Notes to Condensed Consolidated Financial
Statements
June 30, 2017
(Unaudited)
Note 1 -
Organization
Business
Agritek Holdings,
Inc. (the “Company” or “Agritek”) and its wholly-owned subsidiaries, MediSwipe, Inc., Prohibition Products
Inc., and Agritek Venture Holdings, Inc. (“AVHI”) provide turnkey support solutions to the legal cannabis industry.
We provide key business services to the legal cannabis sector including:
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Funding
and Financing Solutions for Agricultural Land and Properties zoned for the regulated Cannabis Industry.
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Compliance Consulting
and Certification Solutions
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Dispensary and Retail
Solutions
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Commercial Production
and Equipment Build Out Solutions
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Multichannel Supply
Chain Solutions
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Branding, Marketing
and Sales Solutions of proprietary product lines
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Consume
r
Product Solutions
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The Company is expanding throughout
California, Colorado and Puerto Rico and presently 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 Colorado and additional jurisdictions
including California, Nevada and Puerto Rico in accordance 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. 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.
Recent Events
On April 5, 2017, the Company executed
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. The Company will be the exclusive funding source, and supervise all infrastructure
buildout, equipment lease/finance, security systems and personnel and provide access of seasoned Colorado and California cultivation
crews to ensure the facility meets all standard operating procedures as set forth by the Department Of Health of Puerto Rico.
Under the agreement, the Company receives $12,000 a month in consulting fees, licensing fees on all vaporizer and edible sales,
equipment and lighting rental and financing fees along with equity interest in the property.
On May 25, 2017, the
Company agreed to a land purchase agreement to purchase a "420 Style" resort and estate property approximately one hour
outside of Quebec City, Canada. The fifteen-acre estate consists of nine (9) unique guest suites, horse stables, and is within
walking distance to a public golf course, which the Company will have ownership in for guests staying at the resort. A separate
structure will serve as a small grow facility run by patient employees and caretakers on the property which may be toured by guests
of the facility. Pursuant to the agreement, the Company paid $10,000 as the initial down payment on the property.
Note 2 –
Summary of Significant
Accounting 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, 2017 are not necessarily indicative of future results for the full year. Certain
amounts from the 2015 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 Prohibition Products, Inc. (“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, 2017, 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.
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, a proportionate share of the unamortized amounts is immediately expensed.
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 face amount of the note and is amortized to interest expense over the life of the debt.
Marketable Securities
The Company classifies its marketable securities
as available-for-sale securities, which are carried at their fair value based on the quoted market prices of the securities with
unrealized gains and losses, net of deferred income taxes, reported as accumulated other comprehensive income (loss), a separate
component of stockholders’ equity. Realized gains and losses on available-for-sale securities are included in net earnings
in the period earned or incurred.
Investment of Non-Marketable Securities
The Company’s investment in non-marketable
securities consist of cash investments in a less than 10% interest in two 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. In November 2015, the Company was made aware that the
land transaction regarding 80 acres in Pueblo County, Colorado, may not have been properly deeded to the
Company. The company was a party to the land purchase, however, the second party to the land contract never filed the
original quit claim deed on behalf of the Company, even though a copy of the notarized quit claim deed was sent to the
Company. In February, 2017, the original owner of the 80 acres foreclosed on the property from the second party and the
Company entered into a new land purchase contract directly with the landowner on February 7, 2017. To date, the Company has
paid a total of $110,492 and is on the deed of trust of the property with a remaining note balance of approximately $17,500
held by the original owner. The estimated useful lives of property and equipment are as follows:
Furniture and equipment
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5
years
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Manufacturing equipment
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7 years
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The Company's property and equipment consisted
of the following at June 30, 2017 and December 31, 2016:
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June 30,
2017
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December 31,
2016
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Furniture and equipment
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$
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61,821
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$
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34,587
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Land
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124,057
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Accumulated depreciation
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(12,263
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(8,307
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Balance
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$
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173,615
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$
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26,280
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Depreciation expense of $2,310 and $3,955 was
recorded for the three and six months ended June 30, 2017, respectively, and $761 and $1,452 for the three and six months ended
June 30, 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.
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
$24,000 has been recognized for the three and six months ended June 30, 2017.
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.
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.
