| Basis of Presentation; Summary of Significant Accounting Policies (Policies) | 9 Months Ended | 12 Months Ended |
| Sep. 30, 2021 | Dec. 31, 2020 |
| Accounting Policies [Abstract] | | |
| 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 and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal
year ending December 31, 2021. The balance sheet as of December 31, 2020 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, 2020. The notes to the unaudited condensed consolidated financial statements are presented on a going concern basis. | Financial
Statement Presentation The
preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America (“GAAP”) requires management to make estimates and assumptions that affect reported amounts and related disclosures. As
further discussed in Note 3 Going Concern |
| Reverse Stock Split | Reverse
Stock Split On
January 17, 2022, the Company’s Board of Directors approved a reverse stock split at a ratio of one-for-one hundred and fifty.
Such reverse stock split was implemented effective January 27, 2022. All
Common Stock, warrants, options and per share amounts set forth herein are presented to give retroactive effect to the Reverse Split
for all periods presented. | Reverse
Stock Split On
January 17, 2022, the Company’s Board of Directors approved a reverse stock split at a ratio of one-for-one hundred and fifty.
Such reverse stock split was implemented effective January 27, 2022. All
Common Stock, warrants, options and per share amounts set forth herein are presented to give retroactive effect to the Reverse Split
for all periods presented Surna
Inc. Notes
to Consolidated Financial Statements |
| 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. | Principles
of Consolidation The
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. |
| 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. Surna
Inc. Notes
to Condensed Consolidated Financial Statements September
30, 2021 (in
US Dollars except share numbers) (Unaudited) | 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 as it applies to impairment analysis,
valuation of equity-based compensation, valuation of deferred tax assets and liabilities, warranty accruals, inventory allowances, and
legal contingencies. |
| Cash and Cash Equivalents | | Cash
and Cash Equivalents All
highly liquid investments with original maturities of three months or less at the date of purchase are considered to be cash equivalents.
The Company may, from time to time, have deposits in financial institutions that exceed the federally insured amount. The Company has
not experienced any losses to date on depository accounts. |
| Accounts Receivable and Allowance for Doubtful Accounts | | Accounts
Receivable and Allowance for Doubtful Accounts Accounts
receivables are recorded at the invoiced amount or based on revenue earned for items not yet invoiced, and generally do not bear interest.
An allowance for doubtful accounts is established, as necessary, based on past experience and other factors, which, in management’s
judgment, deserve current recognition in estimating bad debts. Based on the Company’s review, it establishes or adjusts the allowance
for specific customers and the accounts receivable portfolio as a whole. As of December 31, 2020, and December 31, 2019, the allowance
for doubtful accounts was $ 165,098
and $ 151,673 ,
respectively. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. |
| Inventory | | Inventory Inventory
is stated at the lower of cost or net realizable value. The inventory is valued based on a first-in, first-out (“FIFO”) basis.
Lower of cost or net realizable value is evaluated by considering obsolescence, excessive levels of inventory, deterioration and other
factors. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated excess, obsolescence
or impaired inventory. Excess and obsolete inventory is charged to cost of revenue and a new lower-cost basis for that inventory is established
and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
As of December 31, 2020, and December 31, 2019, the allowance for excess and obsolete inventory was $ 93,045
and $ 71,376 ,
respectively. |
| Property and Equipment | | Property
and Equipment Property
and equipment are stated at cost. For financial statement purposes, property and equipment are recorded at cost and depreciated using
the straight-line method over their estimated useful lives, which is generally five
years . Leasehold improvements are amortized on
a straight-line basis over the lesser of their useful lives or the life of the lease. Upon sale or retirement of assets, the cost and
related accumulated depreciation and amortization are removed from the balance sheet and the resulting gain or loss is reflected in operations.
