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Annual report with a comprehensive overview of the company

10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 000-1321002

 
AGRITEK HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

 

     
Delaware   20-1321002
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
777 Brickell Ave. Suite 500    
Miami, FL   33131
(Address of principal executive offices)   (Zip Code)

 

 
(305) 721-2727
(Registrant’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.0001 par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No

 

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or has for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesNo

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YesNo

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

 

   

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
   
Non-accelerated filer(Do not check if a smaller reporting company) Smaller reporting company

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company  ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $5,664,173 on June 30, 2017.

 

The number of shares outstanding of the registrant’s $0.0001 par value Common Stock as of April 13, 2018, was 779,245,512.

 

 
 

 

Table of Contents

 

 

  PART I Page
     
Item 1 Business 4
Item 1A Risk Factors 11
Item 1B Unresolved Staff Comments 19
Item 2 Properties 19
Item 3 Legal Proceedings 19
Item 4 Mine Safety Disclosures 20
     
  PART II  
     
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 20
Item 6 Selected Financial Data 23
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations 23
Item 7A Quantitative and Qualitative Disclosures About Market Risk 28
Item 8 Financial Statements and Supplementary Data 29
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 29
Item 9A Controls and Procedures 29
Item 9B Other Information 30
     
  PART III  
     
Item 10 Directors, Executive Officers and Corporate Governance 31
Item 11 Executive Compensation 33
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 34
Item 13 Certain Relationships and Related Transactions, and Director Independence 34
Item 14 Principal Accountant Fees and Services 35
     
  PART IV  
     
Item 15 Exhibits and Financial Statement Schedules 36
  Signatures 39

   

 
 

 

FORWARD-LOOKING STATEMENTS

 

This report contains forward-looking statements. The Securities and Exchange Commission (the “SEC”) encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This report and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management’s plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as “project”, “believe”, “anticipate”, “plan”, “expect”, “estimate”, “intend”, “should”, “would”, “could”, or “may”, or other such words, verbs in the future tense and words and phrases that convey similar meaning and uncertainty of future events or outcomes to identify these forward–looking statements. There are a number of important factors beyond our control that could cause actual results to differ materially from the results anticipated by these forward–looking statements. While we make these forward–looking statements based on various factors and using numerous assumptions, you have no assurance the factors and assumptions will prove to be materially accurate when the events they anticipate actually occur in the future. Factors that could cause our actual results of operations and financial condition to differ materially are discussed in greater detail under Item 1A, “Risk Factors” of this annual report on Form 10-K.

 

The forward–looking statements are based upon our beliefs and assumptions using information available at the time we make these statements. We caution you not to place undue reliance on our forward–looking statements as (i) these statements are neither predictions nor guaranties of future events or circumstances, and (ii) the assumptions, beliefs, expectations, forecasts and projections about future events may differ materially from actual results. We undertake no obligation to publicly update any forward–looking statement to reflect developments occurring after the date of this report.

 

  

PART I

 

ITEM 1. DESCRIPTION OF BUSINESS.

 

General Business Development

 

Corporate History

 

Agritek Holdings, Inc. (referred to hereafter as “AGTK,” or, the “Company”), was initially incorporated under the laws of the State of Delaware in 1997 under the name Easy Street Online, Inc.

 

In 1997, the Company changed its name to Frontline Communications Corp. (“Frontline”) and operated as a regional Internet service provider (“ISP”) providing Internet access, web hosting, website design, and related services to residential and small business customers throughout the Northeast United States and, through a network partnership agreement, Internet access to customers nationwide.

 

On April 3, 2003, the Company acquired Proyecciones y Ventas Organizadas, S.A. de C.V. (“Provo Mexico”) and in December 2003 the Company changed the name to Provo International Inc. (“Provo”).

 

In 2008, Provo changed its name to Ebenefits Direct, Inc., which, through its wholly-owned subsidiary, L.A. Marketing Plans, LLC, engaged in the business of direct response marketing. The Company’s principal business was to market and sell non-insurance healthcare programs designed to complement medical insurance products and to provide savings for those who cannot afford or qualify for traditional health insurance products.

 

On October 14, 2008, Ebenefits Direct, Inc. changed its name to Seraph Security, Inc. (“Seraph”).

 

On April 25, 2009, Seraph acquired Commerce Online Technologies, Inc., a credit and debit card processing company.

 

On May 20, 2009, Seraph Security, Inc. changed its name to Commerce Online, Inc. to more accurately reflect its core business of merchant processing, and financial services.

 

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As of February 18, 2010, Commerce Online, Inc. changed its name to Cannabis Medical Solutions, Inc. (“CMSI”) as a provider of merchant processing payment technologies for the medical marijuana and wellness sector.

 

On March 8, 2010, the Company completed the acquisition of 800 Commerce, Inc. (“800 Commerce”) a Florida Corporation incorporated by the Company’s Chief Executive Officer. The company issued 1,000,000 shares of common stock to 800 Commerce for all the issued and outstanding stock of 800 Commerce, Inc.

 

In June 2010, 31,288,702 shares of common stock were issued as dividend shares (the “dividend”) to all existing shareholders of common stock of record.

 

On June 14, 2011, Cannabis Medical Solutions, Inc. changed its merchant name to MediSwipe Inc. (“MWIP”) as a result of its focus on the processing and financial services related to medical marijuana business.

 

On June 26, 2013, the Company formed American Hemp Trading Company, a wholly owned subsidiary.

 

On June 26, 2013, the Company formed Agritech Innovations, Inc. (“AGTI”), a wholly owned subsidiary. On September 3, 2013, AGTI changed its name to Agritech Venture Holdings, Inc. (“AVH”). 

 

On November 12, 2013, the Board of Directors of the Company approved a 1-for-10 reverse stock split (the “Reverse Stock Split”) and a decrease in the authorized common stock of the Company to 250,000,000. Pursuant to the Reverse Stock Split, each 10 shares of the Company’s common stock automatically converted into one share of Company common stock.

 

On November 12, 2013, the Financial Industry Regulatory Authority (“FINRA”) approved the Reverse Stock Split with an effective date of December 11, 2013. All the share amounts in this annual report on Form 10-K reflect the Reverse Stock Split.

 

On April 23, 2014, MWIP changed its name to Agritek Holdings, Inc. (“AGTK”) to more properly reflect the Company’s current business model.

 

On May 27, 2014, AVH changed its names to Agritek Venture Holdings, Inc. (“AVHI”).

 

On August 27, 2014, American Hemp Trading Company changed its name to Prohibition Products, Inc. (“PPI”)

 

Unless otherwise noted, references in this Form 10-K to “Seraph,” “Commerce Online, Inc.,” “Cannabis Medical Solutions,” “Mediswipe,” the “Company,” “we,” “our” or “us” means Agritek Holdings, Inc.

 

Description of Business

 

Agritek Holdings Inc. (“the Company” or “Agritek Holdings”) is a fully integrated, active investor and operator in the legal cannabis sector. Specifically, Agritek Holdings provides strategic capital and functional expertise to accelerate the commercialization of its diversified portfolio of holdings. Currently, 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.

 

Agritek Holdings Inc. has organized its interests across three business units – Agritek Venture Holdings; The American Hemp Trading Company; and MediSwipe, Inc. Agritek Venture Holdings includes the Company’s real estate portfolio, controlled equity holdings, minority equity holdings and royalty interests. Subsidiary operations also includes a portfolio of wholly owned and licensed brands that cover high growth segments of the cannabis sector including vaping, pre-rolls, edibles, topicals, medical devices, concentrates and animal health. MediSwipe, Inc. offers a suite of services including corporate finance, marketing & branding, operational support, financial management, and compliance & regulatory. These services are offered by a strong in-house team complemented by independent advisors with the objective of assisting clients and partners in accelerating the commercialization of their product(s) or services, and ultimately in leveraging their unique selling proposition to create a leadership position in their chosen niche within the global cannabis industry.

 

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Agritek Holdings Inc. intends to build on its existing relationships by developing operating plans and providing oversight, strategy and management of the business units’ growth and integration. Further, Agritek Holdings plans to continue expanding its reach by building new partnerships with vertical market partners and end- user products companies as well as exploring opportunities with successful cultivators and processors. Through its expansion efforts, Agritek Holdings intends to utilize online sales and marketing platforms, participate in relevant trade shows and develop various advertising materials to communicate its multiple licensed brands including “California Premiums”, “Hemp Pops” and additional CBD products.

 

Agritek Holdings is also well-positioned to participate in the large and growing legal cannabis market for enhanced downstream cannabis products and new products with various consumer and medical applications.

 

Agritek Holdings focuses on the growth of its business units and expanding their reach to end-users and partners. Although the business units are primarily responsible for developing and operating their respective businesses, Agritek Holdings is available to provide functional expertise, financing, oversight and a framework of disciplined planning to the operations of the business units when needed.

 

Agritek Holdings’ short-term objective is to create a sustainable business in the key states of California, Colorado, Washington and Oregon as well as in Canada and Puerto Rico by integrating its holdings to create synergies and true end-to-end solutions geared to the needs of patients and consumers. Agritek Holdings has positioned itself for commercial growth by focusing its expanded resource base on finding and partnering with the best and most innovative companies, projects, assets and overall business frameworks in the legal cannabis sector in the aforementioned jurisdictions.

 

To achieve its objectives, the Company will continue making specific and deliberate investments, including acquisitions, to:

 

1.Increase the diversity and quality of the Company’s product offerings across different market segments; and

2.Increase the strength and segmentation of the Company’s diversified portfolio of real estate holdings and product brands.

 

In addition, management believes that significant opportunities exist today and will develop further in the future, to leverage the Company’s expertise, financial strength and business model in legal cannabis markets around the world. Agritek Holdings intends on pursuing opportunities in a number of jurisdictions where cannabis use is legal, and/or where governments are actively pursuing legalization.

 

Subject to legislative and regulatory compliance, strategic business opportunities pursued by the Company could include:

 

1.Providing advisory services to third-parties that are interested in establishing licensed cannabis cultivation, processing and sales operations;

2.Entering into strategic relationships that create value by sharing expertise and industry knowledge;
3.Providing capital in the form of debt, royalties, or equity to new business units; and
4.Entering into licensing agreements to generate revenue, create strategic partnerships, or other business opportunities.

 

Agritek Holdings and its wholly-owned subsidiaries, MediSwipe, Inc., Prohibition Products Inc., and Agritek Venture Holdings, Inc. provide turnkey support solutions to the legal cannabis industry. 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
Banking and Payment Processing Solutions
Multichannel Supply Chain Solutions
Branding, Marketing and Sales Solutions of proprietary product lines
Consumer Product Solutions 

 

 6 

 

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 law. 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

 

Agritek’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, Agritek 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.

 

Services and Markets

 

To date, we have purchased eighty (80) acres approved for licenses and cultivation in Pueblo, Colorado. We have multiple manufacturing and service contracts in place in areas in the following sectors:

 

Funding and Financing Solutions

 

Our goal is to become the funding and financing service partner of choice in the legal Colorado and California cannabis market before expanding nationwide if and when applicable state and federal laws  allow us to do so. We offer financing and financial aid to cultivators, collectives, dispensaries and product businesses in the legal cannabis industry with alternative funding and financing solutions. In the evolving legal cannabis industry, where traditional banking opportunities are grossly limited, we step in to provide the “traditional” bank lending services; lines of credit, property financing, and/or commercial loans. Businesses and individuals seeking funding and financing solutions are qualified and scored based on their experience, current operations, financial records, and compliance grades given by our proprietary banking partners and credit lines that comply with all state governance rules.

 

Commercial Build Out and Dispensary Solutions

 

We offer turnkey build-out and commercial services to our clients. Whether it is financial assistance, real estate consulting, operations design, or building construction, our Company can design and rollout customized services for our clients. We also offer traditional business services to dispensaries as well. These services include infrastructure investment, technology partners, donation accounting, payment processing and succession strategies. It is important to note that we are not a “one size fits all” organization, but are committed to custom tailored solutions for legal cannabis industry participants.

 

Finance and Real Estate

 

Real Estate Leasing

 

Our real estate leasing business primarily includes the acquisition and leasing of cultivation space and related facilities to licensed marijuana growers and dispensary owners for their operations. Management anticipates that these facilities will range in size from 5,000 to 50,000 square feet. These facilities will only be leased to tenants that possess the requisite state licenses to operate cultivation facilities. The leases with the tenants will provide certain requirements that permit us to continually evaluate our tenants’ compliance with applicable laws and regulations.

 

As of the date of this report, we own one cultivation property that is located in a suburb of Pueblo, Colorado (the “Pueblo West Property”). The property consists of approximately eighty (80) acres of land. The property is currently zoned for cultivating cannabis and is expected to be leased to a medical cannabis cultivator or manufacturer this year.  We are currently evaluating strategic options for this property.

 

 7 

 

Shared Office Space, Networking and Event Services  

 

We plan to continue to acquire commercial real estate and lease office space to participants in the cannabis industry. These participants include media, internet, packaging, lighting, cultivation supplies, and financial services. In exchange for certain services that may be provided to these tenants, we expect to receive rental income. In certain cases, we may acquire equity interests or provide debt capital to these businesses and eventually acquire a specific business as a wholly owned subsidiary of Agritek.

 

Industry Finance and Equipment Leasing Services

 

We plan to lease cultivation equipment and facilities to customers in the cannabis industry. We expect we will enter into sale lease-back transactions of land zoned for cultivation, green houses, grow lights, tenant improvements and other grow equipment. Since Colorado State law does not allow entities operating under a cannabis license to pledge the assets or the license of the cannabis operation for any type of general borrowing activity, we intend to provide loans to individuals and businesses in the cannabis industry on an unsecured basis.  Equipment will only be leased to tenants that possess the requisite state licenses to operate such facilities. The leases with the tenants will provide certain requirements that permit us to continually evaluate its tenants’ compliance with applicable laws and regulations.

 

Our finance strategy will include making direct term loans and providing revolving lines of credit to businesses involved in the cultivation and sale of cannabis and related products.  These loans will generally be secured to the maximum extent permitted by law.  We believe there is a significant demand for this financing.  We are pursuing other finance services including customized finance, capital formation, and banking, for participants in the cannabis industry.

 

Competitive Strengths

 

We believe we possess certain competitive strengths and advantages in the industries which we operate:

 

Range of Services:  We are able to leverage our breadth of services and resources to deliver a comprehensive, integrated solution to companies in the cannabis industry – from operational and compliance consulting to security and marketing to financing needs.

 

Strategic Alliances. We are dedicated to rapid growth through acquisitions, partnerships and agreements that will enable us to enter and expand into new markets. Our strategy in pursuing these alliances are based on the target’s ability to generate positive cash flow, effectively meet customer needs, and supply desirable products, services or technologies, among other considerations. We anticipate that strategic alliances will play a significant role as more states pass legislation permitting the cultivation and sale of hemp and cannabis.

 

Industry’s Access to Capital. In February 2014, the Treasury Department issued guidelines for financial institutions dealing with cannabis-related businesses, (see “FinCEN” under “Federal Regulations and Our Business” of this document). In March 2015, legislation was introduced in the U.S. Senate proposing to change federal law such that states could regulate medical use of cannabis without risk of federal prosecution. A key component of the proposed Compassionate Access, Research Expansion, and Respect States Act (the “CARERS Act”) is to reclassify cannabis under the Controlled Substances Act to Schedule II, thereby changing the plant from a federally-criminalized substance to one that has recognized medical uses. Many banks and traditional financial institutions refuse to provide financial services to cannabis-related business. We plan to provide finance and leasing solutions to market participants using the FinCEN guidelines as a primary guide for compliance with federal law.

 

Regulatory Compliance. The state laws regulating the cannabis industry are changing at a rapid pace. Currently, there are twenty-six U.S. states and the District of Columbia that have created a legislative body to manage the medical cannabis industry. There are also five states that have allowed recreational use. In Colorado and Washington states, cannabis is heavily regulated. It is a critical component of our business plan both to ensure that all aspects of our operations are in compliance with all laws, policies, guidance and regulations to which we are subject and to provide an opportunity to our customers and allies to use our services to ensure that they, too, are in full compliance.

 

 8 

 

Industry Breadth. We continue to create, share and leverage information and experiences with the purpose of creating awareness and identifying opportunities to increase shareholder value. Our management team has extensive knowledge of the cannabis industry and closely monitors changes in legislation. We work with partners who enhance our industry breadth.

 

Intellectual Property

 

On November 17, 2016, we filed with the United States Patent and Trademark Office (“USPTO”) a federal trademark registration for “Hemp Pops” in the category of Staple Food Products.