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 June 30,
2017 there were warrants and options to purchase 23,222,222 shares of common stock and the Company’s outstanding convertible
debt is convertible into approximately 146,917,835 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 six months ended June 30, 2017, the Company recorded stock based compensation of $466,831 (See Note 7).
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 and six months ending June 30, 2017 advertising expenses was $0 and $2,000, respectively and for the three and six
months ended June 30, 2016, advertising expense was $2,941 and $6,000, 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 –
Concentration of Credit
Risk
Cash
Financial instruments that potentially sub
ject 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 5 –
Note Payable
Note Payable Land
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. On March 4, 2015, and May 4, 2015, the Company paid $9,000 and $2,437, respectively,
of the December 1, 2014 amount. In November 2015, the Company was made aware that the land transaction regarding 80 acres in Pueblo County,
Colorado, may not have been properly deeded to the Company. The company was a party to the land purchase, however, the second
party to the land contract never filed the original quit claim deed on behalf of the Company, even though a copy of the notarized
quit claim deed was sent to the Company. In February, 2017, the original owner of the 80 acres foreclosed on the property from
the second party and the Company entered into a new land purchase contract directly with the landowner on February 7, 2017.To
date, the Company has paid a total of $110,492 and is on the deed of trust of the property with a remaining note balance of approximately
$17,500 held by the original owner.
Note 6 –
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. To
naquint 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.
During the year ended December 31, 2014, the
Company received an additional $800,000 of the purchase price and an additional $200,000 (including $21,188 of interest) during
the year ended December 31, 2015. On December 16, 2015, the Company and AVHI, the Company’s wholly owned subsidiary entered
into a Deed in Lieu of Foreclosure Agreement (the “DLF Agreement”) with Tonaquint, pursuant to which in exchange for
the Company conveying its’ interest in the Company’s Nevada owned real estate (the “Property”), Tonaquint
agreed to refrain and forbear from exercising and enforcing its remedies under their 2014 Convertible Note. Additionally, the Company
received $25,000 and a reduction of the Note balance of $500,000. AVHI had a cost of approximately $224,466 for the Property.
As of the date of the DLF Agreement, the Company
and Tonaquint agreed to offset the remaining unpaid principal balance of the Investor Notes of $176,642 to the Note. The parties
further agreed that accrued and unpaid interest of $316,723 would be added to the Note and each party confirmed that the Note balance
as of the DLF Agreement was $311,815. 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
“Second Replacement Note”). The Second Replacement Note is due January 19, 2017 and is 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. For the six months ended June 30, 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 note. The shares were issued at approximately $0.014 per share. The principal balance of the note as of June 30, 2017 and December
31, 2016 was $-0- and $157,500, respectively.
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 “Third Replacement Note”). The Third Replacement Note is due January 19, 2017 and is 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. For the six months ended June 30, 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 note. The shares were
issued at approximately $0.0144 per share. The principal balance of the note as of June 30, 2017 and December 31, 2016 was $-0-
and $147,249, respectively.
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. For the six months ended June 30, 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. The principal balance of the note as of June 30, 2017 and December 31, 2016 was $-0- and $76,080, respectively.
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. For the six months ended June 30, 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. The principal balance of the back end note as of June 30, 2017
and December 31, 2016 was $-0- and $65,625, respectively.
On January 19, 2016, the Company completed
the closing of a private placement financing transaction with Cerberus, pursuant to a Securities Purchase Agreement (the “Cerberus
Purchase Agreement”). Pursuant to the Cerberus Purchase Agreement, Cerberus purchased an 8% Convertible Debenture (the “Cerberus
Debenture”) in the aggregate principal amount of $34,775, and delivered on January 25, 2016, gross proceeds of $25,000 excluding
transaction costs, fees, and expenses. For the six months ended June 30, 2017, the Company issued 2,953,523 shares of common stock
upon the conversion of $34,775 of principal and $3,255 accrued and unpaid interest on the note. The shares were issued at approximately
$0.01287 per share. The principal balance of the note as of June 30, 2017 and December 31, 2016 was $-0- and $34,775, respectively.