Maintenance and repairs are charged to operations as incurred. |
| Long-lived Assets | | Long-lived
Assets Long-lived
tangible assets, including property and equipment, are reviewed for impairment whenever events or changes in business circumstances indicate
the carrying value of the assets may not be recoverable. When such an event occurs, management determines whether there has been impairment
by comparing the anticipated undiscounted future net cash flows to the related asset’s carrying value. If an asset is considered
impaired, the asset is written down to fair value, which is determined based either on discounted cash flows or appraised value, depending
on the nature of the asset. The Company has not identified any indicators of impairment during the years ended December 31, 2020 and
2019. Surna
Inc. Notes
to Consolidated Financial Statements |
| 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 nine months ended September 30, 2021, 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 September 30, 2021 and concluded that no impairment
relating to goodwill existed at September 30, 2021. Surna
Inc. Notes
to Condensed Consolidated Financial Statements September
30, 2021 (in
US Dollars except share numbers) (Unaudited) | Goodwill
and Intangible Assets The
Company recorded goodwill in connection with its acquisition of Hydro in July 2014. Goodwill is reviewed for impairment annually on December
31 st Separable
identifiable intangibles consist of intellectual property such as patents and trademarks, and capitalized website costs. Except for trademarks,
which are not amortized, the Company’s separable identifiable intangible assets are subject to amortization on a straight-line
basis over their estimated useful lives. Trademarks are tested annually for impairment. Separable identifiable intangibles are also subject
to evaluation for potential impairment if events or circumstances indicate the carrying value may not be recoverable. |
| Fair Value Measurement | | Fair
Value Measurement The
Company records its financial assets and liabilities at fair value. The accounting standard for fair value provides a framework for measuring
fair value, clarifies the definition of fair value, and expands disclosures regarding fair value measurements. Fair value is defined
as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between
market participants at the reporting date. The accounting standard establishes a three-tier hierarchy, which prioritizes the inputs used
in the valuation methodologies in measuring fair value: Level
1 - inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level
2 - inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability,
either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level
3 - inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. A
financial asset or liability’s classification within the hierarchy is determined based on the lowest level of input that is significant
to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement
in its entirety requires management to make judgments and consider factors specific to the asset or liability. Due
to their short-term nature, the carrying values of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses,
approximate fair value. |
| Derivative Financial Instruments | | Derivative
Financial Instruments The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded
at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations.
For stock-based derivative financial instruments, the Company uses the Black-Scholes Option Pricing Model (the “Black-Scholes Model”)
to value the derivative instruments. The classification of derivative instruments, including whether such instruments should be recorded
as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the
balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within
twelve months of the balance sheet date. As of December 31, 2020, and December 31, 2019, there were no derivative financial instruments. Surna
Inc. Notes
to Consolidated Financial Statements |
| 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. Surna
Inc. Notes
to Condensed Consolidated Financial Statements September
30, 2021 (in
US Dollars except share numbers) (Unaudited) 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 and nine months ended September 30, 2021, the Company recognized revenue of $ 283,452
and $ 3,357,068 ,
respectively, related to the deferred revenue at January 1, 2021. For the three and nine months ended September 30, 2020, the Company
recognized revenue of $ 9,141 and $ 1,074,016 ,
respectively, related to the deferred revenue at January 1, 2020. 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. Surna
Inc. Notes
to Condensed Consolidated Financial Statements September
30, 2021 (in
US Dollars except share numbers) (Unaudited) As
of September 30, 2021, the Company’s remaining performance obligations, or backlog, was $ 9,881,000 ,
of which $ 1,161,000 ,
or 12 %,
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 disruption 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 September 30, 2021, includes booked sales orders of $ 1,250,000
from several customers that the Company does
not expect to be realized until late 2022. The Company believes the sales orders in this portion of our backlog have an elevated level
