Notes to Condensed Consolidated Financial
Statements
June 30, 2019
(Unaudited)
Note
1 - Organization
Agritek
Holdings Inc. (“the Company” or “Agritek Holdings”) has wholly-owned subsidiaries, Prohibition Products
Inc. (“PPI”) and Agritek Venture Holdings, Inc. (“AVHI”) which are inactive. Agritek Holdings provides
strategic capital and functional expertise to accelerate the commercialization of its diversified portfolio of holdings. The Company
is focused on three high-value segments of the cannabis market, including real estate investment, intellectual property brands;
and infrastructure, with operations in three U.S. States, Colorado, Washington State, California as well as Canada and Puerto
Rico. Agritek Holdings invests its capital via real estate holdings, licensing agreements, royalties and equity in acquisition
operations.
We
provide key business services to the legal cannabis sector including:
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Funding
and Financing Solutions for Agricultural Land and Properties zoned for the regulated Cannabis Industry.
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Dispensary
and Retail Solutions
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Commercial
Production and Equipment Build Out Solutions
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Multichannel
Supply Chain Solutions
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Branding,
Marketing and Sales Solutions of proprietary product lines
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Consumer
Product Solutions
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The
Company intends to bring its’ array of services to each new state that legalizes the use of cannabis according to appropriate
state and federal laws. Our primary objective is acquiring commercial properties to be utilized in the commercial marijuana industry
as cultivation facilities in compliance with state laws. This is an essential aspect of our overall growth strategy because once
acquired and re-zoned, the value of such real property i s substantially higher than under the previous zoning and use.
Once
properties are identified and acquired to be used for purposes related to the commercial marijuana industry as provided for by
state law, and we plan to create vertical channels within that legal jurisdiction including equipment financing, payment processing
and marketing of exclusive brands and services to retail dispensaries
The
Company’s business focus is primarily to hold, develop and manage real property. The Company shall also provide oversight
on every property that is part of its portfolio. This can include complete architectural design and subsequent build-outs, general
support, landscaping, general up-keep, and state of the art security systems. At this time, the Company does not grow, process,
own, handle, transport, or sell marijuana as the Company is organized and directed to operate strictly in accordance with all
applicable state and federal laws. As the legal environment changes in Colorado, California and other states, the Company’s
management may explore business opportunities that involve ownership interests in dispensaries and growing operations if and when
such business opportunities become legally permissible under applicable state and federal laws.
On
March 3, 2019, the Company filed an amendment to its Certificate of Incorporation, with the Delaware Secretary of State, to increase
its authorized common stock from 1,250,000,000 shares to 1,499,000,000 shares (see Note 11). The Company’s 1,500,000,000
authorized shares consisted of 1,499,000,000 shares of common stock, par value $0.0001 per share, and 1,000,000 shares of preferred
stock, par value $0.01 per share.
On
March 26, 2019, the Company filed an amendment to its Certificate of Incorporation, with the Delaware Secretary of State, for
1-for-200 reverse stock split of our common stock (the “Reverse Stock Split”) effective March 26, 2019. The number
of shares of common stock subject to outstanding options, warrants and convertible securities were also reduced by a factor
of two-hundred and no fractional shares were issued. All historical share in this report have been adjusted to reflect the Reverse
Stock Split (see Note 11). There were no changes to the authorized number of shares and the par value of our common stock.
Note
2 – Summary of Significant Accounting Policies
Basis
of presentation and principles of consolidation
The
Company’s consolidated financial statements include the consolidated accounts of Agritek Holdings and its’ inactive
wholly owned subsidiaries, AVHI and PPI (a Florida corporation, was originally formed on July 1, 2013 (f/k/a The American Hemp
Trading Company)). All intercompany accounts and transactions have been eliminated in consolidation.
AGRITEK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements
June 30, 2019
(Unaudited)
Management
acknowledges its responsibility for the preparation of the accompanying unaudited condensed consolidated financial statements
which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement
of its consolidated financial position and the consolidated results of its operations for the periods presented. The accompanying
unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles
generally accepted in the United States of America (the “U.S. GAAP”) for interim financial information and with the
instructions Article 8-03 of Regulation S-X. Operating results for interim periods are not necessarily indicative of results that
may be expected for the fiscal year as a whole. Certain information and note disclosure normally included in financial statements
prepared in accordance with U.S. GAAP has been condensed or omitted from these statements pursuant to such accounting principles
and, accordingly, they do not include all the information and notes necessary for comprehensive financial statements These unaudited
condensed consolidated financial statements should be read in conjunction with the summary of significant accounting policies
and notes to the consolidated financial statements for the year ended December 31, 2018 of the Company which were included in
the Company’s annual report on Form 10-K as filed with the Securities and Exchange Commission on May 3, 2019.
Going
concern
These consolidated financial statements
have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of business. As reflected in the accompanying unaudited condensed consolidated financial statements,
the Company had net income (loss) from operations of $(3,330,841) and $1,202,871 for the six months ended June 30, 2019 and 2018,
respectively. However, the net income in 2018 resulted primarily from the change in fair value of derivative liabilities. The net
cash used in operations were $803,554 and $835,969 for the six months ended June 30, 2019 and 2018, respectively. Additionally,
the Company had an accumulated deficit of $30,321,196 and $26,990,355 at June 30, 2019 and December 31, 2018, respectively, had
a working capital deficit of $3,717,223 at June 30, 2019, had no revenues from continuing operations in 2019. Management believes
that these matters raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from
the issuance date of this report.
Management
cannot provide assurance that we will ultimately achieve profitable operations or become cash flow positive, or raise additional
debt and/or equity capital. Management believes that our capital resources are not currently adequate to continue operating and
maintaining its business strategy for a period of twelve months from the issuance date of this report. The Company will seek to
raise capital through additional debt and/or equity financings to fund its operations in the future.
Although
the Company has historically raised capital from sales of equity and from the issuance of promissory notes, there is no assurance
that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in
the near future, management expects that the Company will need to curtail or cease operations. These consolidated financial statements
do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of
liabilities that might be necessary should the Company be unable to continue as a going concern.
Use
of estimates
The
preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates. Significant estimates during the six months ended June 30, 2019 and year ended December 31,
2018 include the useful life of property and equipment, valuation of right-of-use (“ROU”) assets and operating lease
liabilities, impairment of long-term assets, estimates of current and deferred income taxes and deferred tax valuation allowances,
the fair value of non-cash equity transactions and the valuation of derivative liabilities.
Fair
value of financial instruments and fair value measurements
FASB
ASC 820 - Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires
disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures
about the fair value of financial instruments are based on pertinent information available to the Company on June 30, 2019. Accordingly,
the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on
disposition of the financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs
to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent
sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level
3 measurement). The three levels of the fair value hierarchy are as follows:
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Level
1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement
date.
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Level
2—Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical
or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and
inputs derived from or corroborated by observable market data.
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Level
3—Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the
market participants would use in pricing the asset or liability based on the best available information.
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AGRITEK HOLDINGS,
INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements
June 30, 2019
(Unaudited)
The
carrying amounts reported in the consolidated balance sheets for cash, due from and to related parties, prepaid expenses, accounts
payable and accrued liabilities approximate their fair market value based on the short-term maturity of these instruments.
