UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-K

 


 

 

(Mark One) 

 

 

 

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

 

 

For the fiscal year ended December 31, 2019

 

 

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: 1-14088

 

Acacia Diversified Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Texas

75-2095676

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

 

13575 58th Street North - #138    Clearwater, FL 33760

 (Address of principal executive offices) (Zip Code)

 

Issuer’s telephone number: (727) 678-4420

 

____________________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

ACCA

OTCQB

 

Securities registered pursuant to section 12(g) of the Act: None

 

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

 

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

 

Indicate by check mark whether the 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.     (1) Yes ☒   No ☐    (2) Yes  ☒   No  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes ☒   No ☐  (Not required) ☐ 

 

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

 

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

 

Large accelerated filer  ☐

 

Accelerated filer  ☐

Non-accelerated filer    ☐  (Do not check if a smaller reporting company)

 

 Smaller reporting company  ☒

Emerging growth company  ☐

 

 

 

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

 

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

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter:  The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the average bid and asked price of such common equity as of June 30, 2019 was $1,090,199.

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 52,481,507 Common shares as of June 7, 2020.

 

 

 

 

TABLE OF CONTENTS

 

PART I.

PAGE

 

 

 

Item 1.

Description of Business

3

Item 1A.

Risk Factors

8

Item 1B.

Unresolved Staff Comments

8

Item 2.

Description of Property

8

Item 3.

Legal Proceedings

8

Item 4.

Mine Safety Disclosures

8

 

 

 

PART II.

 

 

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

9

Item 6.

Selected Financial Data

10

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

10

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

18

Item 8.

Financial Statements and Supplementary Data

18

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

18

Item 9A (T).

Controls and Procedures

18

Item 9B.

Other Information

19

 

 

 

PART III.

 

 

 

 

Item 10.

Directors, Executive Officers, and Corporate Governance

21

Item 11.

Executive Compensation

24

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

26

Item 13.

Certain Relationships and Related Transactions, and Director Independence

27

Item 14.

Principle Accountant Fees and Services

28

 

 

 

PART IV.

 

 

 

 

Item 15.

Exhibits, Financial Statement Schedule and Reports on Form 8-K

29

 

 

 

 

SIGNATURES

30

 

 

 

PART I

 

Item 1.    Description of Business

 

Description of business, principal products, services and their markets

 

Acacia Diversified Holdings, Inc. (“we”, “us”, the “Company”, or the “Parent Company”) was incorporated in Texas on October 1, 1984 as Gibbs Construction, Inc. (“Gibbs”). The Company changed its name from Gibbs Construction, Inc. to Acacia Automotive, Inc. effective February 20, 2007. On October 18, 2012, the Company changed its name from Acacia Automotive, Inc. to Acacia Diversified Holdings, Inc. in an effort to exemplify the Company’s desire to expand into alternative industries as well as more diversified service and product offerings.  

 

On January 15, 2016, the Company acquired the assets of the MariJ Group of companies that included MariJ Agricultural, JR Cannabis Industries, LLC and Canna-Cures Research & Development Center, LLC.  The transaction had an effective date of January 4, 2016. On January 19, 2016 the Company filed a Current Report on Form 8-K announcing the acquisition. The Company subsequently filed expanded and updated information relating to that acquisition on its Amended Current Report on Form 8-K/A on April 25, 2016.  That document is available for viewing on the Company’s website at http://www.acacia.bz/sec/sec.htm and on the SEC website at:

 

https://www.sec.gov/Archives/edgar/data/1001463/000118518516004336/0001185185-16-004336-index.htm 

 

In 2016, following the acquisition, the Company formed two new subsidiaries to conduct its new medical hemp business activities, being MariJ Pharmaceuticals, Inc. (“MariJ Pharma”) and Canna-Cures Research & Development Center, Inc. (“Canna-Cures”). In 2017, the Company formed a new subsidiary Eufloria Medical of Tennessee, Inc. (“EMT”) to conduct its retail business in the state of Tennessee. In July 2018, the Company announced the completion of its acquisition of Medahub Operations Group, Inc. and Medahub, Inc., technology companies (“Medahub”), complete with a current compounding pharmacy license in Florida.

 

On March 26, 2020, the Company announced in a current report on Form 8-k that its operations and business have experienced disruption due to the unprecedented conditions surrounding the COVID-19 pandemic spreading throughout the United States and the world and thus the Company’s business operations have been disrupted and it was unable to timely review and prepare the Company’s financial statements for the 2019 fiscal year. As such, the Company would be making use of the 45-day grace period provided by the SEC’s Order and available filing extension to delay filing of its Annual Report. 

 

On March 31, 2020, Richard K. Pertile resigned his position as Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer for the Company. On the same date, the Company filed a current report on Form 8-k to announce that it issued in escrow 1,475,000 shares of the Company’s Series B Convertible Preferred Stock (the “Preferred Stock”) to ORCIM Financial Holdings, LLC (“OFH”). Each share of the Preferred Stock has fifty (50) votes per share and may be converted into fifty (50) $0.001 par value common shares. As of March 31, 2020, the Company had 43,290,331 shares of its common stock issued and outstanding. There were no other shares of any capital stock outstanding except for the common stock and Preferred Stock. As the result of the issuance of the Preferred Stock and, upon satisfaction of the terms of the Acquisition Agreement, OFH would have voting control over the Company with 73,750,000 votes on all matters submitted to stockholders for a vote. On May 20, 2020, the conditions of the Acquisition Agreement were satisfied with the resignation of the former board of directors of the Company and the change of control became effective.

 

OFH is a limited liability company domiciled in Maryland. OFH is controlled by Mr. Jeffery D. Bearden, who owns 100% of the membership interests of OFH. The Preferred Stock was acquired by OFH in exchange for its agreement to assume the debt of the Company in the approximate amount of $450,000. The funds to satisfy the outstanding debt of the Company were acquired by OFH through a loan from a hedge fund entity known as Geneva Capital.

 

On March 31, 2020, Mr. Larnell C. Simpson, Jr., age 47, was appointed as a director for Acacia Diversified Holdings, Inc. (the “Company”). Mr. Simpson also was appointed to the position of Vice President.

 

On May 20, 2020, directors Danny Gibbs, Neil B. Gholson and Dr. Richard Paula each resigned their respective positions as a director for Acacia Diversified Holdings, Inc.

 

MariJ Pharmaceuticals, Inc. 

 

MariJ Pharma had a proprietary mobile CO2, supercritical hemp oil extraction unit which was USDA certified Organic on September 28th, 2016, by OneCert, under the US National Organic Program; 7 CFR PART 205. MariJ Pharma extracted and processed very high quality, high-cannabinoid profile content medical grade hemp oils from medicinal hemp plants.  MariJ specialized in organic strains of the plant where available, setting itself apart from the general producers of non-organic products.    

 

 

Canna-Cures Research & Development Center, Inc.

 

Canna-Cures engaged in research and development activities as well as retail and wholesale distribution of medicinal hemp products and dietary supplements in Colorado until it closed operations in July 2017.  As a part of its R&D efforts, Canna-Cures sought to align itself with institutions of higher learning in working to develop new products and to identify and develop additional uses for its medicinal hemp products.

 

Canna-Cures launched its first research and development center in Colorado. In conjunction with that opening, Canna-Cures officially launched the Dahlia’s Botanicals Endocannabinoid Nutraceuticals product line.  A portion of the proceeds from our Dahlia’s Botanicals line were awarded to the Canna Moms 501(c)(3) organization in support of its continuing public education and awareness campaign.

 

Eufloria Medical of Tennessee, Inc.

 

In July 2018, the Company announced that its wholly-owned subsidiary, Eufloria Medical of Tennessee, Inc. (“EMT”), an entity focused on the growing and distribution of new and proprietary medicinal hemp products for patients. EMT intended to utilize MariJ Pharma's USDA certified organic mobile processing and handling solutions for its customers, and technology solutions for the expanding physician market, leased a 14-acre farm with 32,000 square feet of indoor growing area in southern Tennessee.  EMT also acquired an option to purchase the farm upon favorable terms.  During 2018, EMT completed excavation and other cleanup activities and developed the farm into its first grow facility, allowing for improved efficiencies through growing, processing and manufacturing the Company’s own product line and building sales through dedicated distributors.  The Company grew its own plant material, processed that plant material through another wholly owned subsidiary, MariJ Pharmaceuticals, Inc. (“MariJ”) and manufactured consumer products with the “EUFLORIA” branding for the dedicated distribution channels.

 

EMT also commenced its retail and wholesale distribution of medicinal hemp products and dietary supplements in Tennessee. In addition to its current extraction operations, the Company was invited to be part of the hemp pilot program in Tennessee. This program provided the Company the license to grow, manufacture, and dispense USDA organic hemp oil in Tennessee and represented the first step in moving its operations to the east coast of the United States. The Company planned on participating in this pilot program through this new, wholly-owned subsidiary.

 

Medahub, Inc.

 

In July 2018, the Company announced the completion of its acquisition of Medahub Operations Group, Inc. and Medahub, Inc., technology companies (“Medahub”), complete with a current compounding pharmacy license in Florida. The Medahub acquisition allowed the Company to be fully HIPAA compliant and cloud based on an HL7 platform. The Company could offer licensing agreements for other hemp companies wanting to be HIPAA compliant from left to right or seed to sale and Doctor to Patient. The Company continued to develop the capabilities of this technology ahead of marketing this platform to users.

 

Distribution methods of the products and services

 

MariJ Pharma extracted and processed a very high quality, high-cannabinoid profile content medical grade hemp oils from medicinal hemp plants in its propriety mobile CO2, supercritical hemp oil extraction unit which was USDA certified Organic on September 28th, 2016, by OneCert, under the US National Organic Program; 7 CFR PART205. The finished product was then delivered to its customers.

 

EMT planned to sell medicinal hemp products and dietary supplements primarily through its retail dispensaries in Tennessee and through a dedicated distribution model.

 

Status of any publicly announced new products or services

 

During 2018, the Company acquired Medahub to develop its proprietary GeoTracking Technology that was fully compliant with the Health Insurance Portability and Accountability standard (“HIPAA”) utilizing its “plant to patient” solution. This GeoTracking Technology was designed to provide a full-channel patient care tracking system that was fully compliant under today’s strict HIPAA regulations that required privacy and security of the patient’s information. Beginning with RFID labeling and tracking of every single seed employed in the grow program and continuing through the sale of medicinal products in a sophisticated retail Point of Sale delivery system.

 

 

The Company also planned to enter into research and development projects with institutions of higher learning in efforts to:  (i) develop new and better strains of medical hemp related products for dispensing as medications, nutraceuticals, cosmeceuticals, and potential dietary supplements; and (ii) provide private label packaging services; and (iii) sell additional medical hemp oils, oil-infused products, and other merchandise through its web-based portal or retail dispensaries planned for that purpose; and (iv) sell cosmeceutical and nutraceutical products and dietary supplements containing its high-quality hemp oil extracts.

 

The Company did not have sufficient working capital to pursue its business plan in its entirety as described herein. Its ability to implement its business plan would depend on its ability to obtain sufficient working capital and to fund its operations. No assurance can be given that it would be able to obtain additional capital, or, if available, that such capital would be available at terms acceptable to the Company, or that it would be able to generate profit from operations, or if profits were generated, that they would be sufficient to carry out its business plans, or that the plans would not be modified.

 

In late March 2020, the Company’s operations and business have experienced disruption due to the unprecedented conditions surrounding the COVID-19 pandemic spreading throughout the United States and the world.

 

Competitive business conditions and the Company’s competitive position in the industry and methods of competition

 

Any industry served by the Company is likely to be highly competitive across the entire United States and the rest of the world. In particular, the hemp industry, being the impetus of all the Company’s attention at this juncture, is very highly competitive and has drawn thousands of competing entities.  While the Company believed its technology, programs, and plans place it in a posture to compete at the highest levels, the sheer numbers of competitors must be recognized. The Company devoted the majority of its efforts on production and sales of its products and services within the continental United States but may institute operations in diverse countries.  Even so, the Company must be considered as currently competing with other companies in diverse countries that can potentially produce and sell competitive products at lower prices.  While the Company believed that there are other hurdles for those foreign entities to overcome, including the high cost of international shipping to U.S. buyers, we believed that they nonetheless could compete with us in our markets.  We would potentially compete with a variety of companies, both domestic and international, and as such would be subject to various levels of competition.

 

There is no assurance the Company will be able to adhere to its plans or to engage in any acquisitions or mergers.  The Company will consider potential opportunities to buy, sell or distribute its products in other countries.

 

Sources and availability of raw materials and the names of principal suppliers

 

One of the ingredients used in the extraction process is carbon dioxide. MariJ Pharma depended on a supplier to supply high quality carbon dioxide. This supplier produced the highest quality carbon dioxide for the medicinal hemp industry. If MariJ Pharma was not able to obtain carbon dioxide from this supplier, it would need to look to other suppliers to supply this critical ingredient. However, the quality of the ingredient would suffer and the Company may not be able to obtain it at reasonable cost.

 

Dependence on one or a few major customers

 

During the year ended December 31, 2019, the Company’s revenues were concentrated on two customers, Beyond Organic Nutritional and LMK Hemp, who accounted for approximately 70% and 22%, of the total consolidated revenues, respectively.

 

During the year ended December 31, 2018, the Company’s revenues were concentrated on two customers, WNC Hemp and CFH, Inc., who accounted for approximately 59% and 21%, of the total consolidated revenues, respectively.

 

Patents, trademarks, licenses, franchises, concessions, royalty agreements or labor contracts, including duration

 

The Company had patents pending, trademarks pending, and no franchises, concessions, royalty agreements or labor contracts. The Company intended to acquire, through its MariJ Pharma subsidiary, portions or complete ownership of licenses and grow operations in one or more states and was seeking to cultivate, organically extract and process its medicinal hemp crops year around in indoor facilities.  The acquisition of these licenses was anticipated to provide the Company with the opportunity to compound medicinal products using mixtures of high cannabinoid profile oils that have very little hallucinogenic properties but have significantly improved medicinal properties.

 

 

Effect of existing or probable governmental regulations on the business

 

Congress voted in December 2018 to legalize the cultivation of hemp in the United States, after months of debate and negotiation between lawmakers. Hemp legalization was tucked into the 2018 farm bill, a massive piece of legislation that also addresses issues such as nutrition, conservation, trade, energy and forestry. The bill received strong bipartisan support, and the President signed it into law.

 

Now that hemp is legal, there are all kinds of implications for farmers, researchers and consumers. For decades, the federal government has treated hemp just like any other cannabis plant. Since 1970, it had been classified as a schedule 1 drug on the Drug Enforcement Administration's list of controlled substances, alongside heroin, LSD and marijuana. The DEA defines schedule 1 drugs as having no currently accepted medical use and a high potential for abuse. The new bill takes hemp off that list. The schedule 1 designation made universities reluctant to get involved in hemp research. With hemp being legalized now, those restrictions and hesitations about legal jeopardy have been removed. 

 

The Company, through its new subsidiaries, operated in the medical hemp sector.  In order to help our shareholders better understand the products we intended to employ in our business plans, we provided certain explanations and definitions below.

 

The Company extracted and processed a derivative of the hemp plant known as CBD oil. CBD is one of dozens of compounds found in hemp plants that belong to a class called cannabinoids. Of these compounds, CBD, CBG, CBN, CBC and THC are usually present in the highest concentrations and have the most common practical applications in the medical field.  The Company’s subsidiaries gave most attention to high-CBD/low-THC products.  Marijuana, unlike most modern-day medicine, contains a wide range of chemical compounds. Scientists have identified to date, over 114 unique molecules in hemp known as cannabinoids, which include THC and CBD. Many other non-cannabinoid compounds are produced by the plant, but these are the compounds that are most addressed as having a use by the medical community.

 

Terpenes, the molecules responsible for marijuana’s smell, among other things, have been shown to block some cannabinoid receptor sites in the brain while promoting cannabinoid binding in others. As a result, terpenes are believed to affect many aspects of how the brain takes in THC or CBD, while offering various therapeutic benefits of their own. In fact, while THC has gotten most of the attention, studies suggest many of the compounds in marijuana work together to produce a synergy of effects. This is known as the “entourage effect.”

 

CBD and THC levels tend to vary between different strains and varieties of hemp.  By using selective breeding techniques, certain growers have managed to create varieties with high levels of CBD, CBG and THCA, being the varieties employed for oil production by the Company’s MariJ Pharmaceuticals subsidiary.  That subsidiary also specialized in extracting oil from certified organic plants, rather than the standard non-organic varieties.