 

Competition

 

Currently, there are a number of other companies that provide similar products and/or services, such as direct finance, leasing of real estate, including shared workspace, warehouse sales, and consulting services to the cannabis industry. In the future we fully expect that other companies will recognize the value of ancillary businesses serving the cannabis industry and enter into the marketplace as competitors.

 

The cannabis industry in the United States is highly fragmented, rapidly expanding and evolving. The industry is characterized by new and potentially disruptive or conflicting legislation propounded on a state-by-state basis. Our competitors may be local or international enterprises and may have financial, technical, sales, marketing and other resources greater than ours. These companies may also compete with us in recruiting and retaining qualified personnel and consultants.

 

Our competitive position will depend on our ability to attract and retain qualified underwriters, investment banking partners and loan managers, consultants and advisors with industry depth, and talented managerial, operational and other personnel. Our competitive position will also depend on our ability to develop and acquire effective proprietary products and solutions, personal relationships of our executive officers and directors, and our ability to secure adequate capital resources. We compete to attract and retain customers of our services. We expect to compete in this area on the basis of price, regulatory compliance, vendor relationships, usefulness, availability, and ease of use of our services.

 

Government Regulation

 

As of January 31, 2018, there are 30 states plus the District of Columbia that have laws and/or regulation that recognize in one form or another legitimate medical uses for cannabis and consumer use of cannabis in connection with medical treatment. Many other states are considering similar legislation. Conversely, the federal government regulates drugs through the Controlled Substances Act (“CSA”), which does not recognize the difference between medical and recreational use of cannabis. Under federal law, cannabis is treated like every other controlled substance, such as cocaine and heroin. The federal government places every controlled substance in a schedule, in principle according to its relative potential for abuse and medicinal value. Under the CSA, cannabis is classified as a Schedule I drug, which means that the federal government views medical cannabis as highly addictive and having no medical value. Pursuant to the CSA, it is unlawful for any person (1) to sell or offer for sale drug paraphernalia; (2) to use the mails or any other facility of interstate commerce to transport drug paraphernalia; or (3) to import or export drug paraphernalia.

 

The extent to which the regulation of drug paraphernalia under the CSA is applicable to our business and the sale of our product is found in the definition of drug paraphernalia. Drug paraphernalia means any equipment, product, or material of any kind which is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing processing, preparing, injecting ingesting, inhaling or otherwise introducing into the human body a controlled substance, possession of which is unlawful. Our products are primarily designed for general agricultural use.

 

The United States Congress previously used the rider provision in the fiscal years 2015, 2016, and 2017 known as the Consolidated Appropriations Acts (formerly the Rohrabacher-Farr Amendment) to thwart the federal government from using congressionally appropriated funds to prevent states from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana.  The “Consolidated Appropriations Act, 2018” now known as the “Leahy Amendment,” is a $1.3 trillion-dollar spending bill, which will now allow continued protections for the implementation of state medical marijuana programs through fiscal year end, September 30, 2018.

 

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The 2018 appropriations protection, continues this provision to 46 states, the District of Columbia, Guam, and Puerto Rico, with the exclusion of Idaho, Kansas, Nebraska, and South Dakota. The 2018 spending bill also continues existing provisions shielding state industrial hemp research programs from federal interference. 

 

FinCEN

 

The Financial Crimes Enforcement Network (“FinCEN”) provided guidance on February 14, 2014 about how financial institutions can provide services to cannabis-related businesses consistent with their Bank Secrecy Act (“BSA”) obligations. For purposes of the FinCEN guidelines, a “financial institution” includes any person doing business in one or more of the following capacities:

 

Bank (except bank credit card systems);
Broker or dealer in securities;
Money services business;
Telegraph company;
Casino;
Card club; and
A person subject to supervision by any state or federal bank supervisory authority.

 

In general, the decision to open, close, or refuse any particular account or relationship should be made by each financial institution based on a number of factors specific to that institution. These factors may include its particular business objectives, an evaluation of the risks associated with offering a particular product or service, and its capacity to manage those risks effectively. Thorough customer due diligence is a critical aspect of making this assessment.

 

In assessing the risk of providing services to a cannabis-related business, a financial institution should conduct customer due diligence that includes: (i) verifying with the appropriate state authorities whether the business is duly licensed and registered; (ii) reviewing the license application (and related documentation) submitted by the business for obtaining a state license to operate its cannabis-related business; (iii) requesting from state licensing and enforcement authorities available information about the business and related parties; (iv) developing an understanding of the normal and expected activity for the business, including the types of products to be sold and the type of customers to be served (e.g., medical versus recreational customers); (v) ongoing monitoring of publicly available sources for adverse information about the business and related parties; (vi) ongoing monitoring for suspicious activity, including for any of the red flags described in this guidance; and (vii) refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk. With respect to information regarding state licensure obtained in connection with such customer due diligence, a financial institution may reasonably rely on the accuracy of information provided by state licensing authorities, where states make such information available.

 

As part of its customer due diligence, a financial institution should consider whether a cannabis-related business violates state law. This is a particularly important factor for a financial institution to consider when assessing the risk of providing financial services to a cannabis-related business. Considering this factor also enables the financial institution to provide information in BSA reports pertinent to law enforcement’s priorities. A financial institution that decides to provide financial services to a cannabis-related business would be required to file suspicious activity reports.

 

While we believe we do not qualify as a financial institution in the United States, we cannot be certain that we do not fall under the scope of the FinCEN guidelines. We plan to use the FinCEN Guidelines, as may be amended, as a basis for assessing our relationships with potential tenants, clients and customers. As such, as we engage in financing activities, we intend to adhere to the guidance of FinCEN in conducting and monitoring our financial transactions. Because this area of the law is uncertain but expected to evolve rapidly, we believe that FinCEN’s guidelines will help us best operate in a prudent, reasonable and acceptable manner. There is no assurance, however, that our activities will not violate some aspect of the CSA. If we are found to violate the federal statute or any other in connection with our activities, our company could face serious criminal and civil sanctions.

 

We intend to conduct rigorous due diligence to verify the legality of all activities that we engage in. We realize that there is a discrepancy between the laws in some states, which permit the distribution and sale of medical and recreational cannabis, from federal law that prohibits any such activities. The CSA makes it illegal under federal law to manufacture, distribute, or dispense cannabis. Many states impose and enforce similar prohibitions. Notwithstanding the federal ban, as of the date of this filing, twenty-six states and the District of Columbia have legalized certain cannabis-related activity.

 

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Moreover, since the use of cannabis is illegal under federal law, we may have difficulty acquiring or maintaining bank accounts and insurance and our stockholders may find it difficult to deposit their stock with brokerage firms.

 

Employees

 

Other than the Company’s sole officer and director, we do not have any full-time employees. The Company relies on several independent contractors and other agreements it has with other companies to provide the services needed. Each contractor has been carefully selected to address immediate needs in particular functional areas, but also with consideration of the Company’s future needs during a period of expected rapid growth and expansion. Value is placed not only on outstanding credentials in specific areas of functional expertise, but also on cross-functionality, a strong knowledge of content acquisition and distribution, along with hands-on experience in scaling operations from initial beta and development stage through successful commercial deployment.

 

Corporate Contact Information

 

Our principal executive offices are located at 777 Brickell Avenue Suite 500, Miami, Florida 33131; Telephone No.: (305) 721-2727. Our website is located at http://www.AgritekHoldings.com. The content on our website is available for informational purposes only. It should not be relied upon for investment purposes, nor is it incorporated by reference into this Form 10-K.

 

Available Information

 

The public may read and copy any materials we file with the SEC, including our annual reports, quarterly reports, current reports, proxy statements, information statements and other information, at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov .

  

ITEM 1A – RISK FACTORS

 

You should carefully consider the risks described below, as well as other information provided to you in this document, including information in the section of this document entitled “Forward-Looking Statements.” The risks and uncertainties described below are not the only ones facing the Company. If any of the following risks actually occur, the Company’s business, financial condition or results of operations could be materially adversely affected.

 

Investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. Our business, financial condition and/or results of operation may be materially adversely affected by the nature and impact of these risks. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 

Risk Related to Our Company

 

Our independent auditors have expressed substantial doubt about our ability to continue as a going concern.

 

We incurred a net loss of $9,153,310 and $2,977,889 for the years ending December 31, 2017 and 2016, respectively. Because of our continued operating losses, negative cash flows from operations and working capital deficit, in their report on our financial statements for the year ended December 31, 2017, our independent auditors included an explanatory paragraph regarding their substantial doubt about our ability to continue as a going concern. We will continue to experience net operating losses in the foreseeable future. Our ability to continue as a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities, increasing sales or obtaining loan from various financial institutions where possible. Our continued net operating losses increase the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.

 

 11 

 

Federal regulation and enforcement may adversely affect the implementation of medical marijuana laws and regulations may negatively impact our revenues and profits.

 

Currently, there are 30 states plus the District of Columbia that have laws and/or regulation that recognize in one form or another legitimate medical uses for cannabis and consumer use of cannabis in connection with medical treatment. Many other states are considering similar legislation. Conversely, under the Controlled Substances Act (the “CSA”), the policy and regulations of the Federal government and its agencies is that cannabis has no medical benefit and a range of activities including cultivation and use of cannabis for personal use is prohibited. Until Congress amends the CSA with respect to medical marijuana, there is a risk that federal authorities may enforce current federal law, and we may be deemed to be facilitating the selling or distribution of drug paraphernalia in violation of federal law. Active enforcement of the current federal regulatory position on cannabis may thus indirectly and adversely affect revenues and profits of the Company. The risk of strict enforcement of the CSA in light of congressional activity, judicial holdings and stated federal policy remains uncertain.

 

Federal authorities have not focused their resources on such tangential or secondary violations of the Act, nor have they threatened to do so, with respect to the leasing of real property or the sale of equipment that might be used by medical cannabis gardeners, or with respect to any supplies marketed to participants in the emerging medical cannabis industry. We are unaware of such a broad application of the CSA by federal authorities, and we believe that such an attempted application would be unprecedented.

 

The Company may provide services to and potentially handle monies for businesses in the legal cannabis industry.  

 

Selling or distributing medical or retail cannabis is deemed to be illegal under the Federal Controlled Substances Act even though such activities may be permissible under state law. A risk exists that our lending and services could be deemed to be facilitating the selling or distribution of cannabis in violation of the federal Controlled Substances Act, or to constitute aiding or abetting, or being an accessory to, a violation of that Act. Such a finding, claim, or accusation would likely severely limit the Company’s ability to continue with its operations and may result in our investors losing all of their investment in our Company. 

 

The legal cannabis industry faces an uncertain legal environment on state, federal, and local levels.


Although we continually monitor the most recent legal developments affecting the legal cannabis industry, the legal environment in California and elsewhere could shift in a manner not currently contemplated by the Company. For example, while we think there will always be a place for compliance-related services, broader state and federal legalization could render the compliance landscape significantly less technical, which would render our suite of compliance services less valuable and marketable. Lending money to legal cannabis participants could also be subject to legal challenge if the federal government or another jurisdiction decides to more actively enforce applicable laws. These unknown legal developments could directly and indirectly harm our business and results of operations.

 

Profit sharing, distributions, and equity ownership in California medical marijuana dispensaries and growing operations are not permissible.  


The Company does not currently maintain an ownership interest in legal cannabis dispensaries or growing operations in California or elsewhere. We believe such ownership is not permitted by applicable law. Investors should be aware that the Company will not engage in such activity until such time as it is legally permissible. If the applicable laws make it so that the Company is unable to own interests in legal cannabis dispensaries in growing operations ever, the Company may not be able to attain its financial projections, and thus, this would directly and indirectly harm our business and results of operations.

 

We depend on third party providers for a reliable Internet infrastructure and the failure of these third parties, or the Internet in general, for any reason would significantly impair our ability to conduct our business.

 

We outsource all of our data center facility management to third parties who host the actual servers and provide power and security in multiple data centers in each geographic location. These third party facilities require uninterrupted access to the Internet. If the operation of our servers is interrupted for any reason, including natural disaster, financial insolvency of a third party provider, or malicious electronic intrusion into the data center, our business would be significantly damaged. If either a third party facility failed, or our ability to access the Internet was interfered with because of the failure of Internet equipment in general or we become subject to malicious attacks of computer intruders, our business and operating results will be materially adversely affected.

 

 12 

 

The gathering, transmission, storage and sharing or use of personal information could give rise to liabilities or additional costs of operation as a result of governmental regulation, legal requirements, civil actions or differing views of personal privacy rights.

 

We transmit and plan to store a large volume of personal information in the course of providing our services. Federal and state laws and regulations govern the collection, use, retention, sharing and security of data that we receive from our customers and their users. Any failure, or perceived failure, by us to comply with U.S. federal or state privacy or consumer protection-related laws, regulations or industry self-regulatory principles could result in proceedings or actions against us by governmental entities or others, which could potentially have an adverse effect on our business, operating results and financial condition. Additionally, we may also be contractually liable to indemnify and hold harmless our customers from the costs or consequences of inadvertent or unauthorized disclosure of their customers’ personal data which we store or handle as part of providing our services.

 

The interpretation and application of privacy, data protection and data retention laws and regulations are currently unsettled particularly with regard to location-based services, use of customer data to target advertisements and communication with consumers via mobile devices. Such laws may be interpreted and applied inconsistently from country to country and inconsistently with our current data protection policies and practices. Complying with these varying international requirements could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business, operating results or financial condition.

 

As privacy and data protection have become more sensitive issues, we may also become exposed to potential liabilities as a result of differing views on the privacy of personal information. These and other privacy concerns, including security breaches, could adversely impact our business, operating results and financial condition.

 

In the U.S., we have voluntarily agreed to comply with wireless carrier technological and other requirements for access to their customers’ mobile devices, and also trade association guidelines and codes of conduct addressing the provision of location-based services, delivery of promotional content to mobile devices and tracking of users or devices for the purpose of delivering targeted advertising. We could be adversely affected by changes to these requirements, guidelines and codes, including in ways that are inconsistent with our practices or in conflict with the rules or guidelines in other jurisdictions.

 

We have identified material weaknesses in our internal control over financial reporting which could, if not remediated, result in material misstatements in our financial statements.

 

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. During the fourth quarter of fiscal year 2017, management identified material weaknesses in our internal control over financial reporting as discussed in Item 9A of this Annual Report on Form 10-K. As a result of these material weaknesses, our management concluded that our internal control over financial reporting was not effective based on criteria set forth by the Committee of Sponsoring Organization of the Treadway Commission in Internal Control-An Integrated Framework. We are planning to engage in developing a remediation plan designed to address these material weaknesses. If our remedial measures are insufficient to address the material weaknesses, or if additional material weaknesses or significant deficiencies in our internal control are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results, which could lead to substantial additional costs for accounting and legal fees and shareholder litigation.

 

We may require additional capital in the future, which may not be available or may only be available on unfavorable terms.

 

We monitor our capital adequacy on an ongoing basis. To the extent that our funds are insufficient to fund future operating requirements, we may need to raise additional funds through corporate finance transactions or curtail our growth and reduce our liabilities. Any equity, hybrid or debt financing, if available at all, may be on terms that are not favorable to us. If we cannot obtain adequate capital on favorable terms or at all, our business, financial condition and operating results could be adversely affected.

 

 13 

 

Risks Relating to Ownership of Our Common Stock

 

Although there is presently a market for our common stock, the price of our common stock may be extremely volatile and investors may not be able to sell their shares at or above their purchase price, or at all. We anticipate that the market may be potentially highly volatile and may fluctuate substantially because of:

 

  Actual or anticipated fluctuations in our future business and operating results;

  Changes in or failure to meet market expectations;

  Fluctuations in stock market price and volume

 

Our Chief Executive Officer, B. Michael Friedman, holds Series B Preferred Stock which will provide him continuing voting control over the Company and, as a result, he will exercise significant control over corporate decisions.

 

B. Michael Friedman, our President, Chief Executive Office and sole Director owns 100% of Class B Preferred Stock (the “Series B Preferred Stock”). Pursuant to the Certificate of Designation, the Series B Preferred Stock 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 Series B Preferred Stock has a right to vote on all matters presented or submitted to the Company’s stockholders for approval in pari passu with the common stockholders, and not as a separate class. The holders of Series B Preferred Stock have the right to cast votes for each share of Series B Preferred Stock held of record on all matters submitted to a vote of common stockholders, including the election of directors. There is no right to cumulative voting in the election of directors. The holders of Series B Preferred Stock vote together with all other classes and series of common stock of the Company as a single class on all actions to be taken by the common stockholders except to the extent that voting as a separate class or series is required by law.

