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Acacia Diversified Holdings, Inc. – ‘10-Q’ for 6/30/20

On:  Wednesday, 8/19/20, at 1:17pm ET   ·   For:  6/30/20   ·   Accession #:  1185185-20-1216   ·   File #:  1-14088

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 8/19/20  Acacia Diversified Holdings, Inc. 10-Q        6/30/20   61:7.2M                                   Federal Filings, LLC/FA

Quarterly Report   —   Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    603K 
 2: EX-31.1     Certification -- §302 - SOA'02                      HTML     21K 
 3: EX-32.1     Certification -- §906 - SOA'02                      HTML     19K 
10: R1          Document And Entity Information                     HTML     46K 
11: R2          Consolidated Balance Sheets                         HTML    109K 
12: R3          Consolidated Balance Sheets (Parentheticals)        HTML     35K 
13: R4          Consolidated Statements of Operations               HTML     87K 
14: R5          Consolidated Statements of Changes in               HTML     78K 
                Stockholders' (Deficit)                                          
15: R6          Consolidated Statements of Cash Flows               HTML    127K 
16: R7          The Company                                         HTML     32K 
17: R8          Going Concern                                       HTML     22K 
18: R9          Summary of Significant Accounting Policies          HTML     48K 
19: R10         Related Party Transactions                          HTML    208K 
20: R11         Accounts Payable and Accrued Expenses               HTML     31K 
21: R12         Convertible Notes Payable and Derivative Liability  HTML    151K 
22: R13         Stockholders' Deficit                               HTML     30K 
23: R14         Commitments                                         HTML     22K 
24: R15         Discontinued Operations                             HTML    246K 
25: R16         Subsequent Events                                   HTML     21K 
26: R17         Recent Accounting Pronouncements                    HTML     30K 
27: R18         Accounting Policies, by Policy (Policies)           HTML     95K 
28: R19         The Company (Tables)                                HTML     26K 
29: R20         Related Party Transactions (Tables)                 HTML    207K 
30: R21         Accounts Payable and Accrued Expenses (Tables)      HTML     30K 
31: R22         Convertible Notes Payable and Derivative Liability  HTML    149K 
                (Tables)                                                         
32: R23         Discontinued Operations (Tables)                    HTML    280K 
33: R24         The Company (Details)                               HTML     52K 
34: R25         The Company (Details) - Other Liabilities           HTML     35K 
35: R26         Summary of Significant Accounting Policies          HTML     52K 
                (Details)                                                        
36: R27         Related Party Transactions (Details)                HTML    118K 
37: R28         Related Party Transactions (Details) - Schedule of  HTML    152K 
                Debt                                                             
38: R29         Related Party Transactions (Details) - Schedule of  HTML     34K 
                Related Party Transactions                                       
39: R30         ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Details) -   HTML     31K 
                Schedule of Accrued Liabilities                                  
40: R31         Convertible Notes Payable and Derivative Liability  HTML    115K 
                (Details)                                                        
41: R32         Convertible Notes Payable and Derivative Liability  HTML     35K 
                (Details) - Schedule of Derivative Liabilities at                
                Fair Value                                                       
42: R33         Convertible Notes Payable and Derivative Liability  HTML     59K 
                (Details) - Schedule of Fair Value, Assets and                   
                Liabilities Measured on Recurring Basis                          
43: R34         Convertible Notes Payable and Derivative Liability  HTML     42K 
                (Details) - Schedule of Debt Conversions                         
44: R35         Stockholders' Deficit (Details)                     HTML     92K 
45: R36         Commitments (Details)                               HTML     42K 
46: R37         Discontinued Operations (Details)                   HTML    142K 
47: R38         Discontinued Operations (Details) - Other           HTML     33K 
                Liabilities                                                      
48: R39         Discontinued Operations (Details) - Disposal        HTML    107K 
                Groups, Including Discontinued Operations                        
49: R40         Discontinued Operations (Details) - Disposal        HTML     24K 
                Groups, Including Discontinued Operations                        
                (Parentheticals)                                                 
50: R41         Discontinued Operations (Details) - Schedule of     HTML     32K 
                Inventory, Current                                               
51: R42         Discontinued Operations (Details) - Property,       HTML     45K 
                Plant and Equipment                                              
52: R43         Discontinued Operations (Details) - Lessee,         HTML     39K 
                Operating Lease, Disclosure                                      
53: R44         Discontinued Operations (Details) - Lessee,         HTML     58K 
                Finance Lease, Disclosure                                        
54: R45         Discontinued Operations (Details) - Schedule of     HTML     29K 
                Accounts Payable and Accrued Liabilities                         
55: R46         Discontinued Operations (Details) - Schedule of     HTML     43K 
                Maturities of Long-term Debt                                     
56: R47         Discontinued Operations (Details) - Schedule of     HTML     31K 
                Related Party Transactions                                       
57: R48         Discontinued Operations (Details) - Disposal        HTML     68K 
                Groups, Including Discontinued Operations                        
58: R49         Subsequent Events (Details)                         HTML     29K 
60: XML         IDEA XML File -- Filing Summary                      XML    112K 
59: EXCEL       IDEA Workbook of Financial Reports                  XLSX     94K 
 4: EX-101.INS  XBRL Instance -- acca-20200630                       XML   2.19M 
 6: EX-101.CAL  XBRL Calculations -- acca-20200630_cal               XML    155K 
 7: EX-101.DEF  XBRL Definitions -- acca-20200630_def                XML    878K 
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 5: EX-101.SCH  XBRL Schema -- acca-20200630                         XSD    167K 
61: ZIP         XBRL Zipped Folder -- 0001185185-20-001216-xbrl      Zip    196K 


