marijuana stocks

Form 10-Q/A for AGRITEK HOLDINGS, INC.


26-Feb-2015

Quarterly Report

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONThe following is management’s discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying consolidated financial statements, as well as information relating to the plans of our current management. This report includes forward-looking statements. Generally, the words “believes,” “anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,” “continue,” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2013 and 2012, included in our annual report on Form 10-K filed with the SEC on April 1, 2014.

The independent auditors reports on our financial statements for the years ended December 31, 2013 and 2012 includes a “going concern” explanatory paragraph that describes substantial doubt about our ability to continue as a going concern. Management’s plans in regard to the factors prompting the explanatory paragraph are discussed below and also in Note 11 to the condensed consolidated financial statements filed herein.

(a) Liquidity and Capital Resources.

For the nine months ended September 30, 2014, net cash used in operating activities was $519,883 compared to $266,636 for the nine months ended September 30, 2013. The company had a net loss $1,175,867 for the nine months ended September 30, 2014 compared to a net loss of $3,782,545 for the nine months ended September 30, 2013. The net loss for the nine months ended September 30, 2014 was impacted by stock compensation expense of $264,000 comprised of $108,000 to advisories to the board of directors and $156,000 for the issuance of 1,300,000 shares of common stock for services provided. Non cash interest expense included the amortization of discounts on convertible notes of $231,535 and the amortization of deferred financing fees of $34,229 related to the convertible promissory notes. Changes in operating assets and liabilities included an increase in accounts payable and accrued expenses of $54,019, an increase in deferred compensation of $119,829, the receipt of tenant deposits of $75,000 and depreciation expense $1,341. These amounts were offset by increases in prepaid expenses of $117,076 and an increase in inventory of $5,489.

The net loss for the nine months ended September 30, 2013 was impacted by stock and warrant compensation expense of $3,253,197 comprised of $2,821,275 of preferred stock compensation, the amortization of deferred stock compensation of $192,472 from the previous issuance of Series B preferred stock, $124,200 warrant based compensation for the issuance of a warrant to purchase 3,000,000 shares of common stock to our advisor to the board of directors, $80,000 for the one time issuance of 2,000,000 shares of common stock to the same advisor, 500,000 shares of common stock valued at $19,750 and $15,500 for the issuance of 250,000 shares for services provided to the Company. Additional non-cash expenses for the nine months ended September 30, 2013 were the amortization of the initial discounts of $103,517 on the convertible notes, the initial derivative liability expense and the change in the fair value of the derivatives of $25,288, amortization of deferred financing fees of $26,396 also related to the convertible promissory notes and a beneficial conversion feature related to the conversion of the contingent liability to common stock of $29,561.

During the nine months ended September 30, 2014, net cash used in investing activities was $238,510 compared to $2,509 for the nine months ended September 30, 2013. The 2014 period was the result of land acquisition costs of $54,053, and investments of $50,000 in non-marketable securities, advances to a related party of $89,988, security deposits paid of $14,700 and the purchase of office furniture of $9,769 and the cash payment portion of $20,000 for the acquisition of Dry Vapes, Holdings, Inc. The net cash used in investing activity for the nine months ended September 30, 2013 was the result of the purchase of office furniture.

During the nine months ended September 30, 2014, net cash provided by financing activities was $892,000 compared to $420,500 for the nine months ended September 30, 2013. The 2014 activity was comprised of proceeds received related to the Typenex notes receivable of $400,000, the issuance of convertible promissory notes of $500,000 and the payment of deferred financing fees of $8,000. The 2013 amount was comprised of issuance of convertible promissory notes of $157,500, proceeds of $300,000 related to the Typenex convertible note (see Note 6 to the condensed consolidated financial statements contained herein) and the payment of deferred financing fees of $37,000.

For the nine months ended September 30, 2014, cash and cash equivalents increased by $133,607 compared to $151,355 for the nine months ended September 30, 2013. Ending cash and cash equivalents at September 30, 2014 was $242,373 compared to $153,247 at September 30, 2013.

We have cash and cash equivalents on hand to meet our obligations. We presently maintain our daily operations and capital needs through the sale of our products and financings available to us from our lender.

(b) Results of Operations

Results of operations for the three and nine months ended September 30, 2014 vs. September 30, 2013

REVENUES



Revenues during the three and nine months ended September 30, 2014 and 2013 were
comprised of the following:



                                 Three months ended September 30,           Nine months ended September 30,
                                    2014                 2013                 2014                  2013
ACS                           $          -        $            -        $           -        $         49,818
Chillo products                          -                 32,385               17,008                 62,738
Cloud-based products                     -                 14,946                   -                  22,860
Wellness products                     2,397                    -                 8,926                     -
Total                         $       2,397       $        47,331       $       25,934       $        135,416

In April 2013, Alternative Capital Solutions (“ACS”) and the Company terminated their agreements and accordingly, the Company no longer receives fees related to the ACS agreement. During 2013, the Company entered into an exclusive distributorship agreement with Chill Drinks, LLC for sales of Chill Drink’s products to dispensaries. Sales began in April 2013. The decrease in the sale of the Chillo products is primarily due to the Company focusing more on its’ real estate business plan at this time.