 

As a result of the above, Mr. Friedman exercises control in determining the outcome of corporate transactions or other matters, including the election of directors, mergers, consolidations, the sale of all or substantially all of our assets, and also the power to prevent or cause a change in control. Any investors who purchase shares will be minority shareholders and as such will have no say in the direction of the Company and the election of Directors. Investors in the Company should keep in mind that even if you own shares of the Company's common stock and wish to vote them at annual or special shareholder meetings, your shares will have no effect on the outcome of corporate decisions or the election of Directors. Furthermore, investors should be aware that Mr. Friedman may choose to elect new Directors to the Board of Directors of the Company and/or take the Company in a new business direction altogether, and, as a result, current shareholders of the Company will have little to no say in such matters.

 

As a public company, we will incur substantial expenses.

 

The U.S. securities laws require, among other things, review, audit, and public reporting of our financial results, business activities, and other matters. Recent SEC regulation, including regulation enacted as a result of the Sarbanes-Oxley Act of 2002, has also substantially increased the accounting, legal, and other costs related to becoming and remaining an SEC reporting company. If we do not have current information about our Company available to market makers, they will not be able to trade our stock. The public company costs of preparing and filing annual and quarterly reports, and other information with the SEC and furnishing audited reports to stockholders, will cause our expenses to be higher than they would be if we were privately-held. These increased costs may be material and may include the hiring of additional employees and/or the retention of additional advisors and professionals. Our failure to comply with the federal securities laws could result in private or governmental legal action against us and/or our officers and directors, which could have a detrimental effect on our business and finances, the value of our stock, and the ability of stockholders to resell their stock.

 

FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our stock.

 

“FINRA” has adopted rules that relate to the application of the SEC’s penny stock rules in trading our securities and require that a broker/dealer have reasonable grounds for believing that the investment is suitable for that customer, prior to recommending the investment. Prior to recommending speculative, low priced securities to their non-institutional customers, broker/dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative, low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker/dealers to recommend that their customers buy our common stock, which may have the effect of reducing the level of trading activity and liquidity of our common stock. Further, many brokers charge higher transactional fees for penny stock transactions. As a result, fewer broker/dealers may be willing to make a market in our common stock, reducing a shareholder’s ability to resell shares of our common stock.

 

 14 

 

The Company’s common stock is currently deemed to be “penny stock”, which makes it more difficult for investors to sell their shares.

 

The Company’s common stock is currently subject to the “penny stock” rules adopted under section 15(g) of the Exchange Act. The penny stock rules apply to companies whose common stock is not listed on the NASDAQ Stock Market or other national securities exchange and trades at less than $5.00 per share or that have tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If the Company remains subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for the Company’s securities. If the Company’s securities are subject to the penny stock rules, investors will find it more difficult to dispose of the Company’s securities.

 

We have raised capital through the use of convertible debt instruments that causes substantial dilution to our stockholders.

 

Because of the size of our Company and its status as a “penny stock” as well as the current economy and difficulties in companies our size finding adequate sources of funding, we have been forced to raise capital through the issuance of convertible notes and other debt instruments. These debt instruments carry favorable conversion terms to their holders of up to 42% discounts to the market price of our common stock on conversion and in some cases provide for the immediate sale of our securities into the open market. Accordingly, this has caused dilution to our stockholders in 2017 and may for the foreseeable future. As of December 31, 2017, we had approximately $979,443 in convertible debt and potential convertible debt outstanding. This convertible debt balance as well as additional convertible debt we incur in the future will cause substantial dilution to our stockholders.

 

Because we are quoted on the OTCQB instead of an exchange or national quotation system, our investors may have a tougher time selling their stock or experience negative volatility on the market price of our common stock.

 

Our common stock is quoted on the OTCQB. The OTCQB is often highly illiquid, in part because it does not have a national quotation system by which potential investors can follow the market price of shares except through information received and generated by a limited number of broker-dealers that make markets in particular stocks. There is a greater chance of volatility for securities that are quoted on the OTCQB as compared to a national exchange or quotation system. This volatility may be caused by a variety of factors, including the lack of readily available price quotations, the absence of consistent administrative supervision of bid and ask quotations, lower trading volume, and market conditions. Investors in our common stock may experience high fluctuations in the market price and volume of the trading market for our securities. These fluctuations, when they occur, have a negative effect on the market price for our securities. Accordingly, our stockholders may not be able to realize a fair price from their shares when they determine to sell them or may have to hold them for a substantial period of time until the market for our common stock improves.

 

We do not intend to pay dividends.

 

We do not anticipate paying cash dividends on our common stock in the foreseeable future. We may not have sufficient funds to legally pay dividends. Even if funds are legally available to pay dividends, we may nevertheless decide in our sole discretion not to pay dividends. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors our board of directors may consider relevant. There is no assurance that we will pay any dividends in the future, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend.

 

Our operating history and lack of profits which could lead to wide fluctuations in our share price. You may be unable to sell your common shares at or above your purchase price, which may result in substantial losses to you. The market price for our common shares is particularly volatile given our status as a relatively unknown company with a small and thinly traded public float.

 

 15 

 

The market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. The volatility in our share price is attributable to a number of factors. First, our common shares are sporadically and thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our common shares are sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb those sales without adverse impact on its share price. Secondly, we are a speculative or “risky” investment due to our limited operating history and lack of profits to date, and uncertainty of future market acceptance for our potential products. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer. Many of these factors are beyond our control and may decrease the market price of our common shares, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common shares will be at any time, including as to whether our common shares will sustain their current market prices, or as to what effect that the sale of shares or the availability of common shares for sale at any time will have on the prevailing market price.

 

Shareholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns or practices could increase the volatility of our share price.

 

Federal regulation and enforcement may adversely affect the implementation of marijuana laws and regulations may negatively impact our revenues and profits.

 

Currently, there are thirty states plus the District of Columbia that have laws and/or regulation that recognize in one form or another legitimate medical uses for cannabis and consumer use of cannabis in connection with medical treatment. There are currently two states that have laws and/or regulation that permits consumer use of cannabis for commercial and recreational purposes. Many other states are considering legislation to similar effect. As of the date of this writing, the policy and regulations of the Federal government and its agencies is that cannabis has no medical benefit and a range of activities including cultivation and use of cannabis for personal use is prohibited on the basis of federal law and may or may not be permitted on the basis of state law. Active enforcement of the current federal regulatory position on cannabis on a regional or national basis may directly and adversely affect the willingness of customers of the Company to invest in or lease properties from the Company that may be used in connection with cannabis. Active enforcement of the current federal regulatory position on cannabis may thus indirectly and adversely affect revenues and profits of the Company.

 

We may be subject to unknown or contingent liabilities or restrictions related to properties that we acquire for which we may have limited or no recourse.

 

Assets and entities that we have acquired or may acquire in the future may be subject to unknown or contingent liabilities for which we may have limited or no recourse against the sellers. Unknown or contingent liabilities might include liabilities for or with respect to liens attached to properties, unpaid real estate tax, or utilities charges for which a subsequent owner remains liable, clean-up or remediation of environmental conditions or code violations, claims of customers, vendors or other persons dealing with the acquired entities and tax liabilities, among other things.

 

 16 

 

Our revenue and expenses are not directly correlated, and because a large percentage of our costs and expenses are fixed, we may not be able to adapt our cost structure to offset declines in our revenue.

 

Most of the expenses associated with our business, such as acquisition costs, renovation and maintenance costs, real estate taxes, personal and ad valorem taxes, insurance, utilities, employee wages and benefits and other general corporate expenses are fixed and do not necessarily decrease with a reduction in revenue from our business. Our expenses and ongoing capital expenditures will also be affected by inflationary increases and certain of our cost increases may exceed the rate of inflation in any given period. By contrast, as described above, our rental income will be affected by many factors beyond our control such as the availability of alternative rental properties and economic conditions in our target markets. As a result, we may not be able to fully offset rising costs and capital spending by higher lease rates, which could have a material adverse effect on our results of operations and cash available for distribution. In addition, state and local regulations may require us to maintain properties that we own, even if the cost of maintenance is greater than the value of the property or any potential benefit from leasing the property.

 

Our future portfolio consists of properties geographically concentrated in certain markets and any adverse developments in local economic conditions, the demand for commercial property in these markets or natural disasters may negatively affect our operating results.

 

Our future portfolio consists of properties geographically concentrated in Colorado. As such, we are susceptible to local economic conditions, other regulations, the supply of and demand for commercial rental properties and natural disasters in these areas. If there is a downturn in the economy, an oversupply of or decrease in demand for commercial rental properties in these markets or natural disasters in these geographical areas, our business could be materially adversely affected to a greater extent than if we owned a real estate portfolio that was more geographically diversified.

 

We may be subject to losses that are either uninsurable, not economically insurable or that are in excess of our insurance coverage.

 

Our properties may be subject to environmental liabilities and we will be exposed to personal liability for accidents which may occur on our properties. Our insurance may not be adequate to cover all damages or losses from these events, or it may not be economically prudent to purchase insurance for certain types of losses. As a result, we may be required to incur significant costs in the event of adverse weather conditions and natural disasters or events which result in environmental or personal liability. We may not carry or may discontinue certain types of insurance coverage on some or all of our properties in the future if the cost of premiums for any of these policies in our judgment exceeds the value of the coverage discounted for the risk of loss. If we experience losses that are uninsured or exceed policy limits, we could incur significant uninsured costs or liabilities, lose the capital invested in the properties, and lose the anticipated future cash flows from those properties. In addition, our environmental or personal liability may result in losses substantially in excess of the value of the related property.

 

Compliance with new or existing laws, regulations and covenants that are applicable to our future properties, including permit, license and zoning requirements, may adversely affect our ability to make future acquisitions or renovations, result in significant costs or delays and adversely affect our growth strategy.

 

Our future properties are subject to various covenants and local laws and regulatory requirements, including permitting and licensing requirements. Local regulations, including municipal or local ordinances, zoning restrictions and restrictive covenants imposed by community developers may restrict our use of our properties and may require us to obtain approval from local officials or community standards organizations at any time with respect to our properties, including prior to acquiring a property or when undertaking renovations of any of our existing properties. We cannot assure you that existing regulatory policies will not adversely affect us or the timing or cost of any future acquisitions or renovations, or that additional regulations will not be adopted that would increase such delays or result in additional costs. Our failure to obtain permits, licenses and zoning approvals on a timely basis could have a material adverse effect on our business, financial condition and results of operations.

 

Poor tenant selection and defaults by renters may negatively affect our financial performance and reputation.

 

 

 17

 

 

Our success will depend in large part upon our ability to attract and retain qualified tenants for our properties. This will depend, in turn, upon our ability to screen applicants, identify good tenants and avoid tenants who may default. We will inevitably make mistakes in our selection of tenants, and we may rent to tenants whose default on our leases or failure to comply with the terms of the lease negatively affect our financial performance, reputation and the quality and value of our properties. For example, tenants may default on payment of rent, make unreasonable and repeated demands for service or improvements, make unsupported or unjustified complaints to regulatory or political authorities, make use of our properties for illegal purposes, damage or make unauthorized structural changes to our properties which may not be fully covered by security deposits, refuse to leave the property when the lease is terminated, engage in violence or similar disturbances, disturb nearby residents with noise, trash, odors or eyesores, fail to comply with regulations, sublet to less desirable individuals in violation of our leases, or permit unauthorized persons to live therein. The process of evicting a defaulting renter from a commercial property can be adversarial, protracted and costly. Furthermore, some tenants facing eviction may damage or destroy the property. Damage to our properties may significantly delay re-leasing after eviction, necessitate expensive repairs or impair the rental income or value of the property, resulting in a lower than expected rate of return. In addition, we will incur turnover costs associated with re-leasing the properties such as marketing and brokerage commissions and will not collect revenue while the property sits vacant. Although we will attempt to work with tenants to prevent such damage or destruction, there can be no assurance that we will be successful in all or most cases. Such tenants will not only cause us not to achieve our financial objectives for the properties, but may subject us to liability, and may damage our reputation with our other tenants and in the communities where we do business.

 

Declining real estate valuations and impairment charges could adversely affect our earnings and financial condition.

 

Our success will depend upon our ability to acquire rental properties at attractive valuations, such that we can earn a satisfactory return on the investment primarily through rental income and secondarily through increases in the value of the properties. If we overpay for properties or if their value subsequently drops or fails to rise because of market factors, we will not achieve our financial objectives.

 

We will periodically review the value of our properties to determine whether their value, based on market factors, projected income and generally accepted accounting principles, has permanently decreased such that it is necessary or appropriate to take an impairment loss in the relevant accounting period. Such a loss would cause an immediate reduction of net income in the applicable accounting period and would be reflected in a decrease in our balance sheet assets. The reduction of net income from an impairment loss could lead to a reduction in our dividends, both in the relevant accounting period and in future periods. Even if we do not determine that it is necessary or appropriate to record an impairment loss, a reduction in the intrinsic value of a property would become manifest over time through reduced income from the property and would therefore affect our earnings and financial condition.

 

Increasing real estate taxes, fees and insurance costs may negatively impact our financial results.

 

The cost of real estate taxes and insuring our properties is a significant component of our expenses. Real estate taxes, fees and insurance premiums are subject to significant increases, which can be outside of our control. If the costs associated with real estate taxes, fees and assessments or insurance should rise significantly and we are unable to raise rents to offset such increases, our results of operations would be negatively impacted.

 

We may not be able to effectively manage our growth, which requires significant resources, and our results may be adversely affected.

 

We plan to continue our acquisition strategy, which will demand significant resources and attention and may affect our financial performance. Our future operating results depend on our ability to effectively manage this growth, which is dependent, in part, upon the ability of the Company to:

stabilize and manage a rapidly increasing number of properties and tenant relationships while maintaining a high level of customer service and building and enhancing our brand; 
identify and supervise an increasing number of suitable third parties on which we rely on to provide certain services to our properties; 
continue to improve our operational and financial controls and reporting procedures and systems; and, 
scale our technology and other infrastructure platforms to adequately service new properties. 

 

We cannot assure you that we will be able to achieve these results or that we may otherwise be able to manage our growth effectively. Any failure to do so may have an adverse effect on our business and financial results.

 

 

 18

 

 

Should one or more of the foregoing risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not applicable to a smaller reporting company. 

 

ITEM 2. DESCRIPTION OF PROPERTY

 

Owned Real Estate

 

The Company owns approximately 80 acres real property, including all buildings, fixtures and equipment located in Pueblo County, Colorado. The Company acquired the property for the purpose of making it suitable for use in the legal commercial cannabis industry.

 

Office Space

 

Our corporate offices are located at 777 Brickell Avenue Suite 500, Miami, FL 33131. We can be reached by phone at 1 (305) 721-2727 and by email at info@Agritekholdings.com

 

Leased Properties

 

On April 28, 2014, the Company executed and closed a 10 year lease agreement for 20 acres of an agricultural farming facility located in South Florida following the approval of the so-called “Charlotte’s Web” legislation, aimed at decriminalizing low grade marijuana specifically for the use of treating epilepsy and cancer patients.  The Company prepaid the first-year lease amount of $24,000. The Company is currently in default of the lease agreement, as rents have not been for the second year of the lease beginning May 2015.

 

On July 11, 2014, the Company signed a ten year lease agreement for an additional 40 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. The Company is currently in default of the lease agreement, as rents have not been paid since February 2015.

 

In January 2017, the Company signed a five (5) year lease, beginning February 1, 2107, 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 has agreed that for the month of February 2017, the rent will be $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 December 31, 2017, 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.

 

On December 1, 2016, the Company signed a one (1) year lease for a corporate apartment in Puerto Rico for $5,500 per month. This lease expired in November 30, 2017.

  

ITEM 3. LEGAL PROCEEDINGS.

 

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, the 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 has retained a Nevada attorney who is an expert in fighting attempts to convert arbitration awards into judgments in Nevada courts, to work with our arbitration counsel. The Company recorded a loss on legal matter, included in other expenses for the year ended December 31, 2017.

 

 19 

 

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.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

The Company’s common stock is traded in the over-the-counter market, and quoted on the OTCQB tier of the OTC Markets Group Inc. under the symbol “AGTK.”

 

(a) Market Information

 

The following table sets forth for the periods indicated the high and low bid quotations for our common stock. These quotations represent inter-dealer quotations, without adjustment for retail markup, markdown, or commission and may not represent actual transactions.