‘10-Q’   —   Quarterly Report
Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Table of Contents
"Financial Statements
"Management's Discussion and Analysis of Financial Condition and Results of Operations
"Quantitative and Qualitative Disclosures About Market Risk
"Controls and Procedures
"Legal Proceedings
"Risk Factors
"Unregistered Sales of Equity Securities and Use of Proceeds
"Defaults Upon Senior Securities
"Mine Safety Disclosures
"Other Information
"Exhibits
"Signatures

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 C:  <>  <> 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

 (Mark One)

 

 

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

 

 

 

For the quarterly period ended June 30, 2020

 

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

 

 

For the transition period from __________________ to ______________

 

Commission file number: 001-14088

 

Acacia Diversified Holdings, Inc.

(Exact name of small business issuer as specified in its charter)

 

Texas

75-2095676

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

 

 

704 Forest Glen Road, Silver Spring, MD

20901

(Address of principal executive offices)

(Zip Code)

 

(301) 992-2177

(Registrant’s telephone number) 

 

                                                                                                                                            

(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

  

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition 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 ☐

 

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 Exchange Act). Yes ☐  No ☒    

 

APPLICABLE ONLY TO CORPORATE ISSUERS 

 

State the number of shares outstanding of each of the issuer's classes of common equity, as of August 14, 2020 is 54,283,309 common shares. 

 

 

 

 

TABLE OF CONTENTS

 

 

 

Page

PART I. Financial Information

 

 

 

 

Item 1.

Financial Statements

F-1

Item 2.

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

1

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

5

Item 4.

Controls and Procedures

6

 

 

 

PART II. Other Information

 

 

 

 

Item 1.

Legal Proceedings

7

Item 1A.

Risk Factors

7

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

7

Item 3.

Defaults Upon Senior Securities

7

Item 4.

Mine Safety Disclosures

7

Item 5.

Other Information

7

Item 6.

Exhibits

8

 

 

 

Signatures

9

 

 

 

 

 

 

PART I.  FINANCIAL INFORMATION

 

Item 1. Financial Statements

ACACIA DIVERSIFIED HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

 

   

June 30,

   

December 31,

 
   

2020

   

2019

 
   

(UNAUDITED)

   

(AUDITED)

 

ASSETS

               
                 

CURRENT ASSETS:

               

Cash

  $ 421     $ 2,616  

Prepaid expenses and other current assets

    4,334       4,335  

Current assets of discontinued operations

    -       129,367  

Total Current Assets

    4,755       136,318  
                 

OTHER ASSETS

               

Deposits

    -       841  

Non-current assets of discontinued operations

    -       517,078  
      -       517,919  
                 

TOTAL ASSETS

  $ 4,755     $ 654,237  
                 

LIABILITIES AND STOCKHOLDERS' DEFICIT

               
                 

CURRENT LIABILITIES:

               

Accounts payable and accrued expenses

  $ 388,778     $ 282,705  

Convertible notes payable

    264,300       264,100  

Notes payable to related parties

    -       752,400  

Accrued interest on notes payable to related parties

    -       116,629  

Payable to related parties

    10,525       35,348  

Current liabilities of discontinued operations

    -       160,347  

Total Current Liabilities

    663,603       1,611,529  
                 

LONG-TERM LIABILITY:

               

Derivative liability

    237,055       381,330  

Long-term liabilities of discontinued operations

    -       175,116  

Total Long-term Liability

    237,055       556,446  
                 

Total Liabilities

    900,658       2,167,975  
                 

Commitments and contingencies

    -       -  
                 

STOCKHOLDERS' DEFICIT

               

Series B Convertible preferred stock, $0.001 par value; 2,000,000 shares authorized; 1,475,000 shares issued and outstanding at June 30, 2020

    1,475       -  

Common stock, $0.001 par value; 150,000,000 shares authorized; 52,481,499 and 39,583,543 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

    52,482       39,584  

Additional paid-in capital

    6,915,499       6,706,657  

Accumulated deficit

    (7,865,359 )     (8,259,979

)

Total Stockholders' Deficit

    (895,903

)

    (1,513,738

)

                 

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

  $ 4,755     $ 654,237  

 

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

 

F-1

 

ACACIA DIVERSIFIED HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(UNAUDITED)

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2020

   

2019

   

2020

   

2019

 
                                 
                                 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

                               

Employee compensation expenses

  $ -     $ 144,094     $ 97,304     $ 273,229  

General and administrative expenses

    24,906       30,016       93,766       105,656  
      24,906       174,110       191,070       378,885  
                                 

LOSS FROM OPERATIONS

    (24,906 )     (174,110 )     (191,070 )     (378,885 )
                                 

OTHER INCOME (EXPENSE)

                               

Derivative income (expense)

    (79,894 )     (214,308 )     42,512       (187,128 )

Interest expense

    (19,255 )     (25,544 )     (40,755 )     (46,306 )

TOTAL OTHER INCOME (EXPENSE)

    (99,149 )     (239,852 )     1,757       (233,434 )
                                 

NET LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

    (124,055 )     (413,962 )     (189,313 )     (612,319 )

Income taxes

    -       -       -       -  
                                 

NET LOSS FROM CONTINUING OPERATIONS

    (124,055 )     (413,962 )     (189,313 )     (612,319 )
                                 

DISCONTINUED OPERATIONS

                               

Loss from discontinued operations

    -       (95,952 )     (140,353 )     (95,620 )

Gain on disposal of net assets of discontinued operations

    724,286       -       724,286       -  
      724,286       (95,952 )     583,933       (95,620 )

Income taxes

    -       -       -       -  
                                 

INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX

    724,286       (95,952 )     583,933       (95,620 )
                                 

NET INCOME (LOSS)

  $ 600,231     $ (509,914 )   $ 394,620     $ (707,939 )
                                 

NET LOSS PER COMMON SHARE:

                               
                                 

Net loss from continuing operations per common share - basic and diluted

  $ (0.00 )   $ (0.01 )   $ (0.00 )   $ (0.02 )
                                 
Net income from discontinued operations per common share - basic and diluted   $ 0.01     $ (0.00 )   $ 0.01     $ (0.00 )
                                 

NET INCOME (LOSS) PER COMMON SHARE, BASIC AND DILUTED

  $ 0.01     $ (0.02 )   $ 0.01     $ (0.03 )
                                 

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED

    48,617,529       28,008,747       44,745,821       25,353,695  

 

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

 

F-2

 

ACACIA DIVERSIFIED HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

FOR THE SIX MONTHS ENDED JUNE 30, 2019

(UNAUDITED) 

 

   

Common Stock

                         
   

Shares

   

Par Value

   

Additional Paid-in Capital

   

Accumulated Deficit

   

Total

 
                                         

Balance December 31, 2018 (audited)

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

Common stock issued for services

    4,198,825       4,199       166,858       -       171,057  
                                         

Common stock issued for conversion of convertible note

    6,252,940       6,253       167,947       -       174,200  
                                         

Settlement of derivative liability from conversion of convertible note

    -       -       230,939       -       230,939  
                                         

Employee stock plan compensation

    40,000       40       45,378       -       45,418  
                                         

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

    -       -       -       (707,939 )     (707,939 )
                                         

Balance June 30, 2019 (unaudited)

    36,339,982     $ 36,341     $ 6,521,326     $ (7,378,990 )   $ (821,323 )

 

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

 

F-3

 

ACACIA DIVERSIFIED HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

FOR THE SIX MONTHS ENDED JUNE 30, 2020

(UNAUDITED) 

 

   

Series B Convertible Preferred Stock

   

Common Stock

                         
   

Shares

   

Par Value

   

Shares

   