of risk and may, ultimately, be delayed or cancelled by our customers. The
remaining performance obligations expected to be recognized through 2022 are as follows: Schedule
of Remaining Performance Obligations Expected to be Recognized
2021 2022 Total
Remaining performance obligations
related to engineering only paid contracts $ 112,000 $ 1,049,000 $ 1,161,000
Remaining performance
obligations related to partial equipment paid contracts 3,091,000 5,629,000 $ 8,720,000
Total remaining performance
obligations $ 3,203,000 $ 6,678,000 $ 9,881,000 The
following table sets forth the Company’s revenue by source: Schedule
of Revenue by Source
For
the Three Months Ended September
30, For
the Nine Months Ended September
30,
2021 2020 2021 2020
Equipment and systems sales $ 3,523,948 $ 1,481,961 $ 9,933,313 $ 4,575,855
Engineering and other services 110,538 114,160 464,269 402,837
Shipping and handling 71,950 38,548 184,888 148,326
Total revenue $ 3,706,436 $ 1,634,669 $ 10,582,470 $ 5,127,018 | Revenue
Recognition On
January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 (Topic 606), Revenue from Contracts with
Customers The
following table sets forth the Company’s revenue by source: Schedule
of Revenue by Source
For
the Years Ended December 31,
2020 2019
Equipment
and systems sales $ 7,730,371 $ 13,692,863
Engineering
and other services 568,131 1,239,130
Shipping
and handling 215,770 292,461
Total
revenue $ 8,514,272 $ 15,224,454 Revenue
Recognition Accounting Policy Summary The
Company accounts for revenue in accordance with ASC 606. 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. The Company does not provide construction services or system installation services. Some
of the Company’s contracts with customers contain a single performance obligation, typically engineering only services contracts. 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 components 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 promise is fulfilled. Generally,
satisfaction occurs when control of the promised goods is transferred to the customer or as services are rendered or completed in exchange
for consideration in an amount for which the Company expects to be entitled. 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. Surna
Inc. Notes
to Consolidated Financial Statements Other
Judgments and Assumptions The
Company typically receives customer payments in advance of its performance of services or transfers of goods. 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. Contract
Assets and Contract Liabilities Contract
assets reflect revenue recognized and performance obligations satisfied in advance of customer billing. Contract liabilities relate to
payments received in advance of the satisfaction of performance under the contract. The Company receives payments from customers based
on the terms established in its contracts. Contract
assets include unbilled amounts where revenue recognized exceeds the amount billed to the customer and the right of payment is conditional,
subject to completing a milestone, such as a phase of a project. The Company typically does not have material amounts of contract assets
since revenue is recognized as control of goods are transferred or as services are performed. As of December 31, 2020, and 2019, the
Company had no contract assets. Contract
liabilities consist of advance payments in excess of revenue recognized. The Company’s contract liabilities are recorded as a current
liability in deferred revenue in the consolidated balance sheets since the timing of when the Company expects to recognize revenue is
generally less than one year. As of December 31, 2020, and December 31, 2019, deferred revenue, which was classified as a current liability,
was $ 3,724,189 and
$ 1,444,472 ,
respectively. For
the year ended December 31, 2020, the Company recognized revenue of $ 1,103,447
related to the deferred revenue at January 1,
2020, or 76% .
For the year ended December 31, 2019, the Company recognized revenue of $ 473,682
related to the deferred revenue at January 1,
2019, or 74% . Remaining
Performance Obligations 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. Further, based on the current economic climate,
the uncertainty regarding the COVID-19 virus, and the Company’s recent cost cutting measures, there is no assurance that the Company
will be able to fulfill its backlog, and the Company may experience contract cancellations, project scope reductions and project delays. Surna
Inc. Notes
to Consolidated Financial Statements As
of December 31, 2020, the Company’s remaining performance obligations, or backlog, was $ 8,448,000 ,
of which $ 2,643,000 ,
or 31% ,
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. The 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 December 31, 2020, includes booked sales orders of $ 390,000
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. The
remaining performance obligations expected to be recognized through 2022 are as follows: Schedule
of Remaining Performance Obligations Expected to be Recognized
2021 2022 Total
Remaining
performance obligations related to engineering only paid contracts $ 2,355,000 $ 288,000 $ 2,643,000
Remaining
performance obligations related to partial equipment paid contracts 5,703,000 102,000 $ 5,805,000
Total
remaining performance obligations $ 8,058,000 $ 390,000 $ 8,448,000 |
| Product Warranty | | Product