 

Period  High  Low
Fiscal Year 2017          
First Quarter (January 1, 2017 – March 31, 2017)  $0.0336   $0.0011 
Second Quarter (April 1, 2017 – June 30, 2017)  $0.0072   $0.002 
Third Quarter (July 1, 2017 – September 30, 2017)  $0.0069   $0.0014 
Fourth Quarter (October 1, 2017 – December 31,2017)  $0.0586   $0.0065 
           
Fiscal Year 2016          
First Quarter (January 1, 2016 – March 31, 2016)  $0.0109   $0.0011 
Second Quarter (April 1, 2016 – June 30, 2016)  $0.0072   $0.002 
Third Quarter (July 1, 2016 - September 30, 2016)  $0.0069   $0.0014 
Fourth Quarter (October 1, 2016 – December 31, 2016)  $0.0586   $0.0065 

 

(b) Holders

 

The number of record holders of our common stock as of March 31, 2018, was approximately 265. This excludes shareholders who hold their stock in street name. The Company estimates that there are over 10,000 stockholders who hold their shares of common stock in street name.

 

(c) Dividends

 

The Company did not declare any cash dividends for the years ended December 31, 2017 and 2016. Our Board of Directors does not intend to distribute any cash dividends in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the Board of Directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors as the Board of Directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend.

 

 20 

 

(d) Securities authorized for issuance under equity compensation plans

 

None

 

Recent Sales of Unregistered Equity Securities

 

During the year ended December 31, 2017, the Company issued the following shares of common stock upon the conversions of portions of the Convertible Notes:

 

Date  Principal Conversion  Interest Conversion  Total Conversion  Conversion Price  Shares Issued  Issued to
 1/10/17   $73,000   $5,664   $78,664   $0.01595    4,931,912   Cerberus
 1/17/17   $57,500   $4,562   $62,062   $0.01537    4,037,878   LG
 1/27/17   $48,129   $3,914   $52,043   $0.01276    4,078,598   Cerberus
 2/8/17   $60,000   $5,050   $65,050   $0.012934    5,029,369   LG
 2/27/17   $26,120   $2,171   $28,291   $0.013804    2,049,467   Cerberus
 3/10/17   $40,000   $3,630   $43,630   $0.01363    3,200,997   LG
 3/27/17   $34,775   $3,255   $38,030   $0.012876    2,953,523   Cerberus
 3/28/17   $65,625   $3,697   $69,322   $0.01276    5,432,725   LG
 4/25/17   $76,081   $4,752   $80,833   $0.009744    8,295,680   LG
 5/10/17   $22,000   $2,199   $24,199   $0.008    3,023,338   Cerberus
 5/10/17   $20,640   $9,360   $30,000   $0.0075    4,000,000   St Georges
 5/25/17   $29,052   $947   $30,000   $0.00564    5,319,149   St Georges
 6/6/17   $32,813   $2,999   $35,811   $.00551    6,499,359   LG
 6/8/17   $34,100   $900   $35,000   $0.00564    6,205,674   St Georges
 6/9/17   $22,000   $1,500   $23,500   $0.00551    4,264,903   Cerberus
 6/29/17   $48,849   $1,151   $50,000   $.00564    8,865,248   St Georges
 6/30/17   $30,625   $2,960   $33,585   $0.0058    5,790,541   LG
 7/17/17   $37,358   $733   $38,091   $0.00564    6,753,817   St Georges
 7/25/17   $35,000   $3,575   $38,575   $0.005568    6,927,943   LG
 7/26/17   $28,000   $1,117   $29,117   $0.005568    5,229,334   Cerberus
 8/15/17   $35,199   $409   $35,608   $0.0058    6,139,276   LG
 8/29/17   $38,000   $558   $38,558   $0.005858    6,582,115   LG
 9/19/17   $34,500   $665   $35,165   $0.008178    4,300,002   LG
 10/9/17   $30,000   $710   $30,710   $0.007076    4,340,042   LG
 10/23/17   $30,000   $802   $30,802   $0.006090    5,057,830   LG
 11/6/17   $28,376   $6,624   $35,000   $0.005640    6,205,674   St Georges
 11/6/17   $19,500   $1,218   $20,718   $0.005858    3,536,715   LG
 11/13/17   $35,000   $2,240   $37,240   $0.005858    6,357,118   Cerberus
 11/14/17   $26,624   $428   $27,052   $0.005640    4,796,452   St Georges
 11/15/17   $75.000   $4,833   $79,833   $0.005742    13,903,322   LG
 12/1/17   $32,813   $453   $33,266   $0.005742    5,793,378   LG
 12/5/17   $16,756   $1,105   $17,861   $0.005640    3,166,816   St Georges
 12/7/17   $32,813   $2,567   $35,380   $0.005916    5,980,387   LG
 12/15/17   $52,000   $889   $52,889   $0.005916    8,939,991   LG
 12/28/17   $42,000   $2,209   $44,209   $0.006728    6,570,945   Cerberus
     $1,350,247   $89,846   $1,440,093         194,559,520    

 

In addition to the above, during the year ended December 31, 2017, the Company:

 

On January 16, 2017, the Company entered into a Business Consultant Agreement (the “BCA”). Pursuant to the BCA, the Company issued 5,000,000 shares of common stock for services to be provided to the Company related to business development, product marketing, helping identify mergers and acquisition candidates, and will consult with and advise the Company on matters pertaining to business modeling and strategic alliances. The Company valued the shares at $0.0267 per share (the market price of the common stock) and recorded stock compensation expense for the year ended December 31, 2017, of $133,500.

 

 21 

 

On January 27, 2017, the Company issued 1,000,000 shares of restricted common stock to Kopelowitz Ostrow P.A. (“KO”) pursuant to a Debt Settlement and Release Agreement (the “Debt Settlement”) by and between the Company and KO. Among the terms of the Debt Settlement was the forgiveness of $24,614 of debt the Company owed KO for legal services provided.

 

On January 30, 2017, the Company issued 1,000,000 shares of common stock to Venture Equity. The Company valued the shares at $0.03 per share (the market price of the common stock) and cancelled of $13,169 of accrued and unpaid fees owed Venture Equity and recorded stock-based compensation expense for the year ended December 31, 2017, of $16,831.

 

Also, on January 30, 2017, the Company issued 10,000,000 shares of common stock to the Company’s CEO. The shares were issued for services performed as the sole Officer and director of the Company since November 2014. The Company valued the shares at $0.0301 per share (the market price of the common stock) and for the year ended December 31, 2017, recorded stock compensation expense, management, of $301,000.

 

On June 19, 2017, the Company issued 1,319,149 shares of common stock to St. George pursuant to the “true-up” terms and conditions of the St. George note.

 

On August 8, 2017, the Company issued 2,000,000 shares of common stock for compensation for services of the Company’s chief operating officer. The Company valued the shares at $0.0123 per share (the market price of the common stock) and for the year ended December 31, 2017, recorded stock compensation expense, management, of $24,600.

 

On August 8, 2017, the Company issued 5,000,000 shares of common stock for the property known as the "420 Style" resort and estate, located in Canada (see note 11). The Company valued the shares at $0.0123 per share (the market price of the common stock) and has included $61,500 in stock- based compensation expense for the year ended December 31, 2017.

 

During the year ended December 31, 2017, the company issued 52,574,335 shares of common stock to St. George pursuant to Notices of Exercise of Warrant received. The shares were issued based upon the cashless exercise provision of the warrant.

 

During the year ended December 31, 2016, the Company issued the following shares of common stock upon the conversions of portions of the 2014 Company Note and portions of the 2015 Convertible Notes:

 

Date  Principal Conversion  Interest Conversion  Total
Conversion
  Conversion
Price
  Shares
Issued
  Issued to
 12/28/16   $45,000   $3,511   $48,511   $0.015080    3,216,925   LG
 12/13/16  $9,500   $400   $9,900   $0.000754    13,129,683   Cerberus
 9/26/16   $8,613   $629   $9,242   $0.001218    7,587,824   LG
 7/29/16   $7,500   $801   $8,301   $0.000081    10,222,352   LG
 7/20/16   $9,500   $995   $10,495   $0.000098    10,644,310   LG
 7/12/16   $9,000   $927   $9,927   $0.000986    10,068,073   LG
 7/1/16   $8,000   $805   $8,805   $0.001160    7,590,362   LG
 6/22/16   $5,000   $973   $5,973   $0.001450    4,119,414   GW
 6/20/16   $10,500   $1,003   $11,503   $0.001450    7,933,377   Cerberus
 6/20/16   $5,000   $967   $5,967   $0.001450    4,114,879   GW
 6/20/16   $6,000   $589   $6,589   $0.001450    4,544,241   LG
 6/10/16   $6,075   $1,134   $7,209   $0.001798    4,009,701   GW
 6/9/16   $5,000   $479   $5,479   $0.001798    3,047,219   LG
 6/2/16   $9,000   $848   $9,848   $0.002378    4,141,387   Cerberus
 5/23/16   $5,000   $460   $5,460   $0.002436    2,241,490   LG
 3/17/16   $9,000   $696   $9,696   $0.002436    3,980,431   LG
 3/17/16   $3,000   $138   $3,138   $0.000638    4,918,624   Service
 3/8/16   $7,425   $928   $8,353   $0.00174    4,800,354   GW
 3/7/16   $6,500   $489   $6,989   $0.00174    4,016,471   LG
     $174,613   $16,772   $191,385         114,327,117    

 

 

 22

 

 

In addition to the above during the year ended December 31, 2016, the Company:

 

On November 7, 2016, the Company issued 5,000,000 shares of common stock and completed the stock purchase for the acquisition of Sterling Classic Compassion, LLC. (“Sterling”).

 

All such shares were issued in reliance on the exemption found in Section 4(a)(2) of the Securities Act of 1933, as amended. Each share recipient was provided with access to information which would be required to be included in a registration statement and such issuances did not involve a public offering.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not applicable to a smaller reporting company.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following is management’s discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying consolidated financial statements, as well as information relating to the plans of our current management. This report includes forward-looking statements. Generally, the words “believes,” “anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,” “continue,” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.

 

The independent auditors’ reports on our financial statements for the years ended December 31, 2017 and 2016 includes a “going concern” explanatory paragraph that describes substantial doubt about our ability to continue as a going concern. Management’s plans in regard to the factors prompting the explanatory paragraph are discussed below and also in Note 10 to the consolidated financial statements filed herein.

 

While our financial statements are presented on the basis that we are a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time, our auditors have raised a substantial doubt about our ability to continue as a going concern.

 

Results of Operations

 

Year ended December 31, 2017 compared to December 31, 2016

 

Revenues

 

Revenues for the years ended December 31, 2017 and 2016 were $50,000 and $3,228, respectively. Revenues for the year ended December 31, 2017, were comprised of consulting fees of $48,000 and other fees of $2,000.

 

Cost of Sales

 

For the year ended December 31, 2017 and 2016, cost of sales were $64,000 and $3,161, respectively.

 

 

 23

 

 

Operating Expenses

 

Operating expenses were $1,715,984 for the year ended December 31, 2017 compared to $607,921 for the year ended December 31, 2016. The expenses were comprised of:

 

   Year Ended December 31,
   Description  2017  2016
Administration and management fees  $504,200   $163,850 
Professional and consulting fees   730,357    161,150 
Advertising and promotional expenses   54,927    6,321 
Rent and occupancy costs   101,279    40,303 
Leased property for sub-lease including maintenance costs   41,546    114,894 
Travel and entertainment   136,751    27,506 
General and other administrative   146,924    93,897 
Total  $1,715,984   $607,921 

  

Administrative and management fees include stock compensation expense of $301,000 for the issuance of 10,000,000 shares of common stock to the Company’s CEO. The shares were issued for services performed as the sole Officer and director of the Company since November 2014. The Company valued the shares at $0.0301 per share (the market price of the common stock) and for the year ended December 31, 2017, recorded stock compensation expense, management, of $301,000.

 

Professional and consulting fees include stock-based compensation of $219,600 and $2,371 for the years ended December 31, 2017 and 2016, respectively. The 2017 expense was comprised of:

 

The Company issuing 5,000,000 shares of common stock issued in January 2017 for services to be provided to the Company related to business development, product marketing, helping identify mergers and acquisition candidates. The Company valued the shares at $0.0267 per share (the market price of the common stock) and recorded stock compensation expense for the year ended December 31, 2017, of $133,500.

 

On August 8, 2017, the Company issued 2,000,000 shares of common stock for compensation for services of the Company’s chief operating officer. The Company valued the shares at $0.0123 per share (the market price of the common stock) and for the year ended December 31, 2017, recorded stock compensation expense, management, of $24,600.

 

$61,500 for the issuance of 5,000,000 shares of common stock for the property known as the "420 Style" resort and estate, located in Canada (see note 11). The Company valued the shares at $0.0123 per share (the market price of the common stock) and has included $61,500 in stock- based compensation expense for the year ended December 31, 2017.

 

Professional and consulting fees (excluding stock compensation expense, other) increased for the year ended December 31, 2017 compared to December 31, 2016, and is comprised of the following:

 

   Year ended December 31,
   2017  2016
Legal fees  $324,057   $52,608 
Consulting fees   29,000    4,000 
Accounting and auditing fees   78,000    60,442 
Investor relation costs (including related of $30,500 and $41,400 for 2017 and 2016, respectively)   79,700    44,100 
   $510,757   $161,150 

 

Legal fees increased for the year ended December 31, 2017, for costs incurred related to the Braune and Rodriguez matters (see Note 11 to consolidated financial statements included herein). Consulting fees increased for the year ended December 31, 2017, as the Company had engaged various consultants to assist the Company in strategic planning regarding the Company’s current operations and future growth plans.

 

 

 24

 

 

Advertising and promotional expenses increased for the year ended December 31, 2017 compared to the year ended December 31, 2016, as a result of the Company distributing product samples to distributors and dispensaries in California as part of a marketing campaign regarding a product launch and introduction.

 

Rent and occupancy costs increased for the year ended December 31, 2017 compared to the year ended December 31, 2016. The increase was primarily as a result of the Company not beginning operations in Puerto Rico at the beginning of 2017.due to Hurricane Irma in Puerto Rico in the summer of 2017, the leases were terminated.

 

Leased property available for sub-lease and property maintenance costs were $41,456 and $114,894 for the years ended December 31, 2017 and 2016, respectively. The costs were comprised of leased real estate costs.

 

General and other administrative costs for the year ended December 31, 2017, increased compared to the year ended December 31, 2016. The significant expenses is comprised of the following:

        

  Description  2017  2016
Filing fees and transfer agent fees  $15,913   $14,236 
Other taxes   8,182    6,259 
Depreciation   15,516    2,625 
Telephone, internet and website expenses   39,738    10,417 
Investor relations   25,508    17,231 
Office supplies and expense   9,866    2,508 
Other general and other administrative   32,200    40,621 
Total  $146,923   $93,897 

 

Other Income (Expense), Net

 

Other expense for the year ended December 31, 2017 was $7,423,327 compared to $2,370,035 for the year ended December 31, 2016. Other expenses for the 2017 period was from the increase on the fair value of derivatives of $4,986,057, interest expense of $1,873,198, a loss on legal matter of $399,291 and losses on debt settlements of $114,781 and an impairment of investments of $50,000.

 

Other expense for the 2016 period was from the increase on the fair value of derivatives of $1,457,071, loss on investment in subsidiary of $255,000 and interest expense of $742,041 partially offset by a gain in debt extinguishment of $84,057.

 

 Interest expense increased in the current period and was comprised of:

        

   Year ended December 31,
   2017  2016
Interest on face value and other  $92,147   $54,251 
Prepayment interest   65,000    —   
Amortization of note discount   1,587,831    663,031 
Amortization of deferred financing fees   128,220    25,355 
Interest income   —      (616)
Total  $1,873,198   $742,021 

 

Liquidity and Capital Resources

 

For the year ended December 31, 2017, net cash used in operating activities was $1,228,835 compared to $445,260 for the year ended December 31, 2016. The net loss for the year ended December 31, 2017 of $9,153,310 was offset by non- cash expenses of $2,223,824 for the initial fair value of derivative liabilities, the change in fair values of derivative liabilities of $2,762,231, the amortization of discounts on convertible notes of $1,587,831, stock- based compensation of $520,600 and amortization of deferred financing costs of $128,220. Changes in operating assets and liabilities that reduced cash used in operating activities were in the aggregate $602,246.