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At June 30, 2019
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At December 31, 2018
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Description
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Level 1
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Level 2
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Level 3
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Level 1
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Level 2
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Level 3
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Derivative liabilities
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—
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—
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$
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1,841,650
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—
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$
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1,561,232
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A
roll forward of the level 3 valuation financial instruments is as follows:
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Derivative Liabilities
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Balance at December 31, 2018
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$
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1,561,232
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Initial valuation of derivative liabilities included in debt discount
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896,230
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Initial valuation of derivative liabilities included in derivative income (expense)
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622,579
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Reclassification of derivative liabilities to gain (loss) on debt extinguishment
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(378,317
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)
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Change in fair value included in derivative income (expense)
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(860,074
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Balance at June 30, 2019
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$
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1,841,650
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ASC
825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities
at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable,
unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that
instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value
option to any outstanding instruments.
Cash
and cash equivalents
For
purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of
three months or less at the purchase date and money market accounts to be cash equivalents. At June 30, 2019 and December 31,
2018, the Company did not have any cash equivalents.
The
Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. There
were no balances in excess of FDIC insured levels as of June 30, 2019 and December 31, 2018. The Company has not experienced any
losses in such accounts through June 30, 2019.
Property
and equipment
Property
are stated at cost and are depreciated, except for land, using the straight-line method over their estimated useful lives,
which range from three to five years. Leasehold improvements are depreciated over the shorter of the useful life or lease
term including scheduled renewal terms. Maintenance and repairs are charged to expense as incurred. When assets are retired
or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are
included in income in the year of disposition. The Company reviews land, property and equipment for potential impairment
whenever events or changes in circumstances indicate that the carrying amounts of assets may not be recoverable.
Impairment
of long-lived assets
In
accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an
impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount
of impairment is measured as the difference between the asset’s estimated fair value and its book value. For the three and
six months ended June 30, 2019 and 2018, the Company did not record any impairment loss.
Derivative
liabilities
The Company has certain financial instruments
that are embedded derivatives associated with capital raises. The Company evaluates all its financial instruments to determine
if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for
in accordance with ASC 815-40 (formerly EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock). This accounting treatment requires that the carrying amount of any embedded derivatives
be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded
as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either other income
or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion,
repayment or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or
loss on debt extinguishment.
AGRITEK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements
June 30, 2019
(Unaudited)
In
July 2017, FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives
and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify
the accounting for certain financial instruments with down-round features. The amendments require companies to disregard the down-round
feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification.
The guidance was adopted as of January 1, 2019 and the Company elected to record the effect of this adoption retrospectively to
outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the condensed consolidated
balance sheet as of the beginning of 2019, the period which the amendment is effective. The Company adopted ASU No. ASU No. 2017-11
in the first quarter of 2019, and the adoption did not have any impact on its consolidated financial statement and there was no
cumulative effect adjustment.
Revenue
recognition
In
May 2014, FASB issued an update Accounting Standards Update, ASU 2014-09, establishing ASC 606 - Revenue from Contracts with Customers.
ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting
for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard,
which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity
to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures.
The Company adopted this standard on January 1, 2018 using the modified retrospective approach, which requires applying the new
standard to all existing contracts not yet completed as of the effective date and recording a cumulative-effect adjustment to
retained earnings as of the beginning of the fiscal year of adoption. Based on an evaluation of the impact ASU 2014-09 will have
on the Company’s sources of revenue, the Company has concluded that ASU 2014-09 did not have any impact on the process for,
timing of, and presentation and disclosure of revenue recognition from customers and there was no cumulative effect adjustment.
The Company does not have revenues from continuing operations in 2019 and minimal in 2018.
Stock-based
compensation
Stock-based
compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition
in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments
over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting
period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based
on the grant-date fair value of the award.
Through
March 31, 2018, pursuant to ASC 505-50 - Equity-Based Payments to Non-Employees, all share-based payments to non-employees, including
grants of stock options, were recognized in the consolidated financial statements as compensation expense over the service period
of the consulting arrangement or until performance conditions are expected to be met. Using a Black Scholes valuation model, the
Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns
with the vesting period of the options, and the Company adjusts the expense recognized in the consolidated financial statements
accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which
simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based
compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees.
ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual
periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC
606. The Company adopted ASU No. 2018-07 in January 1, 2019, and the adoption did not have any impact on its consolidated financial
statements.
Basic
and diluted loss per share
Pursuant
to ASC 260-10-45, basic loss per common share is computed by dividing net loss by the weighted average number of shares of common
stock outstanding for the periods presented. Diluted loss per share is computed by dividing net loss by the weighted average number
of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Potentially
dilutive common shares consist of common stock issuable for stock options and warrants (using the treasury stock method), convertible
notes and common stock issuable. These common stock equivalents may be dilutive in the future. The following potentially dilutive
equity securities outstanding as of June 30, 2019 and 2018 were not included in the computation of dilutive loss per common share
because the effect would have been anti-dilutive:
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June 30,
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2019
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2018
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Stock warrants
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812,380
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259,253
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Convertible debt
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12,680,257
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844,737
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Series B preferred stock
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9,769,236
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—
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23,261,873
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1,103,990
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AGRITEK
HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements
June 30, 2019
(Unaudited)
Accounts
receivable
The
Company records accounts receivable from amounts due from its customers upon the shipment of products. The allowance for losses
is established through a provision for losses charged to expenses. Receivables are charged against the allowance for losses when
management believes collectability is unlikely. The allowance is an amount that management believes will be adequate to absorb
estimated losses on existing receivables, based on evaluation of the collectability of the accounts and prior loss experience.
While management uses the best information available to make its evaluations, this estimate is susceptible to significant change
in the near term. As of June 30, 2019, and December 31, 2018, based on the above criteria, the Company has an allowance for doubtful
accounts of $44,068.
Inventory
Inventory is valued at the lower of cost
or market value. Cost is determined using the first in first out (FIFO) method. Provision for potentially obsolete or slow-moving
inventory is made based on management analysis or inventory levels and future sales forecasts. As of June 30, 2019, and December
31, 2018, the Company had no inventory in stock.
Marketable
securities
The
Company classifies its marketable securities as available-for-sale securities, which are carried at their fair value based on
the quoted market prices of the securities with unrealized gains and losses, net of deferred income taxes, reported as accumulated
other comprehensive income (loss), a separate component of stockholders’ equity. Realized gains and losses on available-for-sale
securities are included in net earnings in the period earned or incurred.
Revenue
recognition
Effective
January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes
revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following
steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the
transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue
when each performance obligation is satisfied. For the comparative periods, revenue has not been adjusted and continues to be
reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met:
(1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has
occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably
assured. The Company adopted ASC 606 on January 1, 2018 and the adoption had no impact on the Company’s financial statements.
Income
Taxes
The
Company accounts for income tax using the liability method prescribed by ASC 740 - Income Taxes. Under this method, deferred tax
assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities
using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records
a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that
some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is
recognized as income or loss in the period that includes the enactment date.
The
Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”.
Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not
the position will be sustained upon examination by the tax authorities. As of June 30, 2019 and December 31, 2018, the Company
had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. The Company recognizes
interest and penalties related to uncertain income tax positions in other expense. However, no such interest and penalties were
incurred or recorded as of June 30, 2019.
Related
parties
Parties
are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control,
are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners of the Company and its management and other parties with
which the Company may deal with if one party controls or can significantly influence the management or operating policies of the
other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.
