Company Quick10K Filing
AgriTek Holdings
Price0.26 EPS-0
Shares20 P/E-1
MCap5 P/FCF-5
Net Debt2 EBIT-7
TEV7 TEV/EBIT-1
TTM 2019-09-30, in MM, except price, ratios
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AGTK 10Q Quarterly Report

Note 1 - Organization
Note 2 - Summary of Significant Account Policies
Note 3 - Recent Accounting Pronouncements
Note 4 - Impairment of Goodwill
Note 5 - Sales Concentration and Concentration of Credit Risk
Note 6 - Convertible Debt and Note Payable
Note 7 - Related Party Transactions
Note 8 - Common and Preferred Stock
Note 9 - Income Taxes
Note 10 - Commitments and Contingencies
Note 11 - Going Concern
Note 12 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Evaluation of Disclosure Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 5. Other Information
Item 6. Exhibits
EX-10.1 agtk0514form10qexh10_1.htm
EX-10.2 agtk0514form10qexh10_2.htm
EX-10.3 agtk0514form10qexh10_3.htm
EX-31.1 agtk0514form10qexh31_1.htm
EX-31.2 agtk0514form10qexh31_2.htm
EX-32.1 agtk0514form10qexh32_1.htm

AgriTek Holdings Earnings 2015-03-31

Balance SheetIncome StatementCash Flow
2.0-0.4-2.8-5.2-7.6-10.02012201420172020
Assets, Equity
1.9-0.5-2.9-5.2-7.6-10.02012201420172020
Rev, G Profit, Net Income
0.80.50.2-0.0-0.3-0.62012201420172020
Ops, Inv, Fin

10-Q 1 agtk0514form10q.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

For the quarterly period ended March 31, 2015.

 

OR

 

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

For the transition period from __________ to __________

 

Commission File Number: 001-15673

 

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

 

     
Delaware   20-8484256
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
319 Clematis Street, Suite 1008    
West Palm Beach, FL   33401
(Address of principal executive offices)   (Zip Code)

 

 
561-249-6511
(Registrant’s telephone number, including area code)
 

 

Indicate by check mark whether the registrant (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 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.

Yes ☑ No ☐

 

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). Yes ☑ No ☐

 

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. (Check one)

 

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 a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

 

The number of shares outstanding of registrant’s $0.0001 par value Common Stock, as of May 15, 2015, was 134,160,211 shares.

 
 

TABLE OF CONTENTS

 

  Page
Part I.  Financial Information    
     
Item 1.  Financial Statements    
     
Condensed Consolidated Balance Sheets at March 31, 2015 (Unaudited) and December 31, 2014  1 
     
Condensed Consolidated Statements of Operations for the three months ended March 31, 2015 and 2014 (Unaudited)  2 
     
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014 (Unaudited)  3 
     
Notes to Condensed Consolidated Financial Statements (Unaudited)  4 
     
Item 2.  Management’s Discussion and Analysis  15 
     
Item 3.  Quantitative and Qualitative Disclosures about Market Risks  21 
     
Item 4.  Controls and Procedures  21 
     
Part II.  Other Information    
     
Item 1. Legal Proceedings  22 
     
Item 1A. Risk Factors  22 
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  22 
     
Item 3. Defaults Upon Senior Securities  22 
     
Item 4. Mine Safety Disclosures  22 
     
Item 5. Other Information  22 
     
Item 6.  Exhibits  23 
     
Signatures  24 

 
 

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, 2014, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this quarterly report 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 quarterly report on Form 10-Q.

 

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.

 
 

AGRITEK HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
           
   March 31,   December 31, 
   2015   2014 
   (Unaudited)      
ASSETS          
Current Assets:          
Cash and cash equivalents  $140,853   $118,429 
Accounts receivable, net   662    173 
Inventory, net   5,110    42,061 
Notes receivable   317,609    400,000 
Interest receivable   18,991    28,954 
Deferred financing costs   9,708    1,518 
Due from related party   267,369    236,759 
Prepaid assets and other   18,333    44,586 
Total current assets   778,635    872,480 
           
Other   15,525    15,525 
Goodwill   —      192,849 
Property and equipment, net of accumulated depreciation of $2,423 (2015) and $1,976 (2014)   365,675    366,122 
Investments in non-marketable securities   50,000    50,000 
           
Total assets  $1,209,835   $1,496,976 
           
LIABILITIES AND STOCKHOLDERS' DEFICIT          
           
Current Liabilities:          
Accounts payable and accrued expenses  $384,393   $242,857 
Deferred compensation   101,949    81,661 
Note payable, current portion   25,300    34,300 
Tenant deposits   —      90,000 
Convertible debt, net of discounts of $129,355 (2015)   55,395    —   
Convertible note payable, net of discounts of $6,011 (2015) and $166,222 (2014)   948,608    1,233,903 
Derivative liabilities   136,357    —   
Total current liabilities   1,652,002    1,682,721 
           
Note payable, long term   51,450    51,450 
           
Total liabilities   1,703,452    1,734,171 
           
Commitments and Contingencies          
           
Stockholders' Deficit:          
Series B convertible preferred stock, $0.0001 par value; 1,000,000 shares authorized, and 1,000,000 shares issued and outstanding   —      —   
Common stock, $.0001 par value; 250,000,000 shares authorized; 123,152,050 (2015) shares and 93,500,420 (2014) shares issued and outstanding   12,316    9,351 
Additional paid-in capital   11,868,822    11,084,504 
Deferred stock compensation   (283,516)   —   
Accumulated deficit   (12,091,239)   (11,331,050)
Total stockholders' deficit   (493,617)   (237,195)
           
Total liabilities and stockholders' deficit  $1,209,835   $1,496,976 
           
See notes to unaudited condensed consolidated financial statements.
1
 

AGRITEK HOLDINGS, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
           
   Three Months Ended March 31, 
   2015   2014 
Product revenue  $7,221   $19,520 
Cost of revenue   3,281    21,159 
Gross profit (loss)   3,940    (1,639)
           