 

 

 25

 

 

The net loss for the year ended December 31, 2016 of $2,977,889 was primarily impacted by the amortization of discounts on convertible notes of $635,780, $3,249,056 for the initial fair value of derivative liabilities and $255,000 for the loss on investment in subsidiary, offset by the change in fair values of derivative liabilities of $1,791,988 and the gain on settlements of debt of $84,057. Changes in operating assets and liabilities that reduced cash used in operating activities included increases in accounts payable and accrued expenses of $234,234 and due to related party increase of $32,935.

 

During the year ended December 31, 2017, net cash used in investing activities was $397,651 compared to $20,757 for the year ended December 31, 2016. For the period ending December 31, 2017, the Company purchased furniture and equipment of $187,651 compared to $20,757 for the year ended December 31, 2016. The Company has also expended $210,000 to invest in note receivables related to two separate five- year exclusive licensing and operation agreements.

 

Net cash provided by financing activities was $1,864,115 and $521,731 for the years ended December 31, 2017 and 2016, respectively. The 2017 activity was comprised of proceeds received related to the issuance of convertible promissory notes of $1,678,494 and $545,000 related to Stock Purchase Agreements with St. George. The Company also made payments of $322,879 of principal and accrued interest on convertible promissory notes and $36,500 on notes payable.

 

For the year ended December 31, 2017, cash and cash equivalents increased by $67,260 compared to $11,548 for the year ended December 31, 2016. Ending cash and cash equivalents at December 31, 2017 was $304,889 compared to $67,260 at December 31, 2016.

 

We do not have cash and cash equivalents on hand to meet our obligations. We presently maintain our daily operations and capital needs through the sale of our products and financings available to us from our lenders.

 

Off-Balance Sheet Arrangements

 

There are 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 investors.

 

Critical Accounting Policies

 

Accounting Policies and Estimates

 

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our management periodically evaluates the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions.

 

As such, in accordance with the use of accounting principles generally accepted in the United States of America, our actual realized results may differ from management’s initial estimates as reported. A summary of significant accounting policies are detailed in notes to the financial statements which are an integral component of this annual report on Form 10-K.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with the Securities and Exchange Commission, Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition” (“SAB No. 104”). SAB 104 clarifies application of generally accepted accounting principles related to revenue transactions. The Company also follows the guidance in EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables (“EITF Issue No. 00-21”), in arrangements with multiple deliverables.

 

The Company recognizes revenues when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery of products and services has occurred, (3) the fee is fixed or determinable and (4) collectability is reasonably assured.

 

The Company recognizes revenue during the month in which products are shipped or commissions were earned.

 

 

 26

 

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original term of three months or less to be cash equivalents.

 

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 collectibility 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.

 

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.

  

Notes receivable

 

During the year ended December 31, 2017, the Company has recorded notes receivable the following:

·$110,000 pursuant to a five (5) year operational and exclusive licensing agreement with a third party who leases a 25,000-sq. ft. approved cultivation facility located in San Juan, Puerto Rico (see Note 10).
·$100,000 pursuant to a five (5) year operational and exclusive licensing agreement with a third party who leases a 10,000-sq. ft. approved cultivation facility located in Washington State (see Note 10).

  

Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed

 

We evaluate long-lived assets and identifiable intangible assets with finite useful lives in accordance with ASC 350-30 and ASC 360 (formerly SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets), and accordingly, management reviews our long-lived assets and identifiable intangible assets with finite useful lives for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We recognize an impairment loss when the sum of the future undiscounted net cash flows expected to be realized from the asset is less than its carrying amount. If an asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Considerable judgment is necessary to estimate the fair value of the assets and accordingly, actual results could vary significantly from such estimates. Our most significant estimates and judgments relating to the long-lived asset impairments include the timing and amount of projected future cash flows.

 

Fair Value of Financial Instruments

 

Fair value measurements are determined under a three-level hierarchy for fair value measurements that prioritizes the inputs to valuation techniques used to measure fair value, distinguishing between market participant assumptions developed based on market data obtained from sources independent of the reporting entity (“observable inputs”) and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (“unobservable inputs”).

 

 

 27

 

 

Fair value is the price that would be received to sell an asset or would be paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company primarily uses prices and other relevant information generated by market transactions involving identical or comparable assets (“market approach”). The Company also considers the impact of a significant decrease in volume and level of activity for an asset or liability when compared with normal activity to identify transactions that are not orderly.

 

The highest priority is given to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Securities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

The three hierarchy levels are defined as follows:

 

Level 1 – Quoted prices in active markets that is unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

 

Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly;

 

Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

 

Credit risk adjustments are applied to reflect the Company’s own credit risk when valuing all liabilities measured at fair value. The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the Company’s own credit risk as observed in the credit default swap market.

 

The Company’s financial instruments consist primarily of cash, accounts payable and accrued expenses, and convertible debt. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments. The estimated fair value is not necessarily indicative of the amounts the Company would realize in a current market exchange or from future earnings or cash flows.

 

Earnings (Loss) Per Share

 

Earnings (loss) per share are computed in accordance with ASC 260, “Earnings per Share”. Basic earnings (loss) per share is computed by dividing net income (loss), after deducting preferred stock dividends accumulated during the period, by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities, if any, outstanding during the period. As of December 31, 2017, there were warrants and options to purchase 49,135,392 shares of common stock and the Company’s outstanding convertible debt is convertible into approximately 138,041,561 shares of common stock. These amounts are not included in the computation of dilutive loss per share because their impact is antidilutive.

 

Accounting for Stock-Based Compensation

 

The Company accounts for stock awards issued to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees. The measurement date is the earlier of (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete. Stock awards granted to non-employees are valued at their respective measurement dates based on the trading price of the Company’s common stock and recognized as expense during the period in which services are provided.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for smaller reporting companies.

 

 

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

See Index to Financial Statements and Financial Statement Schedules appearing on pages F-1 to F-12 of this annual report on Form 10-K. 

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

A review and evaluation was performed by the Company’s management, including the Company’s Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), as of the end of the period covered by this annual report on Form 10-K, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this annual report. Based on that review and evaluation, the CEO and CFO have concluded that as of December 31, 2017 disclosure controls and procedures were not effective at ensuring that the material information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported as required in the application of SEC rules and forms.

 

Management’s Report on Internal Controls over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a set of processes designed by, or under the supervision of, a company’s principal executive and principal financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:

 

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and disposition of our assets;
Provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It should be noted that any system of internal control, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Our CEO and CFO have evaluated the effectiveness of our internal control over financial reporting as described in Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this report based upon criteria established in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). As a result of this evaluation, we concluded that our internal control over financial reporting was not effective as of December 31, 2017 as described below.

 

 

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We assessed the effectiveness of the Company’s internal control over financial reporting as of evaluation date and identified the following material weaknesses:

 

 Lack of Control Procedures: Due to the Company not having formal Control procedures related to the approval of related party transactions.

 

Insufficient Resources: We have an inadequate number of personnel with requisite expertise in the key functional areas of finance and accounting.

 

Inadequate Segregation of Duties: We have an inadequate number of personnel to properly implement control procedures.

 

Lack of Audit Committee: We do not have a functioning audit committee, resulting in lack of independent oversight in the establishment and monitoring of required internal controls and procedures.

 

We are committed to improving the internal controls and will (1) consider to use third party specialists to address shortfalls in staffing and to assist us with accounting and finance responsibilities, (2) increase the frequency of independent reconciliations of significant accounts which will mitigate the lack of segregation of duties until there are sufficient personnel and (3) may consider appointing additional outside directors and audit committee members in the future.

 

We have discussed the material weakness noted above with our independent registered public accounting firm. Due to the nature of these material weaknesses, there is a more than remote likelihood that misstatements which could be material to the annual or interim financial statements could occur that would not be prevented or detected.

 

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the SEC that permit us to provide only management’s report in this annual report.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

 

 

 30

 

 

PART III

 

ITEM 10, DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Identification of directors and executive officers.

 

Set forth below is information regarding the Company’s current directors and executive officers. There are no family relationships between any of our directors or executive officers. The directors are elected annually by stockholders. The executive officers serve at the pleasure of the Board of Directors:

 

Name Age Positions Held and Tenure
B. Michael Friedman 51 Chief Executive Officer and Director

 

B. Michael Friedman, Chief Executive Officer. From 2009 to March 2016, Mr. B. Michael Friedman had been the Company’s Chief Executive Officer and member of the Company’s Board of Directors. On November 4, 2016, Mr. Friedman was named interim CEO and was appointed to the Board of directors. In February 2010 (inception date) Mr. Friedman founded 800 Commerce and had been the President from inception date until his resignation on February 29, 2016. Mr. Friedman has over 20 years of investment banking experience, particularly in the areas of mergers and acquisitions, manufacturing, marketing, advertising, and licensing. Since 2008 Mr. Friedman operates in a managerial capacity, First Level Capital LLC, a mergers and acquisitions and financial consulting firm located in Los Angeles, California.  Mr. Friedman received his Bachelor of Science (BS) in Marketing and Management in 1986 from the University of Florida, in Gainesville, Florida.

 

Involvement in Certain Legal Proceedings

 

No director, executive officer, significant employee or control person of the Company has been involved in any legal proceeding listed in Item 401(f) of Regulation S-K in the past 10 years.

 

Code of Ethics

 

We adopted a Code of Ethics for Senior Financial Management to promote honest and ethical conduct and to deter wrongdoing. This Code applies to our Chief Executive Officer and Chief Financial Officer and other employees performing similar functions. The obligations of the Code of Ethics supplement, but do not replace, any other code of conduct or ethics policy applicable to our employees generally.

 

Under the Code of Ethics, all members of the senior financial management shall:

 

Act honestly and ethically in the performance of their duties at our company,
Avoid actual or apparent conflicts of interest between personal and professional relationships,
Provide full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submits to, the SEC and in other public communications by our company,
Comply with rules and regulations of federal, state and local governments and other private and public regulatory agencies that effect the conduct of our business and our financial reporting,
Act in good faith, responsibly, with due care, competence and diligence, without misrepresenting material facts or allowing the member’s independent judgment to be subordinated
Respect the confidentiality of information in the course of work, except when authorized or legally obtained to disclosure such information,
Share knowledge and maintain skills relevant to carrying out the member’s duties within our company,
Proactively promote ethical behavior as a responsible partner among peers and colleagues in the work environment and community,
Achieve responsible use of and control over all assets and resources of our company entrusted to the member, and
Promptly bring to the attention of the Chief Executive Officer any information concerning (a) significant deficiencies in the design or operating of internal controls which could adversely affect to record, process, summarize and report financial data or (b) any fraud, whether or not material, that involves management or other employees who have a significant role in our financial reporting or internal controls.

 

 

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Corporate Governance

 

During the quarter ended December 31, 2017, there were no material changes to procedures by which security holders may recommend nominees to our board of directors.

 

We currently have no standing audit, nominating or compensation committees of our board of directors. Our entire board of directors currently performs these functions. The functions of those committees are being undertaken by our officers and directors. Because we do not have any independent directors, our officers and directors believe that the establishment of committees of the Board would not provide any benefits to our company and could be considered more form than substance.

 

Director Independence

 

None of the members of our Board of Directors qualifies as an independent director in accordance with the published listing requirements of the NASDAQ Global Market. The NASDAQ independence definition includes a series of objective tests, such as that the director is not, and has not been for at least three years, one of our employees and that neither the director, nor any of his family members has engaged in various types of business dealings with us. In addition, our Board has not made a subjective determination as to each director that no relationships exist which, in the opinion of our Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, though such subjective determination is required by the NASDAQ rules. Had our Board of Directors made these determinations, our Board would have reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and relationships as they may relate to us and our management.

 

In performing the functions of the audit committee, our board oversees our accounting and financial reporting process. In this function, our board performs several functions. Our board, among other duties, evaluates and assesses the qualifications of the Company’s independent auditors; determines whether to retain or terminate the existing independent auditors; meets with the independent auditors and financial management of the Company to review the scope of the proposed audit and audit procedures on an annual basis; reviews and approves the retention of independent auditors for any non-audit services; reviews the independence of the independent auditors; reviews with the independent auditors and with the Company’s financial accounting personnel the adequacy and effectiveness of accounting and financial controls and considers recommendations for improvement of such controls; reviews the financial statements to be included in our annual and quarterly reports filed with the Securities and Exchange Commission; and discusses with the Company’s management and the independent auditors the results of the annual audit and the results of our quarterly financial statements.

 

Our board as a whole considers executive officer compensation, and our entire board participates in the consideration of director compensation. Our board as a whole oversees our compensation policies, plans and programs, reviews and approves corporate performance goals and objectives relevant to the compensation of our executive officers, if any, and reviews the compensation and other terms of employment of our Chief Executive Officer and our other executive officers. Our board also administers our equity incentive and stock option plans, if any.

 

Each of our directors participates in the consideration of director nominees. In addition to nominees recommended by directors, our board will consider nominees recommended by shareholders if submitted in writing to our secretary. Our board believes that any candidate for director, whether recommended by shareholders or by the board, should be considered on the basis of all factors relevant to our needs and the credentials of the candidate at the time the candidate is proposed. Such factors include relevant business and industry experience and demonstrated character and judgment.

 

Compliance with Section 16(a) of the Securities Exchange Act of 1934

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based solely upon a review of such reports, and on written representations from certain reporting persons, the Company believes that, with respect to the fiscal year ended December 31, 2017, each director, executive officer and 10% stockholder made timely filings of all reports required by Section 16 of the Exchange Act.

 

 

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ITEM 11. EXECUTIVE COMPENSATION.

 

The following tables set forth all of the compensation awarded to, earned by or paid to: (i) each individual serving as our principal executive officer; and (ii) each other individual that served as an executive officer at the conclusion of the fiscal year ended December 31, 2017 and who received in excess of $100,000.

 

Summary Compensation Table

 

  Name & Principal Position  Year  Salary  Stock Awards (2)  Option Awards  All Other Compensation  Total
  B. Michael Friedman (1)   2017   $150,000   $301,000   $—     $—     $451,000 
  Chief Executive Officer and Chief Financial Officer   2016   $150,000   $—     $—     $—     $150,000 

 

(1)

 

 

 

 

(2)

 

Mr. Friedman resigned as an officer and director of the Company effective March 20, 2015 and was re-appointed and named interim CEO and as a member of the BOD on November 4, 2015. Effective January 1, 2013, the Company agreed to an annual compensation of $150,000 for its CEO, Mr. Michael Friedman (resigned March 20, 2015, re-appointed November 4, 2015).

 

On January 30, 2017, the Company issued 10,000,000 shares of common stock to the Company’s CEO. The shares were issued for services performed as the sole Officer and director of the Company since November 2014. The Company valued the shares at $0.0301 per share (the market price of the common stock) and for the year ended December 31, 2017, recorded stock compensation expense, management, of $301,000.

 

We do not presently have pension, health, annuity, insurance, profit sharing or similar benefit plans; however, we may adopt plans in the future. There are presently no personal benefits available to our directors and officers.

 

Employment Agreements; Termination of Employment and Change of Control Arrangements

 

There are no current employment agreements between the Company and our executive officers or understandings regarding future compensation. There are no compensatory plans or arrangements, including payments to be received from the Company, with respect to any person named in the summary compensation table set out above which would in any way result in payments to any such person because of his resignation, retirement, or other termination of such person’s employment with the Company or its subsidiaries, or any change in control of the Company, or a change in the person’s responsibilities following a changing in control of the Company.

 

Outstanding Equity Awards at Fiscal Year-End

 

Other than the awards included in the Summary Compensation Table above, no executive officer received any equity awards during 2017, or holds exercisable or unexercisable options, as of December 31, 2017.

 

Long-Term Incentive Plans

 

There are no arrangements or plans in which the Company would provide pension, retirement or similar benefits for directors or executive officers.

 

Compensation Committee

 

We currently do not have a compensation committee of our Board of Directors. The Board as a whole determines executive compensation.

 

Director Compensation

 

We do not pay fees to our directors for attendance at meetings of the board; however, we may adopt a policy of making such payments in the future. We will reimburse out-of-pocket expenses incurred by directors in attending board and committee meetings.

 

 

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

The following table sets forth information known to the Company with respect to the beneficial ownership (as such term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of the outstanding common stock of the Company as of March 31, 2018 by: (1) each person known by the Company to beneficially own 5% or more of the Company’s outstanding common stock; (2) each of the named executive officers as defined in Item 402(m)(2); (3) each of the Company’s directors; and (4) all of the Company’s executive officers and directors as a group. The number of shares beneficially owned is determined under rules promulgated by the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Including those shares in the tables does not, however, constitute an admission that the named stockholder is a direct or indirect beneficial owner of those shares.