Par Value

   

Additional Paid-in Capital

   

Accumulated Deficit

   

Total

 

Balance December 31, 2019 (audited)

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

Common stock issued for services

    -       -       272,000       272       5,659       -       5,931  
                                                         

Common stock issued for conversion of convertible note

    -       -       12,585,956       12,586       94,464       -       107,050  
                                                         

Settlement of derivative liability from conversion of convertible note

    -       -       -       -       101,763       -       101,763  
                                                         

Employee stock plan compensation

    -       -       40,000       40       6,956       -       6,996  
                                                         

Issuance of preferred stock

    1,475,000       1,475       -       -       -       -       1,475  
                                                         

Net income

    -       -       -       -       -       394,620       394,620  
                                                         

Balance June 30, 2020 (unaudited)

    1,475,000     $ 1,475       52,481,499     $ 52,482     $ 6,915,499     $ (7,865,359 )   $ (895,903 )

 

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

 

F-4

ACACIA DIVERSIFIED HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(UNAUDITED)

   

Six Months Ended June 30,

 
   

2020

   

2019

 
                 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net loss from continuing operations

  $ (189,313 )   $ (612,319 )

Net income (loss) from discontinued operations

    583,933       (95,620 )

Adjustments to reconcile net loss from continuing operations to net cash and cash equivalents

used by operating activities:

               

Common stock issued for services

    5,931       171,057  

Common stock issued from employee stock plan

    6,996       45,418  

Original issue discount on convertible note payable

    -       8,500  

Amortization of debt discount

    -       3,000  

Accrued interest on notes payable to related parties

    (116,629 )     30,187  

Gain on disposition of net assets of discontinued operations

    (724,286 )     -  

Derivative expense (income)

    (42,512 )     187,128  

(Increase) decrease in:

               

Prepaid expenses and other current assets

    841       -  

Increase (decrease) in:

               

Accounts payable and accrued expenses

    366,878       (32,096 )

Payable to related parties

    12,000       8,000  

Net cash used by operating activities from continuing operations

    (96,161 )     (286,745 )
                 

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Proceeds from issuance of common stock

    -       91,200  

Proceeds from issuance of convertible note payable

    -       82,000  

Proceeds from issuance of notes payable to related parties 

    49,928       35,000  

Net cash provided by financing activities from continuing operations

    49,928       208,200  
                 

Net cash used by continuing operations

    (46,233 )     (78,545 )
                 

CASH FLOWS - DISCONTINUED OPERATIONS:

               

Net cash provided by operating activities of discontinued operations

    20,182       144,531  

Net cash used in investing activities of discontinued operations

    -       (32,572 )

Net cash used in financing activities of discontinued operations

    (3,293 )     (6,445 )

Net cash provided by discontinued operations

    16,889       105,514  
                 

Net (decrease) increase in cash and cash equivalents

    (29,344 )     26,969  
                 

Less: net (decrease) increase in cash and cash equivalents from discontinued operations

    27,149       14,914  

Net (decrease) increase in cash and cash equivalents from continuing operations

    (2,195 )     41,883  
                 

Cash and cash equivalents, beginning of the year

    2,616       1,060  
                 

Cash and cash equivalents, end of the year

  $ 421     $ 42,943  
                 

SUPPLEMENTAL CASH FLOW INFORMATION:

               

Continuing operations

               

Cash paid for interest

  $ -     $ -  

Cash paid for income taxes

  $ -     $ -  

Discontinued operations

               

Cash paid for interest

  $ 3,221     $ -  

Cash paid for income taxes

  $ -     $ -  
                 

NON-CASH FINANCING AND INVESTING ACTIVITIES FROM CONTINUING OPERATIONS: 

               

Common issued to related party to settle accrued expense

  $ -     $ 8,000  

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

  $ -     $ 122,984  

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

  $ 107,050     $ 174,200  

Settlement of derivative liability from conversion of convertible notes payable

  $ 101,763     $ 230,939  

Issuance of convertible note payable to settle accounts payable

  $ 103,000     $ -  

Issuance of preferred stock

  $ 1,475     $ -  

NON-CASH FINANCING AND INVESTING ACTIVITIES FROM DISCONTINUED OPERATIONS: 

               

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.

 

F-5

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

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, Eufloria Medical of Tennessee, Inc. (“EMT”), a company incorporated in the state of Tennessee, and Medahub Operations Group, Inc. and Medahub, Inc., technology companies (collectively “Medahub”) incorporated in the state of Florida.

