| Significant Accounting Policies | NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES Basis
of Presentation The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they
do not include all of the information and disclosures required by GAAP for annual financial statements. In the opinion of management,
such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair
presentation of the condensed financial position of the Company as of March 31, 2019, and the results of operations for the three
months ended March 31, 2019. The results of operations for the three ended March 31, 2019 are not necessarily indicative of the
operating results for the full year ending December 31, 2019 or any other period. The
condensed consolidated balance sheet as of December 31, 2018, has been derived from audited financial statements but does not
include all information required by GAAP for complete financial statements. These
condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related
disclosures of the Company as of December 31, 2018 and for the year then ended, which were filed with the Securities and Exchange
Commission (“SEC”) on Form 10-K on April 16, 2019. Principles
of Consolidation The
accompanying consolidated financial statements include the accounts of Sports Field Holdings, Inc. and its wholly owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated in consolidation. Use
of Estimates The
preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ
from those estimates. The Company’s significant estimates and assumptions include the accounts receivable allowance for
doubtful accounts, warranty reserve, percentage of completion revenue recognition method, assumptions used in the fair value of
stock-based compensation, valuation of derivative liabilities and the valuation allowance relating to the Company’s deferred
tax assets. Revenues
and Cost Recognition Revenue
is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which
the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that
an entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s)
with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate
the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies
a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect
the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception,
once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within
each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct.
The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation
when (or as) the performance obligation is satisfied. Sales, value add, and other taxes collected on behalf of third parties are
excluded from revenue. The
Company generates revenue from fixed-price contracts, where revenue is recognized over time as work is completed because of the
continuous transfer of control to the customer (typically using an input measure such as costs incurred to date relative to total
estimated costs at completion to measure progress). Costs to obtain contracts are generally not significant and are expensed in
the period incurred. The Company has determined that these construction projects provide a distinct service and therefore qualify
as one performance obligation. Revenue from fixed-price contracts provide for a fixed amount of revenue for the entire project,
and any changes to the scope of the project is addressed in a change order, which is treated as a modification of the original
contract. To
determine the proper revenue recognition method for contracts, the Company evaluates whether two or more contracts should be combined
and accounted for as one single performance obligation and whether a single contract should be accounted for as more than one
performance obligation. ASU 2014-09 defines a performance obligation as a contractual promise to transfer a distinct good or service
to a customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue
when, or as, the performance obligation is satisfied. The Company’s evaluation requires judgment and the decision to combine
a group of contracts or separate a contract into multiple performance obligations could change the amount of revenue and profit
recorded in a given period. To date, all of the Company’s contracts have a single performance obligation, as the promise
to transfer the individual goods or services is not separately identifiable from other promises in the contract and, therefore,
is not distinct. However, if in the future the Company has contracts with multiple performance obligations, then the Company will
allocate the contract’s transaction price to each performance obligation using the observable standalone selling price,
if available, or alternatively the Company’s best estimate of the standalone selling price of each distinct performance
obligation in the contract. Accounting
for contracts involves the use of various techniques to estimate total transaction price and costs. For such contracts, transaction
price, estimated cost at completion and total costs incurred to date are used to calculate revenue earned. Unforeseen events and
circumstances can alter the estimate of the costs and potential profit associated with a particular contract. Total estimated
costs, and thus contract revenue and income, can be impacted by changes in productivity, scheduling, the unit cost of labor, subcontracts,
materials and equipment. Additionally, external factors such as weather, client needs, client delays in providing permits and
approvals, labor availability, governmental regulation and politics may affect the progress of a project’s completion and
thus the timing of revenue recognition. To the extent that original cost estimates are modified, estimated costs to complete increase,
delivery schedules are delayed, or progress under a contract is otherwise impeded, cash flow, revenue recognition and profitability
from a particular contract may be adversely affected. The
nature of the Company’s contracts do not have variable consideration, such as liquidated damages, volume discounts, performance
bonuses, incentive fees, and other terms that can either increase or decrease the transaction price. In contrast, the contracts
are often modified to account for changes in contract specifications or requirements. Costs associated with contract modifications
are included in the estimated costs to complete the contracts and are treated as project costs when incurred. In most instances,
contract modifications are for goods or services that are not distinct, and, therefore, are accounted for as part of the existing
contract. The effect of a contract modification on the transaction price, and the measure of progress for the performance obligation
to which it relates, is recognized as an adjustment to revenue on a cumulative catch-up basis. In some cases, settlement of contract
modifications may not occur until after completion of work under the contract. As
a significant change in one or more of these estimates could affect the profitability of its contracts, the Company reviews and
updates its contract-related estimates regularly. The Company recognizes adjustments in estimated profit on contracts under the
cumulative catch-up method. Under this method, the cumulative impact of the profit adjustment is recognized in the period the
adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate.