Warranty The
Company warrants the products that it manufactures for a warranty period equal to the lesser of 12 months from start-up or 18 months
from shipment. The Company’s warranty provides for the repair, rework, or replacement of products (at the Company’s option)
that fail to perform within stated specification. The Company’s third-party suppliers also warrant their products under similar
terms, which are passed through to the Company’s customers. The
Company assesses the historical warranty claims on its manufactured products and, since 2016, warranty claims have been approximately
1% of annual revenue generated on these products. Based on the Company’s warranty policy, an accrual is established at 1% of the
trailing 18 months revenue. The Company continues to
assess the need to record a warranty reserve at the time of sale based on historical claims and other factors. As of December 31, 2020,
and December 31, 2019, the Company had an accrued warranty reserve amount of $ 173,365
and $ 185,234 ,
respectively, which are included in accounts payable and accrued liabilities on the Company’s consolidated balance sheets. |
| Cost of Sales | | Cost
of Sales Cost
of sales includes product costs (material, direct labor and overhead costs), shipping and handling expense, outside engineering costs,
engineering, project management and service salaries and benefits, client visits and warranty. |
| Concentrations | Concentrations Three
customers accounted for 38 %,
23 %,
and 11 %
of the Company’s revenue for the three months ended September 30, 2021 and three customers accounted for 25 %,
12 %
and 12 %
of the Company’s revenue for the nine months ended September 30, 2021. Two customers accounted for 39 %
and 30 %
of the Company’s revenue for the three months ended September 30, 2020 and three customers accounted for 18 %,
17 %
and 11 %
of the Company’s revenue for the nine months ended September 30, 2020. Three
customers accounted for 40 %,
26 %
and 22 %
of the Company’s accounts receivable as of September 30, 2021. As of September 30, 2020, four customers accounted for 32 %,
23 %,
21 %
and 10 %
of the Company’s accounts receivable. | Concentrations Three
customers accounted for 28% ,
11%
and 10%
of the Company’s revenue for the year ended
December 31, 2020. One customer accounted for 44%
of the Company’s revenue for the year ended
December 31, 2019. The
Company’s accounts receivable from two customers made up 48%
and 38% ,
respectively, of the total balance as of December 31, 2020. The Company’s accounts receivable from three customers made up 59% ,
16% ,
and 10% ,
respectively, of the total balance as of December 31, 2019. Three
suppliers accounted for 27% ,
25%
and 12%
of the Company’s purchases of inventory
for the year ended December 31, 2020, and three suppliers accounted for 30% ,
17%
and 12%
of the Company’s purchases of inventory
for the year ended December 31, 2019. Surna
Inc. Notes
to Consolidated Financial Statements |
| Product Development | | Product
Development The
Company expenses product development costs as incurred. Internal product development costs are expensed as incurred, and third-party
product developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. For the
years ended December 31, 2020 and December 31, 2019, the Company incurred $ 390,229
and $ 521,044 ,
respectively, on product development. |
| 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 nine months ended September 30, 2021, 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 150.2 %
to 152.51 %;
expected term in years 10 0.55%
to 1.49 %. Surna
Inc. Notes
to Condensed Consolidated Financial Statements September
30, 2021 (in
US Dollars except share numbers) (Unaudited) 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. The
following is a summary of share-based compensation expenses included in the condensed consolidated statements of operations for the three
and nine months ended September 30, 2021 and 2020: Schedule
of Share-based Compensation Costs
For
the Three Months Ended September
30, For
the Nine Months Ended September
30,
2021 2020 2021 2020
Share-based compensation expense included in:
Cost of revenue $ - $ 6,833 $ 29,944 $ 23,949
Advertising and marketing expenses - 2,500 13,292 7,500
Product development costs - 5,444 14,029 16,332
Selling, general and
administrative expenses 29,307 41,221 102,735 306,448
Total share-based compensation
expense included in consolidated statement of operations $ 29,307 $ 55,998 $ 160,000 $ 354,229 Included
in the expense for the three and nine months ended September 30, 2021, is an accrual for $ 0
and $ 108,945 ,
respectively, for the 2021 Annual Employee Incentive Compensation Plan. Included in the expense for the three and nine months ended September
30, 2020, is an accrual for $ 31,575
and $ 101,472 ,
respectively, for the 2020 Annual Employee Incentive Compensation Plan. | 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 consolidated financial statements based on
their grant date fair value. For awards subject to service conditions, compensation expense is recognized over the vesting period on
a straight-line basis. Awards subject to performance conditions are attributed separately for each vesting tranche of the award and are
recognized ratably from the service inception date to the vesting date for each tranche, based on the probability of vesting. The probability