On January 19, 2016, the Company also issued
a back end note to Cerberus, under the same terms and conditions, in the amount of $22,000. The back end note was funded August
1 upon receipt of $20,000, excluding transaction costs, fees and expenses. For the six months ended June 30, 2017, the Company
issued 4,264,903 shares of common stock upon the conversion of $22,000 of principal and $1,500 accrued and unpaid interest on the
note. The shares were issued at approximately $0.00551 per share. The principal balance of the back end note as of June 30, 2017
and December 31, 2016 was $-0- and $22,000, respectively.
On March 23, 2016, the Company completed the
closing of a private placement financing transaction with Cerberus, pursuant to a Securities Purchase Agreement (the “Cerberus
Purchase Agreement”). Pursuant to the Cerberus Purchase Agreement, Cerberus purchased an 8% Convertible Debenture (the “Cerberus
Debenture”) in the aggregate principal amount of $22,000, and delivered on March 31, 2016, gross proceeds of $20,000 excluding
transaction costs, fees, and expenses. For the six months ended June 30, 2017, the Company issued 3,023,338 shares of common stock
upon the conversion of $22,000 of principal and $2,199 accrued and unpaid interest on the note. The shares were issued at approximately
$0.008 per share. The principal balance of the note as of June 30, 2017 and December 31, 2016 was $-0- and $22,000, respectively.
On April 15, 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 $65,625, and delivered on April 15, 2016, gross proceeds of $62,500 excluding transaction
costs, fees, and expenses. For the six months ended June 30, 2017, the Company issued 5,790,541 shares of common stock upon the
conversion of $30,625 of principal and $2,960 accrued and unpaid interest on the note. The shares were issued at approximately
$0.0058 per share. The principal balance of the note as of June 30, 2017 and December 31, 2016 was $35,000 and $65,625, respectively.
On October 14, 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 $32,813, and delivered on October 14, 2016, gross proceeds of $30,813 excluding transaction
costs, fees, and expenses. For the six months ended June 30, 2017, the Company issued 6,499,359 shares of common stock upon the
conversion of $32,813 of principal and $2,999 accrued and unpaid interest on the note. The shares were issued at approximately
$0.00551 per share. The principal balance of the note as of June 30, 2017 and December 31, 2016 was $-0- and $32,813, respectively.
On October 31, 2016, the Company entered into
a Convertible Promissory Note ("St. George 2016 Notes") for $555,000 to St. George Investments, LLC. (“St. George”)
which includes a purchase price of $500,000 and transaction costs of $5,000 and OID interest of $50,000. On October 31, 2016, the
Company received $100,000 and recorded $115,000 as convertible note payable, including $5,000 of transaction costs and $10,000
OID interest. St. George also issued to the Company eight secured promissory notes, each in the amount of $50,000. All or any portion
of the outstanding balance of the St. George 2016 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 St. George any amounts on the unfunded portion of the St. George
2016 Notes. The St. George 2016 Note bears interest at 10% per annum (increases to 22% per annum upon an event of default) and
is convertible into shares of the Company’s common stock at St. George’s option at a price of $0.05 per share. On December
14, 2016, March 1, 2017 and May 19, 2017, respectively, St. George funded three of the secured promissory notes issued to the Company.
During the six months ended June 30, 2017, the Company issued 24,390,071 shares of common stock upon the conversion of $132,642
of principal and $14,167 accrued and unpaid interest on the note. The shares were issued at approximately $0.006 per share. The
principal balance of the note as of June 30, 2017 and December 31, 2016 was $147,358 and $170,000, respectively.
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. Five Installment Amounts of $111,000 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 St. George 2016 Note matures fifteen months after the Issuance Date.
On December 15, 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 $32,812.50, and delivered on December 15, 2016, gross proceeds of $30,812.5 excluding transaction
costs, fees, and expenses.
Principal and interest on the above LG and
Cerberus convertible debentures is due and payable one year from their respective funding date, and the LG and Cerberus Debentures
are convertible into shares of the Company’s common stock at any time at the discretion of LG and Cerberus, respectively,
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.
The Company may prepay the LG and/or the Cerberus
Debentures, subject to prior notice to the holder within an initial 30 day period after issuance, by paying an amount equal to
118% multiplied by the amount that the Company is prepaying. For each additional 30 day period the amount being prepaid is multiplied
by an additional 6%, up to a maximum of 148% on the 180
th
day from issuance. Beginning on the 180
th
day
after the issuance of the Debentures, the Company is not permitted to prepay the Debenture, so long as the Debenture is still outstanding,
unless the Company and the holder agree otherwise in writing.