Leases
In
February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The
updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the
updated guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue
guidance in ASC 606. The updated guidance is effective for interim and annual periods beginning after December 15, 2018.
AGRITEK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements
June 30, 2019
(Unaudited)
On
January 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before
the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain
leases and; (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the
inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is
based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially
all the economic benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of
the asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone
price to determine the lease payments. The Company has elected not to recognize right-of-use (“ROU”) assets and lease
liabilities for short-term leases that have a term of 12 months or less. Leases entered into prior to January 1, 2019, are accounted
for under ASC 840 and were not reassessed. We have elected not to recognize right-of-use assets and lease liabilities for short-term
leases that have a term of 12 months or less.
Operating
lease ROU assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized
based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not
provide an implicit rate, the Company use an incremental borrowing rate based on the information available at the adoption date
in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line
basis over the lease term and is included in general and administrative expenses in the condensed consolidated statements of operations.
Recent
accounting pronouncements
In
August 2018, the FASB issued ASU 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure
Requirements for Fair Value Measurement, to modify the disclosure requirements on fair value measurements in Topic 820, Fair
Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments
in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2019. The Company does not believe this will have any material impact on the Company’s consolidated financial
statements.
Removals.
The following disclosure requirements were removed from Topic 820:
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1.
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The
amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy
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2.
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The
policy for timing of transfers between levels
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3.
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The
valuation processes for Level 3 fair value measurements
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4.
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For
nonpublic entities, the changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair
value measurements held at the end of the reporting period.
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Modifications.
The following disclosure requirements were modified in Topic 820:
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1.
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In
lieu of a roll forward for Level 3 fair value measurements, a nonpublic entity is required to disclose transfers into and
out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities.
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2.
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For
investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation
of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated
the timing to the entity or announced the timing publicly.
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3.
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The
amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement
as of the reporting date.
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Additions.
The following disclosure requirements were added to Topic 820; however, the disclosures are not required for nonpublic entities:
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1.
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The
changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value
measurements held at the end of the reporting period.
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2.
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The
range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain
unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu
of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational
method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements.
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AGRITEK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements
June 30, 2019
(Unaudited)
In
addition, the amendments eliminate at a minimum from the phrase an entity shall disclose at a minimum to promote
the appropriate exercise of discretion by entities when considering fair value measurement disclosures and to clarify that materiality
is an appropriate consideration of entities and their auditors when evaluating disclosure requirements. The Company is evaluating
the impact of the revised guidance and believes that it will not have a significant impact on its consolidated financial statements.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying unaudited consolidated financial statements.
Note
3 – Marketable Securities
The
Company owns marketable securities (common stock) as of June 30, 2019, and December 31, 2018 is outlined below:
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June 30,
2019
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December 31,
2018
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Beginning balance
|
|
$
|
8,703
|
|
|
$
|
41,862
|
|
|
Unrealized gain (loss) marked to fair value
|
|
|
12,669
|
|
|
|
(33,159
|
)
|
|
Ending balance
|
|
$
|
21,372
|
|
|
$
|
8,703
|
|
Petrogress
Inc. (f/k/a 800 Commerce, Inc), was a commonly controlled entity until February 29, 2016, owed the Company $282,947 as of February
29, 2016, as a result of advances received from or payments made by the Company on behalf of Petrogress Inc. These advances were
non-interest bearing and were due on demand. Effective February 29, 2016, the Company received 11,025 shares of common stock
of Petrogress Inc. as settlement of the $282,947 owed to the Company. The market value on the date the Company received the shares
of common stock was $16,525.
Note 4 – Note Receivable
On April 5, 2017, the Company executed
a five-year operational and exclusive licensing agreement with a third party who leases a 15,000-sq. ft. approved cultivation facility
located in San Juan, Puerto Rico. The Company will be the exclusive funding source, and supervise all infrastructure buildout,
equipment lease/finance, security systems and personnel and provide access of seasoned Colorado and California cultivation crews
to ensure the facility meets all standard operating procedures as set forth by the Department of Health of Puerto Rico. Under the
agreement, the Company is to receive $12,000 a month in consulting fees, licensing fees on all vaporizer and edible sales, equipment
and lighting rental and financing fees along with equity interest in the property. As of June 30, 2019, the Company had funded
$190,000 for property renovations which was recorded as Note Receivable in the accompanying consolidated balance sheet (see
Note 12).
Note 5 – Other Deposit
On April 30, 2019, the Company along with
1919 Clinic, LLC (“1919”) signed an option to purchase the building 1919 is currently operating in located in San Juan,
Puerto Rico, from the owner for $1,000,000. In May 2019, a non-refundable deposit of $175,000 was paid in consideration of the
option to purchase the building which was recorded under Other Deposit in the accompanying consolidated balance sheet (see
Note 12).
AGRITEK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements
June 30, 2019
(Unaudited)
Note 6 – Land, Property and
Equipment
Property and equipment are stated at cost,
and except for land, depreciation is provided by use of a straight-line method over the estimated useful lives of the assets. The
Company reviews property and equipment for potential impairment whenever events or changes in circumstances indicate that the carrying
amounts of assets may not be recoverable. In February 2017, the Company entered into a land purchase contract to acquire approximately
80 acres including water and mineral rights. The total cost of the land was $129,555. The Company paid $41,554 at closing and issued
a note payable for $88,000. The Company is on the deed of trust of the property with a remaining note balance of $21,500 due the
seller for both periods of June 30, 2019 and December 31, 2018 (see Note 8). The estimated useful lives of property and equipment
are as follows:
|
Furniture and equipment
|
5 years
|
|
Manufacturing equipment
|
7 years
|
The Company's land, property and equipment
consisted of the following at June 30, 2019 and December 31, 2018:
|
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
|
Land
|
|
$
|
129,554
|
|
|
$
|
129,554
|
|
|
Balance
|
|
$
|
129,554
|
|
|
$
|
129,554
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
249,522
|
|
|
$
|
215,006
|
|
|
Less: accumulated depreciation
|
|
|
(83,622
|
)
|
|
|
(61,928
|
)
|
|
Balance
|
|
$
|
165,900
|
|
|
$
|
282,633
|
|
Depreciation expense of $21,694 and $18,119
was recorded for the three months ended June 30, 2019, and 2018, respectively.
Note
7 – Convertible Notes
St George Note
On July 5, 2018, as part of the Company’s
debt consolidation plan, the Company accepted and agreed to a Note Purchase Agreement (the “NPA”), whereby, St George,
the lender, assigned $174,375 of outstanding principal and interest of the St George 2016 Note and $927,324 of outstanding principal
and interest of the St George 2017 Note to a third party. The Company issued a 10% Replacement Promissory Note (the “RPN”)
to the third party for $1,101,698. The RPN matured on January 1, 2019, is now subject to default interest rate of 18% per annum
and is convertible into shares of the Company’s common stock at any time at the discretion of third party at a conversion
price equal to the lowest trading price during the twenty-five trading days immediately prior to the conversion date multiplied
by 58%, representing a forty 42% discount. In 2018, the third party converted $175,120 of outstanding principal and $12,380 of
accrued interest into 166,224 shares of commons stock. As of December 31, 2018, the RPN had $452,012 of outstanding principal and
$96,120 of accrued interest.