 

Unlike THC; CBD, CBG, CBC, and CBN do not cause a high or hallucinogenic effect. The reason why CBD is non-psychoactive is due to its lack of affinity for CB1 receptors, such as are found in high concentrations in the brain, and which become the channels through which THC is able to port its psychoactive effects.

 

Like most other companies in this industry, we are subject to various business regulations, permits and licenses. The Company, through its new subsidiaries, entered a new business realm that may entail considerably more regulation than its previous endeavors. The Company believed that it has complied with appropriate state requirements for operations and believed it has obtained all permits necessary to function under the current state regulations where we have business operations.

 

Despite the passage of the Farm Bill, inherent risks continue to exist in this industry as a result of the determination by many nationally-chartered banks. As such, some businesses maintain large sums of cash on hand, and meeting payrolls and accounts payable obligations with cash rather than checks.  As a result, those businesses are placed at high risk of internal and external theft and crimes relating to the lack of controls and security afforded by transactional banking.  The Company utilized various financial institutions for its deposit needs, but this still created risks when the proceeds at diverse production locations, often themselves in cash due to the same issues, cannot be deposited in nearby accessible depositories.  The Company had an armored vehicle for use in the transport of cash and hemp products but believes those risks would not be minimized until national depository institutions allow hemp-related businesses to utilize their facilities.

 

Estimate of the amount of money spent during each of the last two fiscal years on research and development

 

The Company spent a de-minimus amount on research and development during its last two fiscal years.

 

 

Costs and effects of compliance with environmental laws

 

The hemp industry, just like other industries, impacts our environment. Environmental laws relating to water rights, energy consumption, pollution, and overall carbon footprint all can and do impact the hemp industry.

 

While some areas of environmental law focus on the protection of the environment, others are designed to control human use of natural resources by setting up a system of environmental approvals. Environmental laws cover topics such as chemicals and pesticides, climate change and energy, coastal, marine and fisheries management, farming and private land management, forestry, clearing vegetation, trees, marine, pollution, water, just to name a few. Given all the facets of both indoor, outdoor, and greenhouse cultivation, in addition to chemical-intensive extractions and infusions of hemp oil products, it is easy to see why environmental laws are coming into play in the cannabis industry.

 

One of the most common environmental law issues for the hemp industry is waste management. Most states that legalize some form of hemp consumption strictly dictate the disposition and storage of the hemp by-products, as well as the types of pesticides, soil amendments, and fertilizers that can be safely applied to cannabis crops.

 

However, fewer states have enacted laws dealing with the industry’s impact on water and air quality, but the industry is certainly under more scrutiny. In certain states, producers and processors must pay a fee to their local or state government and submit an application for a permit, provide information on odor control equipment for producing, growing, or processing and solvent usage information for each type.

 

Energy consumption by hemp growers is also becoming an important issue. The significant use of electricity in indoor hemp production has caused concerns for the carbon-footprint of its production. States may pass legislatures to regulate energy consumption by passing the cost of such effects and consumption onto the hemp industry by instituting licensing and permitting fees.

 

Outdoor growers are not completely free of environmental concerns. They are also facing pressure under environmental laws because outdoor growing has led to deforestation, loss of wildlife, and erosion, and it often requires large amounts of water and pesticides.

 

Additional risk factor

 

War, terrorism, other acts of violence or natural or man-made disasters, including a global pandemic, may affect the markets in which the Company operates, the Company’s customers, the Company’s delivery of products and customer service, and could have a material adverse impact on our business, results of operations, or financial conditions.

 

The Company’s business may be adversely affected by instability, disruption or destruction in a geographic region in which it operates, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest, and natural or man-made disasters, including famine, food, fire, earthquake, storm or pandemic events and spread of disease (including the recent outbreak of the coronavirus commonly referred to as “COVID-19”). Such events may cause customers to suspend their decisions on using the Company’s products and services, make it impossible to attend or sponsor trade shows or other conferences in which our products and services are presented to customers and potential customers, cause restrictions, postponements and cancellations of events that attract large crowds and public gatherings such as trade shows at which we have historically presented our products, and give rise to sudden significant changes in regional and global economic conditions and cycles that could interfere with purchases of goods or services, commitments to develop new products. These events also pose significant risks to the Company’s personnel and to physical facilities, transportation and operations, which could materially adversely affect the Company’s financial results.

 

Number of total employees and number of full-time employees

 

As of December 31, 2019, the Company had a total of seven employees, five of which are full time.

 

 

Available Information

 

Our Web address is www.acaciadiversifiedholdings.com. The Company makes its electronic filings with the Securities and Exchange Commission (“SEC”), including all Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and if applicable, amendments to those reports, available free of charge on its Web site as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. In addition, information regarding our board of directors is available on our Web site. The information posted on our Web site is not incorporated into this Annual Report on Form 10-K.

 

Any materials that we file with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet Web site that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that site is www.sec.gov.

 

Item 1A. Risk Factors

 

As a smaller reporting company we are not required to provide any information under this item.

 

Item 1B. Unresolved Staff Comments

 

None.

 

Item 2.    Description of Properties

 

At December 31, 2019, the Company does not currently own any real properties.

 

The Company rented its administrative office in Clearwater, Florida on a month to month basis, had a two-year lease on its retail space in Nashville, Tennessee and leased property for its growing facility in Pulaski, Tennessee.

 

Item 3.    Legal Proceedings

 

None.

 

Item 4.    Mine Safety Disclosures

 

None.

 

 

PART II

 

Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

 

Our common stock is presently quoted on the OTCQB of the OTC Markets marketplace under the trading symbol ACCA. Historically, trading in our stock has been very limited and the trades that have occurred cannot be characterized as amounting to an established public trading market. As a result, the trading prices of our common stock may not reflect the price that would result if our stock was actively traded.

 

The following are high and low closing prices quoted on the OTCQB during the periods indicated.

 

   

Closing Prices

 
   

High

   

Low

 

Quarters ending in 2018

               

March 31

  $ 0.80     $ 0.45  

June 30

  $ 0.72     $ 0.18  

September 30

  $ 0.25     $ 0.16  

December 31

  $ 0.24     $ 0.15  

Quarters ending in 2019

               

March 31

  $ 0.24     $ 0.11  

June 30

  $ 0.13     $ 0.03  

September 30

  $ 0.08     $ 0.03  

December 31

  $ 0.14     $ 0.07  

 

As of December 31, 2019, the Company had 225 registered stockholders of record. The Company believes that it may also have as many as 200 or more additional beneficial shareholders.  The number of both shareholders of record and beneficial shareholders may change on a daily basis and without the Company’s immediate knowledge.  

 

Holders of common stock are entitled to receive dividends as may be declared by our board of directors and, in the event of liquidation, to share pro rata in any distribution of assets after payment of liabilities. The board of directors has sole discretion to determine: (i) whether to declare a dividend; (ii) the dividend rate, if any, on the shares of any class of series of our capital stock, and if so, from which date or dates; and (iii) the relative rights of priority of payment of dividends, if any, between the various classes and series of our capital stock. We have not paid any dividends and do not have any current plans to pay any dividends.

 

At its meeting of directors on February 1, 2007, the Company’s board of directors approved the Acacia Automotive, Inc. 2007 Stock Incentive Plan1 (the “Plan”), which was approved by our stockholders on November 2, 2007, reserving 1,000,000 shares to be issued there under in the form of common stock or common stock purchase options.  On July 26, 2012, our shareholders voted to update and extend the Acacia Automotive, Inc. 2007 Stock Incentive Plan, renaming it the Acacia Diversified Holdings, Inc. 2012 Stock Incentive Plan. Warrants, which may be included as equity compensation of used in other manners, are not a component of the Plan. On June 29, 2015 shareholders holding a majority of the shares of the Company voted to discontinue the Company’s stock incentive plans, but shares or options may still be authorized and issued by the Company’s Board of Directors. In resolutions since the implementation of the Plan, the directors granted restricted stock, warrants, and options for compensation summarized as follows as of December 31, 2019:

 

SUMMARY OF THE PLAN

 

Plan Description at December 31, 2019 and 2018

 

Number of Shares to be Issued Upon Exercise of

Outstanding Options

   

Weighted Average Exercise Price of Outstanding Options

   

Number of Shares Remaining Available for Future Issuance

 

Initial Number of Securities Available for Issue Under the Plan

                    1,000,000  
                         

Total Equity Plan Options outstanding at December 31, 2017 (3)

    65,000     $ 0.35       *-  

Total options approved and issued in 2018

    -       -       -  

Options expired in 2018

    15,000       0.50       -  

Total Equity Plan Options outstanding at December 31, 2018 (4)

    50,000     $ 0.30       *-  

Options expired in 2019

    30,000       0.10       -  

Total Equity Plan Options outstanding at December 31, 2019 (5)

    20,000     $ 0.60       *-  

 

* The plan was terminated on June 29, 2015.

 

 

(3)

Of the 65,000 options still active as of December 31, 2017: (i) 15,000 expire at 12-31-2018; (ii) 30,000 expire at 11-6-2019; and, (iii) 20,000 expire at 12-23-2020.

(4)

Of the 50,000 options still active as of December 31, 2018: (i) 30,000 expire at 11-6-2019; and, (ii) 20,000 expire at 12-23-2020.

(5)

These options expire at 12-23-2020.

 

In February 2018, the Company adopted the Acacia Diversified Holdings, Inc. 2018 Stock Grant and Option Plan (“2018 Plan”). The purpose of the 2018 Plan is to offer selected employees, directors and consultants an opportunity to acquire a proprietary interest in the success of the Company. Awards that can be granted from the 2018 Plan include registered shares, restricted shares and options as well as the direct award or sale of shares of the Company’s common stock. The aggregate number of shares which  may be issued or transferred pursuant to an award shall not exceed 5,000,000 shares of authorized common stock of the Company. Subsequent to the adoption of the 2018 Plan, the Company filed Form S-8 with the Securities and Exchange Commission to register 1,000,000 shares of the Company’s common stock pursuant to a consulting agreement.

 

Item 6.    Selected Financial Data

 

As a smaller reporting company we are not required to provide any information under this item.

 

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the other sections of this Annual Report, including our consolidated financial statements and related notes set forth in Item 8. This discussion and analysis contains forward-looking statements, including information about possible or assumed results of our financial condition, operations, plans, objectives and performance that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated and set forth in such forward-looking statements.

 

Forward-Looking Statements

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements.  You can identify forward-looking statements by the use of the words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “may”, “will”, “should”, “could”, “predicts”, “potential”, “proposed”, or “continue” or the negative of those terms.  These statements are only predictions. In evaluating these statements, you should consider various factors which may cause our actual results to differ materially from any forward-looking statements.  Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements due to numerous factors, including, but not limited to, availability of financing for operations, successful performance of operations, impact of competition and other risks detailed below as well as those discussed elsewhere in this Form 10-K and from time to time in the Company’s Securities and Exchange Commission filings and reports.  In addition, general economic and market conditions and growth rates could affect such statements. Any forward-looking statement made by the Company speaks only as of the date on which it is made. The Company is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of new information, subsequent events or otherwise.

 

Executive Overview

 

Acacia Diversified Holdings, Inc. (“we”, “us”, the “Company”, or the “Parent Company”) was incorporated in Texas on October 1, 1984 as Gibbs Construction, Inc. (“Gibbs”). The Company changed its name from Gibbs Construction, Inc. to Acacia Automotive, Inc. effective February 20, 2007. On October 18, 2012, the Company changed its name from Acacia Automotive, Inc. to Acacia Diversified Holdings, Inc. in an effort to exemplify the Company’s desire to expand into alternative industries as well as more diversified service and product offerings.  

 

 

On January 15, 2016, the Company acquired the assets and businesses of the MariJ Group of companies that included MariJ Agricultural, JR Cannabis Industries, LLC and Canna-Cures Research & Development Center, LLC.  The transaction has an effective date of January 4, 2016.

 

In 2016, following the acquisition, the Company formed two new subsidiaries to conduct its new medical hemp business activities, being MariJ Pharmaceuticals, Inc. (“MariJ Pharma”) and Canna-Cures Research & Development Center, Inc. (“Canna-Cures”). In 2017, the Company formed a new subsidiary Eufloria Medical of Tennessee, Inc. (“EMT”) to conduct its retail business in the state of Tennessee. In July 2018, the Company announced the completion of its acquisition of Medahub Operations Group, Inc. and Medahub, Inc., technology companies (“Medahub”), complete with a current compounding pharmacy license in Florida.

 

On March 26, 2020, the Company announced in a current report on Form 8-k that its operations and business have experienced disruption due to the unprecedented conditions surrounding the COVID-19 pandemic spreading throughout the United States and the world and it was unable to timely review and prepare the Company’s financial statements for the 2019 fiscal year. As such, the Company would be making use of the 45-day grace period provided by the SEC’s Order and available filing extension to delay filing of its Annual Report. 

 

On March 31, 2020, Richard K. Pertile resigned his position as Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer for the Company. On the same date, the Company filed a current report on Form 8-k to announce that it issued in escrow 1,475,000 shares of the Company’s Series B Convertible Preferred Stock (the “Preferred Stock”) to ORCIM Financial Holdings, LLC (“OFH”). Each share of the Preferred Stock has fifty (50) votes per share and may be converted into fifty (50) $0.001 par value common shares. As of March 31, 2020, the Company had 43,290,331 shares of its common stock issued and outstanding. There were no other shares of any capital stock outstanding except for the common stock and Preferred Stock. As the result of the issuance of the Preferred Stock and, upon satisfaction of the terms of the Acquisition Agreement, OFH would have voting control over the Company with 73,750,000 votes on all matters submitted to stockholders for a vote. On May 20, 2020, the conditions of the Acquisition Agreement were satisfied with the resignation of the former board of directors of the Company and the change of control became effective.

 

OFH is a limited liability company domiciled in Maryland. OFH is controlled by Mr. Jeffery D. Bearden, who owns 100% of the membership interests of OFH. The Preferred Stock was acquired by OFH in exchange for its agreement to assume the debt of the Company in the approximate amount of $450,000. The funds to satisfy the outstanding debt of the Company were acquired by OFH through a loan from a hedge fund entity known as Geneva Capital.

 

On March 31, 2020, Mr. Larnell C. Simpson, Jr., age 47, was appointed as a director for Acacia Diversified Holdings, Inc. (the “Company”). Mr. Simpson also was appointed to the position of Vice President.

 

On May 20, 2020, directors Danny Gibbs, Neil B. Gholson and Dr. Richard Paula each resigned their respective positions as a director for the Company.

 

MariJ Pharmaceuticals, Inc.

 

MariJPharma engaged in the extraction and processing of very high quality, high-CBD/low-THC content medical grade hemp oils from medical hemp plants.  MariJPharma specialized in utilizing organic strains of the hemp plant, setting itself apart from the general producers of non-organic products.  In addition, MariJPharma had the technical expertise and capability to process and formulate the oils and to employ them in its compounding operations.  MariJPharma sought to become engaged as owner or co-owner of a grow facility such as to produce its own plants for processing. The Company intended to acquire, through its MariJ Pharma subsidiary, portions or complete ownership of licenses and grow operations in one or more states and sought to cultivate, organically extract and process its medicinal hemp crops year around in indoor facilities.  The acquisition of these licenses was anticipated to provide the Company with the opportunity to compound medicinal products using mixtures of high cannabinoid profile oils that have very little hallucinogenic properties but have significantly improved medicinal properties. This GeoTracking Technology was designed to provide a full-channel patient care tracking system that is fully compliant under today’s strict HIPAA regulations that require privacy and security of the patient’s information. Beginning with RFID labeling and tracking of every single seed employed in the grow program and continuing through the sale of medicinal products in a sophisticated retail Point of Sale delivery system.

 

 

MariJ Pharma’s revenues were anticipated to be generated primarily from several activities, including but not limited to the following:

 

a.  

Hemp oil extraction and processing. MariJ Pharma had a unique mobile hemp oil processing and extraction unit designed into a heavy-duty trucks.  That unit performed extractions and processing of medical hemp oils at various sites and was developing additional contracts for services.

b.  

Wholesale of raw and processed medical hemp oils.

c.  

Compounding and manufacturing.  MariJ Pharma constructed a mobile laboratory and testing unit, also on a heavy-duty truck chassis, intended to address the growing demand for these services in the medical hemp industry.

d.  

Licensing and support of the Company’s GeoTracking Technology systems

e.  

Processing and compounding services for medical grade hemp oils

 

On September 28, 2016, MariJ Pharmaceuticals, Inc. received an Organic Certification under the U.S. National Organic Program (7 CFR Part 205) for its proprietary CO2 mobile hemp oil extraction process and handling from OneCert, Inc., the issuing authority for that certification. As such, MariJ was authorized to process directly for certified organic farms and was able to produce certified organic hemp oils.

