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Pursuant to the Agreements, during the 12 months ended December 31, 2016, the Company converted Series 2 Convertible Notes with an mixture outstanding principal quantity of $1,756,250, together with accrued interest of $399,063, in exchange for the issuance of 15,253,089 shares of the Company’s widespread stock. If results of operations for 2018 don’t meet administration’s expectations, or further capital just isn’t available, management believes it has the flexibility to scale back certain expenditures. The Company believes its cash balances and cash flow from operations shall be insufficient to fund its operations for the subsequent 12 months. If the Company is unable to considerably enhance revenues, cut back expenditures, or otherwise generate money flows for operations, then the Company will need to increase additional funding to proceed as a going concern.

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The largest portion of this backlog involves a large, multi-state buyer that has placed on hold two initiatives in states where the present market situations, together with wholesale cannabis prices, are not favorable. Refer to dankstop frog themed water pipe of Note 2 in our consolidated financial statements, included as part of this Annual Report for additional data on our estimate of future income recognition on our remaining efficiency obligations. While the federal government has the proper to regulate and criminalize hashish, state and municipal governments could undertake or amend extra laws and laws that further criminalize or adversely affect hashish businesses. States that presently have legal guidelines that decriminalize or legalize certain aspects of cannabis, corresponding to medical marijuana, could sooner or later, reverse course and adopt new legal guidelines that further criminalize or adversely have an effect on hashish companies. Additionally, municipal governments in sure states may have laws that adversely have an effect on cannabis companies, even though there aren’t any such laws on the state degree.

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The quarterly director charges are paid 50% in cash and 50% in shares of the Company’s frequent stock, with the variety of shares determined based mostly on the closing worth of the widespread inventory on the date of issuance. The worth attributable to these shares, which were issued in August 2017, was $15,000 as calculated utilizing the fair value of the Company’s common inventory on August 7, 2017. In March 2017, in a private transaction, sure principal shareholders of the Company, assigned to the Previous CEO, non-certified stock options to buy 3,088,800 shares of the Company’s common stock outstanding beneath the 2014 Stock Plan. The principal shareholders knowledgeable the Company that they agreed to assign these choices as an incentive (i) for the Previous CEO to complete the negotiations with the Company’s convertible noteholders to convert their notes into shares of the Company’s widespread inventory, and (ii) for the Previous CEO to complete a private placement of the Company’s common stock.

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As of December 31, 2017, the consultant is owed cash fees of $12,750 which were paid in the type of fully vested restricted shares in February 2018. Due to our market presence and expertise, we obtain frequent inbound inquiries for our products and services. We are, nonetheless, proactive in our outreach to our goal market using industry commerce shows and conventions and speaking engagements to realize industry visibility and presence cost-effectively.

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All of the foregoing could impact our customers’ ability to buy our services, which may adversely have an effect on our enterprise, income and earnings. Certain components might have a material adverse effect on our enterprise, monetary condition, and outcomes of operations.


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Our duty is to express an opinion on these consolidated financial statements based on our audit. We have audited the accompanying consolidated balance sheet of Surna Inc. and subsidiary (the “Company”) as of December 31, 2017 and the related consolidated statement of operations, stockholders’ equity, and cash flows for the 12 months then ended, and the related notes (collectively, the “consolidated monetary statements”). In our opinion, the consolidated monetary statements present fairly, in all material respects, the monetary position of the Company as of December 31, 2017, and the results of its operations and its money flows for the year ended December 31, 2017, in conformity with accounting rules typically accepted within the United States of America. This discussion and analysis of our monetary situation and outcomes of operations relies upon our consolidated financial statements, which have been ready in conformity with accounting principles usually accepted within the United States of America.
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Our failure to acquire adequate financing on acceptable terms and circumstances could have a fabric opposed impact on our development prospects and our business, monetary situation and results of operations. As a results of the federal illegality of the hashish business, many banks do not present banking services to the cultivation and distribution segments of the industry, the argument being that they would be accepting for deposit funds derived from the operation of a federally illegal enterprise. Moreover, the FinCEN steerage could also be rescinded or amended at any time to be able to reconcile the now conflicting steerage of the Sessions Memo. At current, few banks have taken advantage of the FinCEN steerage, resulting in many hashish businesses still working on an all-cash basis. This makes it difficult for hashish businesses to manage their businesses, pay their employees and taxes, and having a lot cash on hand also creates important public safety issues.