During
the six months ended June 30, 2019, the third party converted $273,702 of the outstanding principal into 1,110,000 shares of the
Company’s common stock. As of June 30, 2019, the RPN had $151,310 of outstanding principal and $ 119,453 of accrued interest.
May
2018 Note
On May 8, 2018, the Company entered into a
securities purchase agreement (the “SPA”) with a lender, pursuant to which the Company issued and sold a promissory
note in the aggregate principal amount of up to $565,555 (“May 2018 Note”) to be funded in several tranches, subject
to the terms, conditions and limitations set forth in the May 2018 Note. The May 2018 Note accrues interest at a rate of 9% per
year (which shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the May 2018 Note)). The
aggregate principal amount of up to $565,555 consists of OID of up to $55,555 and $10,000 legal fees, with net proceeds of up to
$500,000 which will be funded in tranches. The maturity date of each tranche funded shall be six months from the effective date
of each tranche. The lender has the right at any time to convert all or any part of the funded portion of the May 2018 Note into
shares of the Company’s common stock at a conversion price equal to 58% of the lowest VWAP during the twenty-five trading
day period ending on either (i) the last complete trading day prior to the conversion date or (ii) the conversion date (subject
to adjustment as provided in the May 2018 Note), at the Lender’s sole discretion. In 2018, the Company received $450,000
of net proceeds, net of $49,496 of OID and $15,000 of legal fees. As of December 31, 2018, the May 2018 Note had $514,496 outstanding
principal and $14,576 of accrued interest. On January 11, 2019, the Company received the final tranche, with the Company receiving
net proceeds of $50,000, net of $5,556 OID. As of June 30, 2019, the May 2018 Note had $570,055 outstanding principal and $48,100
of accrued interest.
AGRITEK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements
June 30, 2019
(Unaudited)
In connection with the funding of the May
2018 Note in 2018, the Company recorded also issued 34,842 warrants, with exercise price of $3.5, to the lender to purchase shares
of the Company’s common stock pursuant to the terms therein (“May 2018 Warrant”) as a commitment fee.
February
2019 Note
On February 7, 2019, the Company entered
into a securities purchase agreement (the “SPA”) with a lender, pursuant to which the Company issued and sold a promissory
note in the aggregate principal amount of up to $565,555 (“February 2019 Note”) to be funded in several tranches, subject
to the terms, conditions and limitations set forth in the February 2019 Note. The February 2019 Note accrues interest at a rate
of 9% per year (which shall be increased to 18% per year upon the occurrence of an Event of Default (as defined in the February
2019 Note)). The aggregate principal amount of up to $565,555 consists of OID of up to $55,555 and $10,000 legal fees, with net
proceeds of up to $500,000 which will be funded in tranches. The maturity date of each tranche funded shall be six months from
the effective date of each tranche. The lender has the right at any time to convert all or any part of the funded portion of the
February 2019 Note into shares of the Company’s common stock at a conversion price equal to 58% of the lowest VWAP during
the twenty-five trading day period ending on either (i) the last complete trading day prior to the conversion date or (ii) the
conversion date (subject to adjustment as provided in the February 2019 Note), at the Lender’s sole discretion. The Company
received the; (i) first tranche on February 8, 2019 with the Company receiving net proceeds of $50,000, net of $15,556 OID and
legal fees; (ii) the second tranche on February 14, 2019 with the Company receiving net proceeds of $50,000, net of $5,555 OID;
(iii) the third tranche on March 5, 2019 with the Company receiving net proceeds of $50,000, net of $5,555 OID; (iv) the fourth
tranche on March 30, 2019 with the Company receiving net proceeds of $15,000, net of $1,667 OID; (v) the fifth tranche on April
4, 2019 with the Company receiving net proceeds of $75,000, net of $8,333 OID; (vi) the sixth tranche on June 27, 2019 with the
Company receiving net proceeds of $150,000, net of $16,667 OID and; (vii) the seventh tranche on May, 2019 with the Company receiving
net proceeds of $50,000, net of $5,556 OID. As of June 30, 2019, the Company received an aggregate net proceeds of $440,000, net
of $58,889 OID and legal fees which total to a principal amount of $498,889.
As of June 30, 2019, the February 2019 Note
had $498,889 of principal and $10,228 of accrued interest.
The Company issued 1,079,353 warrants,
with exercise price between from $0.28 of $0.99, to the lender to purchase shares of the Company’s common stock pursuant
to the terms therein (“February 2019 Warrant”) as a commitment fee. As of June 30, 2019, there were 1,079,353 outstanding
warrants under the February 2019 Warrant.
April
2019 Note
On April 26, 2019, the Company entered
a note agreement with a lender, pursuant to which the Company issued and sold a promissory note (“April 2019 Note”)
with a principal amount of $128,500. The Company received $125,000 in net proceeds, net of $3,500 legal fees. The April 2019 Note
bears an interest rate of 12% per year (interest rate shall be increased to 22% per year upon the occurrence of an Event of Default
(as defined in the April 2019 Note)), shall mature on April 26, 2020 and the principal and interest are convertible at any time
at a conversion price equal to 63% of the lowest closing price, as reported on the OTCQB or other principal trading market, during
the twenty trading days preceding the conversion date. The lender may not convert the April 2019 Note to the extent that such conversion
would result in beneficial ownership by a lender and its affiliates of more than 4.99% of the Company’s issued and outstanding
common stock. During the first 60 to 180 days following the date of the April 2019 Note, the Company has the right to prepay the
principal and accrued but unpaid interest due under the April 2019 Note, together with any other amounts that the Company may owe
the lender under the terms of the April 2019 Note, at a premium ranging from 115% to 135% as defined in April 2019 Note. After
this initial 180-day period, the Company does not have a right to prepay the April 2019 Note. As of June 30, 2019, the April 2019
Note had $128,500 of outstanding principal and $2,746 of accrued interest.
AGRITEK HOLDINGS,
INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements
June 30, 2019
(Unaudited)
May
2019 Note
On May 31, 2019, the Company entered a
note agreement with a lender, pursuant to which the Company issued and sold a promissory note (“May 2019 Note I”) with
a principal amount of $128,500. The Company received $125,000 in net proceeds, net of $3,500 legal fees. The May 2019 Note I bears
an interest rate of 12% per year (interest rate shall be increased to 22% per year upon the occurrence of an Event of Default (as
defined in the May 2019 Note I)), shall mature on May 31, 2020 and the principal and interest are convertible at any time at a
conversion price equal to 63% of the lowest closing price, as reported on the OTCQB or other principal trading market, during the
twenty trading days preceding the conversion date. The lender may not convert the May 2019 Note I to the extent that such conversion
would result in beneficial ownership by a lender and its affiliates of more than 4.99% of the Company’s issued and outstanding
common stock. During the first 60 to 180 days following the date of the May 2019 Note I, the Company has the right to prepay the
principal and accrued but unpaid interest due under the May 2019 Note I, together with any other amounts that the Company may owe
the lender under the terms of the May 2019 Note I, at a premium ranging from 115% to 135% as defined in May 2019 Note I. After
this initial 180-day period, the Company does not have a right to prepay the May 2019 Note I. As of June 30, 2019, the May 2019
Note I had $128,500 of outstanding principal and $1,267 of accrued interest.
