by reference to certain physical characteristics of the project, such as facility size and mechanical systems involved, which are indicative of the scope and complexity of the mechanical engineering services to be provided. For equipment sales, the standalone selling price is determined by forecasting the expected costs of the equipment and then adding an appropriate margin, based on a range of acceptable margins established by management. Depending on the nature of the performance obligations, the Company may use a combination of different methods and observable inputs if certain performance obligations have highly variable or uncertain standalone selling prices. Once the selling prices are determined, the Company applies the relative values to the total contract consideration and estimates the amount of the transaction price to be recognized as each performance obligation is fulfilled. The Company recognizes revenue for the sale of goods when control transfers to the customer, which primarily occurs at the time of shipment. The Company’s historical rates of return are insignificant as a percentage of sales and, as a result, the Company does not record a reserve for returns at the time the Company recognizes revenue. The Company has elected to exclude from the measurement of the transaction price all taxes (e.g., sales, use, value added, and certain excise taxes) that are assessed by a governmental authority in connection with a specific revenue-producing transaction and collected by the Company from the customer. Accordingly, the Company recognizes revenue net of sales taxes. The revenue and cost for freight and shipping is recorded when control over the sale of goods passes to the Company’s customers. The Company also has performance obligations to perform certain engineering services that are satisfied over a period of time. Revenue is recognized from this type of performance obligation as services are rendered based on the percentage completion towards certain specified milestones. The Company offers assurance-type warranties for its products and products manufactured by others to meet specifications defined by the contracts with customers and does not have any material separate performance obligations related to these warranties. The Company maintains a warranty reserve based on historical warranty costs. Applying the practical expedient in ASC 606-10-32-18, which the Company has elected, the Company does not adjust the promised amount of consideration for the effects of a significant financing component since the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. Accordingly, the remaining performance obligations related to customer contracts does not consider the effects of the time value of money. Applying the practical expedient in ASC 340-40-25-4, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred since the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs include certain sales commissions and incentives, which are included in selling, general and administrative expenses, and are payable only when associated revenue has been collected and earned by the Company. The Company does not have material amounts of contract assets since revenue is recognized as control of goods is transferred or as services are performed. Contract liabilities consist of advance payments and deferred revenue. For the three months ended March 31, 2020, the Company recognized revenue of $859,705 related to the deferred revenue at January 1, 2020. For the three months ended March 31, 2019, the Company recognized revenue of $393,756 related to the deferred revenue at January 1, 2019. Remaining performance obligations, or backlog, represents the aggregate amount of the transaction price allocated to the remaining obligations that the Company has not performed under its customer contracts. The Company has elected not to use the optional exemption in ASC 606-10-50-14, which exempts an entity from such disclosures if a performance obligation is part of a contract with an original expected duration of one year or less. Accordingly, the information disclosed about remaining performance obligations includes all customer contracts, including those with an expected duration of one year or less. Industry uncertainty, project financing concerns, and the licensing and qualification of our prospective customers, which are out of the Company’s control, make it difficult for the Company to predict when it will recognize revenue on its remaining performance obligations. There are risks that the Company may not realize the full contract value on customer projects in a timely manner or at all, and completion of a customer’s cultivation facility project is dependent upon the customer’s ability to secure funding and real estate, obtain a license and then build their cultivation facility so they can take possession of the equipment. Accordingly, the time it takes for customers to complete a project, which corresponds to when the Company is able to recognize revenue, is driven by numerous factors including: (i) the large number of first-time participants interested in the indoor cannabis cultivation business; (ii) the complexities and uncertainties involved in obtaining state and local licensure and permitting; (iii) local and state government delays in approving licenses and permits due to lack of staff or the large number of pending applications, especially in states where there is no cap on the number of cultivators; (iv) the customer’s need to obtain cultivation facility financing; (v) the time needed, and coordination required, for our customers to acquire real estate and properly design and build the facility (to the stage when climate control systems can be installed); (vi) the large price tag and technical complexities of the climate control and air sanitation system; (vii) the availability of power; and (viii) delays that are typical in completing any construction project. As of March 31, 2020, the Company’s remaining performance obligations, or backlog, was $8,875,000, of which $6,292,000, or 71%, was attributable to customer contracts for which the Company has only received an initial advance payment to cover the allocated value of the Company’s engineering services (“engineering only paid contracts”). There is the risk that the equipment portion of these engineering only paid contracts will not be completed or will be delayed. These reasons include the customer being dissatisfied with the quality or timeliness of the Company’s engineering services, delay or abandonment of the project because of the customer’s inability to obtain project financing or licensing, or other reasons such as a challenging business climate including an overall post-Covid-19 economic downturn, or change in business direction. After the customer has made an advance payment for a portion of the equipment to be delivered under the contract (“partial equipment paid contracts”), the Company is typically better able to estimate the timing of revenue recognition since the risks and delays associated with licensing, permitting and project funding are typically mitigated once the initial equipment payment is received. There is significant uncertainty regarding the timing of the Company’s recognition of revenue on its remaining performance obligations, and there is no certainty that these will result in actual revenues. The backlog at March 31, 2020, includes booked sales orders of $975,000 from several customers that the Company does not expect to be realized until 2022, if at all. Given the present economic uncertainty arising from the impact of the novel coronavirus COVID-19, the Company believes that several of its current contracts may be delayed or canceled in the short term. The remaining performance obligations expected to be recognized through 2022 are as follows: 2020 2021 2022 Total Remaining performance obligations related to engineering only paid contracts $ 3,694,000 $ 2,151,000 $ 447,000 $ 6,292,000 Remaining performance obligations related to partial equipment paid contracts 1,841,000 214,000 528,000 2,583,000 Total remaining performance obligations $ 5,535,000 $ 2,365,000 $ 975,000 $ 8,875,000 The following table sets forth the Company’s revenue by source: For the Three Months Ended March 31, 2020 2019 Equipment and systems sales $ 1,606,946 $ 1,492,530 Engineering and other services 131,591 222,409 Shipping and handling 71,388 56,291 Total revenue $ 1,809,925 $ 1,771,230 Accounting for Share-Based Compensation The Company recognizes the cost resulting from all share-based compensation arrangements, including stock options, restricted stock awards and restricted stock units that the Company grants under its equity incentive plan in its condensed consolidated financial statements based on their grant date fair value. The expense is recognized over the requisite service period or performance period of the award. Awards with a graded vesting period based on service are expensed on a straight-line basis for the entire award. Awards with performance-based vesting conditions, which require the achievement of a specific company financial performance goal at the end of the performance period and required service period, are recognized over the performance period. Each reporting period, the Company reassesses the probability of achieving the respective performance goal. If the goals are not expected to be met, no compensation cost is recognized and any previously recognized amount recorded is reversed. If the award contains market-based vesting conditions, the compensation cost is based on the grant date fair value and expected achievement of market condition and is not subsequently reversed if it is later determined that the condition is not likely to be met or is expected to be lower than initially expected. The grant date fair value of stock options is based on the Black-Scholes Option Pricing Model (the “Black-Scholes Model”). The Black-Scholes Model requires judgmental assumptions including volatility and expected term, both based on historical experience. The risk-free interest rate is based on U.S. Treasury interest rates whose term is consistent with the expected term of the option. The Company determines the assumptions used in the valuation of option awards as of the date of