As of December 31, 2017, the unbiased directors and a advisor were owed cash fees of $27,750 which had been paid in the form of totally vested restricted shares in February 2018. The Banker Warrants had been totally vested on the date of issuance and could also be exercised starting December 20, 2017. The Company recorded $30,687 of expense for the fair value of the Banker Warrant on the date of issuance. The truthful value of the Banker Warrants at date of issuance was decided utilizing the Black-Scholes Model.

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For data regarding our crucial accounting policies as well as latest accounting pronouncements, see Note 2 of our consolidated financial statements. Historically, we had little exposure to the collection empire glassworks rocket man hand pipe danger on accounts receivable since we typically acquired payments from our customers in advance of our performance of services or supply of kit.

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Many ancillary businesses that service cannabis companies should cope with the unpredictability of their shoppers or prospects not having a bank account. The lack of ability of our customers to open financial institution accounts and in any other case entry the services of banks, including obtaining credit, might make it tougher and dear for them to operate and more difficult for such prospects to purchase our services and products, which may materially harm our business, revenue and earnings. We anticipate we would require additional cash sources to finance our continued growth or different future developments, including any investments or acquisitions we might determine to pursue. We may need additional funds to complete additional development of our business plan to realize a sustainable sales level where ongoing operations can be funded out of income.
Brandy Keen, a principal shareholder, co-founder and Vice President, is often engaged as a speaker on climate management and power effectivity by organizations corresponding to National Cannabis Industry Association, Cannabis World Congress and Business Exposition and CannaCon and is regularly cited in industry-related publications. Ms. Keen can be a member of Denver’s Department of Public Health and Environment Cannabis Sustainability Work Group, whose mission is to advertise sustainability within the cannabis trade via schooling, the development and dissemination of best practices, and the facilitation of dialogue between the hashish industry, the neighborhood, and technical experts. During the yr ended December 31, 2018, the Company awarded 1,406,055 shares of restricted inventory underneath the 2017 Equity Plan in consideration of services rendered to the Company by sure unbiased administrators and consultants. These restricted shares have been absolutely vested on the time of the award and the mixture value attributable to these shares was $301,650, as calculated utilizing the truthful value of the Company’s widespread inventory on date the Board accredited these awards. As of December 31, 2018, the unbiased administrators were owed cash fees of $15,000 which have been paid within the type of totally vested restricted shares in January 2019.
The assumptions used in the Black-Scholes Model were time period of the Banker Warrant of three years, volatility rate of one hundred twenty.02%, fee of quarterly dividends 0% and a danger-free rate of interest of 1.fifty two%. In June 2018, the Company issued 7,562,500 funding units to accredited buyers at a unit price of $0.16 for gross proceeds of $1,210,000, with each unit consisting one share of common stock and a warrant to buy one share of frequent inventory. There can be no assurance that the Company will be capable of elevate debt or equity financing in sufficient quantities, when and if wanted, on acceptable phrases or at all.
The Company is subject to dangers frequent to similarly-situated firms together with, however not restricted to, new technological improvements, dependence on key personnel, protection of proprietary know-how, compliance with government laws, uncertainty of market acceptance of merchandise, product liability, and the need to obtain extra financing. As a provider of providers and gear to hashish cultivators, the Company is also topic to dangers related to the cannabis industry. Although certain states have legalized medical and/or recreational cannabis, U.S. federal legal guidelines continue to ban marijuana in all its forms as well as its derivatives. Any changes within the enforcement of U.S. federal laws may adversely affect the implementation of state and local cannabis legal guidelines and rules that let medical or recreational cannabis and, correspondingly, could adversely influence the Company’s prospects. The Company’s success can also be dependent upon its capacity to boost additional capital and to efficiently develop and market its merchandise.
During the 12 months ended December 31, 2018, the Company issued 1,168,540 shares of its restricted frequent inventory upon the cashless exercise of the Series three Warrants. Our unbiased registered public accounting agency included in its audit opinion on our monetary statements for the 12 months ended December 31, 2018 a statement that there is substantial doubt as to our capacity to proceed as a going concern. On November 7, 2017, the Company awarded 143,707 restricted shares underneath the 2017 Equity Plan to a consultant who offered corporate and monetary services to the Company. These restricted shares had been awarded in lieu of cash fees earned in August September and October 2017 and had been totally vested on the time of the award. The worth attributable to those shares, which had been issued in November 2017, was $20,550 as calculated using the honest worth of the Company’s widespread inventory on November 6, 2017, which is equal to the worth of the services provided.