 

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 which provided the Company the license to grow, manufacture, and dispense organic hemp oil in Tennessee. The Company also had a retail store in Tennessee selling hemp infused products. Revenue generated from retail sales was not material to the Company based on its 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 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. Around this time, the Company also suspended its operations, laid off all of its employees and ceased to generate any revenue.

 

As a result of the insufficient cash flows from the operations of our subsidiaries as well as the disruption of our business from the COVID-19 pandemic, as of March 31, 2020, the Company discontinued the operations of all of its wholly-owned subsidiaries. The financial results for these subsidiaries have been presented as discontinued operations in the accompanying consolidated financial statements.

 

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 43,290,324 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. The parties agree that the change in control would not be effective until all conditions of the Acquisition Agreement are satisfied, including, but not limited to, the acquisition of funding by OFH to satisfy certain debts of the Company and the resignation of its existing board of directors. On May 20, 2020, the Company’s existing board of directors resigned. 

 

Pursuant to the terms of the Acquisition Agreement, the parties agree that the Company will transfer to Richard K. Pertile (“Pertile”), our former CEO, all the issued and outstanding shares of each of the Company’s wholly-owned subsidiaries, and Pertile agreed to forgive all amounts due him or his related parties from the Company. The forgiveness of debt was approximately $910,000 and the value of the net assets of the subsidiaries was approximately $267,000 (net of $240,000 of liabilities). The Acquisition Agreement also specified which accounts payable, accrued liabilities and convertible notes would remain as liabilities of the Company. OFH has agreed to the payment of the following liabilities:

 

Professional fees

  $ 110,000  

Accounts payable

    28,050  

Accrued compensation to our former CEO

    187,000  

Accrued compensation to our former COO

    91,000  

Convertible notes

    250,000  
    $ 666,050  

 

As of the date of the issuance of the consolidated financial statements, the Company settled professional fees in the amount of $110,000 and other liabilities remained outstanding.

 

F-6

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

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 $666,000. 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., 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

 

Based on operating losses and negative cash from operations and the discontinued operations of the Company’s operations, substantial doubt exists about the Company’s ability to continue as a going concern. Management’s plan in this regard is to find new operations to enter into and focus on building profitable operations. To finance operations while it finds new operations, the Company will continue financing activity such as entering into loan agreements and issuing new shares of the Company’s common stock. Therefore, the Company expects to continue to incur operating losses and 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 June 30, 2020, 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 accompanying consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and reflect all adjustments, which consist solely of normal recurring adjustments, needed to fairly present the financial results for these periods. The consolidated financial statements and notes thereto are presented as prescribed by Form 10-Q. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted. The accompanying consolidated financial statements should be read in conjunction with the financial statements for the fiscal year ended December 31, 2019 and notes thereto in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the Securities and Exchange Commission on June 26, 2020. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the entire fiscal year. In the opinion of management, all adjustments have been made, which consist only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the three-month and six-month periods ended June 30, 2020 and 2019, (b) the financial position at June 30, 2020 and (c) cash flows for the three-month and six-month periods ended June 30, 2020 and 2019.

 

As a result of the insufficient cash flows from the operations of our subsidiaries as well as the disruption of our business from the COVID-19 pandemic, as of March 31, 2020, the Company discontinued the operations of all of its wholly-owned subsidiaries. The financial results for these subsidiaries have been presented as discontinued operations in the accompanying consolidated financial statements. For the six months ended June 30, 2020 and 2019, all gains and losses on disposition, impairment charges and disposal costs, along with the sales, costs and expenses and income taxes attributable to discontinued operations, have been aggregated in a single caption entitled “Income (loss) from discontinued operations, net of tax” in our consolidated statements of operations for all periods presented.

 

F-7

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

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., as of and for the three months ended March 31, 2020. All significant intercompany accounts and transactions are eliminated in consolidation. As a result of the insufficient cash flows from the operations of our subsidiaries as well as the disruption of our business from the COVID-19 pandemic, as of March 31, 2020, the Company discontinued the operations of all of its wholly-owned subsidiaries. The financial results for these subsidiaries have been presented as discontinued operations in the accompanying consolidated financial statements. For the six months ended June 30, 2020, all gains and losses on disposition, impairment charges and disposal costs, along with the sales, costs and expenses and income taxes attributable to discontinued operations, have been aggregated in a single caption entitled “Income (loss) from discontinued operations, net of tax” in our consolidated statements of operations for all periods presented.