The Company determined that the conversion
feature of the 2016 Convertible Notes represent an embedded derivative since the Notes are convertible into a variable number of
shares upon conversion. Accordingly, the 2016 Convertible Notes were not considered to be conventional debt under ASC 815-40 (formerly
EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock)
and the embedded conversion feature was bifurcated from the debt host and accounted for as a derivative liability. Accordingly,
the fair value of these derivative instruments being recorded as a liability on the consolidated balance sheet with the corresponding
amount recorded as a discount to each Note. Such discount is being amortized from the date of issuance to the maturity dates of
the Notes. The 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 2016 Convertible Notes resulted in an initial debt discount of $865,593, an initial derivative
liability expense of $2,317,830 and an initial derivative liability of $3,183,423.
2017 Convertible Notes
On January 24, 2017, 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 $94,500, and delivered on January 25, 2017, gross proceeds of $90,000 excluding transaction
costs, fees, and expenses. Also on January 24, 2017, the Company issued to LG, a back end note under the same terms and conditions,
in the amount of $94,500. On June 26, 2017, the back end note was funded upon receipt of $90,000, excluding transaction costs,
fees, and expenses.
On January 24, 2017, the Company completed
the closing of a private placement financing transaction with Cerberus, pursuant to a Securities Purchase Agreement (the “Cerberus
Purchase Agreement”). Pursuant to the Cerberus Purchase Agreement, Cerberus purchased an 8% Convertible Debenture (the “Cerberus
Debenture”) in the aggregate principal amount of $63,000, and delivered on January 25, 2017, gross proceeds of $60,000 excluding
transaction costs, fees, and expenses. Also on January 24, 2017, the Company issued to Cerberus, a back end note under the same
terms and conditions, in the amount of $63,000. On June 30, 2017, the back end note was funded upon receipt of $60,000, excluding
transaction costs, fees, and expenses.
On February 1, 2017, the Company completed
the closing of a private placement financing transaction with Power Up Lending Group, LTD, pursuant to a Securities Purchase Agreement
(the “Power Up Purchase Agreement”). Pursuant to the Power Up Purchase Agreement, Power Up purchased an 12% Convertible
Debenture (the “Power Up Debenture”) in the aggregate principal amount of $140,000, and delivered on February 3, 2017
(the “Funding Date”), gross proceeds of $136,500 excluding transaction costs, fees, and expenses. Principal and interest
on the Power Up Debentures is due and payable on November 5, 2017, and the Power Up Debenture is convertible into shares of the
Company’s common stock beginning six months from the Funding Date, at a VCP. The VCP is calculated as the average of the
three (3) lowest closing bid price during the ten (10) trading days immediately prior to the conversion date multiplied by fifty
eight percent (58%), representing a forty two percent (42%) discount. The Company may prepay the Power Up Debenture, subject to
prior notice to the holder within an initial 30 day period after issuance, by paying an amount equal to 120% multiplied by the
amount that the Company is prepaying. For each additional 30 day period the amount being prepaid is multiplied by an additional
5%, up to a maximum of 140% on the 180
th
day from issuance. Beginning on the 180
th
day after the issuance
of the Debentures, the Company is not permitted to prepay the Debenture, so long as the Debenture is still outstanding, unless
the Company and the holder agree otherwise in writing. On June 23, 2017, the Company accepted and agreed to Assignment Agreements,
whereby, Power Up assigned $70,000 of their note to LG, and $70,000 of their note to Cerberus. As part of the AA, the Company agreed
to pay Power Up $65,000. The Company issued an 8% Replacement Note to LG for $73,198 (the “First Power Up Replacement Note”),
and an 8% Replacement Note to Cerberus for $73,198 (the “Second Power Up Replacement Note”) The First and Second Power
Up Replacement Notes are due June 23, 2018 and are convertible into shares of the Company’s common stock at any time at the
discretion of LG and Cerberus, respectively, 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 February 24, 2017, the Company completed
the closing of a private placement financing transaction with LG. Pursuant to the LG Purchase Agreement, LG purchased an 8% Convertible
Debenture in the aggregate principal amount of $26,000, and delivered on February 24, 2017, gross proceeds of $24,000 excluding
transaction costs, fees, and expenses. Also on February 24, 2017, the Company issued to LG, a back end note under the same terms
and conditions, in the amount of $26,000 (not funded as of the date of this report).