Operating Expenses:          
Administrative and management fees (including $16,484 (2015) stock based compensation)   97,693    71,431 
Professional and consulting fees (including $25,000 (2014) stock based compensation)   20,588    47,950 
Impairment of Goodwill   192,849    —   
Reserve for Inventory Loss   32,529    —   
Commissions and license fees   —      8,072 
Rent and other occupancy costs   15,129    1,929 
Leased property expense   54,911    —   
Advertising and promotion   7,543    1,000 
Travel and entertainment   15,046    —   
Other general and administrative expenses   19,984    33,212 
           
Total operating expenses   456,271    163,594 
           
Operating loss   (452,331)   (165,233)
           
Other Income (Expense):          
Interest income   7,646    10,740 
Interest expense   (314,893)   (111,455)
Derivative liability (expense) income   (611)   30,347 
           
Total other expense, net   (307,858)   (70,368)
           
Net loss  $(760,189)  $(235,601)
           
Basic and diluted loss per share  $(0.01)  $(0.00)
           
Weighted average number of common shares outstanding          
Basic and diluted   100,791,499    56,814,256 
           
See notes to unaudited condensed consolidated financial statements.

2
 

AGRITEK HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
           
   Three Months Ended March 31, 
   2015   2014 
Cash flow from operating activities:          
Net loss  $(760,189)  $(235,601)
Adjustments to reconcile net loss to net cash used in operating activities:          
Stock issued for consulting services   —      25,000 
Amortization of deferred stock compensation   16,484    —   
Amortization of deferred financing costs   1,560    14,340 
Impairment of Goodwill   192,849    —   
Reserve for Inventory Loss   32,529    —   
Depreciation   447    203 
Non cash interest expense for excess value of common stock issued for convertible notes payable   149,782    —   
Amortization of discounts on convertible notes   23,135    77,833 
Change in fair values of derivative liabilities   611    (30,347)
Changes in operating assets and liabilities:          
Decrease (increase) in :          
Accounts receivable   (489)   (2,536)
Inventory   4,422    13,810 
Prepaid assets and other   36,216    (11,200)
Increase (decrease) in :          
Accounts payable and accrued expenses   176,999    (50,706)
Tenant deposits   (90,000)   —   
Deferred compensation   20,288    76,800 
Net cash used in operating activities   (195,356)   (122,405)
           
Cash flows from investing activities:          
Land acquisition costs   —      (40,571)
Advances to related party   (30,610)   (15,708)
Net cash used in investing activities   (30,610)   (56,279)
           
Cash flows from financing activities:          
Payments received on notes receivable issued for convertible debt   82,390    200,000 
Proceeds from issuance of convertible debt   175,000    300,000 
Payments made on note payable   (9,000)   —   
Payment of deferred financing costs   —      (8,000)
Net cash provided by financing activities   248,390    492,000 
           
Net increase in cash and cash equivalents   22,424    313,316 
           
Cash and cash equivalents, Beginning   118,429    108,766 
           
Cash and cash equivalents, Ending  $140,853   $422,082 
           
Supplemental disclosure of cash flow information:          
Cash paid for interest  $—     $—   
Cash paid for income taxes  $—     $—   
           
Schedule of non-cash financing activities:          
Conversion of notes payable and interest into common stock  $337,500   $711,491 
Conversion of deferred compensation into common stock  $—     $60,000 
Issuance of note payable for land acquisition  $—     $85,750 
           
See notes to unaudited condensed consolidated financial statements.
3
 

 

AGRITEK HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(Unaudited)

 

Note 1 - Organization

 

Business

 

Agritek Holdings, Inc. (the “Company” or “Agritek”), formerly known as Mediswipe, Inc., and its wholly owned subsidiary, Agritek Venture Holdings, Inc. (“AVHI”), acquires and leases real estate to licensed marijuana operators, including providing complete turnkey growing space and related facilities to licensed marijuana growers and dispensary owners. Additionally, the Company offers a variety of services and product lines to the medicinal marijuana sector including the distribution of hemp based nutritional products, a line of innovative solutions for electronically processing merchant transactions and recently, the Company began importing and distributing vaporizers and e-cigarettes under the Company's Mont Blunt brand.

The Company does not grow, harvest, distribute or sell marijuana or any substances that violate the laws of the United States of America.

On March 18, 2014, the Company completed the purchase of 80 acres zoned for agricultural use in Pueblo County, Colorado. The Company plans to lease individual parcels of the 80 acre parcel to fully-licensed and compliant growers and dispensaries within the regulated medicinal and recreational market of Colorado. The Company plans include receiving rents and management fees for providing infrastructure, water, electricity, equipment leasing and security services. As of March 31, 2015, the Company has not realized any revenue from the property.

 

On April 28, 2014, the Company executed and closed a 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.  Pursuant to the lease agreement, through November 1, 2014, the Company had an option to purchase the land for $1,100,000, which it did not exercise, and maintains a first right of refusal to purchase the property for three years. As of March 31, 2015, the Company has not realized any revenue from the property.

 

On July 11, 2014, the Company signed a ten year lease agreement for 40 acres in Pueblo, Colorado, now bringing total land holdings in the country's first recreational cannabis state to over 120 acres zoned for its planned agricultural and cultivation facilities located in Pueblo County, 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 water rights ensure the Company’s non-interruption of operations on behalf of new tenants qualified as fully registered and licensed grow and manufacturing operations. As of March 31, 2015, the Company has not realized any revenue from the property. The Company is currently in default of the lease agreement, as it has not paid March, April and May rent as of May 15, 2015.

 

On July 26, 2014, the Company executed a Real Property Purchase Agreement to acquire approximately 3.2 acres for $224,000, in the Apex Industrial Park Complex, otherwise known as Nevada “Green Zone”. The Company had also entered into a 99 year lease agreement with My Life Organics, Inc. (“My Life”). My Life has been issued a provisional license for cultivation of marijuana to be grown on the Company’s property. The closing of the property occurred in November 2014 and the Company also advanced $50,000 to MYLO Construction, LLC (“MYLO”), a newly formed Company to manage the construction of the proposed building. The Company expensed the $50,000 advanced to MYLO during the year ended December 31, 2014. On January 7, 2015, My Life notified the Company that it was terminating the lease with the Company, claiming the Company has defaulted on certain provisions of the lease.