 

The Company sought additional investments and financing to pay the costs of building its second mobile oil extraction and processing unit, to finance final construction of its mobile compounding and manufacturing unit for the same industry, and to complete the roll-out of its GeoTracking Technology system. Unfortunately, the Company’s operations and business have experienced disruption due to the unprecedented conditions surrounding the COVID-19 pandemic spreading throughout the United States and the world and was not able to secure the necessary funds to carry out its business plan.

 

Canna-Cures Research & Development Center, Inc.

 

The Company acquired the assets and the business of Canna-Cures Research & Development Center, LLC, a Florida limited liability company, on January 15, 2016.  The Company utilizes this subsidiary to engage in research and development activities as well as retail and wholesale distribution of medicinal hemp products and dietary supplements in the state of Colorado, depending upon our ability to comply in each instance with FDA rules and other regulations.  Canna-Cures closed its retail operations in 2017 and began to focus its efforts in its development activities in Tennessee.

 

Eufloria Medical of Tennessee, Inc.

 

In addition to its extraction operations, the Company was invited to be part of the hemp pilot program in Tennessee. This program provided the Company the license to grow, manufacture, and dispense hemp oil in Tennessee and represented the first step in moving its operations to the east coast of the United States. The Company planned on participating in this pilot program through this new, wholly-owned subsidiary.

 

The Company also acquired land in Tennessee and completed excavation and other cleanup to develop the farm into its first grow facility, allowing for improved efficiencies through growing, processing and manufacturing the Company’s own product line and building sales through dedicated distributors.  The Company grew its own plant material, processed that plant material through another wholly owned subsidiary, MariJ Pharma and manufactured consumer products with the “EUFLORIA” branding for the dedicated distribution channels.

 

EMT sought to align itself with institutions of higher learning in working to develop new products and to identify and develop additional uses for its medical hemp products. It was anticipated that EMT could generate revenues from the following activities:

 

1)

EMT sought to enter into product development projects with institutions of higher learning in efforts to develop new and better strains of medical hemp related products for dispensing as medications, nutraceuticals, cosmeceuticals, and probably dietary supplements.  EMT anticipated participating in state and federal grants in conjunction with one or more universities as a means to defray part of its costs in these efforts.

2)

Private label packaging services - the Company obtained a majority of the equipment required to engage in the business of packaging and labeling of medical hemp oils, oil-infused products, and related items.

3)

Retail sales of medical hemp oils, oil-infused products, and other merchandise through its web-based portal or retail dispensaries planned for that purpose.  These activities depended in large part upon meeting FDA regulations and criteria relating to the sale and distribution of hemp-infused products, and the Company was in the process of determining the status of those criteria.

4)

Retail, and wholesale distributor, sales of cosmeceutical and nutraceutical products and dietary supplements containing its high-quality hemp oil extracts, subject to compliance with FDA and other regulations.

5)

Growing high quality hemp plants and extracting oil for sale or for manufacturing of oil-infused products.

 

 

The Company required additional capital to execute these plans and there can be no assurance that the Company will be successful in its plans to generate that capital. Unfortunately, the Company’s operations and business have experienced disruption due to the unprecedented conditions surrounding the COVID-19 pandemic spreading throughout the United States and the world and was not able to secure the necessary funds to carry out its business plan.

 

Discussion Regarding the Company’s Consolidated Operating Results

 

The results of operations are based on preparation of financial statements in conformity with accounting principles generally accepted in the United States of America.  The preparation of financial statements requires management to select accounting policies for critical accounting areas as well as estimates and assumptions that affect the amounts reported in the financial statements.  The Company’s accounting policies are more fully described in Note 3 to the Consolidated Financial Statements.

 

During the year ended December 31, 2019, we generated $519,221 of revenue compared to $415,051, an increase of $104,170 or 25%. The increase is primarily as a result of having more contracts for extraction services in 2019. Costs of goods sold increased by $217,589, or 79%, from $276,310 to $493,899, primarily due to increase in extraction costs, including compensation to extraction technicians and depreciation on extraction equipment. As a result, gross profit decreased by $113,419 or 82% from $138,741 to $25,322.

 

During the year ended December 31, 2019, our selling, general and administrative expenses decreased by $536,812 or 34% from $1,558,545 to $1,021,733. The Company was not successful in raising the necessary capital to continue its operations in Tennessee. Therefore, it closed of its retail and grow operations in Tennessee. This resulted a decrease in general and administrative expenses in 2019.

 

As a result of the above, operating losses decreased by $423,393 or 30% from $1,419,804 to $996,411 during the year ended December 31, 2019.

 

The Company’s other expenses were $592,517 and $292,899 during the years ended December 31, 2019 and 2018, respectively. This is a result of non-cash derivative expense from issuances of convertible notes payable, the related amortization of debt issuance costs and interest accrued on various debt obligations. Increase in other expenses was $299,618, or 102% during the year ended December 31, 2019. The increase is as a result of issuances of additional convertible notes payable and their related non-cash derivative expenses.

 

As a result of the above, our consolidated net loss for the year ended December 31, 2019 amounted to $1,588,928 compared to a consolidated net loss of $1,712,703 for the year ended December 31, 2018, a decrease of $123,775 or 7%.

 

Total Assets.  Total assets at December 31, 2019 and 2018 were $654,237 and $ 696,895, respectively.  Total assets consist of current assets of $136,318 and $239,132, respectively, net property and equipment of $350,509 and $453,562, respectively, and other assets of $167,410 and $4,201, respectively. Total assets decreased by $42,658, or 6% primarily due to a decrease in accounts receivable of $83,509 or 61% due to collection efforts put forth during the year ended December 31, 2019, depreciation on property and equipment, offset by the acquisition of an right-of-use finance lease.

 

Total Liabilities.  Total liabilities at December 31, 2019 and 2018 were $2,167,975 and $1,649,675, respectively. Total liabilities increased by $518,300, or 31%. The increase is primarily attributable to an increase in accounts payable and accrued expenses of $106,460 as the Company experienced cash flows challenges. Accrued expenses included accrued salary and bonus to the Company’s former CEO and COO. In addition, the increase is also attributable to a net increase of convertible notes payable of $65,000 and increase in the related derivative liability of $184,812 as a result of their conversion feature, lease liability of a right-of-use finance lease of $164,255, offset by a decrease in other related party obligations.

 

Liquidity and Capital Resources

 

Our consolidated financial statements have been prepared assuming that we will continue as a going concern. For the year ended December 31, 2019, we had a net loss of $1,588,928. The Company has not generated profit to date. The Company expects to continue to incur operating losses. The Company expects to incur professional fees to maintain its reporting company status. Until such time that the Company is able to generate revenue and become profitable or find new sources of capital, the Company will find it difficult to continue to meet its obligations as they come due.  There can be no assurance that the Company will be successful in its efforts to raise capital, or if it were successful in raising capital, that it would be successful in meeting its business plans.  Management’s plans include attempting to raise funds from the public through an equity offering of the Company’s common stock and identifying and developing new opportunities. However, the recent COVID-19 pandemic has presented unprecedented challenges to businesses and the investing landscape around the world. Therefore, there can be no assurance that Management’s plans will be successful.

 

 

As previously mentioned, since inception, we financed our operations largely from the sale of common stock, notes payable and advances from our majority stockholder and entering into financing agreements with unrelated parties. During the year ended December 31, 2019, we obtained working capital from issuing notes payable to a related party in the amount of $54,000, entering into convertible notes with an unrelated party and received proceeds of $242,000 and obtained $91,200 of proceeds from sale of our common stock. During the year ended December 31, 2018, we obtained working capital largely from issuing notes payable to a related party in the amount of $254,000 and issuing convertible notes with an unrelated party and received proceeds of $175,000 and obtained $70,000 of proceeds from sale of our common stock.

 

We incurred significant net losses and negative cash flows from operations since its inception. As of December 31, 2019, we had an accumulated deficit of $8,259,979.

 

During the year ended December 31, 2019, we used cash from operations of $340,168 compared to $465,638 in 2018, a decrease of $125,470. This is largely attributable to a lower account receivable balance at the end of 2019 and higher accounts payable and accrued expense balances at the end of 2019. To generate a positive cash flow, we would have to increase our revenues and decrease expenses.

 

During the year ended December 31, 2019, we invested $55,928 in the purchase of property and equipment, compared to $47,109 in 2018 as we continued to make improvements to the property in Tennessee.

 

During the year ended December 31, 2019, we generated $374,064 from financing activities compared to $536,127 in 2018. In 2019, we turned to an unrelated party for working capital by entering into convertible notes payable as our related party’s ability to continue to provide working capital waned. During the year ended December 31, 2019, we obtained working capital from issuing notes payable to a related party in the amount of $54,000, entering into convertible notes with an unrelated party and received proceeds of $242,000 and obtained $91,200 of proceeds from sale of our common stock. During the year ended December 31, 2018, we obtained working capital largely from issuing notes payable to a related party in the amount of $254,000 and issuing convertible notes with an unrelated party and received proceeds of $175,000 and obtained $70,000 of proceeds from sale of our common stock.

 

As a result of the above, as of December 31, 2019, we had a negative consolidated net cash outflow of $22,032 for the year compared to a positive consolidated net cash inflow of $23,380 for the year ended December 31, 2018. 

 

Discussions Regarding Operating Leases and Commitments

 

As of December 31, 2019, the Company has the following operating lease obligations.

 

The Company rented administrative space in Clearwater, Florida at $965 per month on a month to month basis and rents retail space in Nashville, Tennessee at $2,500 per month beginning in December 2017 for the first twelve months and at $2,250 per month for the next twelve months. The retail space lease ended in November 2019. Rent expense for these leases for the years ended December 31, 2019 and 2018 were $40,124 and $42,040, respectively.

 

On May 1, 2016, the Company entered into an employment agreement with its former CEO. The term of the employment was through December 31, 2019. The salary for our former CEO for the years 2019 and 2018 was $195,000 each year plus annual bonus at 35% of the salary. Any salary and bonus increases must be reviewed and approved by the Company’s board of directors. The agreement provided for a storage and corporate housing allowance of $1,000 per month, retroactively to January 1, 2018 and a monthly automobile allowance to our former CEO of $1,000. In May 2018, the board of directors approved to discontinue payment of the storage and corporate housing allowance, retroactively to January 1, 2018. As a result, no expenses related to the storage and corporate housing allowance was recorded since January 1, 2018. The automobile allowance remains unchanged at $1,000 per month. As such, the Company was committed to an annual expenditures of $12,000 for the year ended December 31, 2019. During the years ended December 31, 2019 and 2018, expenses related to the automobile allowances totaled $12,000 for each year. At December 31, 2019, the Company owed its former CEO $75,000 of unpaid salary, $52,500 of accrued bonus and $9,000 of unpaid automobile allowance. The employment agreement was renewed through June 30, 2020 at an annual salary of $150,000 and continued to provide for a monthly automobile allowance of $1,000. The agreement also provided for severance payment to the former CEO in the event of a change in control.

 

On May 1, 2016, the Company entered into an employment agreement with its former COO. The term of the employment was through December 31, 2019. The salary for our former COO for the years 2019 and 2018 was $116,833 and $105,000, respectively, plus annual bonus at 35% of the salary. Any salary and bonus increases must be reviewed and approved by the Company’s board of directors. At December 31, 2019, the Company owed its former COO $20,717 of unpaid salary and $79,562 of accrued bonus. The employment agreement was renewed through June 30, 2020 at an annual salary of $96,000. The agreement also provided for severance payment to the former COO in the event of a change in control.

 

 

In August 2016, the Company entered into a licensing agreement to use exclusively a brand name for its products for five years. Pursuant to the terms of the agreement, the Company issued 2,000 shares of its restricted common stock to the brand owner and 2,000 shares at the end of each of the next four years. During the years ended December 31, 2019 and 2018, these shares were valued at $3,184 and $1,420, respectively. There remains 4,000 shares to be issued to the brand owner.

 

Financing of Planned Expansions and Other Expenditures

 

We anticipated seeking additional capital through the sale of our equity securities in a private placement offering, but no assurance can be made that we would be able to find willing buyers for such securities. Moreover, as we contemplated selling our securities by way of an exemption from registration, there can be no assurance that we would be able to identify a satisfactory number of suitable buyers to whom we may legally offer such securities, or if we were successful in identifying suitable buyers that we would be successful in raising capital, or if successful in raising capital that we could be successful in implementing any plan for acquisitions or adding or expanding any operations. 

 

Unfortunately, the Company’s operations and business have experienced disruption due to the unprecedented conditions surrounding the COVID-19 pandemic spreading throughout the United States and the world and was not able to secure the necessary funds to carry out its business plan.

 

Going Concern

 

The Company has not generated profit to date. The Company expects to continue to incur operating losses. The Company expects to incur professional fees to maintain its reporting company status. Until such time that the Company is able to generate revenue and become profitable or find new sources of capital, the Company will find it difficult to continue to meet its obligations as they come due.  There can be no assurance that the Company will be successful in its efforts to raise capital, or if it were successful in raising capital, that it would be successful in meeting its business plans.  Management’s plans include attempting to raise funds from the public through an equity offering of the Company’s common stock and identifying and developing new opportunities. However, the recent COVID-19 pandemic has presented unprecedented challenges to businesses and the investing landscape around the world. Therefore, there can be no assurance that Management’s plans will be successful.

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses for all periods presented and has a substantial accumulated deficit. As of December 31, 2019, these factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Critical Accounting Policies

 

Our consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) applied on a consistent basis. The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

 

We regularly evaluate the accounting policies and estimates that we use to prepare our consolidated financial statements. A complete summary of these policies is included in Note 4 of the notes to our financial statements. We believe that the following accounting policies are those most critical to the judgment and estimates used in preparation of our consolidated financial statements.

 

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS – The Company’s accounts receivable represents amounts due from customers for extraction services performed. Allowance for uncollectible accounts receivable is estimated based on the aging of the accounts receivable and management estimate of uncollectible amounts.  

 

INVENTORIES – Inventories are stated at the lower of cost or market.  Cost is determined using the average cost method. The Company’s inventory consists of raw materials and finished goods. Finished goods inventories are separated into two discernible product lines of organic and non-organic products. Cost of inventory includes cost of ingredients, labor, quality control and all other costs incurred to bring our inventories to condition ready to be sold.

 

 

DEFERRED FARM EXPENSE - The Company's subsidiary EMT grew hemp plants in both its indoor and outdoor facilities. In accordance with Accounting Standards Codification 905 - Agriculture, all direct and indirect costs of growing the plants are accumulated until the time of harvest. These deferred cost cannot exceed the realizable value of the oil processed from the hemp plants. Crop costs such as soil preparation incurred before planting are deferred and allocated to the growing crop. Deferred farm expense is included as inventory costs.

 

PROPERTY AND EQUIPMENT – Property and equipment are stated at cost less accumulated depreciation.  Major renewals and improvements are capitalized, while minor replacements, maintenance and repairs are charged to current operations.  Depreciation is computed by applying the straight-line method over the estimated useful lives, which are generally two to seven years.  

 

IMPAIRMENT OF LONG-LIVED ASSETS – In accordance with Accounting Standards Codification 360-10-05 - Impairment or Disposal of Long-Lived Assets, long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment at least annually or whenever facts and circumstances indicate that the carrying value may not be recoverable.  When required, impairment losses on assets to be held and used are recognized based on the fair value of the asset.  The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required.  If the carrying amount of the long-lived asset is not recoverable, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset.  The Company did not recognize any impairment losses for any periods presented.

 

DEBT ISSUANCE COSTS - The Company follows Accounting Standard Update 2015-03 – Simplifying the Presentation of Debt Issuance Costs, which requires direct costs associated with the issuance of convertible note to be presented in the balance sheet as a direct reduction from the carrying value of the associated debt liability. These costs are amortized into interest expense over the contractual term of the note or a shorter amortization period when deemed appropriate. The Company amortizes debt issuance costs for its convertible note immediately upon issuance since the note is convertible on demand.

 

OFFERING COSTS - The Company follows the SEC Staff Accounting Bulletin, Topic 5 - Miscellaneous Accounting, which requires that specific incremental costs directly attributable to a proposed or actual offering of securities may be deferred and charged against gross receipts of the offering. However, deferred costs of an aborted offering, or a postponement of existing offering exceeding 90 days, may not be deferred and charged against proceeds of a subsequent offering. 

 

REVENUE RECOGNITION - In May 2014, the FASB issued Accounting Standard Update 2014-09 - Revenue from Contracts with Customers (Topic 606), which replaces numerous requirements in U.S. GAAP, including industry specific requirements, and provides a single revenue recognition model for recognizing revenue from contracts with customers. The Company adopted this standard effective January 1, 2018. 