On February 24, 2017, the Company completed
the closing of a private placement financing transaction with Cerberus, pursuant to a Securities Purchase Agreement (the “Cerberus
Purchase Agreement”). Pursuant to the Cerberus Purchase Agreement, Cerberus purchased an 8% Convertible Debenture (the “Cerberus
Debenture”) in the aggregate principal amount of $17,500, and delivered on February 27, 2017, gross proceeds of $16,000 excluding
transaction costs, fees, and expenses. Also on February 24, 2017, the Company issued to Cerberus, a back end note under the same
terms and conditions, in the amount of $17,500 (not funded as of the date of this report).
On March 24, 2017, the Company completed the
closing of a private placement financing transaction with LG. Pursuant to the LG Purchase Agreement, LG purchased an 8% Convertible
Debenture in the aggregate principal amount of $52,000, and delivered on March 28, 2017, gross proceeds of $49,600 excluding transaction
costs, fees, and expenses. Also on March 24, 2017, the Company issued to LG, a back end note under the same terms and conditions,
in the amount of $52,000 (not funded as of the date of this report).
On April 24, 2017, the Company completed the
closing of a private placement financing transaction with Cerberus, pursuant to a Securities Purchase Agreement (the “Cerberus
Purchase Agreement”). Pursuant to the Cerberus Purchase Agreement, Cerberus purchased an 8% Convertible Debenture (the “Cerberus
Debenture”) in the aggregate principal amount of $42,000, and delivered on May 3, 2017, gross proceeds of $40,000 excluding
transaction costs, fees, and expenses. Also on April 24, 2017, the Company issued to Cerberus, a back end note under the same terms
and conditions, in the amount of $42,000 (not funded as of the date of this report).
On May 24, 2017, the Company completed the
closing of a private placement financing transaction with LG. Pursuant to the LG Purchase Agreement, LG purchased an 8% Convertible
Debenture in the aggregate principal amount of $52,000, and delivered on May 24, 2017, gross proceeds of $49,600 excluding transaction
costs, fees, and expenses. Also on May 24, 2017, the Company issued to LG, a back end note under the same terms and conditions,
in the amount of $52,000 (not funded as of the date of this report).
Principal and interest on the LG and Cerberus
Debentures above is due and payable one year from their respective funding date, and the LG and Cerberus Debentures are convertible
into shares of the Company’s common stock at any time at the discretion of LG and Cerberus, respectively, 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.
The Company may prepay the LG and/or the Cerberus
Debentures, subject to prior notice to the holder within an initial 30 day period after issuance, by paying an amount equal to
118% multiplied by the amount that the Company is prepaying. For each additional 30 day period the amount being prepaid is multiplied
by an additional 6%, up to a maximum of 148% on the 180
th
day from issuance. Beginning on the 180
th
day
after the issuance of the Debentures, the Company is not permitted to prepay the Debenture, so long as the Debenture is still outstanding,
unless the Company and the holder agree otherwise in writing.
The Company determined that the conversion
feature of the 2017 Convertible Notes represent an embedded derivative since the Notes are convertible into a variable number of
shares upon conversion. Accordingly, the 2017 Convertible Notes were not considered to be conventional debt under ASC 815-40 (formerly
EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock)
and the embedded conversion feature was bifurcated from the debt host and accounted for as a derivative liability. Accordingly,
the fair value of these derivative instruments being recorded as a liability on the consolidated balance sheet with the corresponding
amount recorded as a discount to each Note. Such discount is being amortized from the date of issuance to the maturity dates of
the Notes. The 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 2017 Convertible Notes resulted in an initial debt discount of $854,378, an initial derivative
liability expense of $553,660 and an initial derivative liability of $1,408,038.