of awards with future performance conditions is evaluated each reporting period and compensation expense is adjusted based on the probability
assessment. Awards
are considered granted, and the service inception date begins, when mutual understanding of the key terms and conditions of the award
between the Company and the recipient has been established. For awards that provide discretion to adjust the amount of the award, the
service inception date for such awards could precede the grant date as a mutual understanding of the key terms and conditions of the
award between the Company and the recipient has not yet been established. For awards in which the service inception date precedes the
grant date, compensation cost is accrued beginning on the service inception date. Subsequent
to December 31, 2020, the Company’s Board of Directors (the “Board”) approved annual incentive compensation awards
to certain employees payable in non-qualified stock options, based on the Company’s performance and each employee’s contributions
to such performance for the 2020 year. See Note 16. The non-qualified stock options were granted subsequent to December 31, 2020, were
not subject to an additional service requirement and were immediately vested at the date of the grant. The final amount of the annual
incentive compensation award, and number of non-qualified stock options granted, were determined, and communicated to the employee, subsequent
to December 31, 2020. The estimated compensation expense of $ 128,434
related to the 2020 incentive awards was accrued
as of December 31, 2020. Since such incentive awards will be settled in non-qualified stock options, the accrued compensation expense
has been classified as a current liability until the number of non-qualified stock options is fixed pursuant to a grant by the Board.
At that time, the incentive award becomes equity-classified. The
grant date fair value of stock options is based on 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
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. Share-based
compensation costs (including expenses from the accrued compensation liabilities related to the annual incentive awards subsequently
settled in non-qualified stock options totaled $ 405,617
and $ 1,292,065
for the years ended December 31, 2020 and 2019,
respectively. Such share-based compensation costs are classified in the Company’s consolidated financial statements in the same
manner as if such compensation was paid in cash. Surna
Inc. Notes
to Consolidated Financial Statements The
following is a summary of such share-based compensation costs included in the Company’s consolidated statements of operations for
the years ended December 31, 2020 and 2019: Schedule
of Share-based Compensation Costs
For
the Years Ended December 31,
2020 2019
Share-based
compensation expense included in:
Cost
of revenue $ 31,006 $ 91,081
Advertising
and marketing expenses 8,333 33,977
Product
development costs 21,882 45,330
Selling,
general and administrative expenses 344,396 1,121,677
Total
share-based compensation expense included in consolidated statement of operations $ 405,617 $ 1,292,065 |
| Income Taxes | | Income
Taxes The
Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company
determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets
and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change
in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The
Company recognizes deferred tax assets to the extent that the Company believes that these assets are more likely than not to be realized.
In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing
taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company
determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company
would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. The
Company records uncertain tax positions on the basis of a two-step process in which: (i) the Company determines whether it is more likely
than not that the tax positions will be sustained on the basis of the technical merits of the position, and (ii) for those tax positions
that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more likely
than not to be realized upon ultimate settlement with the related tax authority. |
| 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. During
the nine months ended September 30, 2021 and 2020, there were warrants and options outstanding to purchase Company common stock and shares
of convertible preferred stock and restricted stock units that were convertible into shares of the Company’s common stock. During
the three- and nine-month periods ended September 30, 2021 and 2020, the Company incurred a net loss and consequently the common share
equivalents of these potentially dilutive equity instruments have not been included in the calculations of loss per share because such
inclusion would have been anti-dilutive. As
of September 30, 2021, and 2020, there were respectively, 777,888
and 293,383
potentially dilutive equity instruments outstanding
in respect of shares of convertible preferred stock and warrants and options outstanding to purchase Company common stock. | Basic
and Diluted Net 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 periods
when losses are reported 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.