 

The core principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This requires companies to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. The Company’s revenues from extraction activities and from retail sales are recognized at a point in time. 

 

The ASU requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The application of the five-step model to the revenue streams compared to the prior guidance did not result in significant changes in the way the Company records its revenues. 

 

The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application to accumulated deficit. Additionally, incremental footnote disclosures are required to present the 2018 revenues under the prior standard. Under the modified retrospective method, an entity may also elect to apply the standard to either (i) all contracts as of January 1, 2018, or (ii) only to contracts that are not completed as of January 1, 2018. The Company elected to adopt this guidance using the modified retrospective method at January 1, 2018 which did not result in an adjustment to accumulated deficit. Additionally, upon adoption, the Company evaluated its revenue recognition policy for all revenue streams within the scope of the ASU under previous standards and using the five-step model under the new guidance and confirmed that there were no differences in the pattern of revenue recognition.

 

 

STOCK BASED COMPENSATION - The Company accounts for stock-based compensation under Accounting Standards Codification 718 - Compensation-Stock Compensation (“ASC 718”). ASC 718 requires that all stock-based compensation be recognized as expense in the financial statements and that such cost be measured at the fair value of the award at the grant date and recognized over the period during which an employee is required to provide services (requisite service period). An additional requirement of ASC 718 is that estimated forfeitures be considered in determining compensation expense. Estimating forfeitures did not have a material impact on the determination of compensation expense during the years ended December 31, 2019 and 2018.  

 

The Company accounts for stock-based awards based on the fair market value of the instrument using the Black-Scholes option pricing model and utilizing certain assumptions including the followings:

 

Risk-free interest rate – This is the yield on U.S. Treasury Securities posted at the date of grant (or date of modification) having a term equal to the expected life of the option. An increase in the risk-free interest rate will increase compensation expense.

 

Expected life—years – This is the period of time over which the options granted are expected to remain outstanding. Options granted by the Company had a maximum term of ten years. An increase in the expected life will increase compensation expense.

 

Expected volatility – Actual changes in the market value of stock are used to calculate the volatility assumption.  An increase in the expected volatility will increase compensation expense.

 

Dividend yield – This is the annual rate of dividends per share over the exercise price of the option. An increase in the dividend yield will decrease compensation expense.  The Company does not currently pay dividends and has no immediate plans to do so in the near future.

 

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of Accounting Standards Codification 505-50, Equity – Based Payments to Non-Employees.  Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued.  The value of the common stock is measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty’s performance is complete.

 

MEDAHUB ACQUISITION - In July 2018, the Company announced the completion of its acquisition of Medahub Operations Group, Inc. and Medahub, Inc., technology companies (“Medahub”), which includes a current compounding pharmacy license in Florida. The Medahub acquisition allows the Company to be fully HIPAA compliant and cloud based on an HL7 platform. The Company can soon offer licensing agreements for other cannabis companies wanting to be HIPAA compliant from left to right or seed to sale and Doctor to Patient. The Company issued 600,000 shares of its restricted common stock to the principal of Medahub as consideration of the acquisition, valued at $126,000. 

 

When determining the accounting of the acquisition, the Company concluded that the acquisition does not constitute the acquisition of a business since there was no inputs, processes or outputs within Medahub. In addition, although the Company acquired certain software and technology from Medahub, the most significant asset it acquired was Medahub's principal's commitment to provide support, guidance and direction for implementing this technology. Without the principal's commitment of his time, the Company will not be able to implement the technology and begin generating cash flows. Therefore, the Company believes that the value of the purchase is concentrated on the service provided by Medahub's principal. As a result, the Company allocated the entire purchase price to the service provided and accounted for it as professional fee expense.

 

LEASES

 

In February 2016, the FASB issued ASU 2016-02, Leases, which aims to make leasing activities more transparent and comparable and requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. The new guidelines are contained in Accounting Standards Codification ASC Topic 842 - Leases ("ASC 842"). This ASU is effective for all interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company applied this standard retrospectively on January 1, 2019 through a cumulative effect adjustment recognized as of January 1, 2019. In applying this standard, the Company elects to apply all practical expedients to not reassess the followings:

 

 

1.

Whether a pre-existing contract is or contain a lease

 

2.

Whether a pre-existing lease should be classified as an operating or finance lease, and

 

3.

Whether the initial direct costs capitalized for a pre-existing lease under the previously lease accounting standard ASC Topic 840 qualify for capitalization

 

 

In addition, in the applying ASC 842, the Company does not elect the hindsight practical expedient.

 

As a result, the Company recorded its right-of-use assets and corresponding lease liabilities on its balance sheet beginning January 1, 2019.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

As a smaller reporting company we are not required to provide any information under this item.

 

Item 8.    Financial Statements and Supplementary Data

 

The response to this item is submitted as a separate section of this Form 10-K.  See “Item 15.  Exhibits, Financial Statements and Reports on Form 8-K.

 

Item 9.   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

 

None

 

Item 9A(T).  Controls and Procedures

 

Inherent Limitations on the Effectiveness of Controls Over Financial Reporting

 

As is typical with most smaller enterprises, our control processes are oriented toward operations, and production of financial statements reflects an outgrowth of operations and results of those operations. Internally, financial statements are a management tool to evaluate the operations and not an end of those operations. We closely monitor the daily results of our cash position and make certain that our cash position is adequate for the foreseeable future. Our financial statements are generated as part of the reporting on our operations, one metric of our operations, and as part of our obligations as a public entity.

 

Management, including our Principal Executive Officer, who acts as our Principal Financial Officer and Principal Accounting Officer, does not expect that our controls and procedures will prevent all errors and fraud, and our present efforts are oriented on improving the availability and thoroughness of information to management and to generate financial statements.  In designing and evaluating the controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.  Further, the design of a control system must reflect the fact that there are resource constraints, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.  Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management’s override of the control.  The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.  Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports, such as this report on Form 10-K, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, particularly our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding operations and required disclosure.

 

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures to provide reasonable assurance of achieving their objective pursuant to Exchange Act Rule 13a-14.  Based upon that evaluation, the Principal Executive Officer, Chief Executive Officer and Principal Accounting Officer, Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2019.

 

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, our Principal Executive Officer, Chief Executive Officer and Principal Financial Officer, Chief Financial Officer to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the Company’s transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements and that receipts and expenditures of the Company’s assets are made in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of the Company’s financial statements would be prevented or detected.

 

Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2019 using the criteria set forth in the Internal Control over Financial Reporting - Guidance for Smaller Public Companies issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon the evaluation, our management concluded that our internal control over financial reporting was not effective as of December 31, 2019 because of material weaknesses in our internal control over financial reporting. A material weakness is a control deficiency or combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis. Our management concluded that the Company has material weaknesses in our internal control over financial reporting because of inadequate segregation of duties over authorization, review and recording of transactions, as well as the financial reporting of such transactions. Management has, however, implemented controls and procedures in recent years surrounding cash disbursements, internal financial accounting, including cross reconciliations covering equity transactions and hiring a financial controller to further enhance our internal controls.

 

Despite the existence of these material weaknesses, the Company believes the financial information presented herein is materially correct and in accordance with generally accepted accounting principles in the United States.

 

While the implementation of improved controls and procedures has strengthened our internal control framework and disclosure controls, we continue to believe we have a material weakness related to the lack of sufficient segregation of duties surrounding the cash disbursements cycle. Accordingly, the Company is currently developing a plan of remediation with the amount of resources available.

 

This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report is not subject to attestation by the Company’s registered public accounting firm because the Company is not an accelerated filer under the Exchange Act.

 

Changes in Control over Financial Reporting

 

No change in the Company’s internal control over financial reporting occurred during the year ended December 31, 2019, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. During the year ended December 31, 2019, management has, however, continued to strengthen internal controls and procedures through the implementation of entity-level controls.

 

Item 9B.  Other Information

 

On March 31, 2020, Richard K. Pertile resigned his position as Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer for the Company. Mr. Pertile did not have any disagreement with the Company or Board of Directors regarding any matter pertaining to his employment with the Company.

 

On March 31, 2020, the Company issued in escrow 1,475,000 shares of the Company’s Series B Convertible Preferred Stock (the “Preferred Stock”) to ORCIM Financial Holdings, LLC (“OFH”). Each share of the Preferred Stock has fifty (50) votes per share and may be converted into fifty (50) $0.001 par value common shares. As of March 31, 2020, the Company had 43,290,331 shares of its common stock issued and outstanding. There were no other shares of any capital stock outstanding except for the common stock and Preferred Stock. As the result of the issuance of the Preferred Stock and, upon satisfaction of the terms of the Acquisition Agreement, OFH would have voting control over the Company with 73,750,000 votes on all matters submitted to stockholders for a vote. On May 20, 2020, the conditions of the Acquisition Agreement were satisfied with the resignation of the former board of directors of the Company and the change of control became effective.

 

 

 

OFH is a limited liability company domiciled in Maryland. OFH is controlled by Mr. Jeffery D. Bearden, who owns 100% of the membership interests of OFH. The Preferred Stock was acquired by OFH in exchange for its agreement to assume the debt of the Company in the approximate amount of $450,000. The funds to satisfy the outstanding debt of the Company were acquired by OFH through a loan from a hedge fund entity known as Geneva Capital.

 

On March 31, 2020, Mr. Larnell C. Simpson, Jr., age 47, was appointed as a director for Acacia Diversified Holdings, Inc. Mr. Simpson also was appointed to the position of Vice President. 

 

On May 20, 2020, directors Danny Gibbs, Neil B. Gholson and Dr. Richard Paula each resigned their respective positions as a director for the Company.

 

 

 

 

PART III

 

Item 10.  Directors, Executive Officers, and Corporate Governance

 

Executive Officers and Directors 

 

The directors and executive officers of the Company, and their respective ages, as of December 31, 2019, and positions held with the Company, were as follows: 

 

Name

 

Age

 

Position

Richard K. Pertile

 

58

 

Director, President, Chairman of the Board, Chief Executive Officer and Chief Financial Officer

Danny R. Gibbs

 

62

 

Director

Neil Gholson

 

60

 

Director

Gary J. Roberts, Jr.

 

53

 

Director

Dr. Richard Paula

 

52

 

Director

Kim Edwards

 

52

 

Vice President and Chief Operating Officer

 

Richard K. Pertile, age 58, became CEO, President, a Director, and Chairman of the Board of Directors of the Company on January 15, 2016. Since 2013 until January 15, 2016 Mr. Pertile served as President and Chief Executive Officer of MariJ Agricultural, Inc.  He founded JR Hemp Industries, Canna-Tags, and Canna-Cures R&D in Clearwater Florida where he began building a medical hemp consortium.   Born, raised and educated in the Chicago area, he successfully operated his own restaurants, hotel and nightclub.  Relocating to Pinellas County, Florida in 1989, Mr. Pertile joined Cornerstone Marketing of America, a subsidiary of United Insurance Companies, quickly being promoted to Executive Vice-President with responsibility for building its nationwide outside sales team.  By the end of 2003, Mr. Pertile achieved year-over-year compounded growth of 30%, generating more than $1 billion in sales through 8,000 independent contractors in 40 states.  After retiring in 2004, he turned his attention to philanthropy work in helping build a workout facility with the Juvenile Protection Services Program of Florida.  From 2006 to 2010, after re-entering the business sector, he became President and Chief Marketing Officer of Independent Producers of America, a small Texas corporation he lead to becoming a publicly traded company on the Nasdaq Exchange.  Again turning his attention to philanthropies in 2010, he formed the Pertile Family Foundation and was appointed to the Board of Directors of the Tampa Chapter of the American Diabetes Association where he concentrated his fundraising activities. Mr. Pertile earned degrees in Business Management and Wastewater Engineering from the College of Lake County, Illinois, and trained under such recognized business leaders as Zig Ziglar, Dr. David Cook, Dr. Rick Jernigan, Brian Flanagan, and Brian Tracy.  Mr. Pertile resides in Florida with his wife of 27 years, Debbie.  They have two sons, both residing in Florida. On March 31, 2020, Richard K. Pertile resigned his position as Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer for the Company. Mr. Pertile did not have any disagreement with the Company or Board of Directors regarding any matter pertaining to his employment with the Company.

 

Danny R. Gibbs, age 62 was reappointed to the Board of Directors on September 1, 2013 after originally serving from October of 1984 through September 29, 2011.  Mr. Gibbs was the President of Gibbs Construction, Inc. (later becoming Acacia Automotive, Inc. and ultimately Acacia Diversified Holdings, Inc.) and a charter member of the Company’s Board of Directors beginning with its formation in October of 1984 until April of 2000, and in February of 2007 Mr. Gibbs agreed to serve on Acacia’s new board, where he served until September 29, 2011. The Company was most pleased to welcome Mr. Gibbs’ return to its Board of Directors as he brings decades of experience in the public domain.  From 2000 through 2003, Mr. Gibbs served as Senior Project Manager for TOC Companies in the Dallas, Texas area. From the beginning of 2004 through the present, he has served in a similar capacity with Dimensional Construction, Inc. Both companies were located in Garland, Texas where Mr. Gibbs resides with his family. On May 20, 2020, Mr. Gibbs resigned his position as a director of the Company.

 

Neil B. Gholson, age 60.  Mr. Gholson’s background is rooted deeply in the financial services and insurance industries since 1988, serving on the board of directors with 4 companies during the last ten years.  Mr. Gholson has been the owner and principal of Long Term Care Financial Solutions, LLC since 2003, and co-owner and principal of Medicare Insurance Consultants, LLC since 2015. He graduated with a BA in History from Atlantic Christian College in 1981 and earned a Certificate in Financial Planning from Florida State University in 2006.  Mr. Gholson resides in Tampa, Florida with wife Michele and 2 daughters. On May 20, 2020, Mr. Gholson resigned his position as a director of the Company.

 

 

Gary J. Roberts, Jr., age 53. As a young entrepreneur attending the University of Alabama, Mr. Roberts started and grew various service-oriented companies. Following college, Mr. Roberts played a key role in developing Transplatinum Plus, an electronic fuel card transfer company in Nashville, Tennessee that was eventually sold to Fleet One. For the next eight years Mr. Roberts served as Vice President and Chief Operating Officer of Perma Crete Resurfacing Products in Nashville, Tennessee from 1993 to 2001 where he expanded the operation nationally with an extensive dealership distribution system as well as running a national retail installation department. In 2001, Gary shifted gears and turned his focus to the Health Insurance industry.  He was District Manager with Cornerstone America from 2000 to 2002 while building one of the top teams in the nation. Gary assumed the position of Vice President of the Company’s Southeastern Territory in 2003, maintaining that position through the present. During this time, Mr. Roberts has continued to build it into one the nation’s largest insurance distribution groups, with his territory ranking in the top two USA every year as well as being ranked as the top territory in the USA one of those years. On March 24, 2020, Mr. Roberts was tragically killed in an automobile accident in Alabama. 

 

Dr. Richard Paula, age 52. Dr. Paula joined the Company's board of directors in July 2018. Dr. Paula has over 20 years’ experience in the medical field. From March 2010 through January 2014, Dr. Paula was employed by Tampa General Hospital as the Chief Medical Information Officer and Vice President. From January 2014 through the present, Dr. Paula has been employed by the Shriners Hospitals for Children in Tampa, Florida. He currently serves as the Chief Medical Information Officer at the Shriners Hospitals for Children. We believe that Dr. Paula’s substantial experience in the medical field will be of great benefit to the Company as we explore and determine the various uses, including potential medical applications, for our industrial hemp oil products. On May 20, 2020, Dr. Paula resigned his position as a director of the Company.

 

Mrs. Edwards, age 52, was born and raised in Boston, Massachusetts until moving to Florida to assume a position in resource and financial management, later managing advisory services for an independent financial firm. Mrs. Edwards subsequently owned and operated retail businesses in Florida. After serving as a Director in the healthcare industry for Independent Producers of America April 2009 through May 2014, Mrs. Edwards joined MariJ Agricultural, Inc. May 2014.  Following the merger between the MariJ Group of companies and Acacia, Mrs. Edwards assumed the duties of Chief Operating Officer of the consolidated entity and was appointed as Vice President of the Company in conjunction with her other duties on August 18, 2016. Mrs. Edwards and her husband of 25 years reside in the Palm Harbor, Florida area with their three children. In March 2020, Mrs. Edwards was laid off by the Company due to business disruption as a result of the COVID-19 pandemic.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Our shares of common stock are registered under the Exchange Act, and therefore our officers, directors and holders of more than 10% of our outstanding shares are subject to the provisions of Section 16(a) which requires them to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and our other equity securities. Officers, directors and greater than 10% beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based solely upon our review of reports submitted to us during the fiscal year ended December 31, 2019, the following table sets forth the name of any such person that failed to file the required forms on a timely basis, including the number of late reports, the number of transactions not reported on a timely basis and any known failure to file a required form.