 

4
 

On February 10, 2015, the Company executed a Revenue Participation Agreement with Genie Gateway, for the resale and use of a customized virtual wallet and ecommerce platform to provide cashless merchant and payment services to the healthcare, wellness and unbanked merchants nationally. The Company has not realized any revenues from the Agreement.

 

On March 23, 2015, the Company signed an operational and licensing agreement with Green Leaf Farms Holdings Inc. (“Green Leaf”) an 80% owned subsidiary of Player's Network (PNTV) a fully reporting diversified company with holdings in two primary areas, Media and Medical Marijuana. The five (5) year agreement provides for the Company to be the exclusive consultant regarding the build out on behalf of Green Leaf of a 22,000 sq. ft. facility. Green Leaf presently holds two provisional or "MME" licenses in North Las Vegas for both medicinal cannabis cultivation and production. Pursuant to the representations and terms of the agreement the Company will provide consulting services and specialists related to grow and production, operational build out, equipment lease financing, and an infrastructure funding commitment of up to one million dollars ($1,000,000).  Under the agreement, both Companies expect to complete an approximate 12,000 sq. foot cultivation operation as well as a commercial extraction facility on behalf of Green Leaf. The Company will provide direct to manufacturer relationships with lighting, extraction equipment, chillers and hydroponic equipment, edibles production as well as cultivation specialists. In addition to monthly consulting fees once the facility is operational, the Company will receive licensing fees as the provider of vaporizers, cartridges and infused edibles.

 

Note 2 – Summary of Significant Account Policies

 

Basis of Presentation and Principles of Consolidation

 

The accompanying condensed consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present the financial position, results of operations and cash flows for the stated periods have been made. Except as described below, these adjustments consist only of normal and recurring adjustments. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated unaudited financial statements should be read in conjunction with a reading of the Company’s consolidated financial statements and notes thereto. Interim results of operations for the three months ended March 31, 2015 are not necessarily indicative of future results for the full year. Certain amounts from the 2014 period have been reclassified to conform to the presentation used in the current period.

 

The condensed consolidated unaudited financial statements of the Company include the consolidated accounts of Agritek and its’ wholly owned subsidiaries AVHI and PPI. PPI, a Florida corporation, was originally formed on July 1, 2013 as The American Hemp Trading Company, Inc. (“AHTC”) and on August 27, 2014, AHTC changed its’ name to PPI. All intercompany accounts and transactions have been eliminated in consolidation. 

 

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 March 31, 2015, based on the above criteria, the Company has an allowance for doubtful accounts of $43,408.

 

5
 

Inventory

 

Inventory consists of finished goods and 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.

 

Deferred Financing Costs

 

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

 

Investment of Non-Marketable Securities

 

The Company’s investment in non-marketable securities consist of cash investments in a less than 10% interest in privately held companies that provide merchant processing services.

 

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. The estimated useful lives of property and equipment are as follows:

 

Furniture and equipment 5 years

 

The Company's property and equipment consisted of the following at March 31, 2015 and December 31, 2014:

 

   2015  2014
Land  $354,269   $354,269 
Furniture and equipment   13,829    13,829 
Accumulated depreciation   (2,423)   (1,976)
Balance  $365,675   $366,122 

 

Depreciation expense of $447 and $203 was recorded for the three months ended March 31, 2015 and 2014, 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.

 

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 commissions are earned. No revenue has been recognized from leasing arrangements to date.

 

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”).

 

6
 

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 receivable, notes receivable, accounts payable and accrued expenses, note payable 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.

 

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.

 

7
 

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 March 31, 2015 there were warrants to purchase 300,000 shares of common stock and the Company’s outstanding convertible debt is convertible into approximately 103,000,000 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.

 

For the three months ended March 31, 2015 and March 31, 2014, the Company recorded stock and warrant based compensation of $16,484 and $25,000, respectively. (See Notes 7 and 8).

 

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 three months ended March 31, 2015 and 2014, advertising expense was $7,543 and $1,000, respectively.

 

Note 3 – Recent Accounting Pronouncements

 

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.

 

Note 4 – Impairment of Goodwill

 

On September 12, 2014, the Company completed the asset acquisition of the entire line of products, technology and customers of Dry Vapes Holdings, Inc. (“Dry Vapes”). Dry Vapes is an importer, marketer and distributor of innovative vaporizers and accessories with over 11,000 social network followers. Dry Vapes has historically sold its’ product under the logo DV on eBay and other websites. The Company plans to develop a full line of products under the "Mont Blunt" brand name and market it to Brick and Mortar smoke shops nationally in the upcoming months. The company will operate the business under PPI.

 

The Company recorded the acquisition using the acquisition method, which requires the Company to record the acquired assets and assumed liabilities (if any) at their acquisition date fair values and record any excess of the consideration given, including liabilities assumed (if any) over the fair value of the assets acquired as goodwill. The acquired assets consisted solely of inventory. The Company determined the fair value of the inventory acquired on a cost basis. The transaction resulted in the Company recording goodwill of $192,849. Based on events and circumstances occurring during the three months ended March 31, 2015, the Company reviewed the carrying amount of the goodwill, and determined that the carrying amount may not be recoverable and accordingly recognized an impairment loss of $192,849 for the three months ended March 31, 2015. The Company also recorded a reserve for inventory loss of $32,529 for the three months ended March 31, 2015.

 

8
 

Note 5 – Sales Concentration and 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. The company maintains its’ cash balance at a large financial institution and has not experienced any losses in such accounts.

 

Sales and Accounts Receivable

 

Following is a summary of customers who accounted for more than ten percent (10%) of the Company’s revenues for the three months ended March 31, 2015 and 2014 and the accounts receivable balance as of March 31, 2015:

 

  Customer 

Sales % Three

Months Ended

March 31, 2014

 

Sales % Three

Months Ended

March 31, 2015

 

Accounts Receivable

Balance as of

March 31, 2015

 A    42%   —     $—   
 B    20%   —     $—   
 C    18%   —     $—   
 D    —      70%  $—   
 E    —      22%  $180 

 

Purchases

 

For the three months ended March 31, 2014, 100% of the Company’s purchases were from one vendor related to the purchase of our tobacco product line.

