AGRITEK HOLDINGS, INC. Overview
Agritek Holdings Inc. ("the Company" or "Agritek Holdings ") has wholly-owned subsidiaries,Prohibition Products Inc. ("PPI") andAgritek 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 threeU.S. States,Colorado ,Florida ,California as well asCanada .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:
• Funding and Financing Solutions for Agricultural Land and Properties zoned
for the regulated Cannabis Industry.
• Dispensary and Retail Solutions
• Commercial Production and Equipment Build Out Solutions
• Multichannel Supply Chain Solutions
• Branding, Marketing and Sales Solutions of proprietary product lines
• Consumer Product Solutions
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 is 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 inColorado ,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. Other Financing OnJuly 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, aPuerto 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 theU.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
The Registration Rights Agreement provides that the Company shall (i) file with the Commission the Registration Statement byAugust 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, bySeptember 21, 2019 ).
As of
32 Financial Highlights For the year endedDecember 31, 2019 , we utilized$1,448,001 to fund our operations, compared to$1,260,492 for year endedDecember 31, 2018 . For the year endedDecember 31, 2019 , we received net cash of$1,557,364 from financing activities. As a result, our net cash position increased by$54,848 during
the year endedDecember 31, 2019 .
Operating expenses for the year ended
For the year endedDecember 31, 2019 we had net loss of$8,045,888 or$(0.57) per share, as compared to$1,412,278 , or$(0.34) per share for the year endedDecember 31, 2018 . Results of Operations The following table summarizes the results of operations for the years endingDecember 31, 2019 and 2018 and is based primarily on the comparative audited financial statements, footnotes and related information for the periods identified and should be read in conjunction with the financial statements and the notes to those statements that are included elsewhere in this annual report. Year Ended December 31, 2019 2018 Loss from operations$ (5,827,747 ) $ (1,354,883 ) Other expense, net (2,218,141 ) (57,395 ) Net loss (8,045,888 ) (1,412,278 ) Other comprehensive gain (loss): Unrealized gain (loss) on marketable securities - (33,159 ) Comprehensive (loss) gain$ (8,045,888 ) $ (1,445,437 ) Revenues: Revenues for the years endedDecember 31, 2019 , and 2018 were nil and$3,339 , respectively. Revenues for the year endedDecember 31, 2018 were comprised
of sales of product. Cost of Revenue:
For the years endedDecember 31, 2019 and 2018, the cost of revenue were$0 and$61,168 , respectively. The cost of revenue for the year endedDecember 31, 2018 was comprised of product cost of$8,072 , write off obsolete inventory of$23,096 and an allocation of$30,000 , or twenty percent (20%) ofMr. Friedman's management fees. Operating Expenses: For the year endedDecember 31, 2019 , operating expenses amounted to$5,827,747 as compared to$1,297,054 for the year endedDecember 31, 2018 , an increase of$4,530,693 , or 349%. For the years endedDecember 31, 2019 and 2018, operating expenses consisted of the following: Year Ended December 31, 2019 2018 Professional fees$ 415,206 $ 383,664 Compensation expense 5,123,623 208,365 General and administrative expenses 288,918 705,025 Total$ 5,827,747 $ 1,297,054 Professional fees: For the year endedDecember 31, 2019 , professional fees increased by$31,542 or 8%, as compared to the year endedDecember 31, 2018 . The increase was primarily attributable to an increase consulting fee and accounting services of$61,967 offset by a decrease in investor relations expense of$20,416 . 33 Compensation expense:
For the year ended
General and administrative expenses:
For the year endedDecember 31, 2019 , general and administrative expenses decreased by$416,107 or 59%, as compared to the year endedDecember 31, 2018 . The decrease was primarily attributable to decreased overhead expenses in 2019 due to reduced activities compared to 2018. Loss from Operations: For the year endedDecember 31, 2019 , loss from operations amounted to$5,827,747 as compared to$1,354,883 for the year endedDecember 31, 2018 , an increase of$4,472,864 , or 330%. The increase was primarily due to changes
in discussed above. Other Expense: For the year endedDecember 31, 2019 , total other expense amounted to$2,218,141 as compared to$57,395 for the year endedDecember 31, 2018 , an increase of$2,160,746 , or 4,296%. The increase was primarily due to an increase in interest expense of$99,991 , increase in loss on debt extinguishment of$14,112 , increase in impairment loss of$405,803 and decrease on gain on derivative liability of$1,693,260 offset by gain on litigation settlement of$59,242 . Net Loss For the year endedDecember 31, 2019 , net loss amounted to$8,045,888 , or$0.57 per share (basic), compared to a net loss of$1,412,278 , or$0.34 per share (basic), for the year endedDecember 31, 2018 , a change of$6,633,610 , or 491%. The increase was primarily due to changes in discussed above. Comprehensive Loss: As a result of the change in the fair value of our marketable securities, we had$0 gains or losses for the year endedDecember 31, 2019 , compared to a (loss) of$(33,159) for year endedDecember 31, 2018 .