Convertible Note Conversions
During the six months ended June 30, 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
|
|
|
|
|
$
|
721,309
|
|
|
$
|
58,710
|
|
|
$
|
780,019
|
|
|
|
|
|
|
|
83,978,363
|
|
|
|
A summary of the convertible notes payable
balance as of June 30, 2017 is as follows:
|
|
2017
|
Beginning Principal Balance
|
|
$
|
826,480
|
|
Convertible notes-newly issued
|
|
|
760,898
|
|
Conversion of convertible notes (principal)
|
|
|
(721,309
|
)
|
Unamortized discount
|
|
|
(603,165
|
)
|
Ending Principal Balance
|
|
$
|
262,904
|
|
Note 7 -
Derivative liabilities
As of June 30, 2017, the Company revalued the
embedded conversion feature of the 2016 and 2017 Convertible Notes, and warrants (see note 9). The fair value of the 2016 and 2017
Convertible Notes and warrants was calculated at June 30, 2017 based on the Black Scholes method consistent with the terms
of the related debt.
A summary of the derivative liability balance
as of June 30, 2017 is as follows:
|
|
Notes
|
|
|
Warrants
|
|
|
Total
|
|
Beginning Balance
|
|
$
|
1,410,747
|
|
|
$
|
203,023
|
|
|
$
|
1,613,770
|
|
Initial Derivative Liability
|
|
|
1,427,933
|
|
|
|
87,717
|
|
|
|
1,515,650
|
|
Fair Value Change
|
|
|
(139,066
|
)
|
|
|
(18,877
|
)
|
|
|
(157,943
|
)
|
Reclassified to Additional paid- in capital
|
|
|
(963,767
|
)
|
|
|
—
|
|
|
|
(963,767
|
)
|
Reduction for debt assignment
|
|
|
(206,708
|
)
|
|
|
—
|
|
|
|
(206,708
|
)
|
Ending Balance
|
|
$
|
1,529,139
|
|
|
$
|
271,863
|
|
|
$
|
1,801,002
|
|
The embedded derivative within Warrant #’s
2 and 3 resulted in an initial derivative liability expense and an initial derivative liability of $87,717. The valuation of the
embedded derivative within the effective warrants was recorded with an offsetting gain on derivative liability
The fair value at the commitment date for the
2017 Convertible Notes and the re-measurement dates for the Company’s derivative liabilities were based upon the following
management assumptions as of June 30, 2017:
|
|
Commitment date
|
|
Remeasurement date
|
Expected dividends
|
|
|
-0-
|
|
|
|
-0-
|
|
Expected volatility
|
|
|
199%-361%
|
|
|
|
197%-402
|
%
|
Expected term
|
|
|
12 months
|
|
|
|
3-12 months
|
|
Risk free interest
|
|
|
.65%-1.23%
|
|
|
|
.51%-1.23%
|
|
The Company evaluated all outstanding warrants
to determine whether these instruments may be tainted. All warrants outstanding were considered tainted. The Company valued the
embedded derivatives within the warrants using the Black-Scholes valuation model. The fair value at the funding date
for Warrant #’s 2 and 3 and the re-measurement dates for Warrant #’s 1-3 were based upon the following management assumptions:
|
|
Commitment date
|
|
Remeasurement date
|
Expected dividends
|
|
|
-0-
|
|
|
|
-0-
|
|
Expected volatility
|
|
|
203% - 216%
|
|
|
|
388
|
%
|
Expected term
|
|
|
4.45 - 4.64 years
|
|
|
|
4.34 years
|
|
Risk free interest
|
|
|
1.72% - 1.82%
|
|
|
|
1.81%
|
|
Note 8 –
Related Party Transactions
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).
Effective March 20, 2015, Mr. Justin Braune was named CEO and President. Mr. Braune also was appointed to the 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
Mr. Braune 15,000,000 shares of restricted common stock. Mr. Braune resigned from the board of directors and as CEO on November
4, 2015, and agreed to cancel the 15,000,000 shares in his letter of resignation. The Company also initially issued Mr. Braune
12,500,000 shares of common stock on October 13, 2015. On October 16, 2015, Mr. Braune advised the Company’s transfer agent
at the time to cancel the shares.
For the three and six months ended June 30,
2017 and 2016, the Company recorded expenses of $37,500 and $75,000, respectively, to the CEO, included in Administrative and Management
Fees in the consolidated statements of operations, included herein. As of June 30, 2017 and December 31, 2016, the Company owed
the CEO $41,819 and $54,246, respectively and is included in due to related party on the Company’s consolidated balance sheet.
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.