 

Note 6 – Convertible Debt and Note Payable

 

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 nine additional tranches of $220,000 each, plus any interest, costs, fees or charges.

 

Beginning on the date that is nine (9) 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 matures fifteen months after the Issuance Date.

 

9
 

During the year ended December 31, 2014, the Company received an additional $800,000 of the purchase price and an additional $100,000 (including $17,609 of interest) during the three months ended March 31, 2015. As of March 31, 2015, the balance of the purchase price of $317,609 is included in Notes receivable on the unaudited condensed consolidated financial statements included herein, as well as $18,991 of interest receivable. During the three months ended March 31, 2015, the Company recorded interest expense of $139,888 and increased accrued interest expense by $139,888 for amounts due Tonaquint, pursuant to the 2014 Company Note. As of March 31, 2015, $960,630 of principal and accrued interest of $226,491 is outstanding on the 2014 Company Note, and the principal amount is carried at $954,619, net of a remaining note discount of $6,011.

 

During the three months ended March 31, 2015, the Company issued the following shares of common stock upon the conversions of portions of the 2014 Company Note:

 

Date 

Principal

Conversion

 

Interest

Conversion

 

Total

Conversion

 

Conversion

Price

 

Shares

Issued

 1 /3/15  $65,460   $9,540   $75,000   $.045    1,665,445 
 1 /28/15  $54,123   $8,377   $62,500   $.0334    1,869,190 
 2 /20/15  $55,901   $9,099   $65,000   $.0244    2,668,309 
 3 /13/15  $60,000   $—     $60,000   $.0244    2,463,054 
 3 /31/15  $66,555   $8,445   $75,000   $.0125    5,985,634 
     $302,039   $35,461   $337,500         14,651,632 

 

2015 Convertible Notes

 

On March 2, 2015, the Company issued a Convertible Promissory Note for $79,000 to Vis Vires Group (“Vis Vires”). The Company received net proceeds of $75,000 after debt issuance costs of $4,000 paid for lender legal fees. The Note matures November 25, 2015 and converts at a 39% discount to the market price as defined in the Note.

 

On March 27, 2015, the Company issued a Convertible Promissory Note for $27,000 to GW Holding Group, LLC. On March 31, 2015, the Company received net proceeds of $25,000 after debt issuance costs of $2,000 paid for lender legal fees. The Note matures March 27, 2016 and converts at a 42% discount to the market price as defined in the Note.

 

March 27, 2015, the Company issued a Convertible Promissory Note for $78,750 to LG Capital Funding, LLC. On March 30, 2015, the Company received net proceeds of $75,000 after debt issuance costs of $3,750 paid for lender legal fees. The Note matures March 27, 2016 and converts at a 42% discount to the market price as defined in the Note.

 

The debt issuance costs of $9,750 in the aggregate included in the 2015 Convertible Notes, will be amortized over the earlier of the terms of the Note or any redemptions and accordingly $444 has been expensed as debt issuance costs (included in interest expense) for the three months ended March 31, 2015. As of March 31, 2015, $184,750 of principal and accrued interest of $527 is outstanding on the 2015 Convertible Notes, and the principal amount is carried at $55,395, net of a remaining note discount of $129,355.

 

Among other terms the 2015 Notes are due nine to twelve months from their issuance date, bearing interest at 8% per annum, payable in cash or shares at a conversion price (the “Conversion Price”) for each share of common stock equal to 39% - 42% of the average of the lowest three trading prices (as defined in the note agreements) per share of the Company’s common stock for the ten to eighteen trading days immediately preceding the date of conversion. Upon the occurrence of an event of default, as defined in the 2015 Convertible Notes, the Company was required to pay interest at 22% per annum and the holders could at their option declare a Note, together with accrued and unpaid interest, to be immediately due and payable. In addition, the 2015 Convertible Notes provide for adjustments for dividends payable other than in shares of common stock, for reclassification, exchange or substitution of the common stock for another security or securities of the Company or pursuant to a reorganization, merger, consolidation, or sale of assets, where there is a change in control of the Company.

 

10
 

The Company determined that the conversion feature of the 2015 Convertible Notes represent an embedded derivative since the Notes are convertible into a variable number of shares upon conversion. Accordingly, the 2015 Convertible Notes were not considered to be conventional debt under EITF 00-19 and the embedded conversion feature was bifurcated from the debt host and accounted for as a derivative liability. Accordingly, the fair value of these derivative instruments being recorded as a liability on the consolidated balance sheet with the corresponding amount recorded as a discount to each Note. Such discount is being amortized from the date of issuance to the maturity dates of the Notes. The change in the fair value of the liability for derivative contracts are recorded in other income or expenses in the consolidated statements of operations at the end of each quarter, with the offset to the derivative liability on the balance sheet. The embedded feature included in the 2015 Convertible Notes resulted in an initial debt discount and an initial derivative liability of $135,746.

 

As of March 31, 2015 the Company revalued the embedded conversion feature of the 2015 Convertible Notes. From the dates of issuance of the 2015 Convertible Notes, the Company increased the derivative liability by $611 resulting in a derivative liability of $136,357. The fair value of the 2015 Convertible Notes was calculated at March 31, 2015 based on the average historical effective discounts to market over periods consistent with the terms of the related debt.

 

A summary of the derivative liability balance as of March 31, 2015 is as follows:

 

   2015
Beginning Balance  $—   
Initial Derivative Liability   135,746 
Fair Value Change   611 
Ending Balance  $136,357 

 

Note Payable

 

On March 18, 2014, in conjunction with the land purchase of 80 acres in Pueblo County, Colorado, the Company paid $36,000 cash and entered into a promissory note in the amount of $85,750. The promissory note is being amortized on the basis of five (5) years, with principal payments of $17,150 plus interest at 3.5% due annually on December 1 of each year. Payments begin December 1, 2014, and shall be due on the first day of each succeeding December, with any balance of principal and accrued interest due December 1, 2020. On March 4, 2015, and May 4, 2015, the Company paid $9,000 and $2,437, respectively, of the December 1, 2014 amount. The Company owes a balance of $8,150 of the December 2014 amount due.