If at any time the estimate of contract profitability indicates an anticipated loss on a contract, the projected loss is recognized
in full in the period it is identified and recognized as an “Provision for Estimated Losses on Uncompleted Contracts”
which is included in “Contract liabilities” on the Condensed Consolidated Balance Sheets. For contract revenue recognized
over time, the Provision for Estimated Losses on Uncompleted Contracts is adjusted so that the gross profit for the contract remains
zero in future periods. The
Company estimates the collectability of contract amounts at the same time that it estimates project costs. If the Company anticipates
that there may be issues associated with the collectability of the full amount calculated as the transaction price, the Company
may reduce the amount recognized as revenue to reflect the uncertainty associated with realization of the eventual cash collection. The
timing of when the Company bills its customers is generally dependent upon agreed-upon contractual terms, milestone billings based
on the completion of certain phases of the work, or when services are provided. Sometimes, billing occurs subsequent to revenue
recognition, resulting in unbilled revenue, which is a contract asset. However, the Company sometimes receives advances or deposits
from its customers before revenue is recognized, resulting in deferred revenue, which is a contract liability. For
the three-months ended March 31, 2019 and 2018, revenues from contracts with customers is summarized by product category were
as follows:
March
31,
2019 2018
As
Restated See FN 13
Product
Category
Athletic
fields and tracks $ 1,668,252 $ 466,386
Vertical
construction 547,845 296,160
Totals $ 2,216,097 $ 762,546 “Athletic
fields and tracks” relates to the design, engineering and construction of outdoor playing fields, running tracks and related
works, stadiums, scoreboards, dug outs, base and drainage work, and similar projects, while “Vertical construction”
relates to the design, engineering and construction of an entire facility such as a dormitory, athletics facility, gymnasium,
or a similar general construction project. Inventory Inventory
is stated at the lower of cost (first-in, first out) or net realizable value and consists primarily of construction materials. Property,
Plant and Equipment Property,
plant and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated
using the straight-line method over the estimated useful lives of the assets, which generally range from 3 to 5 years. Leasehold
improvements are amortized over the remaining life of the lease. Gains and losses from the retirement or disposition of property
and equipment are included in operations in the period incurred. Maintenance and repairs are expensed as incurred. Leases The Company has elected not to
value the ROU asset or liability due to the immaterial amount of the lease and the expense will be recorded on a straight-line
basis until the end of the lease. Income
Taxes Deferred
income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss and credit carry-forwards
and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured
at the current enacted tax rates. The differences relate primarily to net operating loss carryforward from date of acquisition
and to the use of the cash basis of accounting for income tax purposes. The Company records an estimated valuation allowance on
its deferred income tax assets if it is more likely than not that these deferred income tax assets will not be realized. The
Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will
be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized
in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than
50% likelihood of being realized upon ultimate settlement. The Company has not recorded any unrecognized tax benefits. Stock-Based
Compensation The
Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award.
For employees, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is
generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. The fair value
amount is then recognized over the period during which services are required to be provided in exchange for the award, usually
the vesting period. Awards granted to directors are treated on the same basis as awards granted to employees. Concentrations
of Credit Risk Financial
instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash
and cash equivalents. The Company places its cash and temporary cash investments with credit quality institutions. At times, such
amounts may be in excess of the FDIC insurance limit. There were no concentrations of credit risk as March 31, 2019 and December
31, 2018. Accounts
Receivable and Allowance for Doubtful Accounts Accounts receivable
are stated at the amount management expects to collect from outstanding balances. The Company generally does not require collateral
to support customer receivables. The Company provides an allowance for doubtful accounts based upon a review of the outstanding
accounts receivable, historical collection information and existing economic conditions. The Company determines if receivables
are past due based on days outstanding, and amounts are written off when determined to be uncollectible by management. The maximum
accounting loss from the credit risk associated with accounts receivable is the amount of the receivable recorded, which is the
face amount of the receivable, net of the allowance for doubtful accounts. At March 31, 2019 and December 31, 2018, the allowance
for doubtful accounts was $0, respectively. Research
and Development Research
and development expenses are charged to operations as incurred. For the three months ended March 31, 2019 and 2018, the Company
incurred research and development expenses of $0 and $189, respectively. Warranty
Costs The
Company generally provides a warranty on the products installed for up to 8 years with certain limitations and exclusions based
upon the manufacturer’s product warranty. The Company’s subcontractors provide a one (1) year warranty to the Company
against defects in material or workmanship. The Company has accrued a warranty reserve of $50,000 and $50,000 as of March 31,
2019 and December 31, 2018, respectively which is included in accounts payable and accrued expenses on the consolidated
balance sheets. See Note 4 for warranty expenses incurred during for the three months ended March 31, 2019 and 2018. Fair
Value of Financial Instruments The
Company follows ASC 820-10 of the FASB Accounting Standards Codification to measure the fair value of its financial instruments
and disclosures about fair value of its financial instruments. ASC 820-10 establishes a framework for measuring fair value in
accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value
measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820-10 establishes
a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels.