  • During 2017 and 2018, we accomplished private placement unit offerings, consisting of frequent inventory and warrants, to accredited investors elevating mixture proceeds of $5,663,000.
  • As of December 31, 2018, we had a working capital deficit of roughly $923,000 and our money stability was $253,000.
  • We are likely to want extra funds to complete additional improvement of our business plan to realize a sustainable sales degree the place ongoing operations can be funded from operations.
  • We anticipate we would require more money sources to finance our growth or different future developments, together with the launch of our new product and repair initiatives and any investments or acquisitions we could resolve to pursue.

Our income stream is derived primarily from supplying mechanical engineering companies and climate and environmental control gear to business indoor hashish grow amenities. Brad Bartlett is a seasoned attorney with a long career as a enterprise lawyer, litigator, legal and coverage advisor, and law professor and lecturer. Brad pioneers authorized strategies and providers for the cannabis trade; handles complicated land-use and environmental issues; and advises American Indian Tribes and tribal communities on governmental, regulatory and business matters.
The Previous CEO thereupon delivered a purported notice of exercise of the choices to the Company simply previous to the expiration of the options. The Company erroneously reported in its Form 10-K for the year ended December 31, 2016 that the common stock underlying these choices had been issued through the three months ended March 31, 2017. Prior to the Company’s acceptance of the discover of train and issuances of those shares in response thereto, in May 2017, the Previous CEO and the principal shareholders entered right into a rescission agreement to nullify the March 2017 task transaction. As of December 31, 2017 and 2016, there have been seventy seven,220,000 shares of Series A most well-liked stock, par worth $0.00001 per share, issued and outstanding.
If any of the following risks truly occurs, our business, monetary condition, outcomes of operations, and future prospects could be materially and adversely affected. In that occasion, the buying and selling worth of our frequent inventory may decline, and you can lose half or all your investment.
For instance, municipal governments could have zoning laws that restrict the place cannabis operations can be located and the style and size of which they will broaden and operate. These municipal laws, just like the federal laws, could adversely affect our clients’ capacity to do enterprise. Also, given the complexity and fast change of the federal, state and local laws pertaining to hashish, our prospects might incur substantial authorized prices related to complying with these legal guidelines and in buying the necessary state and native licenses required by their business endeavors.
During the yr ended December 31, 2017, the Company awarded 2,420,494 shares of restricted inventory under the 2017 Equity Plan in consideration of providers rendered to the Company by certain workers, impartial directors and consultants. These restricted shares were fully vested on the time of the award and the aggregate worth attributable to those shares was $304,035, as calculated utilizing the fair worth of the Company’s frequent inventory on date the Board permitted these awards.
We anticipate we would require more money assets to finance our development or different future developments, together with the launch of our new product and repair initiatives and any investments or acquisitions we may decide to pursue. As of December 31, 2018, we had a working capital deficit of approximately $923,000 and our cash balance was $253,000. We are more likely to want additional funds to complete further growth of our business plan to realize a sustainable gross sales degree the place ongoing operations could be funded from operations.
yocan evolve c vaporizer pen graduated the University of Colorado School of Law’s environmental and American Indian legislation program in 1998 and is an enrolled tribal member of the Sault Ste. Brad is a member of Chacruna’s Council for the Protection of Sacred Plants the place he works to advance the dialogue round Controlled Substances Act prohibitions on psychoactive plants and its intersection with state’s rights and non secular and medical freedoms. On November 7, 2017, the Company awarded 104,896 restricted shares beneath dankstop glass ducky carb cap the 2017 Equity Plan to unbiased directors in lieu of the payment of cash fees earned during the third quarter of 2017. The value attributable to those shares, which had been issued in November 2017, was $15,000 as calculated using the honest value of the Company’s frequent stock on November 6, 2017.
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The value attributable to those shares, which were issued in August 2017, was $35,205 as calculated utilizing the honest value of the Company’s common stock on August 7, 2017. Sales arrangements generally involve delivering multiple components, including engineering providers and multiple gadgets of equipment. In these situations, revenue is assigned to each factor based on vendor-particular objective proof, third-celebration evidence or a management estimate of the relative promoting value. Revenue is recognized individually for delivered components provided that they’ve worth to the client on a stand-alone basis and the performance of the undelivered objects is possible and substantially in the Company’s management, or the undelivered components are inconsequential or perfunctory and there are no unsatisfied contingencies related to cost.