On May 10, 2019, the Company entered a note
agreement with a related party (“Lender”), pursuant to which the Company issued and sold a promissory note (“May
2019 Note II”) with a principal amount of $175,000 (see Note 10). The Company received $175,000 in net proceeds. The May 2019
Note II bears an interest rate of 8% per year and matures on November 11, 2019 and the principal and interest are convertible at
any time at a conversion price equal to 70% of the lowest closing bid price, as reported on the OTCQB or other principal trading
market, during the seven trading days preceding the conversion date. As of June 30, 2019, the May 2019 Note II had $175,000 of
outstanding principal and $1,956 of accrued interest.
At
June 30, 2019 and December 31, 2018, the convertible debt consisted of the following:
|
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
|
Principal amount
|
|
$
|
1,652,256
|
|
|
$
|
935,008
|
|
|
Less: unamortized debt issue cost
|
|
|
(31,824
|
)
|
|
|
—
|
|
|
Less: unamortized debt discount
|
|
|
(584,965
|
)
|
|
|
(217,293
|
)
|
|
Convertible note payable, net
|
|
$
|
1,035,467
|
|
|
$
|
717,715
|
|
For the six months ended June 30, 2019 and
2018, the lender converted an aggregate of $273,702 outstanding principal into 1,110,000 shares of common stock and aggregate of
$187,500 outstanding principal into166,224 shares of common stock, respectively (see Note 11).
The Company recorded a loss on debt settlement
of $251,799 and $58,759 on the redemption of convertible notes for the six months ended June 30, 2019 and 2018, respectively.
Derivative Liabilities Pursuant to
Notes and Warrants
The Company determined that the conversion
feature of the St George, May 2018, February 2019, April 2019 and May 2019 Notes (“Notes”) and related warrants, represent
an embedded derivative since the Notes are convertible into a variable number of shares upon conversion. Accordingly, the Notes
were not considered to be conventional debt under ASC 815-40 (formerly EITF 00-19, Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company’s Own Stock) and the embedded conversion feature was bifurcated from the
debt host and accounted for as a derivative liability. Accordingly, the fair value of these derivative instruments being recorded
as a liability on the consolidated balance sheet with the corresponding amount recorded as a discount to each Note. Such discount
is being amortized from the date of issuance to the maturity dates of the Notes. The fair value of the embedded conversion option
derivatives was determined using the Binomial valuation model. At the end of each period, on the date that debt was converted into
common shares, the Company revalued the embedded conversion option derivative liabilities.
In July 2017, FASB issued ASU No. 2017-11,
Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part
I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify the accounting for certain
financial instruments with down-round features. The amendments require companies to disregard the down-round feature when assessing
whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. The guidance
was adopted as of January 1, 2019 and the Company elected to record the effect of this adoption retrospectively to outstanding
financial instruments with a down round feature by means of a cumulative-effect adjustment to the condensed consolidated balance
sheet as of the beginning of 2019, the period which the amendment is effective. The Company adopted ASU No. 2017-11 in the first
quarter of 2019, and the adoption did not have any impact on its consolidated financial statements and there were no cumulative
effect adjustments as there were other notes and warrants provisions that caused derivative treatment.
In connection with the issuance of the
February 2019, April 2019 and May 2019 Notes and related Warrants, during the six months ended June 30, 2019, initial measurement
date, the fair values of the embedded conversion option derivative and warrant derivative of $1,518,810 was recorded as derivative
liabilities and was allocated as a debt discount of the February 2019, April 2019 and May 2019 Notes of $896,230.
For the six months ended June 30, 2019
and 2018, amortization of debt discounts related to the Notes and Warrants amounted to $528,559 and $395,264, respectively, which
has been included in interest expense on the accompanying consolidated statements of operations.
AGRITEK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements
June 30, 2019
(Unaudited)
During
the six months ended June 30, 2019, the fair value of the derivative liabilities was estimated using the Binomial valuation model
with the following assumptions:
|
Dividend rate
|
|
|
—
|
%
|
|
Term (in years)
|
|
|
0.01
to 5.00 years
|
|
|
Volatility
|
|
|
162.9%
to 205.5
|
%
|
|
Risk-free interest rate
|
|
|
1.76%
to 2.42
|
%
|
Note
8 – Non-Convertible Note Payable
On March 18, 2014, in conjunction with the land purchase of 80 acres in Pueblo County, Colorado, the Company
paid $36,000 cash and entered into a promissory note in the amount of $85,750. In November 2015, the Company was made aware that
the land transaction regarding 80 acres in Pueblo County, Colorado, may not have been properly deeded to the Company. The
company was a party to the land purchase, however, the second party to the land contract never filed the original quit claim deed
on behalf of the Company, even though a copy of the notarized quit claim deed was sent to the Company. In February, 2017, the original
owner of the 80 acres foreclosed on the property from the second party and the Company entered into a new land purchase contract
(including water and mineral rights) directly with the landowner on February 7, 2017. The Company is on the deed of trust of the
property and the note payable had outstanding balance as $21,500 for both periods of June 30, 2019, and December 31, 2018 (see
Note 6).
Note
9 – Operating Lease Right-of-Use (“ROU”) Assets and Operating Lease Liabilities
On
October 5, 2017, the Company entered in to a lease agreement with Mr. Friedman who served as an officer of the Company
and currently a consultant. The Company leased a fifteen-acre “420 Style” resort and estate property near
Quebec City, Canada. Pursuant to the lease agreement, the Company will pay a monthly rent of $8,000 per month to Mr.
Freidman. The Company is responsible for all costs of the property, including, but not limited to, renovations, repairs and
maintenance, insurance and utilities. During the six months ended June 30, 2019, the Company incurred $48,000 of rent expense
of which $28,000 was accrued and included in the due to related party (see Note 10 and Note 12).
In
adopting ASC Topic 842, Leases (Topic 842), the Company has elected the ‘package of practical expedients’, which permit
it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct
costs (see Note 2). In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or
less. On January 1, 2019, upon adoption of ASC Topic 842, the Company recorded right-of-use assets and lease liabilities of $310,259.
For
the six months ended June 30, 2019, lease costs amounted to $48,000 which included base lease costs, all of which were expensed
during the period and included in general and administrative expenses on the accompanying condensed consolidated statements of
operations.
The
significant assumption used to determine the present value of the lease liability was a discount rate of 9% which was based on
the Company’s estimated incremental borrowing rate.