 

    Common Stock    Series B Preferred Stock 
Name and Address of Beneficial Owner   Amount and Nature of Beneficial Ownership    

Percent

of Class (1)

    

Amount and Nature of Beneficial Ownership

    

 

 

 

Percent of Class (2)

 
B. Michael Friedman
777 Brickell Avenue, Suite 500
Miami, FL 33131
   38,000,778    4.9%   1,000    100%
                     
All directors and executive officers as a group
– 1 person
   38,000,778    4.9%   1,000    100%

 

(1) Based on a total of an aggregate of 779,245,512 shares of common stock outstanding.
(2) Based on 1,000 shares of Series B preferred stock outstanding.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

Management fees

 

Effective January 1, 2013, the Company agreed to an annual compensation of $150,000 for its CEO, Mr. Michael Friedman (resigned March 20, 2015, re-appointed November 4, 2015).

 

For the years ended December 31, 2017 and 2016, the Company recorded expenses to its officers the following amounts included in Administrative and Management Fees in the consolidated statements of operations, included herein:

 

   2017  2016
Mr. Friedman  $150,000   $150,000 

 

As of December 31, 2017, and 2016, the Company owed to its officers the following amounts, included in Due to related party on the Company’s consolidated balance sheet:

 

   2017  2016
Mr. Friedman  $7,715   $54,246 

 

Effective June 26, 2015, the Company issued 1,000 shares of Class B Preferred Stock (super voting rights, non-convertible securities) to Mr. Friedman, resulting in Mr. Friedman having majority control in determining the outcome of all corporate transactions subject to vote, including the election of officers.

 

On January 30, 2017, the Company issued 10,000,000 shares of common stock to the Company’s CEO. The shares were issued for services performed as the sole Officer and director of the Company since November 2014. The Company valued the shares at $0.0301 per share (the market price of the common stock) and for the year ended December 31, 2017, recorded stock compensation expense, management, of $301,000.

  

 

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Agreements with prior management

 

In December 2011 the Company issued a $50,000 convertible promissory note as part of a guaranty fee due to a Company that is affiliated with a former officer of the Company. Terms of the note include an eight percent per annum interest rate and the note matured on the one year anniversary on December 20, 2012. Additionally, the holder of the Note has the right to convert the note into shares of common stock of the Company at a conversion price equal to eighty percent (80%) of the lowest closing bid price of the common stock within five (5) days of the conversion. On March 31, 2013, the Company and the noteholder elected to convert the remaining balance of the note of $32,000 and accrued and unpaid interest of $6,060 into 369,928 shares of common stock.

 

Also in December 2011, the Company agreed to pay an additional $50,000 in common stock, which is included in accounts payable and accrued expenses on the December 31, 2016 and 2015 balance sheets.

 

Amounts Due from 800 Commerce, Inc.

 

As of December 31, 2012, the Company owned 6,000,000 shares of 800 Commerce’s (now known as Petrogress, Inc.) common stock, representing approximately 32% of 800 Commerce’s outstanding common stock. Effective September 4, 2013, Agritek distributed the 6,000,000 shares of the Company’s common stock to their shareholders of record as of September 3, 2013. Through February 29, 2016, the Company and 800 Commerce were commonly controlled due to common management and board members. 800 Commerce owes Agritek $282,947 and $236,759 as of February 29, 2016 and December 31, 2015, respectively, as a result of advances received from or payments made by Agritek on behalf of 800 Commerce. In February 2016, the Company entered into a Debt Settlement Agreement (the “Settlement Agreement”) with Petrogress, Inc. whereby the Company accepted 1,101,642 shares of common stock of Petrogress in settlement of the amount due. Based on the market value of the Petrogress common stock on the date of the Settlement Agreement, the Company recognized a loss of $266,422 for the year ended December 31, 2015. Based on the market price of the Petrogress common stock as of December 31, 2017 and 2016, the Company recorded unrealized gains on marketable securities of $2,093 and $23,244 for the years ended December 31, 2017, and 2016, respectively.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The following table shows the fees that were billed for the audit and other services provided by our auditors for the years ended December 31, 2017 and 2016.

 

   2017  2016
  Audit Fees  $47,000   $33,000 
  Audit-Related Fees   —      —   
  Tax Fees   —      —   
  All Other Fees   —      —   
  Total  $47,000   $33,000 
           

Audit Fees — This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.

 

Audit-Related Fees — This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include consultation regarding our correspondence with the SEC and other accounting consulting.

 

Tax Fees — This category consists of professional services rendered by our independent registered public accounting firm for tax compliance and tax advice.

 

All Other Fees — This category consists of fees for other miscellaneous items.

 

Our board of directors has adopted a procedure for pre-approval of all fees charged by our independent registered public accounting firm. Under the procedure, the board approves the engagement letter with respect to audit, tax and review services. Other fees are subject to pre-approval by the board. All audit and permissible non-audit services provided by the auditors with respect to 2015 and 2014 were pre-approved by the board of directors.

 

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PART IV

 

ITEM 15. EXHIBITS AND REPORTS.

 

(a)    1.    Financial Statements
     
    The consolidated financial statements and Report of Independent Registered Public Accounting Firms are included on pages F-1 through F-22.
     
  2. Financial Statement Schedules
     
    All schedules for which provisions made in the applicable accounting regulations of the Securities and Exchange Commission (the “Commission”) are either not required under the related instructions, are not applicable (and therefore have been omitted), or the required disclosures are contained in the financial statements included herein.
     
  3. Exhibits (including those incorporated by reference).

 

Exhibit

Number 

  Description of Exhibit

 

10.1 Form of Convertible Promissory Note by and between Agritek Holdings, Inc. and Vis Vires Group, Inc. dated February 23, 2015. (Incorporated herein by reference to Exhibit 10.1 as filed on Form 10-Q with the SEC on May 18, 2015).
10.2 Form of 8% Convertible Redeemable Note by and between Agritek Holdings, Inc. and LG Capital Funding, LLC dated March 27, 2015. (Incorporated herein by reference to Exhibit 10.1 as filed on Form 10-Q with the SEC on May 18, 2015).
10.3 Form of 8% Convertible Redeemable Note by and between Agritek Holdings, Inc. and GW Holding Group, LLC dated March 30, 2015. (Incorporated herein by reference to Exhibit 10.1 as filed on Form 10-Q with the SEC on May 18, 2015).

10.4+

 

Employment and Board of Directors Agreement effective March 20, 2015 by and between Agritek Holdings, Inc. and Justin Braune (Incorporated herein by reference to Exhibit 10.1 as filed on Form 8-K with the SEC on March 20, 2015).
10.5 Deed in Lieu of Foreclosure Agreement dated December 16, 2015, by and among Agritek Holdings, Inc. and Tonaquint, Inc. (Incorporated herein by reference to Exhibit 10.1 as filed on Form 8-K with the SEC on February 12, 2016).
10.6 Replacement Note dated January 5, 2016, issued to LG Capital Funding, LLC. (Incorporated herein by reference to Exhibit 10.2 as filed on Form 8-K with the SEC on February 12, 2016).
10.7 Replacement Note dated January 5, 2016, issued to LG Capital Funding, LLC. (Incorporated herein by reference to Exhibit 10.3 as filed on Form 8-K with the SEC on February 12, 2016).
10.8 Replacement Note dated January 5, 2016, issued to Cerebrus Finance Group, LTD (Incorporated herein by reference to Exhibit 10.4 as filed on Form 8-K with the SEC on February 12, 2016).
10.9 Securities Purchase Agreement dated January 19, 2016, by and between Agritek Holdings, Inc. and LG Capital Funding, LLC. (Incorporated herein by reference to Exhibit 10.5 as filed on Form 8-K with the SEC on February 12, 2016).
10.10 Convertible Redeemable Note dated January 19, 2016, by and between Agritek Holdings, Inc. and LG Capital Funding, LLC. (Incorporated herein by reference to Exhibit 10.6 as filed on Form 8-K with the SEC on February 12, 2016).
10.11 Securities Purchase Agreement dated January 19, 2016, by and between Agritek Holdings, Inc. and Cerebrus Finance Group, LTD. (Incorporated herein by reference to Exhibit 10.7 as filed on Form 8-K with the SEC on February 12, 2016).
10.12 Convertible Redeemable Note dated January 19, 2016, by and between Agritek Holdings, Inc. and Cerebrus Finance Group, LTD (Incorporated herein by reference to Exhibit 10.8 as filed on Form 8-K with the SEC on February 12, 2016).
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10.13 Securities Purchase Agreement dated March 23, 2016, by and between Agritek Holdings, Inc. and Cerebrus Finance Group, LTD. (Incorporated herein by reference to Exhibit 10.13 as filed on Form 10-Q with the SEC on May 23, 2016).
10.14 Convertible Redeemable Note dated March 23, 2016, by and between Agritek Holdings, Inc. and Cerebrus Finance Group, LTD (Incorporated herein by reference to Exhibit 10.14 as filed on Form 10-Q with the SEC on May 23, 2016).
 10.15 Securities Purchase Agreement dated December 13, 2016 by and between Agritek Holdings, Inc. and LG Capital Funding, LLC. (Incorporated herein by reference to Exhibit 10.1 as filed on Form 8-K with the SEC on December 19, 2016).
 10.16 Convertible Redeemable Note dated December 13, 2016, by and between Agritek Holdings, Inc. and LG Capital Funding, LLC. (Incorporated herein by reference to Exhibit 10.2 as filed on Form 8-K with the SEC on December 19, 2016).
 10.17 Convertible Redeemable Note Back End dated December 13, 2016, by and between Agritek Holdings, Inc. and LG Capital Funding, LLC. (Incorporated herein by reference to Exhibit 10.3 as filed on Form 8-K with the SEC on December 19, 2016).
 10.18 Collateralized Secured Promissory Note dated December 13, 2016, by and between Agritek Holdings, Inc. and LG Capital Funding, LLC. (Incorporated herein by reference to Exhibit 10.4 as filed on Form 8-K with the SEC on December 19, 2016).
 10.19 Termination Agreement dated December 13, 2016 by and between Agritek Holdings, Inc. and LG Capital Funding, LLC. (Incorporated herein by reference to Exhibit 10.5 as filed on Form 8-K with the SEC on December 19, 2016).
 10.20 Investor Note #1 dated October 31, 2016, by and between Agritek Holdings, Inc. and St. George Investments LLC. (Incorporated herein by reference to Exhibit 10.6 as filed on Form 8-K with the SEC on December 19, 2016).
 10.21 Warrant #2 dated October 31, 2016, by and between Agritek Holdings, Inc. and St. George Investments LLC. (Incorporated herein by reference to Exhibit 10.7 as filed on Form 8-K with the SEC on December 19, 2016).
 10.22 Securities Purchase Agreement dated January 24, 2017 by and between Agritek Holdings, Inc. and LG Capital Funding, LLC. (Incorporated herein by reference to Exhibit 10.1 as filed on Form 8-K with the SEC on January 31, 2017).
 10.23 Convertible Redeemable Note dated January 24, 2017, by and between Agritek Holdings, Inc. and LG Capital Funding, LLC. (Incorporated herein by reference to Exhibit 10.2 as filed on Form 8-K with the SEC on January 31, 2017).
 10.24 Convertible Redeemable Note Back End dated January 24, 2017, by and between Agritek Holdings, Inc. and LG Capital Funding, LLC. (Incorporated herein by reference to Exhibit 10.3 as filed on Form 8-K with the SEC on January 31, 2017).
 10.25 Collateralized Secured Promissory Note dated January 24, 2017, by and between Agritek Holdings, Inc. and LG Capital Funding, LLC. (Incorporated herein by reference to Exhibit 10.4 as filed on Form 8-K with the SEC on January 31, 2017).
 10.26 Securities Purchase Agreement dated January 24, 2017 by and between Agritek Holdings, Inc. and Cerberus Finance Group LTD. (Incorporated herein by reference to Exhibit 10.5 as filed on Form 8-K with the SEC on January 31, 2017).
 10.27 Convertible Redeemable Note dated January 24, 2017, by and between Agritek Holdings, Inc. and Cerberus Finance Group LTD. (Incorporated herein by reference to Exhibit 10.6 as filed on Form 8-K with the SEC on January 31, 2017).
 10.28 Convertible Redeemable Note Back End dated January 24, 2017, by and between Agritek Holdings, Inc. and Cerberus Finance Group LTD. (Incorporated herein by reference to Exhibit 10.7 as filed on Form 8-K with the SEC on January 31, 2017).
 10.29 Collateralized Secured Promissory Note dated January 24, 2017, by and between Agritek Holdings, Inc. and Cerberus Finance Group LTD. (Incorporated herein by reference to Exhibit 10.8 as filed on Form 8-K with the SEC on January 31, 2017).
 10.30 Securities Purchase Agreement dated February 1, 2017 by and between Agritek Holdings, Inc. and Power Up Lending Group, LTD.
 10.31 Convertible Promissory Note dated February 1, 2017, by and between Agritek Holdings, Inc. and Power Up Lending Group, LTD.
 37 

 

 10.32 Securities Purchase Agreement dated February 24, 2017 by and between Agritek Holdings, Inc. and LG Capital Funding, LLC.
 10.33 Convertible Redeemable Note dated February 24, 2017, by and between Agritek Holdings, Inc. and LG Capital Funding, LLC.
 10.34 Convertible Redeemable Note Back End dated February 24, 2017, by and between Agritek Holdings, Inc. and LG Capital Funding, LLC.
 10.35 Collateralized Secured Promissory Note dated February 24, 2017, by and between Agritek Holdings, Inc. and LG Capital Funding, LLC.
 10.36 Securities Purchase Agreement dated February 24, 2017 by and between Agritek Holdings, Inc. and Cerberus Finance Group LTD.
 10.37 Convertible Redeemable Note dated February 24, 2017, by and between Agritek Holdings, Inc. and Cerberus Finance Group LTD.
 10.38 Convertible Redeemable Note Back End dated February 24, 2017, by and between Agritek Holdings, Inc. and Cerberus Finance Group LTD.
 10.39 Collateralized Secured Promissory Note dated February 24, 2017, by and between Agritek Holdings, Inc. and Cerberus Finance Group LTD.
 10.40 Securities Purchase Agreement dated February 24, 2017 by and between Agritek Holdings, Inc. and LG Capital Funding, LLC.
 10.41 Convertible Redeemable Note dated February 24, 2017, by and between Agritek Holdings, Inc. and LG Capital Funding, LLC.
 10.42 Convertible Redeemable Note Back End dated February 24, 2017, by and between Agritek Holdings, Inc. and LG Capital Funding, LLC.
 10.43 Collateralized Secured Promissory Note dated February 24, 2017, by and between Agritek Holdings, Inc. and LG Capital Funding, LLC.
 10.44 Collateralized Secured Promissory Note dated February 24, 2017, by and between Agritek Holdings, Inc. and LG Capital Funding, LLC.

10.45 Securities Purchase Agreement dated March 24, 2017, by and between Agritek Holdings, Inc. and LG Capital Funding, LLC.  (Incorporated herein by reference to Exhibit 10.41 as filed on Form 10-K with the SEC on March 31, 2017).
10.46 Convertible Redeemable Note dated March 24, 2017, by and between Agritek Holdings, Inc. and LG Capital Funding, LLC.   (Incorporated herein by reference to Exhibit 10.42 as filed on Form 10-K with the SEC on March 31, 2017).
10.47 Convertible Redeemable Note Back-End dated March 24, 2017, by and between Agritek Holdings, Inc. and LG Capital Funding, LLC. (Incorporated herein by reference to Exhibit 10.43 as filed on Form 10-K with the SEC on March 31, 2017).
10.48 Collateralized Secured Promissory Note dated March 24, 2017, by and between Agritek Holdings, Inc. and LG Capital Funding, LLC. (Incorporated herein by reference to Exhibit 10.44 as filed on Form 10-K with the SEC on March 31, 2017).

10.49

 

Securities Purchase Agreement dated April 24, 2017 by and between Agritek Holdings, Inc. and Cerberus Finance Group LTD. (Incorporated herein by reference to Exhibit 10.45 as filed on Form 10-Q with the SEC on May 15, 2017).