Certain accounting policies are particularly important to the understanding of our monetary position and results of operations and require the applying of great judgment by our administration or may be materially affected by changes from interval to interval in economic components or circumstances which might be outside of our control. In applying these insurance policies, management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are primarily based on our historical operations, our future business dankstop skipping sun stone chillum smoke stone plans and projected monetary outcomes, the phrases of existing contracts, observance of trends in the industry, information provided by our clients, and knowledge out there from other outside sources, as acceptable. For information relating to our critical accounting policies as well as current accounting pronouncements, see Note 2 to our consolidated financial statements. Cash provided by financing activities for the 12 months ended December 31, 2017 was $4,621,000 compared to money utilized in financing activities of $156,000 for the yr ended December 31, 2016.
Indoor hashish cultivators are dealing with the a number of headwinds of high power prices, more and more rigorous high quality requirements and declining cannabis prices. To be competitive, among other things, our customers should develop progressive methods to satisfy the demands of their business and cut back energy costs, ninety% of which is expounded to their HVAC and lighting methods. We deliver services bubblers 1 for our prospects’ complete facility lifecycles, not only a “one-and-accomplished” environmental management engineering/design and equipment package deal as part of a facility’s initial construction. We have the benefit of early engagement with our customers at the pre-build and construction phases and the opportunity for constructing longer-time period relationships with our current customers and their services.
The function of the feature is typically to guard the instrument’s counterparty from future issuances of fairness shares at a extra favorable worth. The ASU amends the classification of such instruments as liabilities or equity by revising the sure steerage relative to evaluating in the event that they should be accounted for as spinoff devices and the steering on recognition and measurement of freestanding fairness-classified devices. The Company is at present evaluating the impact of this new accounting steerage on its consolidated outcomes of operations and financial condition. Although sure states have legalized medical and/or recreational hashish, U.S. federal legal guidelines continue to prohibit hashish in all its varieties in addition to its derivatives.
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Over his extensive profession, Brad has labored with impacted tribal communities, including Native American Church members, on a wide variety of complicated tribal and environmental justice issues. Brad is also a seasoned litigator and has introduced numerous circumstances in the public curiosity addressing government accountability and overreach.
As of December 31, 2017, the independent administrators are owed cash charges of $15,000 which had been paid within the type of absolutely vested restricted shares in February 2018. On August eight, 2017, the Company awarded 111,113 restricted shares underneath the 2017 Equity Plan to impartial directors in lieu of the fee of cash fees earned in the course of the second quarter of 2017.
The holders of Series A most well-liked stock have one vote per share of Series A preferred inventory equivalent to at least one vote of the Company’s widespread stock. The holders of shares of Series A Preferred Stock usually are not entitled to receive dividends and have no conversion or preemptive rights. Upon liquidation, dissolution or winding up of the Company’s enterprise, after payment to the holders of any senior securities, the holders of Series A most well-liked stock are entitled to obtain a preferential money payment per share of Series A most popular inventory equal to the acknowledged worth of the popular inventory, prior to any payment to the holders of frequent stock. During the year ended December 31, 2016, the Company issued 2,289,958 shares of its frequent inventory in connection with the conversion the Series 4 Convertible Notes within the principal amount of $103,319 and accrued curiosity of $2,637.
The Company’s capability to lift fairness capital can be limited by the Company’s stock value, and any such issuance could possibly be extremely dilutive to current shareholders. Since November 2018, the Company has undertaken a number of value saving initiatives (together with a workforce discount) designed to protect the Company’s limited cash sources. While the Company’s 2018 income of roughly $9,582,000 represents an increase of almost 33% over the prior year, the Company’s revenue recognition on contracts continues to be unpredictable and inconsistent quarter-over-quarter. In addition, the Company’s efforts to increase and improve its merchandise has resulted in additional working capital being allocated to equipment purchases and increased stock ranges. However, approximately 31% of our backlog just isn’t anticipated to be acknowledged over the next 24 months, and may by no means be acknowledged.
Going ahead, our plan is to capitalize on our current customer relationships and try to become “stickier” to our prospects, looking for to generate incremental and recurring income. This Annual Report on Form 10-K, together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, accommodates forward-wanting statements that involve substantial risks and uncertainties.