grant. Differences in the expected stock price volatility, expected term or risk-free interest rate may necessitate distinct valuation assumptions at those grant dates. As such, the Company may use different assumptions for options granted throughout the year. During the three months ended March 31, 2020, the valuation assumptions used to determine the fair value of each option award on the date of grant were: expected stock price volatility ranged from 121.91% to 122.48%; expected term in years 5 and risk-free interest rate ranged from 1.38% to 1.67%. The grant date fair value of restricted stock and restricted stock units is based on the closing price of the underlying stock on the date of the grant. The Company has elected to reduce share-based compensation expense for forfeitures as the forfeitures occur since the Company does not have historical data or other factors to appropriately estimate the expected employee terminations and to evaluate whether particular groups of employees have significantly different forfeiture expectations. In June 2018, the Financial Accounting Standards Board (“FASB”) adopted ASU 2018-07, Compensation — Stock Compensation (Topic 718) — Improvements to Nonemployee Share-Based Payment Accounting Topic 718 Topic 718 The following is a summary of share-based compensation expenses included in the condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019: For the Three Months Ended March 31, 2020 2019 Share-based compensation costs included in: Cost of revenue $ 8,558 $ 2,362 Advertising and marketing expenses 2,912 840 Product development costs 6,545 420 Selling, general and administrative expenses 172,874 352,109 Total share-based compensation expense included in consolidated statement of operations $ 190,889 $ 355,731 Included in the $190,889 expense for the three months ended March 31, 2020, is an accrual for $36,463 in respect of the 2020 Annual Employee Incentive Compensation Plan. Concentrations Four customers accounted for 17%, 16%, 10% and 10% of the Company’s revenue for the three March 31, 2020. For the three months ended March 31, 2019, three customers accounted for 26%, 15% and 12% of the Company’s revenue. Three customers accounted for 59%, 18% and 15% of the Company’s accounts receivable for the three months ended March 31, 2020. For the three months ended March 31, 2019, three customers accounted for 24%, 22% and 10% of the Company’s accounts receivable. Recently Issued Accounting Pronouncements In March 2020, the FAS issued ASU No. 2020-04 “ Reference Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). In January 2020, the FASB issued ASU No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes, In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Subtopic 326-20 Topic 842, Leases Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures. |
Leases
Leases | 3 Months Ended |
Mar. 31, 2020 | |
Leases [Abstract] | |
Leases | Note 2 – Leases In February 2016 the FASB issued ASU 2016-02, Leases (Topic 842) The new standard provides a number of optional practical expedients in transition. The Company has elected to apply the “package of practical expedients” which allow the Company to not reassess: (i) whether existing or expired arrangements contain a lease, (ii) the lease classification of existing or expired leases, or (iii) whether previous initial direct costs would qualify for capitalization under the new lease standard. The Company has also elected to apply the short-term lease exemption for all leases with an original term of less than 12 months, for purposes of applying the recognition and measurements requirements in the new lease standard. Upon adoption, the Company recognized its lease for manufacturing and office space (the “Facility Lease”) on the balance sheet as an operating lease right-of-use asset in the amount of $714,416 and as a lease liability of $822,374. The Facility Lease commenced September 29, 2017 and continues through August 31, 2022. The Company has the option to renew the Facility Lease for an additional five years. However, the renewal option to extend the Facility Lease is not included in the right-of-use asset or lease liability as the option is not reasonably certain of exercise. The Company regularly evaluates the renewal option and when it is reasonably certain of exercise, the Company will include the renewal period in its lease term. Beginning September 1, 2018, and each subsequent September 1 during the term, the monthly rent under the Facility Lease will increase by 3%. Total rent under the current building lease is charged to expense over the term of the lease on a straight-line basis, resulting in the same monthly rent expense throughout the lease. The difference between the rent expense amount and the actual rent paid is recorded to operating lease liability on the Company’s condensed consolidated balance sheets. Under the Facility Lease, the landlord agreed to pay the Company or the Company’s contractors for tenant improvements made by the Company not to exceed $100,000, which were used for normal tenant improvements. The Company determined that these improvements were not specialized and could be utilized by a subsequent tenant and, as such, the improvements were considered assets of the lessor. As of January 1, 2019, the unamortized amount of tenant improvement allowance of $81,481 was treated as a reduction in measuring the right-of-use asset. Under the Facility Lease, the Company pays the actual amounts for property taxes and insurance, excludes such payments from lease contract consideration, and records such payments as incurred. The Company also pays the landlord for common area maintenance, which is considered a nonlease component. For the Facility Lease, the Company has not elected the accounting policy to include both the lease and nonlease components as a single component and account for it as the lease. In determining the right-of-use asset and lease liability, the Company applied a discount rate to the minimum lease payments under the Facility Lease. ASC 842 requires the Company to use the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Since the discount rate is not implicit in the lease agreement, we utilized an estimated incremental borrowing rate provided by the Company’s depository bank. The lease cost, cash flows and other information related to the Facility Lease were as follows: For the Three Months Ended Operating lease cost $ 54,222 Operating cash outflow from operating lease $ 60,406 As of March 31, 2020 Operating lease right-of-use assset $ 487,467 Operating lease liability, current $ 222,397 Operating lease liability, long-term $ 346,806 Remaining lease term 2.4 years Discount rate 5.00 % Future annual minimum lease payments on the Facility Lease as of March 31, 2020 were as follows: 2020 (excluding the three months ended March 31, 2020) $ 183,633 2021 251,360 2022 170,891 Total minimum lease payments 605,884 Less imputed interest (36,681 ) Present value of minimum lease payments $ 569,203 |
Inventory
Inventory | 3 Months Ended |
Mar. 31, 2020 | |
Inventory Disclosure [Abstract] | |
Inventory | Note 3 – Inventory Inventory consisted of the following: March 31, December 31, 2020 2019 Finished goods $ 947,864 $ 1,041,369 Work in progress 7,516 3,851 Raw materials 418,518 257,399 Allowance for excess & obsolete inventory (59,719 ) (71,376 ) Inventory, net $ 1,314,179 $ 1,231,243 Overhead expenses of $19,570 and $31,831 were included in the inventory balance as of March 31, 2020, and December 31, 2019, respectively. Advance payments on inventory purchases are recorded in prepaid expenses until title for such inventory passes to the Company. Prepaid expenses included $86,000 and $164,000 in advance payments for inventory for the periods ended March 31, 2020, and December 31, 2019, respectively. |
Property and Equipment
Property and Equipment | 3 Months Ended |
Mar. 31, 2020 | |
Property, Plant and Equipment [Abstract] | |
Property and Equipment | Note 4 – Property and Equipment Property and equipment consisted of the following: March 31, December 31, 2020 2019 Furniture and equipment $ 400,096 $ 389,090 Vehicles 15,000 15,000 Leasehold improvements 215,193 215,193 630,289 619,283 Accumulated depreciation (391,950 ) (361,360 ) Property and equipment, net $ 238,339 $ 257,923 Depreciation expense was $30,591 and $31,311 for the three months ended March 31, 2020, and December 31, 2019, respectively. In both periods, $1,402 was allocated to cost of sales and $350 was allocated to inventory with the remainder recorded as selling, general and administrative expense. |
Accounts Payable and Accrued Li
Accounts Payable and Accrued Liabilities | 3 Months Ended |
Mar. 31, 2020 | |
Payables and Accruals [Abstract] | |
Accounts Payable and Accrued Liabilities | Note 5 – Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consisted of the following: March 31, December 31, 2020 2019 Accounts payable $ 1,660,452 $ 1,299,015 Sales commissions payable 19,490 69,532 Accrued payroll liabilities 171,258 169,052 Product warranty accrual 188,837 185,234 Other accrued expenses 93,217 110,127 Total $ 2,133,254 $ 1,832,959 |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Mar. 31, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Note 6 – Commitments and Contingencies Litigation As of December 31, 2019, there were 6,750,000 restricted stock units that had not been settled due to a dispute with a former employee over the required withholding taxes to be paid to the Company for remittance to the appropriate tax authorities. The Company commenced an arbitration action against the former employee regarding the dispute. The former employee also made claims in the arbitration action against the Company for unpaid wages. As stated in a pleading in the arbitration, on March 9, 2020, the Company issued the former employee 6,750,000 shares of the Company’s common stock in settlement of these restricted stock units after taking measures to mitigate the Company’s exposure to penalties and liability for the failure to properly withhold income taxes. The Arbitrator has issued an interim award of approximately $10,000 in the Company’s favor and finding against the former employee. The recipient continues to pursue separate litigation against the Company for recovery of alleged consulting fees owed for the 2015 calendar year prior to the recipient’s appointment as an executive officer of the Company and discovery is ongoing in this case. As further discussed in Note 9. Subsequent Events 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. Leases The Company has a lease agreement for its manufacturing and office space. See Note 2. Other Commitments In the ordinary course of business, the Company enters into commitments to purchase inventory and may also 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 Company’s 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 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. |