10.50

Convertible Redeemable Note dated April 24, 2017, by and between Agritek Holdings, Inc. and Cerberus Finance Group LTD. (Incorporated herein by reference to Exhibit 10.46 as filed on Form 10-Q with the SEC on May 15, 2017).
10.51 Convertible Redeemable Note Back-End dated April 24, 2017, by and between Agritek Holdings, Inc. and Cerberus Finance Group LTD. (Incorporated herein by reference to Exhibit 10.47 as filed on Form 10-Q with the SEC on May 15, 2017).
10.52 Securities Purchase Agreement dated May 24, 2017 by and between Agritek Holdings, Inc. and LG Capital Funding, LLC (Incorporated herein by reference to Exhibit 10.48 as filed on Form 10-Q with the SEC on August 14, 2017).
10.53 Convertible Redeemable Note dated May 24, 2017, by and between Agritek Holdings, Inc. and LG Capital Funding, LLC (Incorporated herein by reference to Exhibit 10.49 as filed on Form 10-Q with the SEC on August 14, 2017).
 38 

 

 10.54 Convertible Redeemable Note Back-End dated May 24, 2017, by and between Agritek Holdings, Inc. and LG Capital Funding, LLC (Incorporated herein by reference to Exhibit 10.50 as filed on Form 10-Q with the SEC on August 14, 2017).
10.55 Replacement Note dated June 23, 2017, by and between Agritek Holdings, Inc. and LG Capital Funding, LLC. (Incorporated herein by reference to Exhibit 10.51 as filed on Form 10-Q with the SEC on August 14, 2017).
10.56 Replacement Note dated June 23, 2017, by and between Agritek Holdings, Inc. and Cerberus Finance Group, LTD (Incorporated herein by reference to Exhibit 10.52 as filed on Form 10-Q with the SEC on August 14, 2017).
10.57 Securities Purchase Agreement dated August 7, 2017 by and between Agritek Holdings, Inc. and Power Up Lending Group, LTD. (Incorporated herein by reference to Exhibit 10.53 as filed on Form 10-Q with the SEC on August 14, 2017).
10.58 Convertible Promissory Note dated August 7, 2017, by and between Agritek Holdings, Inc. and Power Up Lending Group, LTD. (Incorporated herein by reference to Exhibit 10.54 as filed on Form 10-Q with the SEC on August 14, 2017).
10.59 Securities Purchase Agreement dated December 20, 2017 by and between Agritek Holdings, Inc. and St. George Investments, LLC. (Incorporated herein by reference to Exhibit 10.1 as filed on Form 8-K with the SEC on February 6, 2018).
10.60 Convertible Promissory Note dated December 20, 2017, by and between Agritek Holdings, Inc. and St. George Investments, LLC. (Incorporated herein by reference to Exhibit 10.2 as filed on Form 8-K with the SEC on February 6, 2018).

31.1* Rule 13a-14(a)/15d-14(a) Certification of Principal Executive and Financial Officer
32.1* Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
101.INS* XBRL Instance
101.SCH* XBRL Taxonomy Extension Schema
101.CAL* XBRL Taxonomy Extension Calculation Linkbase
101.DEF* XBRL Taxonomy Extension Definition Linkbase
101.LAB* XBRL Taxonomy Extension Labels Linkbase
101.PRE* XBRL Taxonomy Extension Presentation Linkbase

 

* Filed herewith.

+ Management contract or compensatory plan or arrangement.

 

*Filed herewith

 

Signatures

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Agritek Holdings, Inc.

 

By: /s/ B. Michael Friedman
  B. Michael Friedman
  Chief Executive Officer
   
Date: April 17, 2018
   

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature   Title   Date
         
/s/ B. Michael Friedman   Chief Executive Officer, President and Director (principal executive officer and principal accounting officer)   April 17, 2018
B. Michael Friedman        
         

 

 39 

 

AGRITEK HOLDINGS, INC.

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

INDEX TO FINANCIAL STATEMENTS

 

 

Report of Independent Registered Public Accounting Firms F-2 – F-3
Balance Sheets as of December 31, 2017 and 2016 F-4
Statements of Operations for the years ended December 31, 2017 and 2016 F-5
Statement of Changes in Stockholders Deficit for the years ended December 31, 2017 and 2016 F-6
Statements of Cash Flows for the years ended December 31, 2017 and 2016 F-7
Notes to Financial Statements F-8 – F-34

 

 

 

 

 

 

 F-1 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Stockholders of Agritek Holdings, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Agritek Holdings, Inc. (the Company) as of December 31, 2017, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the year ended December 31, 2017, and the related notes and schedules (collectively referred to as the consolidated financial statements). The financial statements for the period ended December 31, 2016 were audited by other auditors who report expressed an unqualified opinion on the consolidated financial statements. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the results of its operations and its cash flows for each of the years in the year ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 14 to the consolidated financial statements, the Company suffered losses from operations which raise substantial doubt about its ability to continue as a going concern. Managements plans regarding those matters are also described in Note 14. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ M&K CPAS, PLLC

 

We have served as the Company’s auditor since 2017.

 

Houston, TX

April 17, 2018

 

 F-2 

 

 

 

To the Board of Directors and

Agritek Holdings, Inc.

 

We have audited the accompanying balance sheet of Agritek Holdings, Inc. (the “Company”) as of December 31, 2016 and related statements of operations, stockholders’ deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Agritek Holdings, Inc. as of December 31, 2016 and the results of its operations and its cash flows for year then ended in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has suffered recurring operating losses, has an accumulated stockholders’ deficit, has negative working capital, has had minimal revenues from operations, and has yet to generate an internal cash flow that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are described in Note 14. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

/s/ L&L CPAS, PA

L&L CPAS, PA

Certified Public Accountants

Cornelius, NC

The United States of America

March 31, 2017

  

 

 F-3 

 

AGRITEK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
    
   December 31,
   2017  2016
ASSETS     
Current Assets:          
Cash and cash equivalents  $304,889   $67,260 
Marketable Securities   41,862    39,769 
Inventory, net   10,000    —   
Prepaid assets and other   48,500    10,000 
Total current assets   405,251    117,029 
           
Note receivable   210,000    —   
Property and equipment, net of accumulated depreciation of $23,824 (2017) and $8,308 (2016)   286,415    26,280 
Investments in non-marketable securities   —      50,000 
Security deposit and other   13,825    825 
Total assets  $915,491   $194,134 
           
LIABILITIES AND STOCKHOLDERS' DEFICIT          
           
Current Liabilities:          
Accounts payable and accrued expenses  $1,089,333   $550,885 
Due to related party   7,715    54,246 
Customer deposits   2,400    2,400 
Deferred rent   24,916    —   
Convertible notes payable, net of discount of $494,193 (2017) and $257,034 (2016)   485,250    569,446 
Derivative liabilities   5,416,830    1,613,770 
Note payable, current portion   51,500    —   
Total current liabilities   7,077,944    2,790,747 
           
Commitments and Contingencies          
           
Stockholders' Deficit:          
Series B convertible preferred stock, $0.01 par value; 1,000,000 shares authorized, and 1,000 shares issued and outstanding   10    10 
Common stock, $.0001 par value; 1,000,000,000 shares authorized; 723,680,348 (2017) and 400,867,449 (2016) shares issued and outstanding   72,369    40,087 
Common stock to be issued   5,257      
Additional paid-in capital   19,312,650    13,764,813 
Deferred expenses   —        
Accumulated comprehensive gain   25,337    23,244 
Accumulated deficit   (25,578,077)   (16,424,767)
Total stockholders' deficit   (6,162,464)   (2,596,613)
           
Total liabilities and stockholders' deficit  $915,491   $194,134 
           
           
See notes to consolidated financial statements.

 

 F-4 

 

AGRITEK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
    
    Year Ended December 31, 
    2017    2016 
Consulting income  $48,000   $—   
Product revenue   2,000    3,228 
Total revenue   50,000    3,228 
Cost of revenue, includes $30,000 related party for 2017   64,000    3,161 
Gross profit  (loss)   (14,000)   67 
           
Operating Expenses:          
Management fees   421,000    150,000 
Administrative fees   83,200    13,850 
Professional and consulting fees   730,357    161,150 
Rent and other occupancy costs   101,279    40,303 
Leased property expense   41,546    114,894 
Other general and administrative expenses   338,601    127,724 
           
Total operating expenses   1,715,983    607,921 
           
Operating loss   (1,729,983)   (607,854)
           
Other Income (Expense):          
Gain (loss) on debt settlement   (114,781)   84,057 
Loss on legal matter   (399,291)   —   
Impairment of investments   (50,000)   (255,000)
Interest expense   (1,873,198)   (742,021)
Derivative liability expense   (4,986,057)   (1,457,071)
           
Total other expense, net   (7,423,327)   (2,370,035)
           
Net loss  $(9,153,310)  $(2,977,889)
           
Unrealized gain on marketable securities   2,093    23,244 
Net comprehensive loss  $(9,151,217)  $(2,954,645)
           
Basic and diluted loss per share  $(0.02)  $(0.01)
           
Weighted average number of common shares outstanding          
Basic and diluted   536,650,839    334,772,545 
           
           
See notes to consolidated financial statements.

 

 F-5 

 

AGRITEK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
                                                   
                        Series B Preferred    Additional    Accumulated         Total 
    Common stock    Common stock    stock    Paid-in    Comprehensive    Accumulated    Stockholders’ 
    Shares    Amount    Shares    Amount    Shares    Amount    Capital    Gain    Deficit    Deficiency 
Balances January 1, 2016   281,540,332   $28,155    —     $—      1,000   $10   $12,536,138   $—     $(13,446,878)  $(882,575)
                                                   
Common stock issued upon conversion of convertible debt and accrued interest   114,327,117    11,432    —      —      —      —      179,953    —      —      191,385 
                                                   
Issuance of warrants for services   —      —      —      —      —      —      2,371    —      —      2,371 
                                                   
Issuance of common stock for acquisition   5,000,000    500    —      —      —      —      254,500    —      —      255,000 
                                                   
Reclassification for conversions of convertible debt   —      —      —      —      —      —      791,851    —      —      791,851 
                                                   
Unrealized gain on marketable securities   —      —      —      —      —      —      —      23,244    —      23,244 
                                                   
Net loss   —      —      —      —      —      —      —      —      (2,977,889)   (2,977,889)
                                                   
Balances, December 31, 2016   400,867,449    40,087    —      —      1,000    10    13,764,813    23,244    (16,424,767)   (2,596,613)
                                                   
Common stock issued upon conversion of convertible debt and accrued interest   194,559,519    19,457    —      —      —      —      1,420,638    —      —      1,440,095 
                                                   
Common stock issued for additional interest on convertible notes   1,319,149    132    —      —      —      —      15,962    —      —      16,094 
                                                   
Common stock issued upon settlement of accounts payable   2,000,000    200    —      —      —      —      55,500    —      —      55,700 
                                                   
Issuance of common stock investment in Canadian property   5,000,000    500    —      —      —      —      61,000    —      —      61,500 
                                                   
Common stock issued for services, related party   10,000,000    1,000    —      —      —      —      300,000    —      —      301,000 
                                                   
Amortization of deferred stock compensation   —      —      —      —      —      —      —                  
                                                   
Issuance of common stock for services   7,000,000    700    —      —      —      —      157,400    —      —      158,100 
                                                   
Reclassification for conversions of convertible debt   —      —      —      —      —      —      3,007,887    —      —      3,007,887 
                                                   
Common stock to be issued pursuant to Stock Purchase Agreements   —      —      52,574,335    5,257    —      —      539,743    —      —      545,000 
                                                   
Common stock previously cancelled on Company’s records   15,000,000    1,500    —      —      —      —      (1,500)   —      —      —   
                                                   
Common stock issued upon cashless warrant exercises   87,934,231    8,793    —      —      —      —      —      —      —      8,793 
                                                   
Unrealized gain on marketable securities   —      —      —      —      —      —      —      2,093    —      2,093 
                                                   
Net loss   —      —      —      —      —      —      —      —      (9,153,310)   (9,153,310)
                                                   
Balances, December 31, 2017   723,680,348   $72,369    52,574,335   $5,257    1,000   $10   $19,312,650   $25,337   $(25,578,077)  $(6,162,454)
                                                   
                                                   
See notes to consolidated financial statements.

 

 F-6 

 

AGRITEK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
       
    Year Ended December 31, 
    2017    2016 
Cash flow from operating activities:          
Net loss  $(9,153,310)  $(2,977,889)
Adjustments to reconcile net loss to net cash used in operating activities:          
Stock based compensation   520,600    2,371 
Common stock issued for additional interest to convertible noteholder   16,091    —   
Amortization of deferred financing costs   128,220    —   
Impairment of investments   50,000    255,000 
Loss on settlement of accounts payable   17,916    —   
Depreciation   15,516    3,566 
Initial expense for fair value of derivative liabilities   2,223,824    3,249,056 
Amortization of discounts on convertible notes   1,587,831    635,780 
Change in fair values of derivative liabilities   2,762,231    (1,791,988)
Gain on debt settlement   —      (84,057)
Changes in operating assets and liabilities:          
Decrease (increase) in :          
Inventory   (10,000)   —   
Prepaid assets and other   (38,500)   (6,667)
Security deposit   (13,000)   —   
Increase (decrease) in:          
Accounts payable and accrued expenses   685,361    234,234 
Due to related party   (46,531)   32,935 
Deferred rent   24,916    —   
Tenant deposits   —      2,400 
Net cash used in operating activities   (1,228,835)   (445,260)
           
Cash flows from investing activities:          
Purchase of property, equipment and furniture   (187,651)   (20,757)
Purchase of notes receivable   (210,000)   —   
Net cash used in investing activities   (397,651)   (20,757)
           
Cash flows from financing activities:          
Proceeds from issuance of convertible debt   1,678,494    521,731 
Payments made of principal and accrued interest on convertible notes   (322,879)   —   
Payments made on note payable   (36,500)   —   
Proceeds from sale of common stock to be issued   545,000    —   
Net cash provided by financing activities   1,864,115    521,731 
           
Net increase in cash and cash equivalents   237,629    55,711 
           
Cash and cash equivalents, Beginning   67,260    11,548 
           
Cash and cash equivalents, Ending  $304,889   $67,260 
           
Supplemental disclosure of cash flow information:          
Cash paid for interest  $1,275   $—   
Cash paid for income taxes  $—     $—   
           
Schedule of non-cash financing activities:          
Discount from derivatives  $1,824,892   $865,593 
Accrued interest converted into convertible note  $6,398   $—   
Conversion of notes payable and interest into common stock  $1,440,093   $191,386 
Fair value of marketable securities issued in exchange for debt  $—     $16,525 
Change in fair value for available for sale marketable securities  $2,093   $23,244 
Issuance of note payable as part of land acquisition  $88,000   $—   
Settlement of derivatives  $3,007,887   $791,851 
Stock issued for settlement of accounts payable  $37,784   $—   
Stock issued for cashless exercise  $8,793   $—   
           
           
See notes to consolidated financial statements.

 

 F-7 

 

 

FORWARD-LOOKING STATEMENTS

 

This quarterly report on Form 10-Q contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this quarterly report on Form 10-Q. Additionally, statements concerning future matters are forward-looking statements.

 

Although forward-looking statements in this quarterly report on Form 10-Q reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the fiscal year ended December 31, 2017, and 2016, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in quarterly reports on Form 10-Q and in other reports that we file with the Securities and Exchange Commission (the “SEC”). You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this annual report on Form 10-K.

 

We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with, or furnish to, the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

 

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this quarterly report on Form 10-Q, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

 

 

 F-8 

 

 AGRITEK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

 

 

Note 1 - Organization

 

Business

 

Agritek Holdings Inc. (“the Company” or “Agritek Holdings”) and its wholly-owned subsidiaries, MediSwipe, Inc. (“MediSwipe”), Prohibition Products Inc., and Agritek Venture Holdings, Inc. (“AVHI”) is a fully integrated, active investor and operator in the legal cannabis sector. Specifically, Agritek Holdings provides strategic capital and functional expertise to accelerate the commercialization of its diversified portfolio of holdings. Currently, 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:

 

  •  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.

 

Agritek’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, Agritek 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.

 

Note 2 – Summary of Significant Accounting Policies

 

Basis of Presentation and Principles of Consolidation

 

The accompanying consolidated financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America ("US GAAP"). The consolidated financial statements of the Company include the consolidated accounts of Agritek and its’ wholly owned subsidiaries MediSwipe, AVHI, The American Hemp Trading Company, Inc., a Colorado Corporation (dba 77Acres, Inc.) and PPI. PPI, a Florida corporation, was originally formed on July 1, 2013 as The American Hemp Trading Company, Inc. (“HempFL”) and on August 27, 2014, HempFL changed its’ name to PPI. All intercompany accounts and transactions have been eliminated in consolidation. 