 

Name

 

Number of late reports

   

Number of transactions

not reported timely

 

None

               

 

Committees of the Board of Directors

 

On January 15, 2016, the Company appointed various directors to committees and the chairs thereof as follows:

 

Board Committees

 

The Board has a standing Audit Committee, Compensation Committee, and Nominating Committee. The Board has determined that the Chairs and all non-employee committee members are independent under applicable NASDAQ, NYSE, and SEC rules for committee memberships. The members of the committees are shown in the table below.  The Company’s former CEO, Mr. Pertile,  as a former employee and director of the Company, was considered to be “not independent”.

 

 

The table below reflects each of the directors and the committee(s) on which they serve.  A committee member who is also the chair of that committee is designated as “Chair” rather than as “Member”. 

 

Director Name

 

Audit Committee

 

 

Compensation Committee

 

 

Nominating Committee

 

 

Primary Committee

 

Richard K. Pertile

 

 

 

 

 

Member

 

 

Member

 

Danny R. Gibbs

 

Chair

 

 

Member

 

 

Member

 

 

Member

 

Neil B. Gholson

 

Member

 

 

Chair

 

 

Chair

 

 

 

Gary J. Roberts, Jr.

 

Member

 

 

Member

 

 

 

 

Chair

 

Dr. Richard Paula

 

Member

 

 

Member

 

 

Member

 

 

Member

 

 

Audit Committee

 

The Audit Committee has not yet adopted a written charter. However, the Audit Committee has (i) reviewed and discussed the audited financial statements with management; (ii) discussed with the independent auditors the matters required to be discussed by Auditing Standard No. 16, “Communications with Audit Committees” issued by the Public Company Accounting Oversight Board (“PCAOB”); (iii) received the written disclosures and the letter from the independent accountants required by the Public Company Accounting Oversight Board (Rule No. 3526, Communications with Audit Committees Concerning Independence), as may be modified or supplemented; (iv) discussed with the independent accountant the independent accountant’s independence; and (v) recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10–K.

 

The Company believes the Audit Committee should be responsible primarily for assisting the Board in fulfilling its oversight and monitoring responsibility of reviewing the financial information provided to shareholders and others, appointing the independent registered public accounting firm, reviewing the services performed by the Company’s independent registered public accounting firm, evaluating the Company’s accounting policies and the system of internal controls established by management and the Board, and reviewing significant financial transactions. The Audit Committee does not itself prepare financial statements or perform audits, and its members are not auditors or certifiers of the Company’s financial statements.

 

Primary Committee

 

The Corporation’s Board of Directors determined that it was in the best interests of the Corporation to discontinue its Acacia Diversified Holdings, Inc. 2012 Stock Incentive Plan in its entirety, continuing to honor any shares, options, or warrants heretofore issued under the Plan.  The Corporation’s Primary Committee continues to have full authority to issue shares, options, and warrants as it deems necessary without the Acacia Diversified Holdings, Inc. 2012 Stock Incentive Plan, and unanimously approved those actions in a meeting of the Board of Directors on June 9, 2015.  Those actions were ratified in a Special Meeting of Shareholders of the Corporation by the written consent of more than 50% of the shareholders on June 29, 2015.

 

Compensation Committee

 

The Compensation Committee is responsible primarily for reviewing the compensation arrangements for the Company’s executive officers, including the CEO, and reviewing the Board’s compensation. It is authorized by the Board of Directors to approve compensation arrangements and employment agreements.  The only employment agreements in place was that of Richard K. Pertile, the Company’s former CEO who served as an employee and a director, and Kim Edwards who served as the Company’s Chief Operating Officer  

 

Nominating Committee

 

The Nominating Committee assists the Board in identifying qualified individuals to become directors and can make recommendations to the Board concerning the size, structure and composition of the Board and its committees. In evaluating potential nominees to the Board, the Nominating Committee considers, among other things, independence, character, ability to exercise sound judgment, demonstrated leadership skills, and experience in the context of the needs of the Board.. The Nominating Committee can consider candidates proposed by shareholders and would evaluate them using the same criteria as for other candidates.

 

Three members of the board of directors are considered to be independent directors, but Mr. Pertile and Ms. Edwards, as former CEO and COO, respectively, of the Company and by virtue of their status as affiliates of the Company, were not considered to be independent.  Thus, there was a potential conflict in that Mr. Pertile and, as a former board member who was also part of management, would participate in discussions concerning issues that may affect management decisions.

 

 

Code of Ethics

 

On November 6, 2017, the Board of Directors approved, and the Company adopted the Code of Business Conduct and Ethics and the Code of Ethics for the President and Senior Financial Officers.

 

Item 11.  Executive Compensation

 

The following table sets forth certain information concerning the compensation earned during the years ended December 31, 2019 and 2018 by the Company’s former Chief Executive Officers, Chief Financial Officer and Chief Operating Officer, for whom disclosure is required:

 

SUMMARY COMPENSATION TABLE

 

       

Annual Compensation

         

Name and Principal Position

 

Fiscal Year

 

Salary

   

Bonus

   

Total

 

Richard K. Pertile (1)

 

2019

  $ 195,000     $ 68,250     $ 263,250  
   

2018

  $ 195,000     $ 68,250     $ 263,250  

Kim Edwards (2)

 

2019

  $ 116,833     $ 40,891     $ 157,742  
   

2018

  $ 105,000     $ 36,750     $ 141,750  

 

(1)  Mr. Pertile became CEO and CFO of the Company on January 15, 2016 and has continued to serve in that capacity without interruption. During 2018, the board of directors approved settling accrued salary and bonus with Mr. Pertile through issuance of the Company's restricted common stock. The Company issued 2,148,125 shares of the Company's restricted common stock to Mr. Pertile to settle $262,500 of accrued salary and $167,125 of accrued bonus owed to Mr. Pertile. During 2019, the board of directors approved settling accrued salary and bonus with Mr. Pertile through issuance of the Company's restricted common stock. The Company issued 3,178,125 shares of the Company's restricted common stock to Mr. Pertile to settle $82,500 of accrued salary and $44,625 of accrued bonus owed to Mr. Pertile. On March 31, 2020, Richard K. Pertile resigned his position as Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer for the Company. Mr. Pertile did not have any disagreement with the Company or Board of Directors regarding any matter pertaining to his employment with the Company.

 

(2)  Ms. Edwards became Vice President and COO of the Company on August 18, 2016 and has continued to serve in that capacity without interruption. During 2018, the board of directors approved settling accrued bonus with Ms. Edwards through issuance of the Company's restricted common stock. During 2019, the board of directors approved settling accrued salary and bonus with Ms. Edwards through issuance of the Company's restricted common stock. The Company issued 1,018,700 shares of the Company's restricted common stock to Ms. Edwards to settle $40,748 of accrued bonus owed to Ms. Edwards. In addition, it was determined that the Company also owed Ms. Edwards $20,717 of accrued salary at December 31, 2019. In March 2020, Ms. Edwards was laid off by the Company due to business disruption as a result of the COVID-19 pandemic.

 

Option Tables

 

The following table sets forth certain information concerning grants of options to purchase shares of common stock of the Company made during the years ended December 31, 2019 and 2018, to the executive officers named in the Summary Compensation Table.

 

EXECUTIVE STOCK OPTION GRANTS

(YEARS ENDED DECEMBER 31, 2019 AND 2018)

 

   

Number of Securities Underlying Unexercised Options

   

Number of Securities Underlying Unexercised Options Unexercisable

   

Weighted Average Per Share Exercise Price

   

Expiration Dates

 

None

    -       -       -       -  

 

 

Director Compensation

 

Since February 1, 2007 through December 31, 2010 directors of the Company served without compensation except under the Acacia Automotive, Inc. 2007 Stock Incentive Plan for which each non-employee director of the Company was granted an option to acquire an initial 10,000 shares of common stock upon his appointment or election to the board, and 15,000 additional options were granted upon election to a full term and annually thereafter.  On December 30, 2010, the Company’s Board of Directors suspended the issuance of options as compensation to its directors effective January 1, 2011, and as such issued no options as director compensation from that time through December 31, 2019.  The Company did not issue any common stock purchase options for any reason since December 31, 2010.

 

The following table sets forth certain information regarding compensation paid to directors for the fiscal years ended December 31, 2019 and 2018:

 

   

Dollar Amount Recognized for Financial Reporting Purposes

 
   

2019

   

2018

 

Richard K. Pertile (1)

  $ -0-     $ -0-  

Neil B. Gholson (3)(8)

    -0-       7,013  

Gary J. Roberts, Jr. (4)(8)

    -0-       7,013  

Danny Gibbs (5)(8)

    -0-       7,013  

Dr. Richard Paula (6)(7)

    -0-       3,600  

Total

  $ -0-     $ 24,639  

 

Upon a change of control, all outstanding options granted to executive officers and directors vest.  

 

(1)

Appointed as Chairman of the Company’s Board of Directors January 15, 2016. On March 31, 2020, Richard K. Pertile resigned his position as Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer for the Company.

(3)

Appointed to the Company’s Board of Directors on January 15, 2016. On May 20, 2020, Mr. Gholson resigned his position as a director of the Company.

(4)

Appointed to the Company’s Board of Directors on January 15, 2016. On March 24, 2020, Mr. Roberts was tragically killed in an automobile accident in Alabama.

(5)

Originally served on the Company’s board of directors from 1984 through August of 2006.  Was again appointed to the Board of Directors on February 1, 2007 where he served until September 29, 2011.  Was reappointed to the Board of Directors on September 1, 2013 and continues to serve. On May 20, 2020, Mr. Gibbs resigned his position as a director of the Company.

(6)

Appointed to the Company’s Board of Directors on July 13, 2018. On May 20, 2020, Dr. Paula resigned his position as a director of the Company.

(7)

In the year ended December 31, 2018, the Company's board of directors approved issuance of 20,000 shares of the Company's restricted common stock to this director for services performed in 2018. These shares were valued at $3,600 on commitment date. There was no cash compensation paid to the director.

(8)

In the year ended December 31, 2018, the Company's board of directors approved issuance of 30,000 shares of the Company's restricted common stock to these directors for services performed in 2018. The 90,000 shares were valued at $21,039 on commitment date. There was no cash compensation paid to the directors.

 

Benefit Plans

 

As a part of the changes resulting in the emergence of Acacia Automotive, Inc. from the former Gibbs Construction, Inc. in 2007, all stock option plans and warrants existing prior to the change of name and change of control to Acacia’s management in 2007 were canceled.  At the board of directors meeting held on February 1, 2007, the Company adopted a new stock incentive plan.  Awards of options made after that date were in congruence with the Acacia Automotive, Inc. 2007 Stock Incentive Plan.  On July 26, 2012, shareholders representing a majority of the votes of the Company voted to extend the Company’s stock incentive plan and rename it the Acacia Diversified Holdings, Inc. 2012 Stock Incentive Plan. The Company provided health, disability, and life insurance plans for its parent Company employees until July 31, 2012 and provided certain additional benefits to its CEO at the time under the terms of his employment agreement. On June 29, 2015 shareholders representing a majority of the votes of the Company voted to terminate the Acacia Diversified Holdings, Inc. 2012 Stock Incentive Plan.  In actions of January 15, 2016 the Company discontinued certain benefits to Mr. Sample following his resignation as CEO, President and Chairman of the Board by granting him a Modified Employment Agreement effective as of that date.  He remained as an employee and a director of the Company until terminating his Employment Agreement and resigning on January 17, 2017.

 

 

In February 2018, the Company adopted the Acacia Diversified Holdings, Inc. 2018 Stock Grant and Option Plan (“2018 Plan”). The purpose of the 2018 Plan is to offer selected employees, directors and consultants an opportunity to acquire a proprietary interest in the success of the Company. Awards that can be granted from the 2018 Plan include registered shares, restricted shares and options as well as the direct award or sale of shares of the Company’s common stock. The aggregate number of shares which  may be issued or transferred pursuant to an award shall not exceed 5,000,000 shares of authorized common stock of the Company. Subsequent to the adoption of the 2018 Plan, the Company filed Form S-8 with the Securities and Exchange Commission to register 1,000,000 shares of the Company’s common stock pursuant to a consulting agreement.

 

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The following table sets forth as of December 31, 2019, the ownership of common stock by (i) each person known by the Company to be the beneficial owner of more than five percent of the Company’s common stock, (ii) each director of the Company, and (iii) all directors and officers as a group.  Except as otherwise indicated, each stockholder identified in the table possesses sole dispositive voting and investment power with respect to its or his shares.

 

Shares Owned at December 31, 2019

 

Name and Address of Beneficial Owner

 

Number of Shares

   

Percent

 

Richard K. Pertile (1)

    12,459,605       30 %

Neil B. Gholson (3)

    1,720,000       4 %

Gary J. Roberts, Jr. (4)

    907,520       2 %

Danny R. Gibbs (5)

    157,000       0 %

Dr. Richard Paula (6)

    30,000       0 %

All directors and officers as a group (five persons)

    15,274,125       37 %

Steven L. Sample (2)

    1,583,065       4 %

All of the above as a group (six persons)

    16,857,190       40 %

 

(1)  Mr. Pertile became the CEO and President of the Company and the Chairman of the Board of Directors on January 15, 2016.  On March 31, 2020, Richard K. Pertile resigned his position as Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer for the Company. Mr. Pertile did not have any disagreement with the Company or Board of Directors regarding any matter pertaining to his employment with the Company.

 

(2) Mr. Sample served as the Company’s CEO, President, and Chairman of the Board from 2006 until January 15, 2016, when the Company acquired the MariJ Group of companies and installed that group’s chief executive as Acacia’s. On January 17, 2017, Mr. Sample resigned as an employee and director of the Company. Mr. Sample disclaims any beneficial ownership of any securities owned by others and disclaims any beneficial ownership by others of any securities he owns.

 

(3)  Mr. Gholson became a director of the Company on January 15, 2016. On May 20, 2020, Mr. Gholson resigned his position as a director with the Company.

 

(4)  Mr. Roberts became a director of the Company on January 15, 2016. On March 24, 2020, Mr. Roberts was tragically killed in an automobile accident in Alabama.

 

(5)  Mr. Gibbs is a founder of the Company, first becoming a director in October 1984 before departing in September 2011.  Mr. Gibbs rejoined the board in 2013. On May 20, 2020, Mr. Gibbs resigned his position as a director with the Company.

 

(6) Dr. Paula became a director of the Company on July 13, 2018. On May 20, 2020, Dr. Paula resigned his position as a director with the Company.

 

Change of Control

 

On March 31, 2020, Richard K. Pertile resigned his position as Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer for the Company.

 

On March 31, 2020, the Company issued in escrow 1,475,000 shares of the Company’s Series B Convertible Preferred Stock (the “Preferred Stock”) to ORCIM Financial Holdings, LLC (“OFH”). Each share of the Preferred Stock has fifty (50) votes per share and may be converted into fifty (50) $0.001 par value common shares. As of March 31, 2020, the Company had 43,290,331 shares of its common stock issued and outstanding. There were no other shares of any capital stock outstanding except for the common stock and Preferred Stock.

 

 

As the result of the issuance of the Preferred Stock and, upon satisfaction of the terms of the Acquisition Agreement, OFH would have voting control over the Company with 73,750,000 votes on all matters submitted to stockholders for a vote. On May 20, 2020, the conditions of the Acquisition Agreement were satisfied with the resignation of the former board of directors of the Company and the change of control became effective.

 

OFH is a limited liability company domiciled in Maryland. OFH is controlled by Mr. Jeffery D. Bearden, who owns 100% of the membership interests of OFH. The Preferred Stock was acquired by OFH in exchange for its agreement to assume the debt of the Company in the approximate amount of $450,000. The funds to satisfy the outstanding debt of the Company were acquired by OFH through a loan from a hedge fund entity known as Geneva Capital.

 

On March 31, 2020, Mr. Larnell C. Simpson, Jr., age 47, was appointed as a director for Acacia Diversified Holdings, Inc. Mr. Simpson also was appointed to the position of Vice President.

 

On May 20, 2020, directors Danny Gibbs, Neil B. Gholson and Dr. Richard Paula each resigned their respective positions as a director for Acacia Diversified Holdings, Inc.

 

Item 13.  Certain Relationships and Related Transactions, and Director Independence

  

Mr. Sample became CEO, President, and Chairman of the Board of Directors of the Company in 2006 and resigned that position in favor of Richard K. Pertile on January 15, 2016 in conjunction with the Company’s acquisition of the assets and businesses of the MariJ Group of companies on that date.  Mr. Sample disclaims any beneficial ownership of any securities owned by others and disclaims any beneficial ownership by others of any securities he owns.