 

Note 7 – Related Party Transactions

 

Management Fees and Stock Compensation Expense

 

Effective January 1, 2013, the Company agreed to an annual compensation of $150,000 for its CEO, Mr. Michael Friedman (resigned March 20, 2015), and $96,000 for the CFO, Mr. Barry Hollander. For 2014, the Company and the CFO agreed that up to $5,000 per month can be paid in cash and the balance in restricted shares of common stock.

 

For the three months ended March 31, 2015 and 2014, the Company recorded expenses to its’ officers the following amounts included in Administrative and Management Fees in the condensed consolidated statements of operations, included herein:

 

   March 31,  March 31
   2015  2014
CEO  $3,846   $—   
Former CEO   37,500    37,500 
CFO   24,000    24,000 
Total  $65,346   $61,500 

 

11
 

As of March 31, 2015 and December 31, 2014, the Company owed to its’ officer the following amounts, included in deferred compensation on the Company’s condensed consolidated balance sheet:

 

   March 31,  December 31,
   2015  2014
Former CEO  $91,219   $80,082 
CFO   10,730    1,579 
Total  $101,949   $81,661 

 

Effective March 20, 2015, Mr. Justin Braune was named CEO and President. Mr. Braune also was appointed to the Board of Directors. B. Michael Friedman resigned his role as CEO and also from the Board of Directors, and was named to the Advisory Board to the Company’s Board of Directors. The Company agreed to an annual compensation of $100,000 for Mr. Braune in his role of CEO and Director of the company and to issue Braune 15,000,000 shares of restricted common stock. For the three months ended March 31, 2015, the Company has included $3,846 for Mr. Braune’s salary in Administrative and Management Fees in the condensed consolidated statements of operations.

 

The shares of common stock will vest as follows: 5,000,000, shares on the six month anniversary of the Agreement and 10,000,000 shares on the one year anniversary of the Agreement. The Company valued the 15,000,000 shares of common stock at $300,000 ($0.02 per share, the market price of the common stock) and recorded the $300,000 as deferred stock compensation in the equity section of the balance sheet, and will amortize the deferred stock compensation as the shares of common stock vest. Accordingly, the Company has included $16.484 stock compensation expense. The remaining $283,516 of deferred stock compensation will be expensed over the vesting period.

 

Amounts Due from 800 Commerce, Inc.

 

800 Commerce, Inc., a commonly controlled entity, owed Agritek $267,369 and $236,759 as of March 31, 2015 and December 31, 2014, respectively, as a result of advances received from or payments made by Agritek on behalf of 800 Commerce. These advances are non-interest bearing and are due on demand and are included in Due from Related Party on the balance sheet herein.

 

Note 8 – Common and Preferred Stock

 

Common Stock

 

During the three months ended March 31, 2015, the Company issued 14,651,632 shares of common stock in satisfaction of $337,500 of principal and accrued and unpaid interest against the 2014 Company Note (see Note 6).

 

Warrants

 

On April 26, 2013 and in connection with the appointment of Mr. James Canton to the Company’s advisory board, the Company issued a warrant to Mr. Canton to purchase 300,000 shares of common stock. The warrant has an exercise price of $0.50 per share, remains outstanding and expires April 26, 2016.

 

Note 9 – Income Taxes

 

Deferred income taxes reflect the net tax effects of operating loss and tax credit carry forwards and temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Due to the uncertainty of the Company’s ability to realize the benefit of the deferred tax assets, the deferred tax assets are fully offset by a valuation allowance at March 31, 2015 and 2014.

 

12
 

As of March 31, 2015, the Company had a tax net operating loss carry forward of approximately $2,681,000. Any unused portion of this carry forward expires in 2030. Utilization of this loss may be limited in the event of an ownership change pursuant to IRS Section 382.

 

Note 10 – Commitments and Contingencies

 

Office Space

 

Effective April 1, 2014, the Company has entered into a rent sharing agreement for the use of 1,300 square feet with a company controlled by the Company’s CFO. The Company has agreed to pay $1,350 per month for the space.

 

In April 2014, the Company entered into a ten year sublease agreement for the use of up to 7,500 square feet with a Colorado based oncology clinical trial and drug testing company and facility presently doing cancer research and testing for established pharmaceutical companies seeking FDA approval for new drugs. Pursuant to the lease as amended, the Company has agreed to pay $3,500 per month for the space, and it will be utilized to market, sell and distribute products to Colorado dispensaries.

 

For the three months ended March 31, 2015 and 2014, the Company recorded rent expense of $15,129 and $1,929, respectively.

 

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.  Pursuant to the lease agreement the Company maintains a first right of refusal to purchase the property for three years. The Company prepaid the first year lease amount of $24,000 and has recorded $9,561 of expense (included in leased property expenses) for the three months ended March 31, 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 water rights ensure the Company’s non-interruption of operations on behalf of new tenants qualified as fully registered and licensed grow and manufacturing operations. The Company has recorded $45,350 of expense for the three months ended March 31, 2015 (included in leased property expenses) related to the land and water rights. The Company is currently in default of the lease agreement, as rents for March, April and May 2015 have not been paid.

 

Other

 

On March 2, 2015, the Company and the Company’s CEO, at the time, and the Company’s CFO were named in a civil complaint filed by Erick Rodriguez, a former officer of the Company, in the District Court in Clark County, Nevada. 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. Mr. Rodriguez resigned in June 2013, and the Company cancelled the issuance of the shares to Mr. Rodriguez on the Company’s books and records.