Equity Incentive Plan
Equity Incentive Plan | 3 Months Ended |
Mar. 31, 2020 | |
Share-based Payment Arrangement [Abstract] | |
Equity Incentive Plan | Note 7 – Equity Incentive Plan Under the Company’s 2017 Equity Incentive Plan, as may be modified and amended by the Company from time to time (the “2017 Equity Plan”), the Board of Directors (the “Board”) (or the compensation committee of the Board, if one is established) may award stock options, stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), restricted stock unit awards (“RSUs”), shares granted as a bonus or in lieu of another award, and other stock-based performance awards. The 2017 Equity Plan allocates 50,000,000 shares of the Company’s common stock (“Plan Shares”) for issuance of equity awards under the 2017 Equity Plan. If any shares subject to an award are forfeited, expire, or otherwise terminate without issuance of such shares, the shares will, to the extent of such forfeiture, expiration, or termination, again be available for awards under the 2017 Equity Plan. During the three months ended March 31, 2020, the Company issued shares of its common stock under the 2017 Equity Plan as follows: ● 1,000,000 shares to an employee in settlement of certain RSUs that vested December 31, 2019; ● 560,000 shares pursuant to a special incentive stock bonus approved by the Board for the period ended December 31, 2019; and ● 6,750,000 shares in settlement of restricted stock units to a former employee after taking measures to mitigate the Company’s exposure to penalties and liability for the failure to properly withhold income taxes.as further discussed in Note 6 – Commitments and Contingencies, Litigation As of March 31, 2020, awards related to 22,951,900 shares remain outstanding. The total unrecognized compensation expense for unvested non-qualified stock options and RSUs at March 31, 2020, was $89,571, which will be recognized over approximately 9 months. Non-Qualified Stock Options A summary of the non-qualified stock options granted to employees and consultants under the 2017 Equity Plan during the three months ended March 31, 2020, are presented in the table below: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding, December 31, 2019 10,135,000 $ 0.096 7.7 $ - Granted 6,616,900 $ 0.070 10.0 Exercised - Forfeited - Expired - Outstanding, March 31, 2020 16,751,900 $ 0.086 8.4 $ - Exercisable, March 31, 2020 13,751,900 $ 0.087 8.2 $ - Outstanding vested and expected to vest, March 31, 2020 16,751,900 $ 0.086 8.4 $ - A summary of non-vested non-qualified stock options activity for employees and consultants under the 2017 Equity Plan for the three months ended March 31, 2020, are presented in the table below: Number of Options Weighted Average Grant-Date Fair Value Aggregate Intrinsic Value Grant-Date Fair Value Nonvested, December 31, 2019 2,000,000 $ 0.075 $ - $ 149,534 Granted 6,616,900 $ 0.059 $ 387,199 Vested (5,616,900 ) $ 0.058 $ 328,472 Forfeited - Expired - Nonvested, March 31, 2020 3,000,000 $ 0.069 $ - $ 208,262 For the three months ended March 31, 2020 and 2019, the Company recorded $106,288 and $172,778 as compensation expense related to vested options issued to employees and consultants, net of forfeitures, respectively. A summary of the non-qualified stock options granted to directors under the 2017 Equity Plan during the three months ended March 31, 2020, are presented in the table below: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value ($000) Outstanding, December 31, 2019 900,000 $ 0.135 7.6 $ - Granted 4,500,000 $ 0.070 10.0 Exercised - Forfeited/Cancelled - Expired - Outstanding, March 31, 2020 5,400,000 $ 0.081 9.4 $ - Exerciseable, March 31, 2020 5,400,000 $ 0.081 9.4 $ - A summary of non-vested non-qualified stock options activity for directors under the 2017 Equity Plan for the three months ended March 31, 2020, are presented in the table below: Number of Options Weighted Average Grant-Date Fair Value Aggregate Intrinsic Value Grant-Date Fair Value Nonvested, December 31, 2019 - $ - Granted 4,500,000 $ 0.059 $ 263,250 Vested (4,500,000 ) $ 0.059 $ 263,250 Forfeited - Expired - Nonvested, March 31, 2020 - $ - During the three months ended March 31, 2020 and 2019, the Company incurred $29,266 and $0, respectively, as compensation expense related to 500,000 and 0 vested options, respectively, issued to directors. As further discussed in Note 9. Subsequent Events , Restricted Stock Units A summary of the RSUs awarded to employees, directors and consultants under the 2017 Equity Plan during the three months ended March 31, 2020, are presented in the table below: Number of Units Weighted Average Grant-Date Fair Value Aggregate Intrinsic Value Outstanding, December 31, 2019 7,550,000 $ 0.128 $ 528,500 Granted - Vested and settled with share issuance (6,750,000 ) $ 0.121 Forfeited/canceled - Outstanding, March 31, 2020 800,000 $ 0.184 $ 25,200 For the three months ended March 31, 2020 and 2019, the Company recorded $18,872 and $92,755, respectively, as compensation expense related to vested RSUs issued to employees, directors and consultants. The total intrinsic value of RSUs vested and settled with share issuance was $70,000 for the three months ended March 31, 2020. As further disclosed in Note 9 – Subsequent Events |
Income Taxes
Income Taxes | 3 Months Ended |
Mar. 31, 2020 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Note 8 – Income Taxes As of March 31, 2020, the Company had U.S. federal and state net operating losses (“NOLs”) of approximately $17,293,000, which will expire, if not utilized, in the years 2034 through 2037, however, NOLs generated subsequent to December 31, 2017 do not expire but may only be used against taxable income to 80%. However, in response to the novel coronavirus COVID-19, the Coronavirus Aid, Relief, and Economic Security Act temporarily repealed the 80% limitation for NOLs arising in 2018, 2019 and 2020. Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, use of the Company’s NOLs carryforwards may be limited in the event of cumulative changes in ownership of more than 50% within a three-year period. The Company must assess the likelihood that its net deferred tax assets will be recovered from future taxable income, and to the extent the Company believes that recovery is not likely, the Company establishes a valuation allowance. Management’s judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against the net deferred tax assets. The Company recorded a full valuation allowance as of March 31, 2020, and December 31, 2019. Based on the available evidence, the Company believes it is more likely than not that it will not be able to utilize its net deferred tax assets in the foreseeable future. |
Subsequent Events
Subsequent Events | 3 Months Ended |
Mar. 31, 2020 | |
Subsequent Events [Abstract] | |
Subsequent Events | Note 9 – Subsequent Events In accordance with ASC 855, Subsequent Events On April 22, 2020, the Company entered into a loan with its current bank in the principal amount of $554,000, for working capital purposes. Following the receipt of these loan funds, the Company reinstated all staff who previously had been placed on furlough. Staff receiving salaries of $100,000 per year or less were restored to their full salaries. All executives, including the CEO, had their compensation reduced to the greater of $100,000 per year or 75% of their previous salary level. The Company re-engaged its staff so as to be able to fulfill its current customer contracts and any new sales orders and to continue its marketing and selling efforts. The loan amount bears interest at 1% and was initially due on April 20, 2022. Subsequently, the term of the loan may now potentially be extended to April 20, 2025. The loan may be repaid in advance without penalty. The loan is also potentially forgivable in full provided proceeds are used for payment of payroll expenses, rent, utilities and mortgage interest and certain other terms and conditions are met. The loan has typical default provisions, including for change of ownership, general lender insecurity as to repayment, non-payment of amounts due, defaults on other debt instruments, insolvency, dissolution or termination of the business as a going concern and bankruptcy. Effective April 30, 2020, 800,000 restrictive stock units became fully vested. However, the holder of the RSUs elected not exercise them and accordingly these RSUs have lapsed, unexercised as further disclosed in Note 7 – Equity Incentive Plan – Restrictive Stock Units Revenue recognition on contracts continues to be unpredictable and inconsistent quarter-over-quarter, however, current indications are that many of the Company’s existing contracts will be subject to substantial delays, at least in the short term, due to the economic disruption caused by the impact of the COVID-19 pandemic. The full extent of the disruption cannot be accurately forecast at this time. Effective June 1, 2020, the Company received notification that an existing customer contract with an outstanding balance of work to be performed of $1,984,051 had been terminated as the customer has permanently ceased operations due to lack of funding for the project. As of March 31, 2020, there was an existing accounts receivable balance due to the Company of $81,008 in respect of engineering work already performed under this contract. No provision had been made in respect of this balance of accounts receivable as of March 31, 2020, as there had been no indication at that time that there would be any difficulty in collecting these funds. Consequently, the full balance of $81,008 has been written off as uncollectible effective June 1, 2020. Effective June 8, 2020, the Company furloughed several employees and implemented further 25% salary reductions for all remaining salaried employees. All hourly employees were moved to part-time status. Effective June 9, 2020, the Arbitrator ruled in the action against a former employee regarding a dispute over the issuance of 6,750,000 restricted stock units and unpaid wages issued his final award in the Company’s favor. The Arbitrator found against the former employee and awarded the Company costs of $33,985, with interest at 8% per year. The Company will now lodge the judgment with the State court so that it can collect upon this debt. Effective June 24, 2020, the Company appointed two new independent directors, Randy Shipley and Nick Etten, and Mr. McDonald was appointed Chairman of the Board. The Company issued 2 million non-qualified stock options under the 2017 Equity Plan to the newly appointed directors. The options will vest 50% upon grant and 50% on April 1, 2021, if the Director remains on the Board up to that time. The options have a term of 5 years and have an exercise price equal to the closing price of the Company’s common stock on The OTC Markets on the day immediately preceding the grant date. |