 

Mr. Pertile became CEO, President, and Chairman of the Board of Directors of the Company on January 15, 2016 and continues to serve in those positions. On March 31, 2020, Richard K. Pertile resigned his position as Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer for the Company.

 

On March 31, 2020, the Company issued in escrow 1,475,000 shares of the Company’s Series B Convertible Preferred Stock (the “Preferred Stock”) to ORCIM Financial Holdings, LLC (“OFH”). Each share of the Preferred Stock has fifty (50) votes per share and may be converted into fifty (50) $0.001 par value common shares. As of March 31, 2020, the Company had 43,290,331 shares of its common stock issued and outstanding. There were no other shares of any capital stock outstanding except for the common stock and Preferred Stock. As the result of the issuance of the Preferred Stock and, upon satisfaction of the terms of the Acquisition Agreement, OFH would have voting control over the Company with 73,750,000 votes on all matters submitted to stockholders for a vote. On May 20, 2020, the conditions of the Acquisition Agreement were satisfied with the resignation of the former board of directors of the Company and the change of control became effective.

 

OFH is a limited liability company domiciled in Maryland. OFH is controlled by Mr. Jeffery D. Bearden, who owns 100% of the membership interests of OFH. The Preferred Stock was acquired by OFH in exchange for its agreement to assume the debt of the Company in the approximate amount of $450,000. The funds to satisfy the outstanding debt of the Company were acquired by OFH through a loan from a hedge fund entity known as Geneva Capital.

 

On March 31, 2020, Mr. Larnell C. Simpson, Jr., age 47, was appointed as a director for Acacia Diversified Holdings, Inc. (the “Company”). Mr. Simpson also was appointed to the position of Vice President.

 

On May 20, 2020, directors Danny Gibbs, Neil B. Gholson and Dr. Richard Paula each resigned their respective positions as a director for Acacia Diversified Holdings, Inc.

 

Director Independence

 

We believe that, in accordance with the Company Guide of the American Stock Exchange, that Messrs. Gibbs, Gholson, Roberts and Dr. Paula were independent directors, those four individuals being a majority of our current Board of Directors. As employee-officers and directors of the Company, Mr. Pertile and Ms. Edwards were not considered to be independent. In addition, as a result of a change in control, Mr. Simpson became the sole independent director of the Company on March 31, 2020.

 

Conflicts of Interest.

 

The Company and its management may be subject to various conflicts of interest policies. The Company’s management was not independent, yet the Company relies solely on management for guiding its day-to-day operations and managing its assets.  As such, certain employees may have conflicts of interest in allocating time, services and functions to the Company in deference to their other activities.

 

 

The Company currently has no full-time corporate officers. Mr. Pertile, its former President and CEO, and Ms. Edwards, its former Vice President and COO, devoted the majority of their business time and efforts to the management and direction of the Company and its subsidiaries.  Mr. Pertile served as a director of the Company as well as serving as an officer and director of the Company’s subsidiary corporations.  Service in those capacities with the subsidiaries is not considered to constitute a conflict of interest on the part of employees, managers, or directors.  On March 31, 2020, Richard K. Pertile resigned his position as Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer for the Company. In March 2020, Ms. Edwards was laid off by the Company due to business disruption as a result of the COVID-19 pandemic.

 

Item 14.  Principle Accountant Fees and Services

 

Aggregate fees for professional services rendered by KWCO for the years ended December 31, 2019 and 2018 were as follows:

 

   

2019

   

2018

 

Audit fees

  $ 72,950     $ 46,650  

Tax preparation fees

    13,000       9,000  
                 

Total fees

  $ 85,950     $ 55,650  

 

Audit Fees.  Audit fees consist of professional services rendered in connection with the audits of the Company’s annual consolidated financial statements, reviews of the Company’s internal accounting and reporting controls under Section 404 of the Sarbanes-Oxley Act, and reviews of interim consolidated financial statements included in the Company’s Quarterly Reports on Form 10-Q.

 

Tax Preparation Fees.  Tax preparation fees include preparation of federal and state tax returns. In 2019 and 2018, the Company incurred $13,000 and $9,000 for preparation of its 2018 and 2017 tax returns, respectively.

 

The audit committee reviews all audit and non-audit related fees at least annually. The audit committee pre-approve all audit and non-audit related services in fiscal years 2019 and 2018.

 

The Company’s independent registered public accounting firm may not be engaged to provide non-audit services that are prohibited by law or regulation to be provided by it, nor may the Company’s principal accountant be engaged to provide any other non-audit service unless it is determined that the engagement of the principal accountant provides a business benefit resulting from its inherent knowledge of the Company while not impairing its independence. The Audit Committee must pre-approve the engagement of the Company’s principal accountant to provide both audit and permissible non-audit services. No non-audit services were provided by the independent registered public accounting firm during the past two fiscal years.

 

 

Item 15.  Exhibits, Financial Statement Schedule and Reports on Form 8-K

 

(a)    Financial Statements

 

The following financial statements are included herewith:

 

 

Page

Report of Independent Registered Public Accounting Firm

F-2

Consolidated Balance Sheets

F-3

Consolidated Statements of Operations

F-4

Consolidated Statement of Changes in Stockholders’ (Deficit)

F-5

Consolidated Statements of Cash Flows

F-6

Notes to Consolidated Financial Statements

F-7 to  F-25

 

(b) Exhibits required by Item 601, Regulation S-K;

 

Exhibit Number and Description 

 

Location Reference

 

 

 

 

 

 

(3.0)

Articles of Incorporation

 

 

 

 

(3.1)

Articles Of Amendment And Restated Articles Of Incorporation of Acacia Diversified Holdings, Inc. dated June 9, 2015

 

See Exhibit Key

 

 

(3.2)

Restated Bylaws Of Acacia Diversified Holdings, Inc. dated June 29, 2015

 

See Exhibit Key

 

(9.0)

Voting Proxy Agreement between Rick Pertile and Steven L. Sample

 

See Exhibit Key

 

(10.1)

Consolidated Loan Agreement

 

See Exhibit Key

 

(10.2)

Consolidated Promissory Note

 

See Exhibit Key

 

(10.3)

Security Agreement – Acacia Diversified Holdings, Inc.

 

See Exhibit Key

 

(10.4)

Security Agreement – Marij Agriculture, Inc.

 

See Exhibit Key

 

(10.5)

Security Agreement – Marij Agriculture, Inc.

 

See Exhibit Key

 

(10.6)

Security Agreement – CannaCures Research & Development Center, Inc.

 

See Exhibit Key

 

(10.7)

Definitive Asset Purchase Agreement between Acacia Diversified Holdings, Inc. and the Medahub Companies

 

See Exhibit Key

 

(14.0)

Code of Ethics

 

See Exhibit Key

 

(21.0)

List of Subsidiaries

 

See Exhibit Key

 

(31.1)

Certificate of Chief Executive Officer And Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

Filed herewith

 

(32.1)

Certification of Chief Executive Officer And Chief Financial Officer Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

Filed herewith

 

101.INS

XBRL Instance Document

 

 

 

101.SCH

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

Exhibit Key

3.1 Incorporated by reference herein from the Company’s Form 8-K filed on July 16, 2015.
3.2 Incorporated by reference herein from the Company’s Form 8-K filed on July 16, 2015.
9.0 Incorporated by reference herein from the Company’s Form 10-K filed on April 2, 2018.
10.1 Incorporated by reference herein from the Company’s Form 8-K filed on November 3, 2017.
10.2 Incorporated by reference herein from the Company’s Form 8-K filed on November 3, 2017.
10.3 Incorporated by reference herein from the Company’s Form 8-K filed on November 3, 2017.
10.4 Incorporated by reference herein from the Company’s Form 8-K filed on November 3, 2017.
10.5 Incorporated by reference herein from the Company’s Form 8-K filed on November 3, 2017.
10.6 Incorporated by reference herein from the Company’s Form 8-K filed on November 3, 2017.
10.7 Incorporated by reference herein from the Company's Form 10-Q filed on November 5, 2018
14.0 Incorporated by reference herein from the Company’s Form 10-Q filed on November 13, 2017.
21.0 Incorporated by reference herein from the Company’s Form 10-Q filed on August 7, 2017.

  

 

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.

 

 

Acacia Diversified Holdings, Inc.

 

 

 

 

 

Date: June 26, 2020

By:

/s/ Larnell C. Simpson, Jr.

 

 

 

Larnell C. Simpson, Jr.

 

 

 

Vice President

 

 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature

 

Title

 

Date

 

 

 

 

 

/s/ Larnell C. Simpson, Jr.

 

Director

 

June 26, 2020

Larnell C. Simpson

 

 

 

 

 

 

 

  

 

 

ACACIA DIVERSIFIED HOLDING, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

Page

 

 

Report of Independent Registered Public Accounting Firm

F-2

 

 

Consolidated Balance Sheets at December 31, 2019 and 2018

F-3

 

 

Consolidated Statements of Operations for the years ended December 31, 2019 and 2018

F-4

 

 

Consolidated Statements of Changes in Stockholders’ (Deficit) for the years ended December 31, 2019 and 2018

F-5

 

 

Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018

F-6

 

 

Notes to Consolidated Financial Statements

F-7

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and
Stockholders of Acacia Diversified Holdings, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Acacia Diversified Holdings, Inc. (the Company) as of December 31, 2019 and 2018, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years ended December 31, 2019 and 2018, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2019 and 2018, and the results of its consolidated operations and its consolidated cash flows for the years ended December 31, 2019 and 2018, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

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

 

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

 

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

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and its limited capital resources raise substantial doubt about its ability to continue as a going concern.  Management’s plans in regard to these matters are described in Note 2.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

/s/ KWCO, PC

KWCO, PC

 

 

We have served as the Company’s auditor since 2015.

 

 

Odessa, Texas

 

 

June 26, 2020

 

 

 

ACACIA DIVERSIFIED HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2019 AND 2018

 

   

December 31,

   

December 31,

 
   

2019

   

2018

 
                 

ASSETS

               
                 

CURRENT ASSETS:

               

Cash

  $ 29,765     $ 51,797  

Accounts receivable, net of allowance for doubtful accounts of $0 in 2019 and $25,000 in 2018

    52,461       135,970  

Inventories

    46,197       43,550  

Prepaid expenses and other current assets

    7,895       7,815  

Total Current Assets

    136,318       239,132  
                 

PROPERTY AND EQUIPMENT,

net of accumulated depreciation of $417,144 and $277,343 in 2019 and 2018, respectively

    350,509       453,562  
                 

OTHER ASSETS

               

Deposits

    4,651       4,201  

ROU asset - finance lease, net of accumulated amortization of $14,879 in 2019

    162,759       -  
      167,410       4,201  
                 

TOTAL ASSETS

  $ 654,237     $ 696,895  
                 

LIABILITIES AND STOCKHOLDERS' DEFICIT

               
                 

CURRENT LIABILITIES:

               

Accounts payable and accrued expenses

  $ 396,265     $ 289,805  

Current portion of long-term debt

    4,359       4,359  

Current portion of lease liability - finance lease

    9,008       -  

Convertible notes payable

    264,100       199,100  

Notes payable to related party

    752,400       812,400  

Accrued interest on notes payable to related party

    116,629       65,774  

Payable to related parties

    68,768       66,500  

Total Current Liabilities

    1,611,529       1,437,938  
                 

LONG-TERM LIABILITY:

               

Long-term debt

    10,861       15,219  

Derivative liability

    381,330       196,518  

Lease liability - finance lease

    164,255       -  

Total Long-term Liability

    556,446       211,737  
                 

Total Liabilities

    2,167,975       1,649,675  
                 

Commitments and contingencies

    -       -  
                 

STOCKHOLDERS' DEFICIT

               

Common stock, $0.001 par value; 150,000,000 shares authorized; 39,583,543 and 21,813,625 shares issued and outstanding at December 31, 2019 and 2018, respectively

    39,584       21,814  

Additional paid-in capital

    6,706,657       5,692,055  

Accumulated deficit

    (8,259,979 )     (6,666,649 )

Total Stockholders' Deficit

    (1,513,738 )     (952,780 )
                 

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

  $ 654,237     $ 696,895  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

ACACIA DIVERSIFIED HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

   

2019

   

2018

 
                 
                 

REVENUE

  $ 519,221     $ 415,051  
                 

COSTS OF GOODS SOLD

               

Costs of goods sold

    387,475       195,266  

Depreciation expense

    106,424       81,044  
      493,899       276,310  
                 

GROSS PROFIT

    25,322       138,741  
                 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

               

Employee compensation expenses

    581,719       572,444  

General and administrative expenses

    381,042       962,585  

Depreciation and amortization expense

    58,972       23,516  
      1,021,733       1,558,545  
                 

LOSS FROM OPERATIONS

    (996,411 )     (1,419,804 )
                 

OTHER INCOME (EXPENSE)

               

Derivative income (expense)

    (467,930 )     (196,518 )

Loss on disposition of assets

    (8,464 )     (12,362 )

Interest expense

    (118,841 )     (84,794 )

Other income

    2,718       775  

TOTAL OTHER EXPENSE

    (592,517 )     (292,899 )
                 

NET LOSS BEFORE INCOME TAXES

  $ (1,588,928 )   $ (1,712,703 )

Income taxes

    -       -  
                 

NET LOSS

  $ (1,588,928 )   $ (1,712,703 )
                 

NET LOSS PER COMMON SHARE, BASIC AND DILUTED

  $ (0.05 )   $ (0.09 )
                 

WEIGHTED AVERAGE NUMBER OF

COMMON SHARES OUTSTANDING, BASIC AND DILUTED

    32,409,778       19,604,467  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

ACACIA DIVERSIFIED HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

   

Common Stock

                         
   

Shares

   

Par Value

   

Additional Paid-in Capital

   

Accumulated Deficit

   

Total

 

Balance December 31, 2017

    17,539,982     $ 17,540     $ 4,451,038     $ (4,953,946 )   $ (485,368 )
                                         

Common stock issued for services

    1,197,000       1,197       535,711               536,908  
                                         

Common stock issued for acquisition of Medahub, Inc.

    600,000       600       125,400               126,000  
                                         

Common stock issued for accrued expense

    2,233,125       2,233       444,392               446,625  
                                         

Common stock issued to related party for leasehold improvement

    36,018       36       17,613               17,649  
                                         

Employee stock plan compensation

    7,500       8       48,101               48,109  
                                         

Common stock issued for cash

    200,000       200       69,800               70,000  
                                         

Net loss

                            (1,712,703 )     (1,712,703 )
                                         

Balance December 31, 2018

    21,813,625       21,814       5,692,055       (6,666,649 )     (952,780 )
                                         

Common stock issued for services

    5,398,825       5,398       234,597               239,995  
                                         

Common stock issued for conversion of convertible note

    8,296,501       8,297       211,853               220,150  
                                         

Settlement of derivative liability from conversion of convertible note

    -       -       283,117               283,117  
                                         

Employee stock plan compensation

    40,000       40       66,886               66,926  
                                         

Common stock issued for cash

    760,000       760       90,440               91,200  
                                         

Settlement of payable to related party

    200,000       200       7,800               8,000  
                                         

Settlement of notes payable and accrued interest with related party

    3,074,592       3,075       119,909               122,984  
                                         

Cumulative adjustments from adoption of ASC 842

    -       -       -       (4,402 )     (4,402 )
                                         

Net loss

    -       -       -       (1,588,928 )     (1,588,928 )
                                         

Balance December 31, 2019

    39,583,543     $ 39,584     $ 6,706,657     $ (8,259,979 )   $ (1,513,738 )

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

ACACIA DIVERSIFIED HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

   

2019

   

2018

 
                 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net loss

  $ (1,588,928 )   $ (1,712,703 )

Adjustments to reconcile net loss to net cash and cash equivalents used by operating activities:

               

Depreciation and amortization

    165,396       104,560  

Common stock issued for services

    239,995       536,908  

Common stock issued for acquisition of Medahub, Inc.