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. The Company valued the 5,000,000 shares of common stock at $100,000 ($0.02 per share,
the market price of the common stock on the grant date) as stock compensation expense for the year ended December 31, 2015. Additionally,
the Company agreed the advisor shall receive a non-qualified stock option to purchase 1,000,000 shares (“Option Shares”)
of the Company’s common stock at an exercise price equal to $0.05 per share. 400,000 Option Shares vested immediately and
the remaining 600,000 Option Shares vested over 12 months. Accordingly, the Company has recorded $2,371 for the six months ended
June 30, 2016 in stock compensation expense and all of the options have vested.
A
mounts
Due from 800 Commerce, Inc.
800 Commerce, Inc., 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. (formerly known as 800 Commerce, Inc.) as settlement
of the $282,947 owed to the Company.
Note 9 –
Common and Preferred Stock
C
ommon
Stock
During the six months ended June 30, 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
|
|
|
|
|
$
|
721,309
|
|
|
$
|
58,710
|
|
|
$
|
780,019
|
|
|
|
|
|
|
|
83,978,363
|
|
|
|
In addition to the above, during the six months
ended June 30, 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 $0.03 per share (the market price of the common stock) and recorded stock compensation expense for
the six months ended June 30, 2017, of $150,000.
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 $24,614.49
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 six
months ended June 30, 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 $0.03 per share (the market price of the common
stock) and for the six months ended June 30, 2017, recorded stock compensation expense, management, of $300,000.
On June 19, 2017, the Company issued 1,319,149
shares of common stock to St. Georges pursuant to the “true-up” terms and conditions of the St. George note.
Preferred Stock
On June 26, 2015, the Company filed with the
Delaware Secretary of State the Amended and Restated Designation Preferences and Rights (the “Certificate of Designation”)
of Class B Preferred Stock (the “Series B Preferred Stock”). Pursuant to the Certificate of Designation, 1,000 shares
constitute the Series B Preferred Stock. The Series B Preferred Stock and any accrued and unpaid dividends thereon shall, with
respect to rights on liquidation, winding up and dissolution, rank senior to the Company’s issued and outstanding common
stock and Series A preferred stock.
The Series
B
P
ref
e
r
red
S
tock
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 of
June 30, 2017 and December 31, 2016, there were 1,000 shares of Class B Preferred Stock outstanding.
Warrants and Options
On April 14, 2015, in connection with
the appointment of Dr. Stephen Holt to the advisory board, the Company agreed the advisor shall receive a non-qualified stock option
to purchase 1,000,000 shares (“Option Shares”) of the Company’s common stock at an exercise price equal to $0.05
per share and expiring April 14, 2018. Option Shares of 400,000 vested immediately and 50,000 Option Shares vested each month from
April 2015 through March 2016. Accordingly, as of March 31, 2016, 1,000,000 Option Shares have vested and the Company recorded
$2,317 as stock compensation expense for the three months ended March 31, 2016, based on Black-Scholes.
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 expired April 26, 2016.
On October 31, 2016, the Company granted (Warrant
#1) to St. George the right to purchase at any time on or after November 10, 2016 (the “Issue Date”) until the date
which is the last calendar day of the month in which the fifth anniversary of the Issue Date occurs (the “Expiration Date”),
a number of fully paid and non-assessable shares (the “Warrant Shares”) of Company’s common stock, equal to $57,500
divided by the Market Price (defined below) as of the Issue Date, as such number may be adjusted from time to time pursuant to
the terms and conditions of Warrant #1 to Purchase Shares of Common Stock. The Market Price is equal to the lowest intra-day trade
price in the twenty (20) Trading Days immediately preceding the applicable date of exercise, multiplied by sixty percent (60%).
The exercise price is $0.05 and is subject to price adjustments pursuant to the agreement and includes a cashless exercise provision.
The Company also issued Warrant #’s 2-9, with each warrant only effective upon St. George funding of the secured notes they
issued to the Company. Warrant #’s 2-9 give St. George the right to purchase Warrant Shares equal to $27,500 divided by the
Market Price on the funded date. On December 14, 2016, the Company received a payment of $50,000, and accordingly, Warrant #2 became
effective. On March 12, 2017, the Company received a payment of $50,000, and accordingly, Warrant #3 became effective. On May 19,
2017, the Company received a payment of $50,000, and accordingly, Warrant #4 became effective.