General (Policies)
General (Policies) | 3 Months Ended |
Mar. 31, 2020 | |
Accounting Policies [Abstract] | |
Description of Business | Description of Business Surna Inc. (the “Company”) was incorporated in Nevada on October 15, 2009. The Company designs, engineers and sells cultivation technologies for controlled environment agriculture including: (i) liquid-based process cooling systems and other climate control systems, (ii) air handling equipment and systems, (iii) a full-service engineering package for designing and engineering commercial scale thermodynamic systems specific to cannabis cultivation facilities, and (iv) automation and control devices, systems and technologies used for environmental, lighting and climate control. Our customers include commercial, state- and provincial-regulated cannabis growers in the U.S. and Canada as well as other international locations, including those growers building new facilities and those expanding or retrofitting existing facilities. Currently, our revenue stream is derived primarily from supplying our products, services and technologies to commercial indoor and hybrid sealed greenhouse facilities ranging from several thousand to more than 100,000 square feet. Headquartered in Boulder, Colorado, we leverage our experience in this space to bring value-added climate control solutions to our customers that help improve their overall crop quality and yield, optimize energy and water efficiency, and satisfy the evolving state and local codes, permitting and regulatory requirements. Although our customers do, we neither produce nor sell cannabis. |
Financial Statement Presentation | Financial Statement Presentation The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“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. 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, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020. The balance sheet as of December 31, 2019 has been derived from the audited financial statements at that date but does not include all 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, 2019. The notes to the unaudited condensed consolidated financial statements are presented on a going concern basis. |
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, Hydro Innovations, LLC (“Hydro”). Intercompany transactions, profit, and balances are eliminated in consolidation. |
Going Concern | Going Concern The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has experienced recurring losses since its inception. Since inception, the Company has financed its activities principally through debt and equity financing, customer deposits and revenues from completed contracts. Management expects to incur additional losses and cash outflows in the foreseeable future in connection with its operating activities. Management believes that the economic dislocations in the overall economy, in the near term, will adversely impact our revenues, losses and cash flows. There can be no assurance that the Company will be able to raise debt or equity financing in sufficient amounts, when and if needed, on acceptable terms or at all. If results of operations for 2020 do not meet management’s expectations, or additional capital is not available, management believes it 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 the overall economy, market demand for the Company’s products and services, the quality of product development efforts, management of working capital, and continuation of normal payment terms and conditions for purchase of the Company’s products. The Company believes its cash balances and cash flow from operations will be insufficient to fund its operations for the next 12 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. The foregoing factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date the financial statements are issued. These condensed consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty. |
Use of Estimates | Use of Estimates Management makes 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. 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. Key estimates include: allocation of transaction prices to performance obligations under contracts with customers, standalone selling prices, timing of expected revenue recognition on remaining performance obligations under contracts with customers, valuation of intangible assets, valuation of equity-based compensation, valuation of deferred tax assets and liabilities, warranty accruals, accounts receivable and inventory allowances, and legal contingencies. |
Income (Loss) Per Common Share | Income (Loss) Per Common Share Basic income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period without consideration of common stock equivalents. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding and potentially dilutive common stock equivalents, including stock options, warrants and restricted stock units and other equity-based awards, except in cases where the effect of the common stock equivalents would be antidilutive. Potential common stock equivalents consist of common stock issuable upon exercise of stock options and warrants and the vesting of restricted stock units using the treasury method. |
Goodwill | Goodwill The Company recorded goodwill in connection with its acquisition of Hydro Innovations, LLC in July 2014. 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. The Company performs a quantitative impairment test annually on December 31 by comparing 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. An impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The Company determined that it has one reporting unit. During the three months ended March 31, 2020, the Company concluded that the projected impact of the COVID-19 pandemic on its sales, contract completion and revenues in the near term, together with the volatility in its share price during the quarter represented potential indicators of impairment. Accordingly, the Company performed an interim impairment analysis at March 31, 2020, and concluded that no impairment relating to goodwill existed at March 31, 2020. |
Revenue Recognition | Revenue Recognition On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 (Topic 606), Revenue from Contracts with Customers Under the revenue standard, a performance obligation is a promise in a contract with a customer to transfer a distinct good or service to the customer. Most of the Company’s contracts contain multiple performance obligations that include engineering and technical services as well as the delivery of a diverse range of climate control system equipment and components, which can span multiple phases of a customer’s project life-cycle from facility design and construction to equipment delivery and system installation and start-up. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. When there are multiple performance obligations within a contract, the Company allocates the transaction price to each performance obligation based on standalone selling price. . When estimating the selling price, the Company uses various observable inputs. The best observable input is the Company’s actual selling price for the same good or service, however, this input is generally not available for the Company’s contracts containing multiple performance obligations. For engineering services, the Company estimates the standalone selling price by reference to certain physical characteristics of the project, such as facility size and mechanical systems involved, which are indicative of the scope and complexity of the mechanical engineering services to be provided. For equipment sales, the standalone selling price is determined by forecasting the expected costs of the equipment and then adding an appropriate margin, based on a range of acceptable margins established by management. Depending on the nature of the performance obligations, the Company may use a combination of different methods and observable inputs if certain performance obligations have highly variable or uncertain standalone selling prices. Once the selling prices are determined, the Company applies the relative values to the total contract consideration and estimates the amount of the transaction price to be recognized as each performance obligation is fulfilled. The Company recognizes revenue for the sale of goods when control transfers to the customer, which primarily occurs at the time of shipment. The Company’s historical rates of return are insignificant as a percentage of sales and, as a result, the Company does not record a reserve for returns at the time the Company recognizes revenue. The Company has elected to exclude from the measurement of the transaction price all taxes (e.g., sales, use, value added, and certain excise taxes) that are assessed by a governmental authority in connection with a specific revenue-producing transaction and collected by the Company from the customer. Accordingly, the Company recognizes revenue net of sales taxes. The revenue