SPORTS FIELD HOLDINGS, INC. This quarterly report on Form 10-Q and other reports filed by
Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance, or achievements. Except as required by
applicable law, including the securities laws of
Our financial statements are prepared in accordance with accounting principles
generally accepted in
Overview
According to Applied Market Information (AMI), over 2,000 athletic field
projects were constructed in the
3
Although synthetic turf athletic fields and synthetic turf have become a viable alternative to natural grass fields, there are a number of technical and environmental issues that have arisen through the evolution of the development of turf and the systems designed around its installation. Sports Field has focused on addressing the main technical issues that still remain with synthetic turf athletic fields and synthetic turf including but not limited to environmental and safety concerns related to infill used in synthetic turf fields as well the reduction of surface heat, Gmax levels (the measure of how much force the surface absorbs and in return, how much is returned to the athlete) as well drainage issues related to the base construction of a turf installation.
In addition to increased need for available playing space, collegiate athletic facilities have become an attractive recruiting tool for many institutions. The competition for athletes and recruiting has resulted in a multitude of projects to build new or upgrade existing facilities. These facilities projects include indoor fields, bleachers, press boxes, lighting, concession stands as well as locker rooms and gymnasiums. We believe that our position in the sports facilities design, construction and turf sales industry allows us to benefit from this spending because we are able to compete for sale of the turf as well as the design and construction revenue on such projects, whereas our competitors can typically only compete for the turf components or the construction revenue, but not all three. In fact, according to an IBIS report, there were no national firms competing in these sectors that have even 5% market share.
Through our strategic operations design, we have the ability to operate
throughout the
4 Summary of Statements of Operations for the Three and Nine Months EndedSeptember 30, 2019 and 2018: Three Months Ended Nine Months Ended 30-Sept-19 30-Sept-18 30-Sept-19 30-Sept-18 Revenue$ 264,840 $ 3,077,289 $ 3,767,849 $ 5,201,964 Gross profit$ 38,779 $ (21,569 ) $ 623,546 $ 370,006 Operating expenses$ 408,268 $ 846,241 $ 1,351,778 $ 2,103,066 Income (Loss) from operations$ (369,489 ) $ (867,810 ) $ (728,232 ) $ (1,733,060 ) Other income (expense)$ (427,491 ) $ (239,575 ) $ (574,339 ) $ (418,128 ) Net loss$ (796,980 ) $ (1,107,385 ) $ (1,302,571 ) $ (2,151,188 ) Loss per common share - basic and diluted$ (0.03 ) $ (0.06 ) $ (0.06 ) $ (0.12 ) Revenue
Revenue was
Revenue was
Gross Profit
The Company generated a gross profit of
The Company generated a gross profit of
Operating Expenses
Operating expenses consist primarily of compensation and related costs for personnel and facilities, and include costs related to our facilities, finance, human resources, and fees for professional services. Professional services are principally comprised of outside legal, audit, marketing, investor relations and outsourcing services.
Operating expenses decreased by
? Lower compensation expenses by approximately
employees and fewer contractors; and
? Lower professional fees by approximately
legal fees.
Operating expenses decreased by
? Lower compensation expenses by approximately
employees and fewer contractors; and
? Lower professional fees by approximately
legal fees. Other Income (Expenses)
Other income (expense) consists primarily of interest expense, amortization of debt issuance costs and discounts related to the Company's notes payable partly offset by a gain on a derivative.
Other income (expenses), net for the three months ended
Other income (expenses), net for the nine months ended
5 Net Loss
The net loss for the three months ended
The net loss for the nine months ended
Liquidity and Capital Resources
The following table summarizes total current assets, liabilities and working
capital at
30-Sept-19 31-Dec-18 Increase/(Decrease)
Current Assets $ 1,792,900 $ 770,095 1,022,805
Current Liabilities $ 9,603,509 $ 8,526,887 1,076,622
Working Capital (Deficit) $ (8,757,699 ) $ (7,756,792 ) (1,000,907 )
At
Summary Cash flows for the Nine Months ended
Nine Months Ended
30-Sept-19 30-Sept-18
Net cash used in operating activities $ (876,878 ) $ (576,979 )
Net cash provided by financing activities $ 955,687 $ 328,698 Cash From Operating Activities
Our primary uses of cash from operating activities include payments to contractors for project costs, consultants, legal and professional fees, marketing expenses and other general corporate expenditures.
Cash used in operating activities consist of net loss adjusted for certain non-cash items, primarily equity-based compensation expense, depreciation expense, amortization of debt issuance costs and amortization of debt discount, as well as the effect of changes in working capital and other activities.
Cash From Financing Activities
Net cash provided by (used in) financing activities for the nine months ended
6 Going Concern
Our historical operating results indicate substantial doubt exists related to
the Company's ability to continue as a going concern. As reflected in the
accompanying consolidated financial statements, as of
We expect that for the next 12 months, our operating cash burn will be
approximately
We have experienced and continue to experience negative cash flows from operations and we expect to continue to incur net losses in the foreseeable future.
The Company will require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives. The Company believes its current available cash along with anticipated revenues may be insufficient to meet its cash needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all. If we are not able to obtain financing when needed, we may be unable to carry out our business plan. As a result, we may have to significantly limit our operations and our business, financial condition and results of operations would be materially harmed.
To date, we have funded our operational short-fall primarily through private offerings of common stock, convertible notes and promissory notes, our line of credit and factoring of receivables.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
Off-Balance Sheet Arrangements
As of
Critical Accounting Policies
We believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this "Management's Discussion and Analysis of Financial Condition and Results of Operation."
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.
7
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.
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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 and nine-months ended
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
30-Sept-19 30-Sept-18 30-Sept-19 30-Sept-18
Product Category
Athletic fields and tracks $ 253,123 1,965,478 3,207,075 3,745,710
Vertical construction 11,716 1,111,811 560,773 1,456,254
Totals $ 264,840 3,077,289 3,767,849 5,201,964
"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.
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.
9 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.
Fair Value of Financial Instruments
Accounting Standards Codification subtopic 825-10, Financial Instruments ("ASC 825-10") requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities, and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.
New Accounting Pronouncements
For information regarding new accounting pronouncements that were adopted and
new accounting pronouncements that were issued during the three months ended
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