 

On March 20, 2015, Montblanc-Simplo GmbH (“Montblanc”) filed a Combined Notice of Opposition and Petition for Cancellation with the United States Patent and Trademark Office. Montblanc believes that it will be damaged by the registration of the mark MONT BLUNT filed on April 26, 2014 in Application Serial No. 86/263,737 (the “Application”) and by the previously issued U.S. Registration NO. 4,608,789 (the “Registration”). The Company believes that the logos and product of Mont Blunt pursuant to the Registration and Application significantly differ from Montblanc and accordingly does not believe it subjects Montblanc to any damages.

 

13
 

Note 11 – Going Concern

 

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. As of March 31, 2015 the Company had an accumulated deficit of $12,091,239 and working capital deficit of $873,367. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Note 12 – Subsequent Events

 

On March 30, 2015, the Company issued a Convertible Promissory Note for $27,000 to Service Trading Company, LLC. On April 6, 2015, the Company received net proceeds of $25,000 after debt issuance costs of $2,000 paid for lender legal fees. The Note matures March 30, 2016 and converts at a 42% discount to the market price as defined in the Note. As the proceeds were not received until April 6, 2015, the Company has not included the resulting transaction on the Company’s balance sheet as of March 31, 2015, presented herein.

 

On April 14, 2015, the Company appointed Dr. Stephen Holt to the Advisory Board of the Board of Directors of the Company. The Company issued 5,000,000 shares of restricted common stock to Dr. Holt for his appointment.

 

On May 5, 2015, the Company issued 6,008,171 shares of common stock to Tonaquint in satisfaction of $75,000 of principal and accrued and unpaid interest against the 2014 Company Note.

 

14
 

Item 2. 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 following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and notes thereto for the years ended March 31, 2015 and 2014.

 

The independent auditor’s report on our financial statements for the years ended December 31, 2014 and 2013 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 unaudited condensed financial statements.

 

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 auditor has raised substantial doubt about our ability to continue as a going concern.

 

15
 

Results of Operations

 

For the three months ended March 31, 2015 compared to the three months ended March 31, 2014

 

Revenues

 

Revenues for the three months ended March 31, 2015 and 2014 were $7,221 and $19,520, respectively, and were comprised of the following:

 

   Three months ended March 31,
   2015  2014
Wellness products  $7,221   $7,178 
Chillo products   —      12,342 
Total  $7,221   $19,520 

 

Operating Expenses

 

Operating expenses were $456,271 for the three months ended March 31, 2015 compared to $163,594 for the three months ended March 31, 2014. The expenses were comprised of:

 

   Three Months Ended March 31,
  Description  2015  2014
Administration and management fees  $81,209   $71,431 
Stock compensation expense, management   16,484    —   
Stock compensation expense, other   —      25,000 
Professional and consulting fees   20,588    22,950 
Impairment of Goodwill   192,849    —   
Reserve for Inventory Loss   32,529    —   
Commissions and license fees   —      8,072 
Advertising and promotional expenses   7,543    1,000 
Rent and occupancy costs   15,129    1,929 
Leased property for sub-lease   54,911    —   
Travel and entertainment   15,046    17,727 
General and other administrative   19,983    15,485 
Total  $456,271   $163,594 

 

Stock compensation expense, management was $16,484 for the three months ended March 31, 2015 compared to $0 for the three months ended March 31, 2014. The 2015 amount is comprised of the amortization of restricted common stock issued to our new CEO.

 

Stock compensation expense, other (included in professional and consulting fees) was $0 for the three months ended March 31, 2015 compared to $25,000 for the three months ended March 31, 2014. The 2014 period is comprised of $25,000 to advisories to the board of directors for the issuance of 56,948 shares of common stock for services provided to the Company.

 

Professional and consulting fees (excluding stock compensation expense, other) decreased to $20,588 for the three months ended March 31, 2015 compared to $22,950 for the three months ended March 31, 2014 and is comprised of the following:

 

   Three Months Ended March 31,
   2015  2015
Legal fees  $5,930   $12,000 
Property management fees   10,000    2,500 
Accounting fees   2,958    6,200 
Investor relation costs   1,700    2,250 
   $20,588   $22,950 

 

16
 

Commission and licensing fees of $0 were incurred for three months ended March 31, 2015 compared to commissions of $8,072 for the three months ended March 31, 2014.

 

Advertising and promotional expenses increased to $7,543 for the three months ended March 31, 2015 compared to $1,000 for the three months ended March 31, 2014. The increase of $6,543 was primarily due the marketing of the Company’s Mont Blunt brand.

 

Rent and occupancy costs were $15,129 for the three months ended March 31, 2015 compared to $1,929 for the three months ended March 31, 2014. The increase was due primarily to the Company entering into sublease agreement for the use of up to 7,500 square feet of office space that will be utilized to market, sell and distribute products to Colorado dispensaries.

 

Leased property available for sub-lease and property maintenance costs were $54,911 for the three months ended March 31, 2015 compared to $0 for the three months ended March 31, 2014. These costs were comprised of $42,411 for leased real estate and $12,500 for water rights that the Company plans to lease or sub-lease to licensed marijuana operators.

 

General and other administrative costs for the three months ended March 31, 2015, were $19,983 compared to $15,485 for the three months ended March 31, 2014. Expenses for the three months ended March 31, 2015, include property and other taxes of $7,684, filing and transfer agent fees of $2,080, telephone, internet and web based service costs of $3,714, payroll taxes and fees of $1,773, office supply purchases of $1,052 and $3,680 of other general and administrative costs. Expenses for the 2014 period include public company filing and transfer agent fees of $3,503, internet and web based service costs of $2,301, payroll taxes and fees of $2,071, office supply purchased of $2,604 and $5,006 of other general and administrative costs.

 

Other Income (Expense), Net

 

Other expense for the three months ended March 31, 2015 was $307,858 compared to $70,368 for the three months ended March 31, 2014. Included in other expenses for the 2015 period was an expense from the increase on the fair value of derivatives of $611 and interest income of $7,646, offset by interest expense of $314,893. Other expense for the 2014 period was income from the decrease on the fair value of derivatives of $30,347 and interest income of $10,740, offset by interest expense of $111,455.