Right-of-use
asset (“ROU”) is summarized below:
|
|
|
June 30,
2019
|
|
|
Operating lease
|
|
$
|
310,259
|
|
|
Less accumulated reduction
|
|
|
(34,683
|
)
|
|
Balance of ROU asset as of June 30, 2019
|
|
$
|
275,576
|
|
Operating
lease liability related to the ROU asset is summarized below:
|
|
|
June 30,
2019
|
|
|
Operating lease
|
|
$
|
310,259
|
|
|
Total lease liabilities
|
|
|
310,259
|
|
|
Reduction of lease liability
|
|
|
(34,683
|
)
|
|
Total
|
|
|
275,576
|
|
|
Less: short term portion as of June 30, 2019
|
|
|
(74,210
|
)
|
|
Long term portion as of June 30, 2019
|
|
$
|
201,366
|
|
AGRITEK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements
June 30, 2019
(Unaudited)
Future
base lease payments under the non-cancelable operating lease at June 30, 2019 are as follows:
|
|
|
Amount
|
|
|
Six months ended December 31, 2019
|
|
$
|
48,000
|
|
|
Year ending - 2020
|
|
|
96,000
|
|
|
Year ending - 2021
|
|
|
96,000
|
|
|
Ten months ended October 31, 2022
|
|
|
80,000
|
|
|
Total minimum non-cancelable operating lease payments
|
|
|
320,000
|
|
|
Less: discount to fair value
|
|
|
(44,424
|
)
|
|
Total lease liability at June 30, 2019
|
|
$
|
275,576
|
|
Note
10 – Related Party Transactions
Due to Related Party:
On
October 5, 2017, the Company entered in to a lease agreement with Mr. Friedman who served as an officer of the Company and
currently a consultant. The Company leased a fifteen-acre “420 Style” resort and estate property near Quebec City,
Canada. Pursuant to the lease agreement, the Company will pay a monthly rent of $8,000 per month to Mr. Freidman. The Company
is responsible for all costs of the property, including, but not limited to, renovations, repairs and maintenance, insurance
and utilities (see Note 9 and Note 12).
During
the six months ended June 30, 2019, the Company incurred $48,000 of rent expense, related to the property discussed above, of
which $28,000 was accrued and included in the due to related party.
During
the six months ended June 30, 2019, Mr. Friedman advanced $23,100 to the Company for working capital.
The
following table summarizes the related party activity the Company for the six months ended June 30, 2019:
|
|
|
Total
|
|
|
Due to related party balance at December 31, 2018
|
|
$
|
(1,283
|
)
|
|
Working capital advances received
|
|
|
(23,100
|
)
|
|
Accrued rent expenses – related party
|
|
|
(28,000
|
)
|
|
Repayments made
|
|
|
11,075
|
|
|
Due to related party balance at June 30, 2019
|
|
$
|
(41,308
|
)
|
Convertible Note Payable – Related
Party:
On May 10, 2019, the Company entered a note
agreement with a related party (“Lender”), pursuant to which the Company issued and sold a promissory note (“May
2019 Note II”) with a principal amount of $175,000 (see Note 7). The Company received $175,000 in net proceeds. The May 2019
Note II bears an interest rate of 8% per year and matures on November 11, 2019 and the principal and interest are convertible at
any time at a conversion price equal to 70% of the lowest closing bid price, as reported on the OTCQB or other principal trading
market, during the seven trading days preceding the conversion date. As of June 30, 2019, the May 2019 Note II had $175,000 of
outstanding principal and $1,956 of accrued interest. The May 2019 Note II is reflected under convertible notes, net of
the accompanying consolidated balance sheet.
Note
11 – Stockholders’ Deficit
Shares
Authorized
On
March 3, 2019, the Company filed an amendment to its Certificate of Incorporation, with the Delaware Secretary of State, to increase
its authorized common stock from 1,250,000,000 shares to 1,499,000,000 shares (see Note 1). The Company’s 1,500,000,000
authorized shares consisted of 1,499,000,000 shares of common stock, par value $0.0001 per share, and 1,000,000 shares of preferred
stock, par value $0.01 per share.
On
March 26, 2019, the Company filed an amendment to its Certificate of Incorporation, with the Delaware Secretary of State, for
1-for-200 reverse stock split of our common stock (the “Reverse Stock Split”) effective March 26, 2019. The number
of shares of common stock subject to outstanding options, warrants and convertible securities were also reduced by a factor
of two-hundred and no fractional shares were issued. All historical share in this report have been adjusted to reflect the Reverse
Stock Split (see Note 1). There were no changes to the authorized number of shares and the par value of our common stock.
Preferred
Stock
The
Company has 1,000,000 authorized shares of preferred stock with per share par value of $0.01.
Series
A Preferred Stock
On
June 20, 2012, the Company cancelled the designation of 1,000,000 shares of Series A Preferred Stock (“Series A”),
par value $0.01. There were no Series A issued and outstanding prior to the cancellation of the Series A designation.
Series
B Preferred Stock
On
June 20, 2012, the Company filed a Certificate of Designation, Preferences and Rights, with the Delaware Secretary of State where
it designated 1,000,000 of the authorized shares of Preferred Stock as Series B Preferred Stock (“Series B”), par
value $0.01.
AGRITEK
HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements
June 30, 2019
(Unaudited)
The
rights, preferences and restrictions of the Series B Preferred Stock (“Series B”), as amended, state;
|
|
●
|
each
share of the Class B Convertible Preferred Stock shall automatically convert into shares
of the Company’s common stock when there are sufficient authorized and unissued
shares of common stock to allow for the conversion. The Series B will convert in its
entirety, equal one-half the total outstanding shares of common stock of the day immediately
prior to the conversion date, on a fully diluted basis. The converted shares will be
issued pro rata so that each Series B holder will receive the appropriate number of shares
of common stock equal to their percentage ownership of their Series B;
|
|
|
●
|
all
of the outstanding shares of the Series B, in their entirety, will have voting rights
equal to the number of shares of common stock outstanding on a fully diluted basis immediately
prior to any vote. The shares eligible to vote will be calculated pro rata so that each
Series B holder will have voting power equal to their respective Series B ownership percentage.
The Series B holders shall have the rights to vote on all matters presented or submitted
to the Company’s stockholders for approval in pari passu with holders of the Company’s
common stock, and not as a separate class.
|
On
June 26, 2015, the Company filed with the Delaware Secretary of State the Amended and Restated Designation Preferences and Rights
(the “Certificate of Designation”) of Series B. Pursuant to the Certificate of Designation, 1,000 shares constitute
the Series B. The Series B and any accrued and unpaid dividends thereon shall, with respect to rights on liquidation, winding
up and dissolution, rank senior to the Company’s issued and outstanding common stock.
The
Series B has the right to vote in aggregate, on all shareholder matters equal to 51% of the total vote, no matter how many
shares of common stock or other voting stock of the Company are issued or outstanding in the future. The holders of Series
B have the right to vote for each share of Series B held of record on all matters submitted to a vote of common stockholders,
including the election of directors, except to the extent that voting as a separate class or series is required by law. There
is no right to cumulative voting in the election of directors. As of June 30, 2019, and December 31, 2018, there were 1,000 shares
of Series B issued and outstanding.
Common
Stock
Common stock issued for services
|
|
●
|
During the six months ended June 30, 2018, the Company issued 8,500 shares a consultant with per share fair value of $2.75.
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|
|
|
|
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●
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During the six months ended June 30, 2019, the Company issued 13,000,000 shares of its unregistered common stock to several consultants and an officer, for services rendered. These shares had a per share fair value between $0.29 and $0.68.
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Common
stock issued and/or issuable for cash
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|
●
|
During
the six months ended June 30, 2018, pursuant to subscription agreements, the Company sold 77,578 shares of its unregistered
common stock to an investor for cash proceeds of $340,000 or $4.38 average price per share. These shares of common stock remain
issuable as of June 30, 2019.
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|
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●
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During
the six months ended June 30, 2019, the Company sold 20,833 shares of its unregistered common stock to an investor for cash
proceed of $15,000 or $0.72 per share. These shares of common stock remain issuable as of June 30, 2019.