The three (3) levels of fair value hierarchy defined by ASC 820-10 are described below:
Level
1 Quoted
market prices available in active markets for identical assets or liabilities as of the reporting date.
Level
2 Pricing
inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable
as of the reporting date.
Level
3 Pricing
inputs that are generally unobservable inputs and not corroborated by market data. Financial
assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or
similar techniques and at least one significant model assumption or input is unobservable. The
fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within
more than one level described above, the categorization is based on the lowest level input that is significant to the fair value
measurement of the instrument. The
carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, inventory, prepaid
expenses and other current assets, accounts payable and accrued expenses, and certain notes payable approximate their fair values
because of the short maturity of these instruments. Transactions
involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of
competitive, free-market dealings may not exist. The
Company’s Level 3 financial liabilities consist of the derivative conversion feature on a convertible note issued in 2016.
The Company valued the conversion features using a Black Scholes model. These models incorporate transaction details such as the
Company’s stock price, contractual terms, maturity, risk free rates, and volatility as of the date of issuance and each
balance sheet date. The
Company utilized the following management assumptions in valuing the derivative conversion feature at March 31, 2019 and December
31, 2018:
March
31, 2019 December
31, 2018
Exercise
price $ 0 .21 $ 0.38
Expected
dividends 0 % 0 %
Expected
volatility 39.39 % 43.06 %
Risk
fee interest rate 2.4 % 2.63 %
Term 1
year 1
year Fair
Value of Financial Assets and Liabilities Measured on a Recurring Basis The
Company uses Level 3 of the fair value hierarchy to measure the fair value of the derivative liabilities and revalues its derivative
liability at every reporting period and recognizes gains or losses in the statements of operations that are attributable to the
change in the fair value of the derivative liability. Financial
assets and liabilities measured at fair value on a recurring basis are summarized below and disclosed on the balance sheets as
follows:
Carrying Fair
Value Measurement Using
As
of March 31, 2019 Value Level
1 Level
2 Level
3 Total
Derivative
conversion feature on convertible note $ 116,100 $ - $ - $ 116,100 $ 116,100
Carrying Fair
Value Measurement Using
As
of December 31, 2018 Value Level
1 Level
2 Level
3 Total
Derivative
conversion feature on convertible note $ 131,100 $ - $ - $ 131,100 $ 131,100 The
unobservable level 3 inputs used by the Company was the expected volatility assumption used in the option pricing model. Expected
volatility is based on the historical stock price volatility of comparable companies common stock, as our stock does not have
sufficient historical trading activity. The
table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets and
liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the period December
31, 2016 through March 31, 2019:
Fair Value Measurement
Derivative conversion feature on convertible note Total
Balance, December 31, 2016 $ 204,300 $ 204,300
Change in fair value (120,100 ) (120,100 )
Balance, December 31, 2017 84,200 84,200
Change in fair value 46,900 46,900
Balance, December 31, 2018 131,100 131,100
Change in fair value (15,000 ) (15,000 )
Balance, March 31, 2019 $ 116,100 $ 116,100 Changes
in the unobservable input values could potentially cause material changes in the fair value of the Company’s Level 3 financial
instruments. The significant unobservable inputs used in the fair value measurements is the expected volatility assumption. A
significant increase (decrease) in the expected volatility assumption could potentially result in a higher (lower) fair value
measurement. Beneficial
Conversion Feature For
conventional convertible debt where the rate of conversion is below market value, the Company records a “beneficial conversion
feature” (“BCF”) and related debt discount. When
the Company records a BCF the intrinsic value of the BCF would be recorded as a debt discount against the face amount of the respective
debt instrument. The debt discount attributable to the BCF is amortized over the period from issuance to the date that the debt
matures. Derivative
Instruments The
Company evaluates its convertible debt, warrants or other contracts to determine if those contracts or embedded components of
those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815-15. The result of this accounting
treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability.
In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations
as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at
the conversion date and then that fair value is reclassified to equity. The
classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is
re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject
to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Net
Loss Per Common Share The
Company computes basic net loss per share by dividing net loss per share available to common stockholders by the weighted average
number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities. Diluted earnings
per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive
securities into common stock using the “treasury stock” and/or “if converted” methods as applicable. The
computation of basic and diluted loss per share excludes potentially dilutive securities because their inclusion would be anti-dilutive.