 

A summary of interest expense for each of the periods is as follows:

 

   Three months ended March 31,
   2015  2014
Excess value of common stock issued  $149,782   $—   
Interest on face value   22,490    15,566 
Additional true-up interest   117,926    —   
Amortization of note discount   23,135    54,055 
Amortization of OID   —      23,778 
Beneficial conversion feature   —      3,716 
Amortization of deferred financing fees   1,560    14,340 
Total  $314,893   $111,455 

 

Capital Resources and Liquidity

 

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. As of March 31, 2015, we had cash and cash equivalents of $140,853, an increase of $22,424, from $118,429 as of December 31, 2014. At March 31, 2015, we had current liabilities of $1,626,702 compared to current assets of $778,635 which resulted in working capital deficit of $848,067. The current liabilities are comprised of accounts payable, accrued expenses, convertible debt and notes payable.

 

17
 

Operating Activities

 

For the three months ended March 31, 2015, net cash used in operating activities was $195,356 compared to $122,405 for the three months ended March 31, 2014. The net loss for the three months ended March 31, 2015 of $760,189 was impacted by the impairment of goodwill of $192,849, noncash interest expense of $267,708 for excess value of common stock issued for convertible notes payable, the amortization of discounts on convertible notes of $23,135 amortization of deferred stock compensation of $16,484. and the amortization of deferred financing fees of $1,560 related to the convertible promissory notes. Additional non-cash expenses for the three months ended March 31, 2015 was a reserve for inventory loss of $32,529, the change in fair value of the derivative liability of $611 and depreciation expense of $447. Changes in operating assets and liabilities utilizing cash included an increase in accounts receivable of $489 and the return of $90,000 on tenant deposits. Changes in operating assets and liabilities that reduced cash used in operating activities included an increase in accounts payable and accrued expenses of $59,073, an increase in deferred compensation of $20,228 a decrease in prepaid assets and other of $36,216 and a decrease in inventory of $4,422.

 

The net loss for the three months ended March 31, 2014 was impacted by $25,000 for the 56,948 shares of common stock for services provided to the Company. Additional non-cash expenses for the three months ended March 31, 2014 were the amortization of the initial discounts of $77,833 on the convertible notes and amortization of deferred financing fees of $14,340 also related to the convertible promissory notes. These amounts were offset by the change in the fair value of the derivatives of $30,347.

 

Investing Activities

 

During the three months ended March 31, 2015, net cash used in investing activities was $30,610 compared to $56,279 for the three months ended March 31, 2014. The 2015 period was the result of advances to a related party of $30,610. Net cash used in investing activity for the three months ended March 31, 2014 was the result of land acquisition cost of $40,571 and advances to a related party of $15,708.

 

Financing Activities

 

Net cash provided by financing activities was $248,390 and $492,000 for the three months ended March 31, 2015 and 2014, respectively. The 2015 activity was comprised of proceeds received related to the Tonaquint notes receivable of $82,390, the issuance of convertible promissory notes of $175,000 and the payments made on notes payable of $9,000. The 2014 amount was comprised of proceeds received from the issuance of convertible promissory notes of $300,000 and proceeds of $200,000 related to the Typenex note receivable and the payment of deferred financing fees of $8,000.

 

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 lender.

 

Off Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

 

As reflected in the accompanying unaudited condensed consolidated financial statements, the Company had an accumulated deficit at March 31, 2015, a net loss and net cash used in operating activities for the reporting period then ended. These conditions raise substantial doubt about its ability to continue as a going concern.

 

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The Company is attempting to produce sufficient revenue; however, the Company’s cash position may not be sufficient to support its daily operations. While the Company believes in the viability of its strategy to produce sufficient revenue and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon its ability to further implement its business plan and generate sufficient revenues and in its ability to raise additional funds.

 

The unaudited consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Critical Accounting Policies

 

We have identified the following policies below as critical to our business and results of operations. Our reported results are impacted by the application of the following accounting policies, certain of which require management to make subjective or complex judgments. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact quarterly or annual results of operations. For all of these policies, management cautions that future events rarely develop exactly as expected, and the best estimates routinely require adjustment. Specific risks associated with these critical accounting policies are described in the following paragraphs.

 

Basis of Presentation and Principles of Consolidation

 

The accompanying condensed consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present the financial position, results of operations and cash flows for the stated periods have been made. Except as described below, these adjustments consist only of normal and recurring adjustments. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated unaudited financial statements should be read in conjunction with a reading of the Company’s consolidated financial statements and notes thereto. Interim results of operations for the three months ended March 31, 2015 are not necessarily indicative of future results for the full year. Certain amounts from the 2014 period have been reclassified to conform to the presentation used in the current period.

 

The condensed consolidated unaudited financial statements of the Company include the consolidated accounts of Agritek and its’ wholly owned subsidiaries AVHI and PPI. PPI, a Florida corporation, was originally formed on July 1, 2013 as The American Hemp Trading Company, Inc. (“AHTC”) and on August 27, 2014, AHTC changed its’ name to PPI. All intercompany accounts and transactions have been eliminated in consolidation.

 

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 March 31, 2015, based on the above criteria, the Company has an allowance for doubtful accounts of $43,408.

 

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Property and Equipment

 

Property and equipment are stated at cost, and except for land, depreciation is provided by use of straight-line methods 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. The estimated useful lives of property and equipment are as follows:

 

Furniture and equipment 5 years

 

The Company's property and equipment consisted of the following at March 31, 2015 and December 31, 2014:

 

   2015  2014
Land  $354,269   $354,269 
Furniture and equipment   13,829    13,829 
Accumulated depreciation   (2,423)   (1,976)
Balance  $365,675   $366,122 

 

Depreciation expense of $447 and $203 was recorded for the three months ended March 31, 2015 and 2014, respectively.

 

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 commissions are earned. No revenue has been recognized from leasing arrangements to date.

 

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”).

 

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.

 

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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 receivable, notes receivable, accounts payable and accrued expenses, note payable 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 March 31, 2015 there were warrants to purchase 300,000 shares of common stock and the Company’s outstanding convertible debt is convertible into approximately 103,000,000 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.

 

For the three months ended March 31, 2015 and March 31, 2014, the Company recorded stock and warrant based compensation of $16,484 and $25,000, respectively. (See Notes 7 and 8).