and cost for freight and shipping is recorded when control over the sale of goods passes to the Company’s customers. The Company also has performance obligations to perform certain engineering services that are satisfied over a period of time. Revenue is recognized from this type of performance obligation as services are rendered based on the percentage completion towards certain specified milestones. The Company offers assurance-type warranties for its products and products manufactured by others to meet specifications defined by the contracts with customers and does not have any material separate performance obligations related to these warranties. The Company maintains a warranty reserve based on historical warranty costs. Applying the practical expedient in ASC 606-10-32-18, which the Company has elected, the Company does not adjust the promised amount of consideration for the effects of a significant financing component since the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. Accordingly, the remaining performance obligations related to customer contracts does not consider the effects of the time value of money. Applying the practical expedient in ASC 340-40-25-4, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred since the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs include certain sales commissions and incentives, which are included in selling, general and administrative expenses, and are payable only when associated revenue has been collected and earned by the Company. The Company does not have material amounts of contract assets since revenue is recognized as control of goods is transferred or as services are performed. Contract liabilities consist of advance payments and deferred revenue. For the three months ended March 31, 2020, the Company recognized revenue of $859,705 related to the deferred revenue at January 1, 2020. For the three months ended March 31, 2019, the Company recognized revenue of $393,756 related to the deferred revenue at January 1, 2019. Remaining performance obligations, or backlog, represents the aggregate amount of the transaction price allocated to the remaining obligations that the Company has not performed under its customer contracts. The Company has elected not to use the optional exemption in ASC 606-10-50-14, which exempts an entity from such disclosures if a performance obligation is part of a contract with an original expected duration of one year or less. Accordingly, the information disclosed about remaining performance obligations includes all customer contracts, including those with an expected duration of one year or less. Industry uncertainty, project financing concerns, and the licensing and qualification of our prospective customers, which are out of the Company’s control, make it difficult for the Company to predict when it will recognize revenue on its remaining performance obligations. There are risks that the Company may not realize the full contract value on customer projects in a timely manner or at all, and completion of a customer’s cultivation facility project is dependent upon the customer’s ability to secure funding and real estate, obtain a license and then build their cultivation facility so they can take possession of the equipment. Accordingly, the time it takes for customers to complete a project, which corresponds to when the Company is able to recognize revenue, is driven by numerous factors including: (i) the large number of first-time participants interested in the indoor cannabis cultivation business; (ii) the complexities and uncertainties involved in obtaining state and local licensure and permitting; (iii) local and state government delays in approving licenses and permits due to lack of staff or the large number of pending applications, especially in states where there is no cap on the number of cultivators; (iv) the customer’s need to obtain cultivation facility financing; (v) the time needed, and coordination required, for our customers to acquire real estate and properly design and build the facility (to the stage when climate control systems can be installed); (vi) the large price tag and technical complexities of the climate control and air sanitation system; (vii) the availability of power; and (viii) delays that are typical in completing any construction project. As of March 31, 2020, the Company’s remaining performance obligations, or backlog, was $8,875,000, of which $6,292,000, or 71%, was attributable to customer contracts for which the Company has only received an initial advance payment to cover the allocated value of the Company’s engineering services (“engineering only paid contracts”). There is the risk that the equipment portion of these engineering only paid contracts will not be completed or will be delayed. These reasons include the customer being dissatisfied with the quality or timeliness of the Company’s engineering services, delay or abandonment of the project because of the customer’s inability to obtain project financing or licensing, or other reasons such as a challenging business climate including an overall post-Covid-19 economic downturn, or change in business direction. After the customer has made an advance payment for a portion of the equipment to be delivered under the contract (“partial equipment paid contracts”), the Company is typically better able to estimate the timing of revenue recognition since the risks and delays associated with licensing, permitting and project funding are typically mitigated once the initial equipment payment is received. There is significant uncertainty regarding the timing of the Company’s recognition of revenue on its remaining performance obligations, and there is no certainty that these will result in actual revenues. The backlog at March 31, 2020, includes booked sales orders of $975,000 from several customers that the Company does not expect to be realized until 2022, if at all. Given the present economic uncertainty arising from the impact of the novel coronavirus COVID-19, the Company believes that several of its current contracts may be delayed or canceled in the short term. The remaining performance obligations expected to be recognized through 2022 are as follows: 2020 2021 2022 Total Remaining performance obligations related to engineering only paid contracts $ 3,694,000 $ 2,151,000 $ 447,000 $ 6,292,000 Remaining performance obligations related to partial equipment paid contracts 1,841,000 214,000 528,000 2,583,000 Total remaining performance obligations $ 5,535,000 $ 2,365,000 $ 975,000 $ 8,875,000 The following table sets forth the Company’s revenue by source: For the Three Months Ended March 31, 2020 2019 Equipment and systems sales $ 1,606,946 $ 1,492,530 Engineering and other services 131,591 222,409 Shipping and handling 71,388 56,291 Total revenue $ 1,809,925 $ 1,771,230 |
Accounting for Share-Based Compensation | Accounting for Share-Based Compensation The Company recognizes the cost resulting from all share-based compensation arrangements, including stock options, restricted stock awards and restricted stock units that the Company grants under its equity incentive plan in its condensed consolidated financial statements based on their grant date fair value. The expense is recognized over the requisite service period or performance period of the award. Awards with a graded vesting period based on service are expensed on a straight-line basis for the entire award. Awards with performance-based vesting conditions, which require the achievement of a specific company financial performance goal at the end of the performance period and required service period, are recognized over the performance period. Each reporting period, the Company reassesses the probability of achieving the respective performance goal. If the goals are not expected to be met, no compensation cost is recognized and any previously recognized amount recorded is reversed. If the award contains market-based vesting conditions, the compensation cost is based on the grant date fair value and expected achievement of market condition and is not subsequently reversed if it is later determined that the condition is not likely to be met or is expected to be lower than initially expected. The grant date fair value of stock options is based on the Black-Scholes Option Pricing Model (the “Black-Scholes Model”). The Black-Scholes Model requires judgmental assumptions including volatility and expected term, both based on historical experience. The risk-free interest rate is based on U.S. Treasury interest rates whose term is consistent with the expected term of the option. The Company determines the assumptions used in the valuation of option awards as of the date of grant. Differences in the expected stock price volatility, expected term or risk-free interest rate may necessitate distinct valuation assumptions at those grant dates. As such, the Company may use different assumptions for options granted throughout the year. During the three months ended March 31, 2020, the valuation assumptions used to determine the fair value of each option award on the date of grant were: expected stock price volatility ranged from 121.91% to 122.48%; expected term in years 5 and risk-free interest rate ranged from 1.38% to 1.67%. The grant date fair value of restricted stock and restricted stock units is based on the closing price of the underlying stock on the date of the grant. The Company has elected to reduce share-based compensation expense for forfeitures as the forfeitures occur since the Company does not have historical data or other factors to appropriately estimate the expected employee terminations and to evaluate whether particular groups of employees have significantly different forfeiture expectations. In June 2018, the Financial Accounting Standards Board (“FASB”) adopted ASU 2018-07, Compensation — Stock Compensation (Topic 718) — Improvements to Nonemployee Share-Based Payment Accounting Topic 718 Topic 718 The following is a summary of share-based compensation expenses included in the condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019: For the Three Months Ended March 31, 2020 2019 Share-based compensation costs included in: Cost of revenue $ 8,558 $ 2,362 Advertising and marketing expenses 2,912 840 Product development costs 6,545 420 Selling, general and administrative expenses 172,874 352,109 Total share-based compensation expense included in consolidated statement of operations $ 190,889 $ 355,731 Included in the $190,889 expense for the three months ended March 31, 2020, is an accrual for $36,463 in respect of the 2020 Annual Employee Incentive Compensation Plan. |