Anti-dilutive securities excluded from the computation of basic and diluted net loss per share for the three months ended March
31, 2019 and March 31, 2018, respectively, are as follows:
March 31, 2019 March 31, 2018
Warrants 183,338 679,588
Options 1,947,500 1,397,500
Convertible Notes 1,516,112 3,134,825
Totals 3,646,950 5,211,913 Significant
Customers The
Company’s business focuses on securing a smaller number of high quality, highly profitable projects, which sometimes results
in having a concentration of sales and accounts receivable among a few customers. This concentration is customary among the design
and build industry for a company of our size. As we continue to grow and are awarded more projects, this concentration will continue
to decrease. For
the three months ended March 31, 2019, the Company had 4 customers that in total represented 99% of total revenue,
the largest was 38% and the other three were 22%, 21% and 18% of revenue. For
the three months ended March 31, 2018, the Company had 2 customers that represented 79% and 18% of the total revenues. Recent
Accounting Pronouncements In
May 2014, the FASB issued accounting standard update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers
(Topic 606)” (“ASU 2014-09”). The standard’s core principle is that a company will recognize revenue when
it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects
to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates
than under previous guidance. This may include identifying performance obligations in the contract, estimating the amount of variable
consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.
In July 2015, the FASB approved the proposal to defer the effective date of ASU 2014-09 standard by one year. Early adoption was
permitted after December 15, 2016, and the standard became effective for public entities for annual reporting periods beginning
after December 15, 2017 and interim periods therein. In 2016, the FASB issued final amendments to clarify the implementation guidance
for principal versus agent considerations (ASU No. 2016-08), accounting for licenses of intellectual property and identifying
performance obligations (ASU No. 2016-10), narrow-scope improvements and practical expedients (ASU No. 2016-12) and technical
corrections and improvements to ASU 2014-09 (ASU No. 2016-20) in its new revenue standard. The Company has performed a review
of the requirements of the new revenue standard and is monitoring the activity of the FASB and the transition resource group as
it relates to specific interpretive guidance. The Company reviewed customer contracts, applied the five-step model of the new
standard to its contracts, and compared the results to its current accounting practices. The Company has included disclosures
required by the new standard and the adoption has not had a material impact on the financial statements. In
January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments — Overall: Recognition and Measurement of Financial
Assets and Financial Liabilities (“ASU 2016-01”). The standard addresses certain aspects of recognition, measurement,
presentation, and disclosure of financial instruments. This ASU is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2017. Early adoption is not permitted with the exception of certain provisions related to
the presentation of other comprehensive income. The adoption of ASU 2016-01 did not have a material impact on the Company’s
financial position, results of operations or cash flows. In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), (“ASU 2016-02”) and issued subsequent amendments to
the initial guidance. This ASU requires an entity to recognize a right-of-use asset (“ROU”) and lease liability for
all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification
as a finance or operating lease. Similar modifications have been made to lessor accounting in-line with revenue recognition guidance.
The amendments also require certain quantitative and qualitative disclosures about leasing arrangements. Leases will be classified
as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.
The new standard is effective for the Company on January 1, 2019, with early adoption permitted. The Company has a single lease
for $ 1,367 per month for office space, which lease expires in 2020. Accordingly, the Company has elected not to value the ROU
asset or liability due to the immaterial amount of this lease and the expense will be recorded on a straight-line basis until
the end of the lease. In
August 2016, FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments” (“ASU
2016-15”). ASU 2016-15 clarifies the presentation and classification of certain cash receipts and cash payments in the statement
of cash flows. ASU 2016-15 is effective for fiscal years, and interim periods within those years beginning after December 15,
2017. The Company adopted ASU 2016-15 effective January 1, 2018 and it did not have a material impact on its financial statements. In
May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting
(“ASU 2017-09”) to clarify when to account for a change to the terms or conditions of a share-based payment award
as a modification. Under this new guidance, modification accounting is required if the fair value, vesting conditions, or classification
of the award changes as a result of the change in terms or conditions. ASU 2017-09 is effective for annual reporting periods beginning
after December 15, 2017, including interim reporting periods within each annual reporting period. The Company adopted ASU 2017-09
effective January 1, 2018 and it did not have a material impact on its financial statements. In
June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (ASC 718): Improvements to Nonemployee Share-Based Payment
Accounting (“ASU 2018-07”). ASU 2018-07 simplifies the accounting for nonemployee share-based payment transactions.
Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The new standard
will become effective for the Company beginning January 1, 2019, with early adoption permitted. The Company adopted ASU 2018-07
effective January 1, 2019 and it did not have a material impact on its financial statements. In
August 2018, the FASB issue ASU 2018-13, Fair Value Measurement (ASC 820): Disclosure Framework-Changes to the Disclosure Requirements
for Fair Value Measurement, which modifies the disclosure requirements for fair value measurements by removing, modifying, or
adding certain disclosures. The new standard will become effective for the Company January 1, 2020, with early adoption permitted.
The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures. Subsequent
Events Management
has evaluated subsequent events or transactions occurring through the date on which the financial statements were issued. |