The Series 3 Warrants had a 5-yr time period and an exercise value of $zero.25 per share, topic to adjustment. The Series three Warrants additionally present for a reduction in the train worth within the occasion the Company issued common inventory in a registered providing at a worth under the train price. In such case, the exercise value beneath the warrants can be decreased to the worth of the frequent inventory in the registered offering. The Company decided that this train worth reduction certified as a by-product monetary instrument. As of December 31, 2017, Series 3 Warrants to purchase 2,625,000 shares of common inventory have been excellent.
These forward-wanting statements are not historical information, but are primarily based on current administration expectations that involve substantial risks, uncertainties, and different factors, a few of that are past our control and difficult to foretell and could trigger precise results to differ materially from these expressed in, or implied by, these forward-trying statements. We generally determine forward-looking statements by terminology similar to “could,” “will,” “ought to,” “expects,” “plans,” “anticipates,” “might,” “intends,” “target,” “initiatives,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these phrases or other related words. On August 8, 2017, the Company awarded 260,778 restricted shares under the 2017 Equity Plan to a consultant who provided corporate and financial companies to the Company. These restricted shares were awarded in lieu of money charges earned for the April, May, June and July 2017 and had been fully vested at the time of the award.

The majority of these deliverables are tangible merchandise, corresponding to tools, with a comparatively smaller portion attributable to engineering services. Generally, contract period is lower than one-12 months and cancellation, termination or refund provisions apply solely within the occasion of contract breach. We have audited the consolidated balance sheets of Surna Inc. (the Company) and subsidiaries as of December 31, 2016, and the associated consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the 12 months ended December 31, 2016.
In addition, we completed two personal placement unit choices, consisting of common inventory and warrants, to accredited buyers in 2017 for mixture proceeds of $four,453,080. We will probably want to raise debt and fairness financing in the future so as to proceed our operations and achieve our progress targets. As a result of the federal illegality of marijuana, many banks do not provide banking companies to the cultivation and distribution segments of the cannabis industry, the argument being that they’d be accepting for deposit funds derived from the operation of a federally illegal business. Our consolidated financial statements have been presented on a going concern foundation, which contemplates the conclusion of belongings and the satisfaction of liabilities within the normal course of enterprise. Our independent registered public accounting agency included in its audit opinion on our monetary statements for the 12 months ended December 31, 2017 an announcement that there’s substantial doubt as to our ability to proceed as a going concern.
During the year ended December 31, 2017, we completed two personal placements consisting of the sale of shares of our frequent inventory, with hooked up warrants, resulting in aggregate proceeds of $four,453,000. During the yr ended December 31, 2017, we issued two unsecured promissory notes for aggregate proceeds of $500,000 within the first quarter of 2017, which were transformed into common in the third quarter of 2017, and we made funds of $270,000 to extinguish the principal underneath our remaining convertible promissory notes. The Series 3 Convertible Notes accrued interest a price of 10% per annum, count on for Series three Convertible Notes in the principal amount of $106,000 which had an interest rate of eleven% per annum. During the year ended December 31, 2016, the Company issued 15,598,870 shares of its common inventory in reference to the conversion the Series three Convertible Notes within the principal amount of $711,000 and accrued interest of $seventy two,128.
We have determined that our capability to proceed as a going concern is dependent on elevating additional capital to fund our operations and in the end on producing future profitable operations. There may be no assurance that we can elevate sufficient further capital or ultimately have constructive money move from operations to handle all of our cash move wants. If we aren’t capable of finding various sources of money or generate positive cash flow from operations, our business and shareholders will be materially and adversely affected. The foregoing elements raise substantial doubt about our ability to proceed as a going concern for a interval of one yr from the date our financial statements are issued. Our consolidated financial statements do not embrace any adjustment that may outcome from the end result of this uncertainty.
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Our credit score arrangements are negotiated and may not protect us if a buyer develops operational issue or incurs operating losses which might result in a bankruptcy. The risk is that we derive our income and earnings from selling services and products to the emerging cannabis trade. The failure of our clients to pay in full quantities due to us could negatively have an effect on future profitability. Our customers include businesses from small cultivation operations to licensed industrial amenities ranging from a number of thousand to more than a hundred,000 sq. ft.

You should contemplate rigorously the dangers and uncertainties described beneath, along with different information contained in this Annual Report on Form 10-K, together with our consolidated financial statements and associated notes. Additional dangers and uncertainties that we’re unaware of, or that we presently believe usually are not materials, may turn into necessary factors that adversely affect our business.
During 2017 and 2018, we completed personal placement unit choices, consisting of widespread inventory and warrants, to accredited buyers elevating aggregate proceeds of $5,663,000. We will likely need to lift debt or equity financing in the future so as to proceed our operations and achieve our development targets.
However, there may be no assurance that such financing shall be available in enough quantities and on acceptable terms, when and if needed, or at all. We imagine our cash balances and money flow from operations might be insufficient to fund our operations and growth for the next 12 months. Author Bio

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https://www.whowhatwear.co.uk/If we’re unable to considerably enhance revenues, scale back expenditures, or in any other case generate money flows from operations, then we’ll doubtless want to boost additional funding to proceed our operations.
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