    -       126,000  

Common stock issued from employee stock plan

    66,926       48,109  

Original issue discount on convertible note payable

    25,100       18,100  

Amortization of debt discount

    9,000       6,000  

Allowance of doubtful accounts

    -       25,000  

Accrued interest on notes payable to related party

    59,839       -  

Derivative expense (income)

    467,930       196,518  

Loss on disposition of assets

    8,464       12,362  

(Increase) decrease in:

               

Accounts receivable

    83,509       (138,150 )

Inventories

    (2,647 )     13,707  

Prepaid expenses and other current assets

    (530 )     2,359  

ROU asset - operating lease

    29,655       -  

Increase (decrease) in:

               

Accounts payable and accrued expenses

    115,510       295,592  

Payable to related parties

    10,268       -  

Lease liability - operating lease

    (29,655 )     -  

Net cash used by operating activities

    (340,168 )     (465,638 )
                 

CASH FLOWS FROM INVESTING ACTIVITIES:

               

Payment to related party for leasehold improvement

    -       (6,000 )

Proceeds from sale of assets

    -       38,361  

Acquisition of property and equipment

    (55,928 )     (79,470 )

Net cash provided (used) by investing activities

    (55,928 )     (47,109 )
                 

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Proceeds from issuance of common stock

    91,200       70,000  

Proceeds from payable to related parties

    -       39,344  

Proceeds from convertible note payable

    242,000       175,000  

Payment on long-term debt

    (4,358 )     (2,217 )

Payments on lease liability - finance lease

    (8,778 )     -  

Proceeds from issuance of notes payable to related party

    54,000       254,000  

Net cash provided by financing activities

    374,064       536,127  
                 

Net change in cash and cash equivalents

    (22,032 )     23,380  
                 

Cash and cash equivalents, beginning of the year

    51,797       28,417  
                 

Cash and cash equivalents, end of the year

  $ 29,765     $ 51,797  
                 

SUPPLEMENTAL CASH FLOW INFORMATION:

               

Cash paid for interest

  $ -     $ 114  

Cash paid for income taxes

  $ -     $ -  
                 

NON-CASH FINANCING AND INVESTING ACTIVITIES:

               

Common stock issued to related party for leasehold improvement

  $ -     $ 17,649  

Acquisition of equipment with long-term debt

  $ -     $ 21,794  

Common stock issued to related party to settle accrued expenses

  $ 8,000     $ 446,625  

Common stock issued to related party to settle notes payable and accrued interest

  $ 122,984     $ -  

Common stock issued for conversion of convertible notes payable and related interest

  $ 220,150     $ -  

Settlement of derivative liability from conversion of convertible notes payable

  $ 283,117     $ -  

Acquisition of ROU asset - finance lease

  $ 182,041     $ -  

Acquisition of ROU asset - operating lease

  $ 29,655     $ -  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

NOTE 1 – THE COMPANY

 

Acacia Diversified Holdings, Inc. (“Acacia” or the “Company”), a Texas corporation, had four wholly-owned subsidiaries, MariJ Pharmaceuticals, Inc. (“MariJ Pharma”), a Florida corporation, Canna-Cures Research & Development Center, Inc. (“Canna-Cures”), a Florida corporation, and Eufloria Medical of Tennessee, Inc. (“EMT”), a company incorporated in the state of Tennessee. In July 2018, the Company also announced the completion of its acquisition of Medahub Operations Group, Inc. and Medahub, Inc., technology companies (“Medahub”) incorporated in the state of Florida, complete with a current compounding pharmacy license in Florida. The Medahub acquisition allowed the Company to be fully HIPAA compliant and cloud based on an HL7 platform. The Company planned to offer licensing agreements for other cannabis companies wanting to be HIPAA compliant from left to right or seed to sale and doctor to patient. 

 

The Company’s primary source of revenue was from the extraction of medicinal hemp oil, from a non-psychoactive cannabis plant. All extraction services were provided in states where such services were deemed legal. The Company's subsidiary EMT was invited to be part of the hemp pilot program in Tennessee. This program provided the Company the license to grow, manufacture, and dispense organic hemp oil in Tennessee. The Company planned on participating in this pilot program through its new, wholly-owned subsidiary. 

 

The Company also had a retail store in Tennessee selling hemp infused products. Revenue generated from retail sales was not expected to be material to the Company based on current operating model.

 

On March 26, 2020, the Company announced in a current report on Form 8-k that its operations and business have experienced disruption due to the unprecedented conditions surrounding the COVID-19 pandemic spreading throughout the United States and the world and thus the Company’s business operations have been disrupted and it was unable to timely review and prepare the Company’s financial statements for the 2019 fiscal year. As such, the Company would be making use of the 45-day grace period provided by the SEC’s Order and available filing extension to delay filing of its Annual Report. 

 

On March 31, 2020, Richard K. Pertile resigned his position as Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer for the Company. On the same date, the Company filed a current report on Form 8-k to announce that it issued in escrow 1,475,000 shares of the Company’s Series B Convertible Preferred Stock (the “Preferred Stock”) to ORCIM Financial Holdings, LLC (“OFH”). Each share of the Preferred Stock has fifty (50) votes per share and may be converted into fifty (50) $0.001 par value common shares. As of March 31, 2020, the Company had 43,290,331 shares of its common stock issued and outstanding. There were no other shares of any capital stock outstanding except for the common stock and Preferred Stock. As the result of the issuance of the Preferred Stock and, upon satisfaction of the terms of the Acquisition Agreement, OFH would have voting control over the Company with 73,750,000 votes on all matters submitted to stockholders for a vote. On May 20, 2020, the conditions of the Acquisition Agreement were satisfied with the resignation of the former board of directors of the Company and the change of control became effective.

 

OFH is a limited liability company domiciled in Maryland. OFH is controlled by Mr. Jeffery D. Bearden, who owns 100% of the membership interests of OFH. The Preferred Stock was acquired by OFH in exchange for its agreement to assume the debt of the Company in the approximate amount of $450,000. The funds to satisfy the outstanding debt of the Company were acquired by OFH through a loan from a hedge fund entity known as Geneva Capital.

 

On March 31, 2020, Mr. Larnell C. Simpson, Jr., age 47, was appointed as a director for Acacia Diversified Holdings, Inc. (the “Company”). Mr. Simpson also was appointed to the position of Vice President.

 

On May 20, 2020, directors Danny Gibbs, Neil B. Gholson and Dr. Richard Paula each resigned their respective positions as a director for Acacia Diversified Holdings, Inc.

 

NOTE 2 – GOING CONCERN

 

The Company has not generated profit to date. The Company expects to continue to incur operating losses. The Company expects to incur professional fees to maintain its reporting company status. Until such time that the Company is able to generate revenue and become profitable or find new sources of capital, the Company will find it difficult to continue to meet its obligations as they come due.  There can be no assurance that the Company will be successful in its efforts to raise capital, or if it were successful in raising capital, that it would be successful in meeting its business plans.  Management’s plans include attempting to raise funds from the public through an equity offering of the Company’s common stock and identifying and developing new opportunities. However, the recent COVID-19 pandemic has presented unprecedented challenges to businesses and the investing landscape around the world. Therefore, there can be no assurance that Management’s plans will be successful.

 

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses for all periods presented and has a substantial accumulated deficit. As of December 31, 2019, these factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

BASIS OF PRESENTATION - The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) with December 31, as its year-end.  The consolidated financial statements and notes are the representations of the Company’s management who are responsible for their integrity and objectivity.

 

PRINCIPLES OF CONSOLIDATION – The consolidated financial statements include the accounts of Acacia Diversified Holdings, Inc. and its wholly-owned subsidiaries, MariJ Pharmaceuticals, Inc, Canna-Cures Research & Development Center, Inc., Eufloria Medical of Tennessee, Inc., Medahub Operations Group, Inc. and Medahub, Inc. All significant intercompany accounts and transactions are eliminated in consolidation. 

 

USE OF ESTIMATES - Preparing the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions about current, and for some estimates, future economic and market conditions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.

 

RECLASSIFICATION - Certain accounts in the prior period's financial statements have been reclassified for comparative purposes to conform with the presentation in the current year financial statements.

 

MEDAHUB ACQUISITION  - In July 2018, the Company announced the completion of its acquisition of Medahub Operations Group, Inc. and Medahub, Inc., technology companies (“Medahub”), which includes a current compounding pharmacy license in Florida. The Medahub acquisition allows the Company to be fully HIPAA compliant and cloud based on an HL7 platform. The Company can now offer licensing agreements for other cannabis companies wanting to be HIPAA compliant from left to right or seed to sale and doctor to patient. The Company issued 600,000 shares of its restricted common stock to the principal of Medahub as consideration of the acquisition, valued at $126,000. 

 

When determining the accounting of the acquisition, the Company concluded that the acquisition does not constitute the acquisition of a business since there was no inputs, processes or outputs within Medahub. In addition, although the Company acquired certain software and technology from Medahub, the most significant asset it acquired was Medahub's principal's commitment to provide support, guidance and direction for implementing this technology. Without the principal's commitment of his time, the Company will not be able to implement the technology and begin generating cash flows. Therefore, the Company believes that the value of the purchase is concentrated on the service provided by Medahub's principal. As a result, the Company allocated the entire purchase price to the service provided and accounted for it as professional fee expense.

 

CASH AND CASH EQUIVALENTS - The Company considers all short-term investments purchased with a maturity of three months or less to be cash equivalents. Credit risk associated with cash deposits are insured under FDIC up to $250,000 per depositor, per FDIC insured bank, per ownership category.  At such time, as the Company’s cash deposits exceed FDIC limits, the Company will reassess their credit risk.

 

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS – The Company’s accounts receivable represents amounts due from customers for extraction services performed. Allowance for uncollectible accounts receivable is estimated based on the aging of the accounts receivable and management estimate of uncollectible amounts.  At December 31, 2019 and 2018, the Company provided for $0 and $25,000, respectively, of allowance for doubtful accounts.

 

CONCENTRATION OF CUSTOMERS – During the year ended December 31, 2019, the Company’s revenues were concentrated on two customers, Beyond Organic Nutritional and LMK Hemp, who accounted for approximately 70% and 22%, of the total consolidated revenues, respectively. These two customers accounted for approximately 91% of the trade receivable balance at December 31, 2019 was due from two customers.

 

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

For the year ended December 31, 2018, the Company’s extraction revenue, which accounted for 80% of total revenue, came from two customers. These two customers accounted for approximately 59% and 21%, respectively, of total revenue. 98% of the trade receivable balance at December 31, 2018 was due from two customers. 

 

INVENTORIES – Inventories are stated at the lower of cost or market.  Cost is determined using the average cost method. The Company’s inventory consists of raw materials and finished goods. Cost of inventory includes cost of ingredients, labor, quality control and all other costs incurred to bring our inventories to condition ready to be sold.

 

DEFERRED FARM EXPENSE - The Company's subsidiary EMT grows hemp plants in both its indoor and outdoor facility. In accordance with Accounting Standards Codification 905 - Agriculture, all direct and indirect costs of growing the plants are accumulated until the time of harvest. These deferred cost cannot exceed the realizable value of the oil processed from the hemp plants. Crop costs such as soil preparation incurred before planting are deferred and allocated to the growing crop. Deferred farm expense is included as inventory costs.

 

PROPERTY AND EQUIPMENT – Property and equipment are stated at cost less accumulated depreciation.  Major renewals and improvements are capitalized, while minor replacements, maintenance and repairs are charged to current operations.  Depreciation is computed by applying the straight-line method over the estimated useful lives, which are generally two to seven years.  

 

IMPAIRMENT OF LONG-LIVED ASSETS – In accordance with Accounting Standards Codification 360-10-05 - Impairment or Disposal of Long-Lived Assets, long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment at least annually or whenever facts and circumstances indicate that the carrying value may not be recoverable.  When required, impairment losses on assets to be held and used are recognized based on the fair value of the asset.  The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required.  If the carrying amount of the long-lived asset is not recoverable, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset.  The Company did not recognize any impairment losses for the periods presented. 

 

DEBT DISCOUNT - During the year ended December 31, 2018, the Company incurred $18,100 of debt discount related to the issuance of two convertible promissory notes, as described in Note 9. The discount was recognized in its entirety as interest expense rather than amortized over the life of the convertible promissory note. The immediate recognition did not yield materially different result.

 

DEBT ISSUANCE COSTS - The Company follows Accounting Standard Update 2015-03 – Simplifying the Presentation of Debt Issuance Costs, which requires direct costs associated with the issuance of convertible note to be presented in the balance sheet as a direct reduction from the carrying value of the associated debt liability. These costs are amortized into interest expense over the contractual term of the note or a shorter amortization period when deemed appropriate. The Company amortizes debt issuance costs for its convertible note immediately upon issuance since the note is convertible on demand.

 

OFFERING COSTS - The Company follows the SEC Staff Accounting Bulletin, Topic 5 - Miscellaneous Accounting, which requires that specific incremental costs directly attributable to a proposed or actual offering of securities may be deferred and charged against gross receipts of the offering. However, deferred costs of an aborted offering, or a postponement of existing offering exceeding 90 days, may not be deferred and charged against proceeds of a subsequent offering. 

 

REVENUE RECOGNITION - In May 2014, the FASB issued Accounting Standard Update 2014-09, Revenue from Contracts with Customers (Topic 606), which replaces numerous requirements in U.S. GAAP, including industry specific requirements, and provides a single revenue recognition model for recognizing revenue from contracts with customers. The Company adopted this standard effective January 1, 2018. 

 

The core principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This requires companies to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. The Company’s revenues from extraction activities and from retail sales are recognized at a point in time. 

 

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

The ASU requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The application of the five-step model to the revenue streams compared to the prior guidance did not result in significant changes in the way the Company records its revenues. 

 

ADVERTISING COSTS - Advertising costs are expensed as incurred.  Advertising expense for the years ended December 31, 2019 and 2018 amounted to $5,743 and $10,989, respectively.

 

FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of cash and cash equivalents, accounts receivable, deposits, prepaid expenses, accounts payable and accrued expenses approximate fair value due to the short-term nature of these instruments. Accounts payable and accrued expenses included amounts due to vendors and service providers and accrued compensation to the Company’s officers.

 

FAIR VALUE ESTIMATES – The Company measures its options and warrants at fair value in accordance with Accounting Standards Codification 820 – Fair Value Measurement (“ASC 820”). The objective of ASC 820 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820 specifies a valuation hierarchy based on whether the inputs to those valuation techniques are observable or unobservable.

 

Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s own assumptions. These two types of inputs have created the following fair value hierarchy:

 

 

Level 1 – Quoted prices for identical instruments in active markets;

 

Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and 

 

Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

This hierarchy requires the Company to minimize the use of unobservable inputs and to use observable market data, if available, when estimating fair value. No new options or warrants were issued during the years ended December 31, 2019 and 2018.

 

   

Quoted Active

Markets for

Identified Assets

   

Significant Other

Observable Inputs

   

Significant

Unobservable Inputs

   

Total

 
                                 
   

(Level 1)

   

(Level 2)

   

(Level 3)

         
                                 

December 31, 2019

                               

  Common stock issued for services

    -     $ 239,995       -     $ 239,995  

  Common stock issued to settle accrued expense

    -       8,000       -       8,000  

  Employee Stock Plan

    -       66,926       -       66,926  

  Derivative liability

    -       381,330       -       381,330  
                                 
                                 

December 31, 2018

                               

  Common stock issued for services

    -     $ 536,908       -     $ 536,908  

  Common stock issued for acquisition of Medahub, Inc.

    -       126,000       -       126,000  

  Common stock issued to settle accrued expense

    -       446,625       -       446,625  

  Employee Stock Plan

    -       48,109       -       48,109  

  Common stock issued for property improvement

    -       17,649       -       17,649  

  Derivative liability

    -       196,518       -       196,518  

 

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

All common stock issued for services are valued on the date of the agreements, using a ten day volume weighted average price.

 

COMPENSATED ABSENCES - The Company has not accrued a liability for compensated absences in accordance with Accounting Standards Codifications 710 – Compensation – General, as the amount of the liability cannot be reasonably estimated at December 31, 2019 and 2018.

 

LOSS PER COMMON SHARE - Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted loss per share would include the weighted average common shares outstanding and potentially dilutive common share equivalents. Because of the net losses for all periods presented, the basic and diluted weighted average shares outstanding are the same since including the additional shares would have an anti-dilutive effect on the loss per share. For this reason, common stock options and warrants to purchase 20,000 and 55,000 shares, respectively, of common stock were not included in the computation of basic and diluted weighted average common shares outstanding for the years ended December 31, 2019 and 2018. 

 

INCOME TAXES - The Company files federal and state income tax returns in accordance with the applicable rules of each jurisdiction. We account for income taxes under the asset and liability method in accordance with Accounting Standards Codification 740 - Income Taxes (“ASC 740”). The provision for income taxes includes federal, state and local income taxes currently payable, as well as deferred taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable amounts in years in which those temporary differences are expected to be recovered or settled. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized.  In accordance with ASC 740, we recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.  The Company currently has substantial net operating loss carryforwards.  The Company has recorded a valuation allowance equal to the net deferred tax assets due to the uncertainty of the ultimate realization of the deferred tax assets.