Concentrations | Concentrations Four customers accounted for 17%, 16%, 10% and 10% of the Company’s revenue for the three March 31, 2020. For the three months ended March 31, 2019, three customers accounted for 26%, 15% and 12% of the Company’s revenue. Three customers accounted for 59%, 18% and 15% of the Company’s accounts receivable for the three months ended March 31, 2020. For the three months ended March 31, 2019, three customers accounted for 24%, 22% and 10% of the Company’s accounts receivable. |
Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements In March 2020, the FAS issued ASU No. 2020-04 “ Reference Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). In January 2020, the FASB issued ASU No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes, In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Subtopic 326-20 Topic 842, Leases Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures. |
General (Tables)
General (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Accounting Policies [Abstract] | |
Schedule of Remaining Performance Obligations Expected to be Recognized | The remaining performance obligations expected to be recognized through 2022 are as follows: 2020 2021 2022 Total Remaining performance obligations related to engineering only paid contracts $ 3,694,000 $ 2,151,000 $ 447,000 $ 6,292,000 Remaining performance obligations related to partial equipment paid contracts 1,841,000 214,000 528,000 2,583,000 Total remaining performance obligations $ 5,535,000 $ 2,365,000 $ 975,000 $ 8,875,000 |
Schedule of Revenue by Source | The following table sets forth the Company’s revenue by source: For the Three Months Ended March 31, 2020 2019 Equipment and systems sales $ 1,606,946 $ 1,492,530 Engineering and other services 131,591 222,409 Shipping and handling 71,388 56,291 Total revenue $ 1,809,925 $ 1,771,230 |
Schedule of Share-based Compensation Costs | The following is a summary of share-based compensation expenses included in the condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019: For the Three Months Ended March 31, 2020 2019 Share-based compensation costs included in: Cost of revenue $ 8,558 $ 2,362 Advertising and marketing expenses 2,912 840 Product development costs 6,545 420 Selling, general and administrative expenses 172,874 352,109 Total share-based compensation expense included in consolidated statement of operations $ 190,889 $ 355,731 |
Leases (Tables)
Leases (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Leases [Abstract] | |
Schedule of Lease Cost | The lease cost, cash flows and other information related to the Facility Lease were as follows: For the Three Months Ended Operating lease cost $ 54,222 Operating cash outflow from operating lease $ 60,406 As of March 31, 2020 Operating lease right-of-use assset $ 487,467 Operating lease liability, current $ 222,397 Operating lease liability, long-term $ 346,806 Remaining lease term 2.4 years Discount rate 5.00 % |
Schedule of Future Annual Minimum Lease Payments | Future annual minimum lease payments on the Facility Lease as of March 31, 2020 were as follows: 2020 (excluding the three months ended March 31, 2020) $ 183,633 2021 251,360 2022 170,891 Total minimum lease payments 605,884 Less imputed interest (36,681 ) Present value of minimum lease payments $ 569,203 |
Inventory (Tables)
Inventory (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Inventory Disclosure [Abstract] | |
Schedule of Inventory | Inventory consisted of the following: March 31, December 31, 2020 2019 Finished goods $ 947,864 $ 1,041,369 Work in progress 7,516 3,851 Raw materials 418,518 257,399 Allowance for excess & obsolete inventory (59,719 ) (71,376 ) Inventory, net $ 1,314,179 $ 1,231,243 |
Property and Equipment (Tables)
Property and Equipment (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Property, Plant and Equipment [Abstract] | |
Schedule of Property and Equipment | Property and equipment consisted of the following: March 31, December 31, 2020 2019 Furniture and equipment $ 400,096 $ 389,090 Vehicles 15,000 15,000 Leasehold improvements 215,193 215,193 630,289 619,283 Accumulated depreciation (391,950 ) (361,360 ) Property and equipment, net $ 238,339 $ 257,923 |
Accounts Payable and Accrued _2
Accounts Payable and Accrued Liabilities (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Payables and Accruals [Abstract] | |
Schedule of Accounts Payable and Accrued Liabilities | Accounts payable and accrued liabilities consisted of the following: March 31, December 31, 2020 2019 Accounts payable $ 1,660,452 $ 1,299,015 Sales commissions payable 19,490 69,532 Accrued payroll liabilities 171,258 169,052 Product warranty accrual 188,837 185,234 Other accrued expenses 93,217 110,127 Total $ 2,133,254 $ 1,832,959 |
Equity Incentive Plan (Tables)
Equity Incentive Plan (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Schedule of Restricted Stock Units Activity | A summary of the RSUs awarded to employees, directors and consultants under the 2017 Equity Plan during the three months ended March 31, 2020, are presented in the table below: Number of Units Weighted Average Grant-Date Fair Value Aggregate Intrinsic Value Outstanding, December 31, 2019 7,550,000 $ 0.128 $ 528,500 Granted - Vested and settled with share issuance (6,750,000 ) $ 0.121 Forfeited/canceled - Outstanding, March 31, 2020 800,000 $ 0.184 $ 25,200 |
2017 Equity Plan [Member] | Employees and Consultants [Member] | |
Schedule of Stock Option Activity | A summary of the non-qualified stock options granted to employees and consultants under the 2017 Equity Plan during the three months ended March 31, 2020, are presented in the table below: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding, December 31, 2019 10,135,000 $ 0.096 7.7 $ - Granted 6,616,900 $ 0.070 10.0 Exercised - Forfeited - Expired - Outstanding, March 31, 2020 16,751,900 $ 0.086 8.4 $ - Exercisable, March 31, 2020 13,751,900 $ 0.087 8.2 $ - Outstanding vested and expected to vest, March 31, 2020 16,751,900 $ 0.086 8.4 $ - |
Summary of Non-vested Non-Qualified Stock Option Activity | A summary of non-vested non-qualified stock options activity for employees and consultants under the 2017 Equity Plan for the three months ended March 31, 2020, are presented in the table below: Number of Options Weighted Average Grant-Date Fair Value Aggregate Intrinsic Value Grant-Date Fair Value Nonvested, December 31, 2019 2,000,000 $ 0.075 $ - $ 149,534 Granted 6,616,900 $ 0.059 $ 387,199 Vested (5,616,900 ) $ 0.058 $ 328,472 Forfeited - Expired - Nonvested, March 31, 2020 3,000,000 $ 0.069 $ - $ 208,262 |
2017 Equity Plan [Member] | Directors [Member] | |
Schedule of Stock Option Activity | A summary of the non-qualified stock options granted to directors under the 2017 Equity Plan during the three months ended March 31, 2020, are presented in the table below: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value ($000) Outstanding, December 31, 2019 900,000 $ 0.135 7.6 $ - Granted 4,500,000 $ 0.070 10.0 Exercised - Forfeited/Cancelled - Expired - Outstanding, March 31, 2020 5,400,000 $ 0.081 9.4 $ - Exerciseable, March 31, 2020 5,400,000 $ 0.081 9.4 $ - |
Summary of Non-vested Non-Qualified Stock Option Activity | A summary of non-vested non-qualified stock options activity for directors under the 2017 Equity Plan for the three months ended March 31, 2020, are presented in the table below: Number of Options Weighted Average Grant-Date Fair Value Aggregate Intrinsic Value Grant-Date Fair Value Nonvested, December 31, 2019 - $ - Granted 4,500,000 $ 0.059 $ 263,250 Vested (4,500,000 ) $ 0.059 $ 263,250 Forfeited - Expired - Nonvested, March 31, 2020 - $ - |
General (Details Narrative)
General (Details Narrative) | 3 Months Ended | |
Mar. 31, 2020USD ($)Number | Mar. 31, 2019USD ($)Number | |
Impairment of goodwill | ||
Revenue recognized | 859,705 | $ 393,756 |
Remaining performance obligations | 8,875,000 | |
Remaining performance obligations related to engineering only paid contracts | $ 6,292,000 | |
Remaining performance obligations, percentage | 71.00% | |
Expected stock price volatility, minimum | 121.91% | |
Expected stock price volatility, maximum | 122.48% | |
Expected term | 5 years | |
Risk-free interest rate, minimum | 1.38% | |
Risk-free interest rate, maximum | 1.67% | |
Share based compensation expense | $ 190,889 | $ 355,731 |
2020 Annual Employee Incentive Compensation Plan [Member] | ||
Share based compensation expense | $ 36,463 | |
Customer Concentration Risk [Member] | Sales Revenue, Net [Member] | ||
Number of customers | Number | 4 | 3 |
Customer Concentration Risk [Member] | Sales Revenue, Net [Member] | Customer One [Member] | ||
Concentration risk percentage | 17.00% | 26.00% |
Customer Concentration Risk [Member] | Sales Revenue, Net [Member] | Customer Two [Member] | ||
Concentration risk percentage | 16.00% | 15.00% |
Customer Concentration Risk [Member] | Sales Revenue, Net [Member] | Customer Three [Member] | ||
Concentration risk percentage | 10.00% | 12.00% |
Customer Concentration Risk [Member] | Sales Revenue, Net [Member] | Customer Four [Member] | ||
Concentration risk percentage | 10.00% | |
Customer Concentration Risk [Member] | Accounts Receivable [Member] | ||
Number of customers | Number | 3 | 3 |
Customer Concentration Risk [Member] | Accounts Receivable [Member] | Customer One [Member] | ||
Concentration risk percentage | 59.00% | 24.00% |
Customer Concentration Risk [Member] | Accounts Receivable [Member] | Customer Two [Member] | ||
Concentration risk percentage | 18.00% | 22.00% |
Customer Concentration Risk [Member] | Accounts Receivable [Member] | Customer Three [Member] | ||
Concentration risk percentage | 15.00% | 10.00% |
2022 [Member] | ||
Remaining performance obligations | $ 975,000 | |
Remaining performance obligations related to engineering only paid contracts | $ 447,000 |