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Common
stock issued for debt conversion
|
|
●
|
During
the six months ended June 30, 2018, the Company issued an aggregate of 166,224 shares of its common stock upon conversion
of debt of $187,500 principal and accrued interest.
|
|
|
|
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●
|
During
the six months ended June 30, 2019, the Company issued an aggregate of 1,110,000 shares of its common stock upon conversion
of $273,702 of outstanding principal. The Company recorded $251,799 of loss on debt extinguishment related to the note conversions.
|
Common
stock issued for cashless exercise of warrants
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●
|
During
the six months ended June 30, 2018, the Company issued 152,758 shares of its common stock upon the cashless exercise of 16,268
warrants.
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●
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During
the six months ended June 30, 2019, the Company there were no warrants exercised.
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Warrants
St.
George 2016 Warrants
On
October 31, 2016, the Company granted (Warrant #1) to St. George the right to purchase at any time on or after November 10, 2016
(the “Issue Date”) until the date which is the last calendar day of the month in which the fifth anniversary of the
Issue Date occurs (the “Expiration Date”), a number of fully paid and non-assessable shares (the “Warrant Shares”)
of Company’s common stock, equal to $57,500 divided by the Market Price (defined below) as of the Issue Date, as such number
may be adjusted from time to time pursuant to the terms and conditions of Warrant #1 to Purchase Shares of Common Stock. The Market
Price is equal to the lowest intra-day trade price in the twenty (20) Trading Days immediately preceding the applicable date of
exercise, multiplied by sixty percent (60%). The exercise price is the lower of $10.00 and is subject to price adjustments pursuant
to the agreement and includes a cashless exercise provision. The Company also issued Warrant #’s 2-9, with each warrant
only effective upon St. George funding of the secured notes they issued to the Company. Warrant #’s 2-9 give St. George
the right to purchase Warrant Shares equal to $27,500 divided by the Market Price on the funded date. On December 14, 2016, the
Company received a payment of $50,000, and accordingly, Warrant #2 became effective. During the year ended December 31, 2017,
the Company received the funding on the remaining notes and Warrant #’s 3-9 became effective.
AGRITEK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements
June 30, 2019
(Unaudited)
May
2018 warrants
The
Company issued an aggregate of 34,842 warrants, with an exercise price of $3.5, in connection with the May 2018 Note. These warrants
vest immediately and expires on May 22, 2023. As of June 30, 2019, there were 34,842 warrants issued and outstanding under the
May 2018 Warrants (see Note 7).
February
2019 warrants
The
Company issued an aggregate of 1,079,353 warrants, with an exercise price between $0.26 to $0.99, in connection with the February
2019 Note. These warrants vest immediately and expired five years from the date of issuance. As of June 30, 2019, there were 1,079,353
warrants issued and outstanding under the February 2019 Warrants (see Note 7). The Company
Exercised
warrant
During
the six months ended June 30, 2019, there were no warrants exercised.
During
the six months ended June 30, 2018, the Company issued 152,758 shares of common stock in connection with the cashless exercise
of 16,268 warrants.
The
following table summarizes the activity related to warrants of the Company for the six months ended June 30, 2019:
|
|
|
Number of Warrants
|
|
|
Weighted-
Average
Exercise
Price per share
|
|
|
Weighted-
Average
Remaining Life
(Years)
|
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|
Outstanding and exercisable December 31, 2018
|
|
|
249,479
|
|
|
$
|
1.28
|
|
|
|
3.30
|
|
|
Issued
|
|
|
1,079,535
|
|
|
|
0.41
|
|
|
|
4..84
|
|
|
Expired/Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding and exercisable June 30, 2019
|
|
|
1,328,832
|
|
|
$
|
0.63
|
|
|
|
4.41
|
|
|
Exercisable at June 30, 2019
|
|
|
1,328,832
|
|
|
$
|
0.63
|
|
|
|
4.41
|
|
Note
12 – Commitments and Contingencies
Lease
On
April 28, 2014, AVHI executed and closed a ten-year lease agreement for twenty acres of an agricultural farming facility located
in South Florida. Pursuant to the lease agreement, the Company maintains a first right of refusal to purchase the property
for three years. The Company is currently in default of the lease agreement, no payment has been made since May 2015. AVHI had
accrued expense $114,628 related to this lease included in the accompanying consolidated balance sheet. No party had filed any
claims as of the date of this report.
In
April 2014, AVHI entered into a two-year sublease agreement for the use of up to 7,500 square feet with a Colorado based oncology
clinical trial and drug testing company and facility. Pursuant to the lease, as amended, the Company agreed to pay $3,500 per
month for the space. The lease expired in April 2016 and AVHI has outstanding balance due of $48,750 included in accrued expenses
of the accompanying consolidated balance sheet. No party had filed any claims as of the date of this report.
On
July 11, 2014, AVHI signed a ten-year lease agreement for forty acres in Pueblo, Colorado. The lease requires monthly rent
payments of $10,000 during the first year and is subject to a 2% annual increase over the life of the lease. The lease also provides
rights to 50 acres of certain tenant water rights for $50,000 annually plus cost of approximately $2,400 annually. The Company
paid the $50,000 in July 2014, and has not used the property and any water and has not paid for any water rights since October
2015. The Company is currently in default of the lease agreement, as no payment has been made since February 2015. AVHI had
accrued expense $165,200 related to this lease included in the accompanying consolidated balance sheet. No party had filed any
claims as of the date of this report.
AGRITEK
HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements
June 30, 2019
(Unaudited)
In
January 2017, the Company signed a five-year lease, beginning February 1, 2017, for approximately 6,000 square feet of office
space, comprised of two floors, in San Juan, Puerto Rico. Pursuant to the lease, the Company will pay $3,000 per month for the
third floor of the building for the first year of the lease. The rent will increase 3% per year on February beginning in 2018
and an additional 3% per year on each successive February 1, during the term of the lease. The landlord agreed that the month
of February 2017, the rent was $1,500. The rent for second floor of the building will be $2,000 per month during the term of the
lease and the Company does not have any rent payments for the first three months of the lease (February 2017 through April 2017).
Through September 30, 2017, the Company calculated the total amount of the rent for the term lease and recorded straight line
rent expense of $45,417 and had made payments of $20,516. As of June 30, 2019, the Company has a balance of $24,916 in deferred
rent which is included in the consolidated balance sheet. The leases for the second and third floor were cancelled in September
2017 as a result of Hurricane Irma. The Company sub-leased the office space to an affiliated party and as a result, only pays
$79 of the $1,500 monthly rent. During the six months ended June 30, 2019, the Company incurred $480 of rent expense from this
office space.
On
October 5, 2017, the Company entered in to a lease agreement with Mr. Friedman who serves as an officer of the Company. The Company
leased a fifteen-acre “420 Style” resort and estate property near Quebec City, Canada. Pursuant to the lease agreement,
the Company will pay a monthly rent of $8,000 per month to Mr. Freidman. The Company is responsible for all costs of the property,
including, but not limited to, renovations, repairs and maintenance, insurance and utilities. During the six months ended June
30, 2019, the Company incurred $48,000 of rent expense of which $28,000 was accrued and included in the due to related party (see
Note 9 and Note 10).