As of December 31, 2020, 194,757
potential common shares equivalents from
warrants and options were excluded from the diluted EPS calculations as their effect is anti-dilutive. |
| Commitments and Contingencies | | Commitments
and Contingencies In
the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its
business, that cover a wide range of matters, including, among others, customer disputes, government investigations and tax matters.
An accrual for a loss contingency is recognized when it is probable that an asset had been impaired or a liability had been incurred
and the amount of loss can be reasonably estimated. |
| Other Risks and Uncertainties | | Other
Risks and Uncertainties To
achieve profitable operations, the Company must successfully develop, manufacture and market its products. There can be no assurance
that any such products can be developed or manufactured at an acceptable cost and with appropriate performance characteristics, or that
such products will be successfully marketed. These factors could have a material adverse effect upon the Company’s financial results,
financial position, and future cash flows. Surna
Inc. Notes
to Consolidated Financial Statements The
Company is subject to risks common to similarly-situated companies including, but not limited to, general economic conditions, its customers’
operations and access to capital, and market and business disruptions including severe weather conditions, natural disasters, health
hazards, terrorist activities, financial crises, political crises or other major events, or the prospect of these events, new technological
innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, uncertainty of
market acceptance of products, product liability, and the need to obtain additional financing. As a supplier of services and equipment
to cannabis cultivators, the Company is also subject to risks related to the cannabis industry. Although certain states have legalized
medical and/or recreational cannabis, U.S. federal laws continue to prohibit marijuana in all its forms as well as its derivatives. Any
changes in the enforcement of U.S. federal laws may adversely affect the implementation of state and local cannabis laws and regulations
that permit medical or recreational cannabis and, correspondingly, may adversely impact the Company’s customers. The Company’s
success is also dependent upon its ability to raise additional capital and to successfully develop and market its products. See Note
3. |
| Segment Information | | Segment
Information Operating
segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly
by the Company’s senior management team in deciding how to allocate resources and in assessing performance. The Company has one
operating segment that is dedicated to the manufacture and sale of its products. |
| Recently Issued Accounting Pronouncements | Recently
Issued Accounting Pronouncements In
May 2021, the FASB issued ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified
Written Call Options. Surna
Inc. Notes
to Condensed Consolidated Financial Statements September
30, 2021 (in
US Dollars except share numbers) (Unaudited) In
August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06,
Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s
Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates
the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies
the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard
also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s
own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for
all convertible instruments. ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified retrospective basis,
with early adoption permitted beginning on January 1, 2021. The Company early adopted ASU 2020-06 effective January 1, 2021. The early
adoption of ASU 2020-06 impacted the Company’s accounting for the issuance of its Series B Redeemable Convertible Preferred Stock
as further discussed in Note 8 Temporary Equity Series B Redeemable Convertible Preferred Stock 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, 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. | Recently
Issued Accounting Pronouncements In
August 2020, the FASB issued ASU 2020-06: “ Accounting for Convertible Instruments and Contracts In An Entity’s Own Equity”
(“ASU 2020-06”) In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes, 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. |
| Description of Business | Description
of Business Surna
Inc. (the “Company”) was incorporated in Nevada on October 15, 2009 and operates under the trade name of Surna Cultivation
Technologies. We are headquartered in Boulder, Colorado. Surna
Inc. is an engineering and design company focused on selling environmental control and other technologies and services to the Controlled
Environment Agriculture (CEA) industry. We leverage our experience in this space to bring value-added technology solutions to our customers
that help improve their overall crop quality and yield, optimize energy and water efficiency, and satisfy evolving state and local construction
codes, permitting and regulatory requirements. In service of the CEA industry, our principal service and product offerings include: (i)
architectural design and licensed engineering of commercial scale thermodynamic systems specific to cultivation facilities, (ii) liquid-based
process cooling systems and other climate control systems, (iii) air handling equipment and systems, (iv) LED lighting, benching and