General - Schedule of Remaining
General - Schedule of Remaining Performance Obligations Expected to be Recognized (Details) | Mar. 31, 2020USD ($) |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items] | |
Remaining performance obligations related to engineering only paid contracts | $ 6,292,000 |
Remaining performance obligations related to partial equipment paid contracts | 2,583,000 |
Total remaining performance obligations | 8,875,000 |
2020 [Member] | |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items] | |
Remaining performance obligations related to engineering only paid contracts | 3,694,000 |
Remaining performance obligations related to partial equipment paid contracts | 1,841,000 |
Total remaining performance obligations | 5,535,000 |
2021 [Member] | |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items] | |
Remaining performance obligations related to engineering only paid contracts | 2,151,000 |
Remaining performance obligations related to partial equipment paid contracts | 214,000 |
Total remaining performance obligations | 2,365,000 |
2022 [Member] | |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items] | |
Remaining performance obligations related to engineering only paid contracts | 447,000 |
Remaining performance obligations related to partial equipment paid contracts | 528,000 |
Total remaining performance obligations | $ 975,000 |
General - Schedule of Revenue b
General - Schedule of Revenue by Source (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Disaggregation of Revenue [Line Items] | ||
Total revenue | $ 1,809,925 | $ 1,771,230 |
Equipment and Systems Sales [Member] | ||
Disaggregation of Revenue [Line Items] | ||
Total revenue | 1,606,946 | 1,492,530 |
Engineering and Other Services [Member] | ||
Disaggregation of Revenue [Line Items] | ||
Total revenue | 131,591 | 222,409 |
Shipping and Handling [Member] | ||
Disaggregation of Revenue [Line Items] | ||
Total revenue | $ 71,388 | $ 56,291 |
General - Schedule of Share-bas
General - Schedule of Share-based Compensation Costs (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Total share-based compensation expense included in consolidated statement of operations | $ 190,889 | $ 355,731 |
Cost of Revenue [Member] | ||
Total share-based compensation expense included in consolidated statement of operations | 8,558 | 2,362 |
Advertising and Marketing Expenses [Member] | ||
Total share-based compensation expense included in consolidated statement of operations | 2,912 | 840 |
Product Development Costs [Member] | ||
Total share-based compensation expense included in consolidated statement of operations | 6,545 | 420 |
Selling, General and Administrative Expenses [Member] | ||
Total share-based compensation expense included in consolidated statement of operations | $ 172,874 | $ 352,109 |
Leases (Details Narrative)
Leases (Details Narrative) - USD ($) | 3 Months Ended | ||
Mar. 31, 2020 | Dec. 31, 2019 | Jan. 02, 2019 | |
Lessee, Lease, Description [Line Items] | |||
Operating lease right-of-use asset | $ 487,467 | $ 534,133 | |
Lease liability | 569,203 | ||
ASU 2016-02 [Member] | |||
Lessee, Lease, Description [Line Items] | |||
Unamortized amount of tenant improvement allowance | $ 81,481 | ||
ASU 2016-02 [Member] | Maximum [Member] | |||
Lessee, Lease, Description [Line Items] | |||
Tenant improvements | $ 100,000 | ||
Facility Lease [Member] | |||
Lessee, Lease, Description [Line Items] | |||
Operating lease right-of-use asset | 714,416 | ||
Lease liability | $ 822,374 | ||
Operating lease term description | The Facility Lease commenced September 29, 2017 and continues through August 31, 2022. | ||
Monthly rent description | Beginning September 1, 2018, and each subsequent September 1 during the term, the monthly rent under the Facility Lease will increase by 3%. |
Leases - Schedule of Lease Cost
Leases - Schedule of Lease Cost (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Dec. 31, 2019 | |
Leases [Abstract] | ||
Operating lease cost | $ 54,222 | |
Operating cash outflow from operating lease | 60,406 | |
Operating lease right-of-use asset | 487,467 | $ 534,133 |
Operating lease liability, current | 222,397 | 217,843 |
Operating lease liability, long-term | $ 346,806 | $ 404,209 |
Remaining lease term | 2 years 4 months 24 days | |
Discount rate | 5.00% |
Leases - Schedule of Future Ann
Leases - Schedule of Future Annual Minimum Lease Payments (Details) | Mar. 31, 2020USD ($) |
Leases [Abstract] | |
2020 (excluding the three months ended March 31, 2020) | $ 183,633 |
2021 | 251,360 |
2022 | 170,891 |
Total minimum lease payments | 605,884 |
Less imputed interest | (36,681) |
Present value of minimum lease payments | $ 569,203 |
Inventory (Details Narrative)
Inventory (Details Narrative) - USD ($) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2020 | Dec. 31, 2019 | |
Inventory Disclosure [Abstract] | ||
Overhead expenses | $ 19,570 | $ 31,831 |
Prepaid inventory expenses | $ 86,000 | $ 164,000 |
Inventory - Schedule of Invento
Inventory - Schedule of Inventory (Details) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Inventory Disclosure [Abstract] | ||
Finished goods | $ 947,864 | $ 1,041,369 |
Work in progress | 7,516 | 3,851 |
Raw materials | 418,518 | 257,399 |
Allowance for excess & obsolete inventory | (59,719) | (71,376) |
Inventory, net | $ 1,314,179 | $ 1,231,243 |
Property and Equipment (Details
Property and Equipment (Details Narrative) - USD ($) | 3 Months Ended | 12 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | |
Depreciation expense | $ 30,591 | $ 31,311 | |
Selling, general and administrative expenses | 1,108,993 | $ 1,170,586 | |
Property and Equipment [Member] | Cost of Sales [Member] | |||
Selling, general and administrative expenses | 1,402 | ||
Property and Equipment [Member] | Inventory [Member] | |||
Selling, general and administrative expenses | $ 350 |
Property and Equipment - Schedu
Property and Equipment - Schedule of Property and Equipment (Details) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Property, Plant and Equipment [Line Items] | ||
Property and equipment, gross | $ 630,289 | $ 619,283 |
Accumulated depreciation | (391,950) | (361,360) |
Property and equipment, net | 238,339 | 257,923 |
Furniture and Equipment [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Property and equipment, gross | 400,096 | 389,090 |
Vehicles [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Property and equipment, gross | 15,000 | 15,000 |
Leasehold Improvements [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Property and equipment, gross | $ 215,193 | $ 215,193 |
Accounts Payable and Accrued _3
Accounts Payable and Accrued Liabilities - Schedule of Accounts Payable and Accrued Liabilities (Details) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Payables and Accruals [Abstract] | ||
Accounts payable | $ 1,660,452 | $ 1,299,015 |
Sales commissions payable | 19,490 | 69,532 |
Accrued payroll liabilities | 171,258 | 169,052 |
Product warranty accrual | 188,837 | 185,234 |
Other accrued expenses | 93,217 | 110,127 |
Total | $ 2,133,254 | $ 1,832,959 |
Commitments and Contingencies (
Commitments and Contingencies (Details Narrative) - USD ($) | Jun. 09, 2020 | Mar. 09, 2020 | Dec. 31, 2019 |
Subsequent Event [Member] | Former Employee [Member] | |||
Interim awarded value | $ 33,985 | ||
Restricted stock units shares issued interest percentage | 8.00% | ||
Restricted Stock Units (RSUs) [Member] | |||
Number of units, vested but not settled | 6,750,000 | ||
Number of units, vested and settled | 6,750,000 | ||
Interim awarded value | $ 10,000 | ||
Restricted Stock Units (RSUs) [Member] | Subsequent Event [Member] | Former Employee [Member] | |||
Restricted stock units shares issued interest percentage | 8.00% |
Equity Incentive Plan (Details
Equity Incentive Plan (Details Narrative) - USD ($) | Jun. 24, 2020 | Apr. 30, 2020 | Mar. 31, 2020 | Mar. 31, 2019 |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Share based compensation expense | $ 657,892 | $ 355,731 | ||
Restricted Stock Units (RSUs) [Member] | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Total intrinsic value of restricted stock unit | $ 70,000 | |||
Restricted Stock Units (RSUs) [Member] | Subsequent Event [Member] | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Number of fully vested shares | 800,000 | |||
Restricted Stock Units (RSUs) [Member] | Former Employee [Member] | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Number of shares vested and to be settled with issued shares | 6,750,000 | |||
Restricted Stock Units (RSUs) [Member] | Employees and Consultants [Member] | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Share based compensation expense | $ 106,288 | 172,778 | ||
Restricted Stock Units (RSUs) [Member] | Directors [Member] | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Share based compensation expense | 29,266 | 0 | ||
Restricted Stock Units (RSUs) [Member] | Employees, Directors and Consultants [Member] | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Share based compensation expense | $ 18,872 | $ 92,755 | ||
2017 Equity Incentive Plan [Member] | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Number of common stock shares issuance | 50,000,000 | |||
Number of share awards granted | 22,951,900 | |||
Unrecognized compensation expense | $ 89,571 | |||
Unrecognized compensation expense term | 9 months | |||
2017 Equity Incentive Plan [Member] | Restricted Stock Units (RSUs) [Member] | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Number of shares vested and to be settled with issued shares | 1,000,000 | |||
Number of shares issued as special incentive bonus | 560,000 | |||
2017 Equity Incentive Plan [Member] | Non-Qualified Stock Options [Member] | Directors [Member] | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Option to purchase of shares vested | 500,000 | 0 | ||
2017 Equity Incentive Plan [Member] | Non-Qualified Stock Options [Member] | Two New Independent Directors [Member] | Subsequent Event [Member] | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Number of non-qualified stock options shares issued | 2,000,000 | |||
Non-qualified stock options vested percentage | 50.00% | |||
Non-qualified stock options term | 5 years | |||