 

 F-9 

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original term of three months or less to be cash equivalents.

 

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 December 31, 2017 and 2016, based on the above criteria, the Company has a full allowance for doubtful accounts of $43,408.

 

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.

 

Notes receivable

 

During the year ended December 31, 2017, the Company has recorded notes receivable the following:

 

$110,000 pursuant to a five (5) year operational and exclusive licensing agreement with a third party who leases a 25,000-sq. ft. approved cultivation facility located in San Juan, Puerto Rico (see Note 10).
$100,000 pursuant to a five (5) year operational and exclusive licensing agreement with a third party who leases a 10,000-sq. ft. approved cultivation facility located in Washington State (see Note 10).

 

Deferred Financing Costs

 

The costs related to the issuance of debt are capitalized and amortized to interest expense using the straight-line method through the maturities of the related debt.

 

Derivative Financial Instruments

 

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of it financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. 

 

For option-based simple derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. 

 

Debt Issue Costs and Debt Discount

 

The Company may record debt issue costs and/or debt discounts in connection with raising funds through the issuance of debt. These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense over the life of the debt. If a conversion of the underlying debt occurs prior to maturity a proportionate share of the unamortized amounts is immediately expensed. 

 

 F-10 

 

Original Issue Discount

 

For certain convertible debt issued, the Company may provide the debt holder with an original issue discount. The original issue discount would be recorded to debt discount, reducing the initial carrying value of the note and is amortized to interest expense through the maturity of the debt. If a conversion of the underlying debt occurs prior to maturity a proportionate share of the unamortized amounts is immediately expensed. 

 

Marketable Securities and Other Comprehensive Income

 

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.

 

Investment of Non-Marketable Securities

 

In 2014, the Company purchased an investment in non-marketable securities of a less than 10% interest in two privately held companies of $25,000 each, that provide merchant processing services. During the year ended December 31, 2017, due to recent losses, management wrote off the investment of $50,000, which is included in Other expenses on the consolidated statements of operations included herein. As of December 31, 2017, and 2016, the balance of the Investment of Non-Marketable Securities and Other was $-0- and $50,000, respectively

 

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. As of December 31, 2017, the Company is on the deed of trust of the property with a remaining note balance of $51,500 due the seller. The estimated useful lives of property and equipment are as follows:

 

Furniture and equipment 5 years
Manufacturing equipment 7 years

 

The Company's property and equipment consisted of the following at December 31, 2017, and 2016:

 

   December 31,
2017
  December 31,
2016
Furniture and equipment  $180,684   $34,587 
Land   129,555    —   
Accumulated depreciation   (23,824)   (8,307)
Balance  $286,415   $26,280 

 

Depreciation expense of $15,516 and $3,566 was recorded for the years ended December 31, 2017, and 2016, respectively.

 

Long-Lived Assets

 

Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

 

 F-11 

 

Deferred rent

 

The Company calculates the total cost of the lease for the entire lease period and divides that amount by the number of months of the lease. The result is the average monthly expense and is charged to rent expense with the offset to deferred rent, irrespective of the actual amount paid. The amounts paid are charged to the deferred rent account. Rent expense of $45,417 for the year ended December 31, 2017, was recorded for the office space in Puerto Rico and the Company made payments of $20,516. As of December 31, 2017, the Company has a balance of $24,916 in deferred rent which is included in the consolidated balance sheet.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with FASB ASC 605, Revenue Recognition. ASC 605 requires that four basic criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery of products and services has occurred, (3) the fee is fixed or determinable and (4) collectability is reasonably assured. The Company recognizes revenue during the month in which products are shipped or fees are earned. Consulting revenue of $48,000 and product sales (net) of $2,000 has been recognized for the year ended December 31, 2017.

 

Fair Value of Financial Instruments

 

The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. 

 

The following are the hierarchical levels of inputs to measure fair value: 

 

  Level 1 - Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.
  Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
  Level 3 - Unobservable inputs reflecting the Company's assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

 

The carrying amounts of the Company's financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable and accrued expenses, certain notes payable and notes payable - related party, approximate their fair values because of the short maturity of these instruments. 

 

The following table represents the Company’s financial instruments that are measured at fair value on a recurring basis as of December 31, 2017, and 2016, for each fair value hierarchy level:

 

  December 31, 2017  Derivative
Liabilities
  Total
Level I  $—     $—   
Level II  $—     $—   
Level III  $5,416,830   $5,416,830 
December 31, 2016          
Level I  $—     $—   
Level II  $—     $—   
Level III  $1,613,770   $1,613,770 

 

 F-12 

 

Income Taxes

 

The Company accounts for income taxes in accordance with ASC 740-10, Income Taxes. Deferred tax assets and liabilities are recognized to reflect the estimated future tax effects, calculated at the tax rate expected to be in effect at the time of realization. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment.

 

ASC 740-10 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. Interest and penalties are classified as a component of interest and other expenses. To date, the Company has not been assessed, nor paid, any interest or penalties.

 

Uncertain tax positions are measured and recorded by establishing a threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Only tax positions meeting the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized. The Company’s tax years subsequent to 2005 remain subject to examination by federal and state tax jurisdictions.

 

Earnings (Loss) Per Share

 

Earnings (loss) per share are computed in accordance with ASC 260, "Earnings per Share". Basic earnings (loss) per share is computed by dividing net income (loss), after deducting preferred stock dividends accumulated during the period, by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities, if any, outstanding during the period. As of December 31, 2017, there were warrants and options to purchase 49,135,392 shares of common stock and the Company’s outstanding convertible debt is convertible into approximately 138,041,561 shares of common stock. These amounts are not included in the computation of dilutive loss per share because their impact is anti-dilutive.

 

Accounting for Stock-Based Compensation 

 

The Company accounts for stock awards issued to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees. The measurement date is the earlier of (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty's performance is complete. Stock awards granted to non-employees are valued at their respective measurement dates based on the trading price of the Company’s common stock and recognized as expense during the period in which services are provided. For the year ended December 31, 2017, and 2016 the Company recorded stock- based compensation of $520,600 and $2,371, respectively (See Notes 10 and 11).

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates.

 

Advertising

 

The Company records advertising costs as incurred. For the years ending December 31, 2017, and 2016, advertising expenses was $54,927 and $8,321, respectively.

 

 F-13 

 

Note 3 – Recent Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)”. Under this guidance, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. This guidance offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard will have on our consolidated financial statements.

 

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”. The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. The Company elected to early adopt the new guidance in the second quarter of fiscal year 2016 which requires us to reflect any adjustments as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption. The primary impact of adoption was the recognition of additional stock compensation expense and paid-in capital for all periods in fiscal year 2016. Additional amendments to the recognition of excess tax benefits, accounting for income taxes and minimum statutory withholding tax requirements had no impact to retained earnings as of January 1, 2016, where the cumulative effect of these changes is required to be recorded. We have elected to account for forfeitures as they occur to determine the amount of compensation cost to be recognized in each period.

 

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230).” ASU No. 2016-18 requires that restricted cash be included with cash and cash equivalents when reconciling the change in cash flow. This guidance is reflected in these financial statements.

 

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which removes the second step of the two-step goodwill impairment test. Under ASU 2017-04, an entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. ASU 2017-04 does not amend the optional qualitative assessment of goodwill impairment. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019; early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company has not elected early adoption of this standard and is currently in the process of evaluating the impact of adopting ASU 2017-04 and cannot currently estimate the financial statement impact of adoption.

 

In May 2017, the FASB issued ASU No. 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.” The amendments in this update provide guidance about which changes to the terms or conditions of a share-based award require an entity to apply modification accounting in Topic 718. The guidance will be effective for the Company for its fiscal year 2018, with early adoption permitted. The Company does not expect this ASU to materially impact the Company’s consolidated financial statements.  

 

Accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

  

 F-14 

 

Note 4 – Marketable Securities

 

The Company owns marketable securities (common stock) as outlined below:

 

   2017  2016
Balance January 1  $39,769   $—   
Fair value of stock received   —      16,525 
Unrealized gain marked to fair value   2,093    23,244 
Balance December 31  $41,862   $39,769 

 

800 Commerce, Inc. (now known as Petrogress, Inc), was a commonly controlled entity until February 29, 2016, owed Agritek $282,947 as of February 29, 2016, as a result of advances received from or payments made by Agritek on behalf of 800 Commerce. These advances were non-interest bearing and were due on demand. Effective February 29, 2016, the Company received 1,102,462 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 5 - Prepaid Expenses

 

Prepaid expenses consisted of the following at December 31, 2017 and December 31, 2016:

 

   December 31, 2017  December 31, 2016
       
Vendor deposits  $46,000   $6,000 
Consulting fees   —      4,000 
Investor relations   2,500    —   
Total prepaid expenses  $48,500   $10,000 

 

Note 6– Concentration of Credit Risk

 

Cash

 

Financial   instruments   that   potentially   subject   the   Company to concentrations of credit risk consist principally of cash. The Company maintains cash balances at one financial institution, which is insured by the Federal Deposit Insurance Corporation (“FDIC”). The FDIC insured institution insures up to $250,000 on account balances.

 

Note 7 – Note Payable

 

Note Payable Land

 

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. As of December 31, 2017, the Company is on the deed of trust of the property with a remaining note balance of $51,500 due the seller.

 

 F-15 

 

Note 8 – Convertible Debt

 

2014 Convertible Note

 

In January 2014, the Company entered into a Secured Promissory Note for $1,660,000 (the “2014 Company Note”) to Tonaquint, Inc. (“Tonaquint”) which includes a purchase price of $1,500,000 and transaction costs of $160,000. On January 31, 2014, the Company received $300,000 of the purchase price. Tonaquint also issued to the Company 6 secured promissory notes, each in the amount of $200,000 (the 2014 “Investor Notes”). All or any portion of the outstanding balance of the 2014 Investor Notes may be prepaid, without penalty, along with accrued but unpaid interest at any time prior to maturity. The Company has no obligation to pay Tonaquint any amounts on the unfunded portion of the 2014 Company Note. The 2014 Company Note bears interest at 8% per annum (increases to 22% per annum upon an event of default) and is convertible into shares of the Company’s common stock at Tonaquint’s option at a price of $0.55 per share, exercisable in seven tranches, consisting of a first tranche of $340,000 of principal and any interest, fees costs or charges, and six additional tranches of $220,000 each, plus any interest, costs, fees or charges.

 

Beginning on the date that is six (6) months after the later of (i) the Issuance Date, and (ii) the date the Initial Cash Purchase Price is paid to the Company (the “Initial Installment Date”), and on each applicable Installment Date thereafter, the Company is to pay the Holder, the applicable Installment Amount due on such date. Ten Installment Amounts of $166,000 plus the sum of any accrued and unpaid interest, fees, costs or charges may be made (a) in cash (a “Company Redemption”), (b) by converting such Installment Amount into shares of Common Stock (a “Company Conversion”), or (c) by any combination of a Company Conversion and a Company Redemption so long as the entire amount of such Installment Amount due shall be converted and/or redeemed by the Company on the applicable Installment Date. The 2014 Company Note matured fifteen months after the Issuance Date.

 

As of December 31, 2015, $311,815 of principal and accrued interest of $1,041 is outstanding on the 2014 Company Note.

 

On January 19, 2016, the Company accepted and agreed to a Debt Purchase Agreement (the “DPA”), whereby LG Capital Funding, LLC (“LG”) acquired $157,500 of the Tonaquint 2014 Convertible Note in exchange for $75,000. The Company issued an 8% Replacement Note to LG for $157,500 (the “First Replacement Note”). The First Replacement Note was due January 19, 2017 and was convertible into shares of the Company’s common stock at any time at the discretion of LG at a variable conversion price (“VCP”). The VCP is calculated as the lowest trading price during the eighteen (18) trading days immediately prior to the conversion date multiplied by fifty eight percent (58%), representing a forty two percent (42%) discount. On January 19, 2016, the Company recorded a debt discount on the note of $157,500 and for the year ended December 31, 2016 recorded amortization expense of $151,813. The principal and interest balance of the First Replacement Note as of December 31, 2016, was $157,500 and $12,145, respectively. During the year ended December 31, 2017, the Company issued 12,268,244 shares of common stock upon the conversion of $157,500 of principal and $13,242 accrued and unpaid interest on the First Replacement Note. For the year ended December 31, 2017, the Company recorded amortization expense of $5,687 on the remaining amount of the debt discount. The shares were issued at approximately $0.014 per share. As of December 31, 2017, principal and interest were paid in full with stock, mentioned above, and the conversions occurred within the terms of the note agreement, as such, no gain or loss was recognized upon the conversion.

 

On January 19, 2016, the Company accepted and agreed to a DPA, whereby Cerberus Finance Group, LTD (“Cerberus”) acquired $154,315 of principal and $2,434 of accrued and unpaid interest of the Tonaquint 2014 Convertible Note in exchange for $75,000. The Company issued an 8% Replacement Note to Cerberus for $156,749 (the “Second Replacement Note”). The Second Replacement Note was due January 19, 2017 and was convertible into shares of the Company’s common stock at any time at the discretion of LG at a VCP. The VCP is calculated as the lowest trading price during the eighteen (18) trading days immediately prior to the conversion date multiplied by fifty eight percent (58%), representing a forty two percent (42%) discount. On January 19, 2016, the Company recorded a debt discount on the note of $156,749 and for the year ended December 31, 2016 recorded amortization expense of $151,432. During the year ended December 31, 2016, the Company issued 13,129,683 shares of common stock upon the conversion of $9,500 of principal and $400 accrued and unpaid interest on the Second Replacement Note. The shares were issued at approximately $0.000754 per share. The principal and interest balance of the Second Replacement Note as of December 31, 2016, was $147,249 and $11,617, respectively. During the year ended December 31, 2017, the Company issued 11,059,977 shares of common stock upon the conversion of $147,249 of principal and $11,749 accrued and unpaid interest on the Second Replacement Note. For the year ended December 31, 2017, the Company recorded amortization expense of $5,317 on the remaining amount of the debt discount. The shares were issued at approximately $0.0144 per share. As of December 31, 2017, principal and interest were paid in full with stock, mentioned above, and the conversions occurred within the terms of the note agreement, as such, no gain or loss was recognized upon the conversion.

 

 F-16 

 

2016 Convertible Notes

 

On January 19, 2016, the Company completed the closing of a private placement financing transaction with LG, pursuant to a Securities Purchase Agreement (the “LG Purchase Agreement”). Pursuant to the LG Purchase Agreement, LG purchased an 8% Convertible Debenture (the “LG Debenture”) in the aggregate principal amount of $76,080, and delivered on January 31, 2016, gross proceeds of $62,500 excluding transaction costs, fees, and expenses. The Company recorded a debt discount of $76,080 and during the year ended December 31, 2016, recorded amortization expense of $72,911. The principal and interest balance of the note as of December 31, 2016 was $76,080 and $5,833, respectively. During the year ended December 31, 2017, the Company issued 28,295,680 shares of common stock upon the conversion of $76,080 of principal and $4,752 accrued and unpaid interest on the note. The shares were issued at approximately $0.0097 per share. During the year ended December 31, 2017, the Company recorded amortization expense of $3,170 for the remaining portion of the debt discount. As of December 31, 2017, principal and interest were paid in full with stock, mentioned above, and the conversions occurred within the terms of the note agreement, as such, no gain or loss was recognized upon the conversion.

 

On January 19, 2016, the Company also issued a back end note to LG, under the same terms and conditions, in the amount of $65,625. The back-end note was funded July 14, 2016, upon the receipt of $62,500, excluding transaction costs, fees and expenses. The Company recorded a debt discount of $65,625 and during the year ended December 31, 2016, recorded amortization expense of $47,396. The principal and interest balance of the note as of December 31, 2016 was $65,625 and $2,465, respectively. During the year ended December 31, 2017, the Company issued 5,432,726 shares of common stock upon the conversion of $65,625 of principal and $3,698 accrued and unpaid interest on the note. The shares were issued at approximately $0.01276 per share. During the year ended December 31, 2017, the Company recorded amortization expense of $34,818 for the remaining portion of the debt discount. As of December 31, 2017, principal and interest were paid in full with stock, mentioned above, and the conversions occurred within the terms of the note agreement, as such, no gain or loss was recognized upon the conversion.

 

On January 19, 2016, the Company completed the closin