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable to smaller reporting companies.

 

Item 4. Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC. This information is accumulated to allow our management to make timely decisions regarding required disclosure. Our President, who serves as our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report and he determined that our disclosure controls and procedures were not effective due to a control deficiency. During the period we did not have additional personnel to allow segregation of duties to ensure the completeness or accuracy of our information. Due to the size and operations of the Company, we are unable to remediate this deficiency until we acquire or merge with another company.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 of the Exchange Act that occurred during the quarter ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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Part II. Other Information

 

Item 1. Legal Proceedings

 

We are not a party to any material litigation, nor, to the knowledge of management, is any litigation threatened against us that may materially affect us.

 

Item 1A. Risk Factors

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Act of 1934 and are not required to provide the information under this item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

On January 3, 2015, the Company issued 1,665,445 shares of common stock upon the conversion of $75,000 of principal and accrued and unpaid interest on the 2014 Company Note. The shares were issued at approximately $0.045 per share.

 

On January 28, 2015, the Company issued 1,869,190 shares of common stock upon the conversion of $62,500 of principal and accrued and unpaid interest on the 2014 Company Note. The shares were issued at approximately $0.0334 per share.

 

On February 10, 2015, the Company issued 2,668,309 shares of common stock upon the conversion of $65,000 of principal and accrued and unpaid interest on the 2014 Company Note. The shares were issued at approximately $0.0244 per share.

 

On March 13, 2015, the Company issued 2,463,054 shares of common stock upon the conversion of $60,000 of principal on the 2014 Company Note. The shares were issued at approximately $0.0334 per share.

 

On March 20, 2015, the Company issued 15,000,000 shares of common stock to Justin Braune in connection with an employment and board of directors agreement naming Mr. Braune as Chief Executive Officer, President and a member of our Board of Directors. The shares of common stock will vest as follows: 5,000,000, shares on the six month anniversary of the Agreement and 10,000,000 shares on the one year anniversary of the Agreement.

 

On March 31, 2015, the Company issued 5,985,634 shares of common stock upon the conversion of $75,000 of principal and accrued and unpaid interest on the 2014 Company Note. The shares were issued at approximately $0.0125 per share.

 

Item 3. Defaults upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

Convertible Debenture Proceeds

 

On March 2, 2015, the Company received net proceeds of $75,000 in exchange for 8% interest bearing unsecured convertible promissory note dated February 23, 2015, with a face value of $79,000 to Vis Vires Group (“Vis Vires”), which matures on November 25, 2015. Principal and interest due on the note is convertible into shares of common stock at a 39% discount to the average of the lowest 3 closing bid prices for the 10 days preceding conversion. The note includes prepayment cash redemption penalties between 15% and 35% of outstanding principal and interest, and the debt holder is limited to owning 9.99% of the Company’s issued and outstanding shares. The Company must at all times reserve at least eight times the number of shares required for full conversion of the note and interest.

On March 30, 2015, the Company received proceeds of $75,000 in exchange for an 8% interest bearing unsecured convertible promissory note dated March 27, 2015, with a face value of $78,750 to LG Capital Funding, LLC. The Note matures March 27, 2016. Principal and interest due on the note is convertible into shares of common stock at a 42% discount to the lowest closing bid price for the 18 prior trading days including the conversion date. The note includes prepayment cash redemption penalties between 18% and 48% of outstanding principal and interest, and the debt holder is limited to owning 9.9% of the Company’s issued and outstanding shares. The Company must at all times reserve 27,851,000 shares of common stock for potential conversions.

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On March 31, 2015, the Company received net proceeds of $25,000 in exchange for an 8% interest bearing unsecured convertible promissory note dated March 30, 2015, with a face value of $27,000 to GW Holding Group, LLC. The Note matures March 30, 2016. Principal and interest due on the note is convertible into shares of common stock at a 42% discount to the lowest closing bid price for the 18 prior trading days including the conversion date. The note includes prepayment cash redemption penalties between 18% and 48% of outstanding principal and interest, and the debt holder is limited to owning 9.9% of the Company’s issued and outstanding shares. The Company must at all times reserve 9,310,000 shares of common stock for potential conversions.

Common Stock Issuances for Debt Conversions

 

On January 3, 2015, the Company issued 1,665,445 shares of common stock upon the conversion of $75,000 of principal and accrued and unpaid interest on the 2014 Company Note. The shares were issued at approximately $0.045 per share.

 

On January 28, 2015, the Company issued 1,869,190 shares of common stock upon the conversion of $62,500 of principal and accrued and unpaid interest on the 2014 Company Note. The shares were issued at approximately $0.0334 per share.

 

On February 10, 2015, the Company issued 2,668,309 shares of common stock upon the conversion of $65,000 of principal and accrued and unpaid interest on the 2014 Company Note. The shares were issued at approximately $0.0244 per share.

 

On March 13, 2015, the Company issued 2,463,054 shares of common stock upon the conversion of $60,000 of principal on the 2014 Company Note. The shares were issued at approximately $0.0334 per share.

 

On March 31, 2015, the Company issued 5,985,634 shares of common stock upon the conversion of $75,000 of principal and accrued and unpaid interest on the 2014 Company Note. The shares were issued at approximately $0.0125 per share.

 

Item 6. Exhibits

 

Exhibit

No.

  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.
10.2*   Form of 8% Convertible Redeemable Note by and between Agritek Holdings, Inc. and LG Capital Funding, LLC dated March 27, 2015.
10.3*   Form of 8% Convertible Redeemable Note by and between Agritek Holdings, Inc. and GW Holding Group, LLC dated March 30, 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).
31.1*   Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.2*   Rule 13a-14(a)/15d-14(a) Certification of Principal 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.

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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.

 

Dated: May 18, 2015

AGRITEK HOLDINGS, INC.

 

By:   /s/ Justin Braune                                          

Justin Braune

Chief Executive Officer (principal executive officer)

 

By:   /s/ Barry Hollander                                      

Barry Hollander

Chief Financial Officer (principal financial and accounting officer)

 

 

 

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