Agreements
On April 5, 2017, the Company executed
a five-year operational and exclusive licensing agreement with a third party who leases a 15,000-sq. ft. approved cultivation facility
located in San Juan, Puerto Rico. The Company will be the exclusive funding source, and supervise all infrastructure buildout,
equipment lease/finance, security systems and personnel and provide access of seasoned Colorado and California cultivation crews
to ensure the facility meets all standard operating procedures as set forth by the Department of Health of Puerto Rico. Under the
agreement, the Company is to receive $12,000 a month in consulting fees, licensing fees on all vaporizer and edible sales, equipment
and lighting rental and financing fees along with equity interest in the property. As of June 30, 2019, the Company had funded
$190,000 for property renovations which was recorded as Note Receivable in the accompanying consolidated balance sheet (see
Note 4).
On
December 12, 2018, the Company entered into an Employment and Board of Directors Agreement (the “Employment Agreement”)
with Mr. Mundie, pursuant to which Mr. Mundie will serve as Interim Chief Executive Officer for an initial six- month term. Mr.
Mundie’s employment is terminable by him or the Company at any time (for any reason or for no reason) with a ninety-day
notice from either party to the other. Pursuant to the Employment Agreement, Mr. Mundie will receive a base salary of $90,000
per annum. In the event that Mr. Mundie’s employment is terminated within three months of commencing employment with the
Company and such termination is not due to Mr. Mundie’s voluntary resignation (other than at the request of the Board or
the majority shareholders of the Company), Mr. Mundie will be entitled to continued payment of his base salary for the remainder
of the Agreement. In addition to the base salary, the Company will grant to Employee seventy- five thousand (75,000) shares of
the Company’s common stock in Employee’s name to be held in escrow for the benefit of Employee (the “Company Common Stock”).
The Company shall release twenty-five thousand (25,000) shares of Company’s Common Stock, and such shares shall then immediately
vest on the six-month anniversary of the Agreement (e.g., June 12, 2019) and the Company shall release the remaining fifty thousand
(50,000) shares of the Company’s common stock, and such shares shall then immediately vest in favor of the Employee, if
Mr. Mundie is the Interim CEO or CEO of the Company on December 15, 2019. During the six months ended June 30, 2019, the Company
had not paid any portion of Mr. Mundie’s base salary. On June 7, 2019, the Company issued 2,000,000 shares of common stock
to Mr. Mundie to settled all salaries and shares due from the employment agreement. The Company charged the $1,359,800 fair value
of the common shares to stock-based compensation during the six months ended June 30, 2019. On September 19, 2019, Mr. Mundie
resigned as the Company’s CEO.
On April 30, 2019, the Company along with
1919 Clinic, LLC (“1919”) signed an option to purchase the building 1919 is currently operating in located in San Juan,
Puerto Rico, from the owner for $1,000,000. In May 2019, a non-refundable deposit of $175,000 was paid in consideration of the
option to purchase the building which was recorded under Other Deposit in the accompanying consolidated balance sheet (see
Note 5).
Legal
& other
On
March 2, 2015, the Company, the Company’s CEO and the Company’s CFO at the time were named in a civil complaint filed
by Erick Rodriguez in the District Court in Clark County, Nevada (the “DCCC”). The complaint alleges that Mr. Rodriguez
never received 250,000 shares of Series B preferred stock that were initially approved by the Board of Directors in 2012, subject
to the completion of a merger of a company controlled by Mr. Rodriguez. Since the merger was never completed, the shares were
never certificated to Mr. Rodriguez. On March 21, 2017, the DCC agreed to Set Aside the Entry of Default against the Defendants.
Mr. Rodriguez resigned in June 2013. On April 12, 2018, an Arbitrator issued a final award to Rodriguez in the amount of
$399,291. The Company and the Company’s counsel believe the Arbitrator denied a number of detailed objections to the award,
which cited clear mistakes as to Nevada law and to the facts. The Company recorded a loss on legal matter, included in other expenses
for the year ended December 31, 2017. On May 3, 2018, the Arbitrator issued an amended final award of $631,537, inclusive of interest
and legal fees. In December 2018, the plaintiff and defendants entered into a Settlement Agreement and Release whereby both parties
agreed on $400,000 settlement of which $35,000 was to be paid by Barry Hollander and $365,000 was to be paid by the Company. As
of June 30, 2019, the Company had satisfied all its obligation under the settlement agreement and was released from any further
liability with regarding this matter.
AGRITEK
HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements
June 30, 2019
(Unaudited)
On May 6, 2016, the Company, B. Michael
Freidman and Barry Hollander (former CFO) were named as defendants in a Summons/Complaint filed by Justin Braune (the “Plaintiff”)
in Palm Beach County Civil Court, Florida (the “PBCCC”). The complaint alleges that Mr. Braune was entitled to shares
of common stock of the Company. On December 5, 2016, the PBCCC set aside a court default that had been previously issued. The defendants
have answered the complaint, including the defenses that Mr. Braune advised the Company’s transfer agent and the Company
in his letter of resignation dated November 4, 2015, clearly stating that he has relinquished all shares of common stock. The Company
has filed a counterclaim suit against the Plaintiff, as well as sanctions against the Plaintiff and their counsel.
Note
13 – Subsequent Events
Subsequent to June 30, 2019, the Company
issued 234,698 shares of the Company’s common stock upon conversion of $160,000 convertible debt outstanding balance.
On July 30, 2019, the Company entered into
an Equity Purchase Agreement (“Equity Purchase Agreement”) and Registration Rights Agreement (“Registration Rights
Agreement”) with a non-affiliated party, a Puerto Rico limited liability company (“Investor”). Under the terms
of the Equity Purchase Agreement, the Investor agreed to purchase from the Company up to $5,000,000 of the Company’s common
stock upon effectiveness of a registration statement on Form S-1 (the “Registration Statement”) filed with the U.S.
Securities and Exchange Commission (the “Commission”) and subject to certain limitations and conditions set forth in
the Equity Purchase Agreement.
Following effectiveness of the Registration
Statement, and subject to certain limitations and conditions set forth in the Equity Purchase Agreement, the Company shall have
the discretion to deliver put notices to the Investor and the Investor will be obligated to purchase shares of the Company’s
common stock, par value $0.0001 per share based on the investment amount specified in each put notice. The maximum amount that
the Company shall be entitled to put to the Investor in each put notice shall not exceed the lesser of $500,000 or one hundred
percent (100%) of the average daily trading volume of the Company’s common stock during the ten (10) trading days preceding
the put. Pursuant to the Equity Purchase Agreement, the Investor and its affiliates will not be permitted to purchase and the Company
may not put shares of the Company’s common stock to the Investor that would result in a beneficial ownership of the Company’s
outstanding common stock exceeding 9.99%. The price of each put share shall be equal to eighty five percent (85%) of the Market
Price (as defined in the Equity Purchase Agreement). Puts may be delivered by the Company to the Investor until the earlier of
(i) the date on which the Investor has purchased an aggregate of $5,000,000 worth of common stock under the terms of the Equity
Purchase Agreement, (ii) July 22, 2022, or (iii) written notice of termination delivered by the Company to the Investor, subject
to certain equity conditions set forth in the Equity Purchase Agreement.
On July 30, 2019, in connection with its
entry into the Equity Purchase Agreement and the Registration Rights Agreement, the Company will issue commitment shares (as defined
in the Equity Purchase Agreement) to the Investor.
The Registration Rights Agreement provides
that the Company shall (i) file with the Commission the Registration Statement by August 15, 2019; and (ii) use its best efforts
to have the Registration Statement declared effective by the Commission at the earliest possible date (in any event, by September
21, 2019).