2017 Equity Incentive Plan [Member] | Non-Qualified Stock Options [Member] | Two New Independent Directors [Member] | Subsequent Event [Member] | April 1, 2021 [Member] | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Non-qualified stock options vested percentage | 50.00% |
Equity Incentive Plan - Schedul
Equity Incentive Plan - Schedule of Stock Option Activity (Details) - 2017 Equity Incentive Plan [Member] | 3 Months Ended |
Mar. 31, 2020USD ($)$ / sharesshares | |
Directors [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Number of Options, Granted | 4,500,000 |
Non-Qualified Stock Options [Member] | Directors [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Number of Options, Outstanding Beginning | 900,000 |
Number of Options, Granted | 4,500,000 |
Number of Options, Exercised | |
Number of Options, Forfeited/Cancelled | |
Number of Options, Expired | |
Number of Options, Outstanding Ending | 5,400,000 |
Number of Options, Exercisable Ending | 5,400,000 |
Weighted Average Exercise Price, Outstanding Beginning | $ / shares | $ 0.135 |
Weighted Average Exercise Price, Granted | $ / shares | 0.070 |
Weighted Average Exercise Price, Exercised | $ / shares | |
Weighted Average Exercise Price, Forfeited | $ / shares | |
Weighted Average Exercise Price, Expired | $ / shares | |
Weighted Average Exercise Price, Outstanding Ending | $ / shares | 0.081 |
Weighted Average Exercise Price, Exercisable Ending | $ / shares | $ 0.081 |
Weighted Average Remaining Contractual Term, Outstanding Beginning | 7 years 7 months 6 days |
Weighted Average Remaining Contractual Term, Granted | 10 years |
Weighted Average Remaining Contractual Term, Outstanding Ending | 9 years 4 months 24 days |
Weighted Average Remaining Contractual Term, Exercisable Ending | 9 years 4 months 24 days |
Aggregate Intrinsic Value, Outstanding Beginning | $ | |
Aggregate Intrinsic Value, Outstanding Ending | $ | |
Aggregate Intrinsic Value, Exercisable Ending | $ | |
Aggregate Intrinsic Value, Outstanding vested and Expected to vest Ending | $ | |
Employees and Consultants [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Number of Options, Granted | 6,616,900 |
Employees and Consultants [Member] | Non-Qualified Stock Options [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Number of Options, Outstanding Beginning | 10,135,000 |
Number of Options, Granted | 6,616,900 |
Number of Options, Exercised | |
Number of Options, Forfeited/Cancelled | |
Number of Options, Expired | |
Number of Options, Outstanding Ending | 16,751,900 |
Number of Options, Exercisable Ending | 13,751,900 |
Number of Options, Outstanding vested and Expected to vest Ending | 16,751,900 |
Weighted Average Exercise Price, Outstanding Beginning | $ / shares | $ 0.096 |
Weighted Average Exercise Price, Granted | $ / shares | 0.070 |
Weighted Average Exercise Price, Exercised | $ / shares | |
Weighted Average Exercise Price, Forfeited | $ / shares | |
Weighted Average Exercise Price, Expired | $ / shares | |
Weighted Average Exercise Price, Outstanding Ending | $ / shares | 0.086 |
Weighted Average Exercise Price, Exercisable Ending | $ / shares | 0.087 |
Weighted Average Exercise Price, Outstanding vested and Expected to vest Ending | $ / shares | $ 0.086 |
Weighted Average Remaining Contractual Term, Outstanding Beginning | 7 years 8 months 12 days |
Weighted Average Remaining Contractual Term, Granted | 10 years |
Weighted Average Remaining Contractual Term, Outstanding Ending | 8 years 4 months 24 days |
Weighted Average Remaining Contractual Term, Exercisable Ending | 8 years 2 months 12 days |
Weighted Average Remaining Contractual Term, Outstanding vested and expected to vest, Ending | 8 years 4 months 24 days |
Aggregate Intrinsic Value, Outstanding Beginning | $ | |
Aggregate Intrinsic Value, Outstanding Ending | $ | |
Aggregate Intrinsic Value, Exercisable Ending | $ | |
Aggregate Intrinsic Value, Outstanding vested and Expected to vest Ending | $ |
Equity Incentive Plan - Summary
Equity Incentive Plan - Summary of Non-vested Non-Qualified Stock Option Activity (Details) - 2017 Equity Incentive Plan [Member] | 3 Months Ended |
Mar. 31, 2020USD ($)$ / sharesshares | |
Directors [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Number of Options Nonvested, Beginning | shares | |
Number of Options Nonvested, Granted | shares | 4,500,000 |
Number of Options Nonvested, Vested | shares | (4,500,000) |
Number of Options Nonvested, Forfeited | shares | |
Number of Options Nonvested, Expired | shares | |
Number of Options Nonvested, Ending | shares | |
Weighted Average Grant-Date Fair Value, Beginning | $ / shares | |
Weighted Average Grant-Date Fair Value, Granted | $ / shares | 0.059 |
Weighted Average Grant-Date Fair Value, Vested | $ / shares | 0.059 |
Weighted Average Grant-Date Fair Value, Forfeited | $ / shares | |
Weighted Average Grant-Date Fair Value, Expired | $ / shares | |
Weighted Average Grant-Date Fair Value, Ending | $ / shares | |
Aggregated Intrinsic Value, Nonvested Beginning | |
Aggregated Intrinsic Value, Nonvested Ending | |
Grant Date Fair Value Nonvested, Beginning | |
Grant Date Fair Value Nonvested, Granted | 263,250 |
Grant Date Fair Value Nonvested, Vested | 263,250 |
Grant Date Fair Value Nonvested, Forfeited | |
Grant Date Fair Value Nonvested, Expired | |
Grant Date Fair Value Nonvested, Ending | |
Employees and Consultants [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Number of Options Nonvested, Beginning | shares | 2,000,000 |
Number of Options Nonvested, Granted | shares | 6,616,900 |
Number of Options Nonvested, Vested | shares | (5,616,900) |
Number of Options Nonvested, Forfeited | shares | |
Number of Options Nonvested, Expired | shares | |
Number of Options Nonvested, Ending | shares | 3,000,000 |
Weighted Average Grant-Date Fair Value, Beginning | $ / shares | $ 0.075 |
Weighted Average Grant-Date Fair Value, Granted | $ / shares | 0.059 |
Weighted Average Grant-Date Fair Value, Vested | $ / shares | 0.058 |
Weighted Average Grant-Date Fair Value, Forfeited | $ / shares | |
Weighted Average Grant-Date Fair Value, Expired | $ / shares | |
Weighted Average Grant-Date Fair Value, Ending | $ / shares | $ 0.069 |
Aggregated Intrinsic Value, Nonvested Beginning | |
Aggregated Intrinsic Value, Nonvested Ending | |
Grant Date Fair Value Nonvested, Beginning | 149,534 |
Grant Date Fair Value Nonvested, Granted | 387,199 |
Grant Date Fair Value Nonvested, Vested | 328,472 |
Grant Date Fair Value Nonvested, Forfeited | |
Grant Date Fair Value Nonvested, Expired | |
Grant Date Fair Value Nonvested, Ending | $ 208,262 |
Equity Incentive Plan - Sched_2
Equity Incentive Plan - Schedule of Restricted Stock Units Activity (Details) - 2017 Equity Incentive Plan [Member] - Employees, Directors and Consultants [Member] | 3 Months Ended |
Mar. 31, 2020USD ($)$ / sharesshares | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Number of Units, beginning | shares | 7,550,000 |
Number of Units, Granted | shares | |
Number of Units, Vested and settled with share issuance | shares | (6,750,000) |
Number of Units, Forfeited/canceled | shares | |
Number of Units, ending | shares | 800,000 |
Weighted Average Grant Date Fair Value, beginning | $ / shares | $ 0.128 |
Weighted Average Grant Date Fair Value, Granted | $ / shares | |
Weighted Average Grant Date Fair Value, Vested and settled with share issuance | $ / shares | 0.121 |
Weighted Average Grant Date Fair Value, Forfeited/canceled | $ / shares | |
Weighted Average Grant Date Fair Value, ending | $ / shares | $ 0.184 |
Aggregated Intrinsic Value, Outstanding beginning | $ | $ 528,500 |
Aggregated Intrinsic Value, Outstanding ending | $ | $ 25,200 |
Income Taxes (Details Narrative
Income Taxes (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Dec. 31, 2019 | |
Income Tax Disclosure [Abstract] | ||
Net operating loss carry forward amount | $ 17,293,000 | |
Net operating loss expiration term | 2034 through 2037 | |
NOLs usage against taxable income, percentage | 80.00% | |
Percentage of ownership change | 50.00% | |
NOLs carryforwards term | 3 years | |
Valuation allowance |
Subsequent Events (Details Narr
Subsequent Events (Details Narrative) - USD ($) | Jun. 24, 2020 | Jun. 09, 2020 | Jun. 08, 2020 | Apr. 30, 2020 | Apr. 22, 2020 | Mar. 31, 2020 | Mar. 31, 2019 | Jun. 01, 2020 |
Value of restricted stock units issued | ||||||||
Contract with Customer [Member] | ||||||||
Accounts receivable | $ 81,008 | |||||||
Subsequent Event [Member] | ||||||||
Loan principal amount | $ 554,000 | |||||||
Salaries and wages | $ 100,000 | |||||||
Loan interest rate | 1.00% | |||||||
Loan due date | Apr. 20, 2022 | |||||||
Loan extended maturity date | Apr. 20, 2025 | |||||||
Reduction in employees salary percentage | 25.00% | |||||||
Subsequent Event [Member] | Contract with Customer [Member] | ||||||||
Contract with customer outstanding balance | $ 1,984,051 | |||||||
Accounts receivable written off | $ 81,008 | |||||||
Subsequent Event [Member] | Restricted Stock Units (RSUs) [Member] | ||||||||
Number of fully vested shares | 800,000 | |||||||
Subsequent Event [Member] | Chief Executive Officer [Member] | Maximum [Member] | ||||||||
Salaries and wages | $ 100,000 | |||||||
Officers previous salary level percentage | 75.00% | |||||||
Subsequent Event [Member] | Former Employee [Member] | ||||||||
Restricted stock units shares issued interest percentage | 8.00% | |||||||
Subsequent Event [Member] | Former Employee [Member] | Restricted Stock Units (RSUs) [Member] | ||||||||
Number of restricted stock units shares issued | 6,750,000 | |||||||
Value of restricted stock units issued | $ 33,985 | |||||||
Restricted stock units shares issued interest percentage | 8.00% | |||||||
Subsequent Event [Member] | Two New Independent Directors [Member] | Non-Qualified Stock Options [Member] | 2017 Equity Incentive Plan [Member] | ||||||||
Number of non-qualified stock options shares issued | 2,000,000 | |||||||
Non-qualified stock options vested percentage | 50.00% | |||||||
Non-qualified stock options term | 5 years | |||||||
Subsequent Event [Member] | Two New Independent Directors [Member] | Non-Qualified Stock Options [Member] | 2017 Equity Incentive Plan [Member] | April 1, 2021 [Member] | ||||||||
Non-qualified stock options vested percentage | 50.00% |