 

CONTINGENCIES - Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur.  The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment.  In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

If the assessment of a contingency indicates that it is possible that a material loss has been incurred and the amount of the liability can be estimated, the estimated liability would be accrued in the Company’s consolidated financial statements.  If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of range of possible loss if determinable and material, would be disclosed. 

 

As a result of a change in control on March 31, 2020, prior and current management of the Company are continuing their due diligent process and to assess whether contingent liabilities existed.

 

In the normal course of business, the Company also enters into various other guarantees and indemnities in its relationships with suppliers, service providers, customers and others.  These guarantees and indemnifications do not materially impact the Company’s financial condition or results of operations, and indemnifications associated with the Company’s actions generally have no dollar limitations and currently cannot be quantified.

 

STOCK BASED COMPENSATION - The Company accounts for stock-based compensation under Accounting Standards Codification 718 - Compensation-Stock Compensation (“ASC 718”). ASC 718 requires that all stock-based compensation be recognized as expense in the financial statements and that such cost be measured at the fair value of the award at the grant date and recognized over the period during which an employee is required to provide services (requisite service period). An additional requirement of ASC 718 is that estimated forfeitures be considered in determining compensation expense. Estimating forfeitures did not have a material impact on the determination of compensation expense during the years ended December 31, 2019 and 2018.  

 

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

The Company accounts for stock based awards based on the fair market value of the instrument using a 10-day volume weighted adjusted price (VWAP) and accounts for stock options issued using the Black-Scholes option pricing model and utilizing certain assumptions including the followings:

 

Risk-free interest rate – This is the yield on U.S. Treasury Securities posted at the date of grant (or date of modification) having a term equal to the expected life of the option. An increase in the risk-free interest rate will increase compensation expense.

 

Expected life—years – This is the period of time over which the options granted are expected to remain outstanding. Options granted by the Company had a maximum term of ten years. An increase in the expected life will increase compensation expense.

 

Expected volatility – Actual changes in the market value of stock are used to calculate the volatility assumption.  An increase in the expected volatility will increase compensation expense.

 

Dividend yield – This is the annual rate of dividends per share over the exercise price of the option. An increase in the dividend yield will decrease compensation expense.  The Company does not currently pay dividends and has no immediate plans to do so in the near future.

 

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of Accounting Standards Codification 505-50, Equity – Based Payments to Non-Employees.  Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued.  The value of the common stock is measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty’s performance is complete.

 

NOTE 4 – RELATED PARTY TRANSACTIONS

 

Notes Payable to Related Party

 

The Company entered into the following promissory notes payable with its CEO during the years ended December 31, 2019 and 2018: 

 

Note Date

 

Note Amount

   

Accrued Interest

   

Total

 

January 2017 (1)

  $ 300,000     $ 16,504     $ 316,504  

June 2017 (2)

    105,000       2,048       107,048  

June 2017 (3)

    130,050       2,564       132,614  
      535,050       21,116       556,166  

Expenses owed to related party

            2,234       2,234  
      535,050       23,350       558,400  

Consolidation of notes (1) through (3) on September 25, 2017

    23,350       (23,350

)

    -  

Consolidated note balance at September 25, 2017

    558,400       -       558,400  

Accrued interest from September 26 through December 31, 2017

    -       11,872       11,872  

Balances as of December 31, 2017

  $ 558,400     $ 11,872     $ 570,272  
                         

Accrued interest on consolidated note for the year ended December 31, 2018

  $ -     $ 44,672     $ 44,672  

Balances as of December 31, 2018

    558,400       56,544       614,944  

Accrued interest on consolidated note for the year ended December 31, 2019

    -       44,672       44,672  

Balances as of December 31, 2019

  $ 558,400     $ 101,216     $ 659,616  
                         
                         

March 2018 (4)

    -       -       -  

April 2018 (5)

    -       -       -  

August 2018 (6)

    70,000       7,769       77,769  

November 2018 (7)

    20,000       1,784       21,784  

December 2018 (8)

    50,000       4,142       54,142  

May 2019 (9)

    10,000       509       10,509  

June 2019 (10)

    25,000       1,134       26,134  

December 2019 (11)

    19,000       75       19,075  
      194,000       15,413       209,413  
                         

Total notes payable and accrued interest due to related party at December 31, 2019

  $ 752,400     $ 116,629     $ 869,029  

 

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

(1) In January 2017, the Company entered into a note agreement in the amount of $300,000 with the Company’s former CEO. The note bears interest at a rate of 8% per annum and specifies no due date. The Company accrued interest of $16,504 through September 25, 2017. Concurrently, the board of directors also approved issuance of 100,000 shares of the Company’s common stock as additional interest. These shares were accounted for as debt issuance costs, valued at $182,000. The costs were expensed at the commitment date of the note as interest expense since the note is a short term capital advance with no stated term. This note was convertible into the shares of the Company’s common stock at $0.50/share and the note holder did not exercise the conversion option. 

 

(2) In June 2017, the Company entered into a note agreement in the amount of $105,000 with the Company’s former CEO for short term working capital advance. The note bears interest at a rate of 8% per annum and specifies no due date. The Company accrued interest and recorded interest expense of $2,048 through September 25, 2017. This note was convertible into the shares of the Company’s common stock at $0.50/share and the note holder did not exercise the conversion option. 

 

(3) In June 2017, the Company received a short term working capital advance of $130,050 from its former CEO. The advance bears interest at a rate of 8% per annum and specifies no due date. The Company accrued interest and recorded interest expense of $2,564 through September 25, 2017. 

 

On September 25, 2017, the board of directors approved the Company to enter into a consolidated note payable agreement with the Company’s former CEO to consolidate the above notes (1) and (2) and advances (3) received from its former CEO, including accrued interests on these notes. The total amount of the principle and interest consolidated was $558,400. This consolidated note payable bears 8% interest per annum and is due on demand. Interest expense on this note from September 25, 2017 to December 31, 2017 was $11,872 and $44,672 for each of the years ended December 31, 2019 and 2018. This note is secured by all of the Company's assets.  

 

(4) In March 2018, the Company entered into three separate unsecured promissory note agreements with its CEO and his spouse, in the amounts of $12,000, $40,000 and $20,000, totaled $72,000. Each of these promissory notes bears interest at a rate of 8% per annum. The principle balance and accrued interest is due 60 days from the date of the note. The Company accrued interest on these notes in the amount of $4,402 for the year ended December 31, 2018.

 

(5) In April 2018, the Company entered into two separate unsecured promissory note agreements with its CEO and his spouse, in the amounts of $10,000 and $32,000, totaled $42,000. Each of these promissory notes bears interest at a rate of 8% per annum. The principle balance and accrued interest is due 60 days from the date of the note. The Company accrued interest on these notes in the amount of $2,332 for the year ended December 31, 2018.

 

In May 2018, the board of directors approved the Company to enter into a promissory note agreement with the Company's CEO and his spouse to consolidate notes (4) and (5). The total amount of the principle consolidated was $114,000. The amount of interest accrued from the note dates to the date of the consolidation was minimal and therefore was not included in the consolidation. The promissory note accrues interest at 8% from the date of consolidation and is due within 120 days of the note date. 

 

(6) In August 2018, the Company entered into three separate unsecured promissory note agreements with its CEO and his spouse, in the amounts of $25,000, $25,000, and $20,000, totaled $70,000. Each of these promissory notes bears interest at a rate of 8% per annum. The principle balance and accrued interest is due 60 days from the date of the note. The Company accrued interest on these notes in the amount of $5,600 and $2,168 for the years ended December 31, 2019 and 2018, respectively.

 

(7) In November 2018, the Company entered into an unsecured promissory note agreements with its CEO and his spouse, in the amounts of $20,000. The promissory note bears interest at a rate of 8% per annum. The principle balance and accrued interest is due 30 days from the date of the note. The Company accrued interest on these notes in the amount of $1,600 and $184 for the years ended December 31, 2019 and 2018, respectively.

 

(8) In December 2018, the Company entered into an unsecured promissory note agreements with its CEO and his spouse, in the amounts of $50,000. The promissory note bears interest at a rate of 8% per annum. The principle balance and accrued interest is due 90 days from the date of the note. The Company accrued interest on these notes in the amount of $4,000 and $144 for the years ended December 31, 2019 and 2018, respectively.

 

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

(9) In May 2019, the Company entered into an unsecured promissory note agreement with its former CEO and his spouse, in the amount of $10,000. The promissory note bears interest at a rate of 8% per annum. The principle balance and accrued interest is due 90 days from the date of the note. The Company accrued interest on these notes in the amount of $509 through December 31, 2019.

 

(10) In June 2019, the Company entered into an unsecured promissory note agreement with its former CEO and his spouse, in the amount of $25,000. The promissory note bears interest at a rate of 8% per annum. The principle balance and accrued interest is due 90 days from the date of the note. The Company accrued interest on these notes in the amount of $1,134 through December 31, 2019.

 

(11) In December 2019, the Company entered into an unsecured promissory note agreement with its former CEO and his spouse, in the amount of $19,000. The promissory note bears interest at a rate of 8% per annum. The principle balance and accrued interest is due 90 days from the date of the note. The Company accrued interest on these notes in the amount of $75 through December 31, 2019.

 

As a result, the total principle amount of notes payable to related party was $752,400 and $812,400, at December 31, 2019 and 2018, respectively. Accrued interest on these notes payable to related party was $116,629 and $65,774, at December 31, 2019 and 2018, respectively.

 

Payable to Related Parties

 

Payable to related parties consisted of the followings at December 31, 2019 and 2018:

 

   

2019

   

2018

 

Short term loan from related entity (1)

  $ 59,768     $ 61,500  

Storage and corporate housing and auto allowances owed to former CEO (2)

    9,000       5,000  
    $ 68,768     $ 66,500  

 

(1) In 2017, the Company received a working capital advance of $74,348 from a related entity. These advances are non-interest bearing and were intended as short term capital advances. The remaining balances of $59,768 and $61,500 have been included in payable to related parties on the consolidated balance sheets as current liabilities at December 31, 2019 and 2018, respectively.

 

(2) On May 1, 2016, the Company entered into an employment agreement with its former CEO. The term of the employment is through December 31, 2019. The agreement provided for a monthly storage and corporate housing allowance of $1,000 for a property owned by the former CEO and a monthly automobile allowance of $1,000. 

 

In May 2018, the board of directors approved to discontinue payment of the storage and corporate housing allowance of $1,000 per month, retroactively to January 1, 2018. As a result, no expenses related to the storage and corporate housing allowance was recorded since January 1, 2018. The automobile allowance remained unchanged at $1,000 per month. 

 

In July 2018, the board of directors approved issuance of 85,000 shares of the Company's restricted common stock to the Company's former CEO to settle the storage and corporate housing allowance and automobile allowance in the amount of $17,000 accrued through July 2018. As a result, $9,000 and $5,000 remained owed to the Company’s former CEO at December 31, 2019 and 2018, respectively. 

 

During the years ended December 31, 2019 and 2018, expenses related to the automobile allowances totaled $12,000 each year.

 

Other Related Party Transactions

 

In May 2017, the Company and EMT entered into an agreement to purchase a parcel of land in Tennessee and an Industrial Hemp Grower License issued by the Tennessee Department of Agriculture from one of the Company’s directors. The purchase price of the transaction was 80,000 shares of the Company’s restricted common stock. These shares were valued at $1.60 per share, or $128,000, on the commitment date. The purchase price consisted of land preparation and cleanup costs, and compensation to a director for his effort in preparing the Company for operations in Tennessee. The Company also performed excavation and clearing of the land, installing driveway and culvert and completing the survey for excavation. In May 2018, the Company sold this property for $38,361 to an unrelated party, resulting in a loss of $12,362.

 

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

In May 2018, the Company's former CEO personally financed the purchase, with the Company's board of directors' approval, a piece of property in Tennessee for the benefit of the Company. The property consists of a 14 acre farm and an indoor growing area. The Company's former CEO personally funded the purchase price of the property at $185,000 and closing costs. The board of directors also granted the Company the right to purchase the farm from the Company's former CEO at his cost plus 6.09% interest when the Company has sufficient cash flows to do so. At the time of the filing, the Company had not exercised such right. 

 

The board of directors also approved for the Company to enter into an agreement to lease this property from the Company's former CEO, effective June 1, 2018. The term of the lease was for one year with an automatic renewal term of one year. The lease required the Company to pay all expenses related to the acquisition and operation of the property, including but not limited to the Company's former CEO's personal incremental borrowing costs, repairs and maintenance, real estate taxes, licenses and permits, etc. For the years ended December 31, 2019 and 2018, the Company incurred $36,953 and $29,152, respectively, in operating expenses for this property.

 

NOTE 5 – INVENTORIES

 

The Company’s inventories consisted of the followings at December 31, 2019 and 2018:

 

   

2019

   

2018

 

Raw materials

  $ 32,294     $ 23,810  

Finished goods (isolates, tinctures and capsules, etc.)

    13,903       12,605  

Deferred farm expense

    -       7,135  
    $ 46,197     $ 43,550  

 

NOTE 6 – PROPERTY AND EQUIPMENT

 

Property and equipment are stated at historical cost less accumulated depreciation. Depreciation is computed using the straight-line method at rates intended to depreciate the costs of assets over their estimated useful lives. Upon retirement or sale of property and equipment, the cost of the disposed assets and related accumulated depreciation is removed from the accounts and any resulting gain or loss is credited or charged to selling, general and administrative expenses. Expenditures for normal repairs and maintenance are charged to expense as incurred.

  

Additions and expenditures for improving or rebuilding existing assets that extend the useful life are capitalized. Leasehold improvements made either at the inception of the lease or during the lease term are amortized over the shorter of their economic lives or the lease term including any renewals that are reasonably assured.

 

Property and equipment consisted of the followings at December 31, 2019 and 2018:

 

   

2019

   

2018

 

Computer equipment

  $ 7,582     $ 7,582  

Website

    7,000       7,000  

Extraction, farm and lab equipment

    609,568       609,664  

Leasehold and farm improvement

    143,503       106,659  

Total property and equipment

    767,653       730,905  

Less accumulated depreciation

    (417,144

)

    (277,343

)

Net property and equipment

  $ 350,509     $ 453,562  

 

Depreciation expense for the years ended December 31, 2019 and 2018 totaled $150,517 and $104,560, respectively.

 

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consisted of the followings at December 31, 2019 and 2018:

 

   

2019

   

2018

 

Accounts payable to vendors

  $ 114,110     $ 83,037  

Payroll taxes payable

    63,621       46,832  

Accrued salaries and bonuses

    207,062       153,542  

Accrued interest on convertible notes payable

    11,472       6,394  
    $ 396,265     $ 289,805  

 

NOTE 8 – RIGHT-OF-USE ASSETS AND LEASE LIABILITIES

 

Short term lease

 

The Company recognizes its office lease in Florida with an initial term of 12 months or less as a short-term lease. Lease payments associated with short-term lease are expensed as incurred in operating lease expense and are not included in our calculation of right-of-use assets or lease liabilities. Operating lease expense related to short-term lease was $11,877 and $11,361 for the years ended December 31, 2019 and 2018, respectively.

 

Operating lease

 

The Company entered into a lease agreement to lease its retail space in Tennessee in October 2017 with a lease term of 24 months. The lease contained a renewal option to extend the term for two additional years. The lease expired on November 30, 2019 and the Company notified the landlord that it would not renew the lease. Rent for the first twelve months was $2,500 per month and $2,550 for the next twelve months. In applying ASC 842, the Company uses a lease term of 24 months and an incremental borrowing rate of 5.99% which was the borrowing rate on a finance lease (discussed below).

 

Right of use (ROU) asset - operating lease obtained in exchange for lease liability - operating lease

       
    $ 29,355  

Amortization of ROU asset - operating lease

    (29,355

)

ROU asset - operating lease at December 31, 2019

  $ 0  
         

Lease liability - operating lease on adoption date

  $ 29,655  

Payments on lease liability - operating lease

    (29,655

)

Lease liability - operating lease on December 31, 2019

  $ 0  
         

This entire lease liability matured on November 30, 2019

       
         

Operating lease expense for the year ended December 31, 2019

  $ 28,125  

Weighted average remaining lease term

    -  

Weighted average discount rate

    5.99

%

 

Finance lease

 

In May 2018, the Company's former CEO personally financed the purchase, with the Company's board of directors' approval, a piece of property in Tennessee for the benefit of the Company. The property consisted of a 14 acre farm and an indoor growing area. The Company's former CEO personally funded the purchase price of the property at $185,000 and closing costs. The board of directors also granted the Company the right to purchase the farm from the Company's former CEO at his cost plus 6.09% interest when the Company had sufficient cash flows to do so. At the time of the filing, the Company did not exercise such right.

 

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018