OPERATING EXPENSES



Operating expenses were $460,578 and $894,731 for the three and nine months
ended September 30, 2014 compared to $156,378 and $3,667,378 for the three and
nine months ended September 30, 2013. The expenses were comprised of:



                                     Three months ended September 30,           Nine months ended September 30,
 Description                             2014                 2013                2014                  2013
Administration and management
fees                              $        75,000       $        66,449     $      222,181       $         201,630
Stock compensation expense,
management                                     -                  9,975                 -                3,126,655
Stock compensation expense,
other                                     214,000                22,208            264,000                 126,542
Professional and consulting
fees                                       20,400                 9,950             84,732                  58,821
Bad debt expense                           16,654                    -              16,654                      -
Commissions and license fees                   -                     -               8,162                  31,200
Advertising and promotional
expenses                                   22,032                 9,043             50,735                  17,914
Rent and occupancy costs                   24,816                 5,341             51,886                  24,124
Leased property for sub-lease              53,252                    -              53,252                      -
Property and maintenance cost               8,925                    -              17,925                      -
Travel and entertainment                   12,091                    -              50,316                      -
General and other
administrative                             13,407                33,412             74,888                  80,492
Total                             $       460,578       $       156,378     $      894,731       $       3,667,378

There was no stock compensation expense, management for the three and nine months ended September 30, 2014 compared to $9,975 and $3,126,655 for the three and nine months ended September 30, 2013, respectively. The 2013 amount was comprised of $2,821,275 of preferred stock compensation, $124,200 warrant based compensation for the issuance of a warrant to purchase 3,000,000 shares of common stock to our advisor to the board of directors, $80,000 for the one time issuance of 2,000,000 shares of common stock to the same advisor, 500,000 shares of common stock valued at $19,750. Stock compensation expense, other for 2013 includes the amortization of deferred stock compensation of $22,208 (three months) and $111,042 (nine months) from the previous issuance of Series B preferred stock and $15,500 (for the nine months ended September 30, 2013) for the issuance of 250,000 shares for services provided to the Company.

Stock compensation expense, other was $214,000 and $264,000, respectively, for the three and nine months ended September 30, 2014, respectively, compared to $22,208 and $126,542 for the three and nine months ended September 30, 2013, respectively. The 2014 period is comprised of $58,000 (three months) and $108,000 (nine months) to advisories to the board of directors and $156,000 (three and nine months) for the issuance of 1,300,000 shares of common stock for services provided.

Professional and consulting fees increased for the three and nine months periods in 2014 and included legal expenses of $28,882 (nine months), property management fees of $15,000 (three months) and $32,500 (nine months), accounting fees of $3,000 (three months) and $11,650 (nine months) and investor relation costs of $2,400 (three months) and $11,700 (nine months). The increase in the 2014 period is primarily due to costs associated with the Company’s land acquisition and property management fees. Commission and licensing fees of $8,162 were also incurred for nine months ended September 30, 2014. The 2013 periods include investor relation costs $7,150 (three months) and $29,546 (nine months), consulting fees of $19,200 (nine months) of which $16,700 was pursuant to the ACS agreement and accounting fees of $2,500 (three months) and $9,775 (nine months). Commissions of $31,200 were also incurred for the nine months ended September 30, 2013 pursuant to the ACS Agreement.

General and other administrative costs for the three and nine months ended September 30, 2014, were $13,407 and $74,888, respectively, compared to $33,412 and $80,492, respectively for the three and nine months ended September 30, 2013. Expenses for the nine months ended September 30, 2014, include a settlement expense of $15,000 related to licensing fees, public company filing and transfer agent fees of $9,474, telephone, internet and web based service costs of $12,451, office and employee moving costs of $8,754, payroll taxes and fees of $4,841, office supply purchases of $10,763 and $13,605 of other general and administrative costs. Expenses for the nine months ended September 30, 2013, include public company filing fees and transfer agent fees of $19,976, travel and entertainment costs of $24,140, telephone, internet and web based service costs of $19,096, payroll taxes and fees of $2,174, certification station set up costs of $2,904 and $12,202 of other general and administrative costs.

OTHER INCOME (EXPENSE), NET

Other expense for the three and nine months ended September 30, 2014 was $66,382 and $267,093 compared to $27,850 and $180,703 for the three and nine months ended September 30, 2013, respectively. Included in other expenses for the 2014 period was income from the decrease on the fair value of derivatives of $30,347 (nine months), interest income of $4,798 (three months) and $68,362 (nine months), offset by interest expense of $71,180 (three months) and $365,802 (nine months), related to the 2013 and 2014 Company Notes.

Other expense for the 2013 period included $103,517 (nine months) related to the amortization of the initial discount on convertible promissory notes, $10,311 (three months) and $26,396 (nine months) for the amortization of the deferred financing costs and $2,158 (three months) and $16,354 (nine months) for the interest expense on the face value of the notes. Also included in other expenses for the nine months ended September 30, 2013 was $25,288 for the initial derivative liability expense for the embedded derivative in newly issued convertible notes and a (decrease) of $17,038 for the fair value change on the derivative liability associated with the convertible promissory notes.

Interest expense was $71,180 and $365,802 for the three and nine months ended September 30, 2014, respectively, compared to $53,268 and $175,828 for the three and nine months ended September 30, 2013, respectively. The increase was due to the issuance of various debt instruments from May 2013 through January 2014. Interest expense for each of the periods is as follows:

                                   Three months ended September 30,            Nine months ended September 30,
                                       2014                 2013                  2014                 2013
Interest on face value          $        30,038       $         2,158      $       100,038       $        16,354
Amortization of note discount                -                 41,519               81,535               103,517
Amortization of OID                      38,571                    -               150,000                    -
Beneficial conversion feature                -                     -                    -                 29,561
Amortization other                        2,571                 9,591               34,229                26,396
Total                           $        71,180       $        53,268      $       365,802       $       175,828

OFF BALANCE SHEET ARRANGEMENTS

None

Critical Accounting Policies

See Note 2 to the condensed consolidated financial statements included herein.

 


MAPH Enterprises, LLC | (305) 414-0128 | 1501 Venera Ave, Coral Gables, FL 33146 | new@marijuanastocks.com
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