Liquidity and Capital Resources
Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had a working capital deficit of$5,355,872 and$131,864 of cash as ofDecember 31, 2019 and working capital deficit of$3,404,005 and$77,016 of cash as ofDecember 31, 2018 . Year Ended December 31, 2019 Percentage December 31, 2019 December 31, 2018 Change Change Working capital deficit: Total current assets $ 230,614 $ 115,709$ 114,905 99 % Total current liabilities (5,586,486 ) (3,519,714 ) (2,066,772 ) 59 % Working capital deficit:$ (5,355,872 ) $ (3,404,005 ) $ (1,951,867 ) 57 %
The increase in working capital deficit was primarily attributable to increase
in current liabilities of
34 Cash Flows
A summary of cash flow activities is summarized as follows:
Year Ended December 31,
2019 2018
Cash used in operating activities
(54,515 ) (109,323 )
Cash provided by financing activities 1,557,364 1,141,942
Net increase (decrease) in cash
Net cash flow used in operating activities was
· Net cash flow used in operating activities for the year ended
primarily reflected our net loss of
non-cash items such as depreciation of
of derivative liability of
non-cash default penalty interest of
securities of
settlement of
asset and liabilities consisting primarily of a decrease in prepaid expenses
and other current assets of
liabilities of$125,569 and an increase in other receivable of$96,033 .
· Net cash flow used in operating activities for the year ended
primarily reflected our net loss of
non-cash items such as depreciation of
of derivative liability of
loss on debt extinguishment of
impairment loss of
consisting primarily of an increase in prepaid expenses and other current
assets of
$126,852 and an increase in due to/from related party of$6,432 .
Net cash used in investing activities was
· During the year ended
and note receivable of$20,000 .
· During the year ended
and note receivable of$75,000 .
Cash Provided by Financing Activities:
Net cash provided by financing activities was
· Net cash provided by financing activities for the year ended
consisted of
issuance costs and proceeds from related party convertible note of
proceeds from sale of common stock of$15,000 offset by related party convertible note repayment of$27,136 .
· Net cash provided by financing activities for the year ended
consisted of
issuance costs, proceeds from sale of common stock of
convertible note repayment of
$30,000 . 35 Cash Requirements Our management does not believe that our current capital resources will be adequate to continue operating our company and maintaining our business strategy for more than 12 months from the date of this report. Accordingly, we will have to raise additional capital in the near future to meet our working capital requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to scale down or perhaps even cease the operation of our business. Going Concern
The 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 consolidated financial statements, the Company had net loss of$8,045,888 and$1,412,278 for the years endedDecember 31, 2019 and 2018, respectively. The net cash used in operations were$1,448,001 and$1,260,492 for the years endedDecember 31, 2019 and 2018, respectively. Additionally, the Company had an accumulated deficit of$35,036,243 and$26,990,355 atDecember 31, 2019 andDecember 31, 2018 , respectively, had a working capital deficit of$5,355,872 atDecember 31, 2019 , had no revenues from operations in 2019 and 2018, and we defaulted on our debt. 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 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.
Additional Purchaser Rights and Company Obligations
The Securities Purchase Agreements include additional purchaser rights and Company obligations including obligations on the Company to reimburse the Purchasers for legal fees and expenses, satisfy the current public information requirements under SEC Rule 144(c), obligations on the Company with respect to the use of proceeds from the sale of securities and Purchaser rights to participate in future Company financings. Reference should be made to the full text of the Securities Purchase Agreement.
Common Stock for Debt Conversion
During the year endedDecember 31, 2019 , the Company issued an aggregate of 3,270,943 shares of its common stock upon the conversion of principal note balances of$398,719 . These shares of common stock had an aggregate fair value$471,590 and the difference between the aggregate fair value and the aggregate converted amount of$398,719 resulted in a loss on debt extinguishment of$72,871 . During the year endedDecember 31, 2018 , the Company issued an aggregate of 1,676,665 shares of its common stock upon the conversion of principal note balances and accrued interest of$947,501 . These shares of common stock had an aggregate fair value$1,006,260 and the difference between the aggregate fair value and the aggregate converted amount of$947,501 resulted in a loss on
debt extinguishment of$58,759 . Future Financings We will require additional financing to fund our planned operations. We currently do not have committed sources of additional financing and may not be able to obtain additional financing particularly, if the volatile conditions of the stock and financial markets, and more particularly the market for early development stage company stocks persist. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to further delay or further scale down some or all of our activities or perhaps even cease the operations of
the business.
Since inception we have funded our operations primarily through equity and debt financings and we expect that we will continue to fund our operations through the equity and debt financing, either alone or through strategic alliances. If we are able to raise additional financing by issuing equity securities, our existing stockholders' ownership will be diluted. Obtaining commercial or other loans, assuming those loans would be available, will increase our liabilities and future cash commitments. There is no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his, her, or its investment in our common stock. Further, we may continue to be unprofitable. 36
Critical Accounting Policies
We have identified the following policies as critical to our business and results of operations. Our reported results are impacted by the application of the following accounting policies, certain of which require management to make subjective or complex judgments. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact quarterly or annual results of operations. For all of these policies, management cautions that future events rarely develop exactly as expected, and the best estimates routinely require adjustment. Specific risks associated with these critical accounting policies are described in the following paragraphs. Use of Estimates
The preparation of the consolidated financial statements in conformity withU.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 year endedDecember 31, 2019 and 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 onDecember 31, 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:
Level 1-Inputs are unadjusted quoted prices in active markets for identical
assets or liabilities available at the measurement date.
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.
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.
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.
InJuly 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 ofJanuary 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. 37 Revenue Recognition InMay 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 afterDecember 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 onJanuary 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. ThroughMarch 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. InJune 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 afterDecember 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 inJanuary 1, 2019 , and the adoption did not have any impact on its consolidated financial statements. Leases
InFebruary 2016 , theFinancial 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 afterDecember 15, 2018 . OnJanuary 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 toJanuary 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.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.
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