Note 10 –
Commitments and Contingencies
Office Space
In April 2014, the Company entered into a two
year sublease agreement for the use of up to 7,500 square feet with a
Colorado based oncology
clinical trial and drug testing company and facility presently doing cancer research and testing for established pharmaceutical
companies seeking FDA approval for new drugs
. Pursuant to the lease, as amended, the Company agreed to pay $3,500 per month
for the space. The lease expired in April 2016, and the Company owes the landlord $48,750.
In
December 2016, the Company signed a one year lease for office space in San Juan, Puerto Rico. The lease requires monthly base rent
of $800 for the months of December 2016 through February 2017, and $900 per month for the months of March 2017 through November
2017.
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).
On December 1, 2016, the Company signed a one
(1) year lease for a corporate apartment in Puerto Rico for $5,500 per month.
For the three and six months ended June 30,
2017 the Company recorded rent expense of $36,388 and $58,067, respectively, and for the three and six months ended June 30 2016,
the Company recorded rent expense of $14,209 and $24,709, 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 has recorded $9,561 and $19,122 of expense (included
in leased property expenses) for the three and six months ended June 30, 2017, respectively, and $19,122 and $38,244 for the three
and six months ended June 30, 2016, respectively.
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, and has not used the property and any water and has
not paid for any water rights after September 30, 2015. The Company has recorded $-0- of expense for the three and six months ended
June 30, 2017, and $32,850 and $45,350 for the three and six months ended June 30, 2016, respectively, (included in leased property
expenses). The Company is currently in default of the lease agreement, as rents have not been paid since February 2015.
Legal &
Other
On March 2, 2015, the Company,
the Company’s CEO and the Company’s CFO at the time were named in a civil complaint filed by Erick Rodriguez in
the District Court in Clark County, Nevada (the “DCCC”). The complaint alleges that Mr. Rodriguez never
received 250,000 shares of Series B preferred stock that were initially approved by the Board of Directors in 2012, subject
to the completion of a merger of a company controlled by Mr. Rodriguez. Since the merger was never completed, the shares were
never certificated to Mr. Rodriguez. On March 21, 2017, the DCC agreed to Set Aside the Entry of Default against the
Defendants. By agreement of the parties, the DCCC case was converted to an arbitration under the supervision of Federal
Arbitration, Inc. (“Fed Arb”) Mr. Rodriguez resigned in June 2013.
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 and that Mr. Friedman is the sole Director of the Company (see Form 8-K filed on
November 19, 2015). The Company has filed a counterclaim suit against the Plaintiff, as well as sanctions against the Plaintiff
and their counsel.
Note 11 –
Going Concern
The accompanying condensed consolidated financial
statements have been prepared assuming the Company will continue as a going concern. As of June 30, 2017 the Company had an accumulated
deficit of $18,467,151 and working capital deficit of $2,462,637, inclusive of a derivative liability of $1,801,002. 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 –
Segment Reporting
During the three and
six months ended June 30, 2017 and 2016, the Company operated in one reportable segment, wholesale sales.
Note 13 –
Subsequent Events
On July 17, 2017, the Company issued 6,753,817
shares of common stock upon the conversion of $38,092 of principal and interest. The shares were issued at $0.00564 per share.
On July 25, 2017, the Company issued 6,927,943
shares of common stock upon the conversion of $38,775 of principal and interest. The shares were issued at $0.0056 per share.
On July 28, 2017, St. George funded two ($50,000
each) of the secured promissory notes issued to the Company.
On August 2, 2017, the Company issued 7,211,538
shares of common stock upon the exercise of warrant #1 (see note 9).
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.
On August 8, 2017, the Company issued 5,000,000
shares of common stock as security for the purchase price of the real estate known as the "420 Style" resort and estate
property, located in Canada (see note 1).
On August 9, 2017, the Company issued to a
third-party investor a convertible promissory note for $128,000. The note has a stated interest of 12% and is convertible
at any time after 180 days of the funding of the note, into a variable number of the Company's common stock, based
on a conversion ratio of 58% of the average of the three lowest closing bid prices for 10 days prior to conversion. The note was
funded on August 9, 2017, when the Company received proceeds of $125,000, after disbursements for the lender’s transaction
costs, fees and expenses.