racking solutions for indoor cultivation, (v) automation and control devices, systems and technologies used for environmental, lighting
and climate control, and (vi) preventive maintenance services for CEA facilities. Our customers include commercial, state- and provincial-regulated
CEA growers in the U.S. and Canada and other international locations. Customers are 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 facilities operating in the cannabis industry, ranging from several thousand to more than 100,000
square feet. Although most of our customers do,
we neither produce nor sell cannabis or its related products. | |
| Impact of the COVID-19 Pandemic on Our Business | Impact
of the COVID-19 Pandemic on Our Business The
COVID-19 pandemic has prompted national, regional, and local governments, including those in the markets that the Company operates in,
to implement preventative or protective measures to control its spread. As a result, there have been disruptions in business operations
around the world, with an impact on our business. In
our response to the COVID-19 pandemic and the government and business response, the Company took and continues to take measures to adjust
its operations as necessary. In early 2020 the Company took measures to reduce expenses in light of reduced orders and to preserve cash,
many of which were reversed by the end of the year when orders picked up and the overall business climate improved. Because the pandemic
continues in different parts of the world and in different ways in the United States, the Company continues to actively monitor its operations
and sales efforts and will make adjustments to its operations as necessary. We
are experiencing unexpected and uncontrollable delays with our international supply of products and shipments from vendors due to a significant
increase in shipments to U.S. ports, less cargo being shipped by air, a general shortage of containers, and domestic truck driver availability.
While these delays have moderately improved in recent months, we, along with many other importers of goods across all industries, continue
to experience severe congestion and extensive wait times for carriers at ports across the United States. In addition, restrictions imposed
by local, state and federal agencies due to the COVID-19 pandemic have led to reduced personnel of importers, government staff and others
in our supply chain. We have been working diligently with our network of freight partners and suppliers to expedite delivery dates and
provide solutions to reduce further impact and delays. However, we are unable to determine the full impact of these delays and how long
they will continue as they are out of our control. While
the Company is continuing to navigate the financial, operational, and personnel challenges presented by the COVID-19 pandemic, the full
extent of the impact on our operational and financial performance will depend on future developments, including the duration and spread
of the pandemic, the potential uncertainty related to and proliferation of new strains, and related actions taken by the U.S. government,
state and local government officials, and international governments to prevent disease spread, all of which are uncertain, out of our
control and cannot be predicted at this time. Surna
Inc. Notes
to Condensed Consolidated Financial Statements September
30, 2021 (in
US Dollars except share numbers) (Unaudited) | |
| 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 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 2021 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. | |
| Cash, Cash Equivalents and Restricted Cash | Cash,
Cash Equivalents and Restricted Cash All
highly liquid investments with original maturities of three months or less at the date of purchase are considered to be cash equivalents.
The Company may, from time to time, have deposits in financial institutions that exceed the federally insured amount. The Company has
not experienced any losses to date on depository accounts. | |
| Temporary Equity | Temporary
Equity Shares
of preferred stock that are redeemable for cash or other assets are classified as temporary equity if they are redeemable, at the option
of the holder, at a fixed or determinable price on a fixed or determinable date or upon the occurrence of an event that is not solely
within the control of the issuer. Redeemable equity instruments are initially carried at the fair value of the equity instrument at the
issuance date, net of issuance costs, which is subsequently adjusted to redemption value (including the amount for dividends earned but
not yet declared or paid) at each balance sheet date if the instrument is currently redeemable or if it is probable that the instrument
will become redeemable. The
Company determined it is probable the Series B Preferred Stock will become redeemable at the option of the holder. As a result, on September
30, 2021, the Company adjusted carrying value of the Series B Preferred Stock to its redemption value of $ 3,960,000
and recorded a $ 2,262,847
non-cash redemption value adjustment. This redemption
value adjustment is treated as similar to a dividend on the preferred stock for GAAP purposes, accordingly, the redemption value adjustment
is therefore added to the “Net Loss” to arrive at “Net Loss Attributable to Common Shareholders’” on the
Company’s Consolidated Statements of Operations. In addition, as the Company does not have a balance of retained earnings, the
redemption value adjustment was recorded against additional paid-in capital. | |