 

USE OF ESTIMATES

 

The preparation of 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 and 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 period. The actual results may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

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.

 

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. As of March 31, 2020, the Company discontinued the operations of its subsidiaries and presented the right-of-use assets and related liabilities and results of operations as part of discontinued operations in the consolidated financial statements.

 

F-8

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

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 $0 and $2,899 for the three months ended June 30, 2020 and 2019, respectively, and $4,199 and $5,794 for the six months ended June 30, 2020 and 2019. This short-term lease was terminated in July 2020.

 

REVENUE RECOGNITION

 

In May 2014, the FASB issued ASU No. 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, 2018The 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.

 

As of March 31, 2020, the Company discontinued the operations of its subsidiaries and presented the results of operations of the subsidiaries as part of discontinued operations in the 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.  At June 30, 2020 and December 31, 2019, the Company did not provide for an allowance for doubtful accounts. As of March 31, 2020, the Company discontinued the operations of its subsidiaries and presented its accounts receivable as asset of discontinued operations in the consolidated financial statements.

 

F-9

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

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. As of March 31, 2020, the Company discontinued the operations of its subsidiaries and presented its inventories as assets of discontinued operations in the consolidated financial statements.

 

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. As of March 31, 2020, the Company discontinued the operations of its subsidiaries and presented its deferred farm expense as asset of discontinued operations in the consolidated financial statements.

 

DEBT DISCOUNT

 

The Company incurred debt discount related to the issuance of convertible promissory notes, as described in Note 6. 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 incurred direct costs associated with the issuance of convertible promissory notes, as described in Note 6. The Company recognized these costs as interest expense.

 

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 six months ended June 30, 2020 and 2019.  

 

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.

 

F-10

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

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. 

 

During the six months ended June 30, 2020, the board of directors approved the following issuances of the Company’s restricted common stock to consultants, employees, and directors for services rendered:

 

 

1.

2,000 shares to a consultant for services rendered, valued at $44.

 

2.

250,000 shares to the Company's board of directors for services rendered, valued at $5,451.

 

3.

40,000 shares issued to employees from the employee stock plan, valued at $6,996.

 

4.

20,000 shares issued to an employee for services rendered, valued at $436.

 

FAIR VALUE ESTIMATES – The Company measures assets and liabilities it acquires 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. The Company has liability measured at fair value on a recurring basis due to the issuance of convertible note payable as described in Note 6.

 

NET INCOME (LOSS) PER SHARE - In accordance with ASC 260 - Earnings Per Share, the basic income per common share is computed by dividing the net income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share reflect per share amounts that would have resulted if diluted potential common stock had been converted to common stock. No dilutive potential common shares were included in the computation of diluted net income per share for all periods presented because their impact was anti-dilutive. As of June 30, 2020, the Company had 20,000 options outstanding, 1,475,000 shares of Series B convertible preferred stock and $264,300 of outstanding convertible notes payable which were excluded from the computation of net income per share because they are anti-dilutive for the three and six months ended June 30, 2020. As of June 30, 2019, the Company had 50,000 options outstanding and $124,800 of outstanding convertible notes payable which were excluded from the computation of net income per share because they are anti-dilutive for the three and six months ended June 30, 2019.

 

F-11

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 4 – RELATED PARTY TRANSACTIONS

 

Notes Payable to Related Parties

 

The Company entered into the following promissory notes payable to its former CEO during the year ended December 31, 2019 and during the six months ended June 30, 2020

 

Note Date

     

Note Balance 12/31/18

   

New Loan

   

Note Conversion

   

Note Balance 12/31/19

   

New Loan

   

Note Conversion

   

Amounts Settled (See NOTE 9)

   

Note Balance 6/30/2020

 
                                                                     

September 2017

      $ 558,400     $ -     $ -     $ 558,400     $ -     $ -     $ (558,400 )   $ -  

March 2018

        72,000       -       (72,000 )     -       -       -               -  

April 2018

        42,000       -       (42,000 )     -       -       -               -  

August 2018

        70,000       -       -       70,000       -       -       (70,000 )     -  

November 2018

        20,000       -       -       20,000       -       -       (20,000 )     -  

December 2018

        50,000       -       -       50,000       -       -       (50,000 )     -  

May 2019

  (1)     -       10,000       -       10,000       -       -       (10,000 )     -  

June 2019

  (2)     -       25,000       -       25,000       -       -       (25,000 )     -  

December 2019

  (3)     -       19,000       -       19,000       -       -       (19,000 )     -  

February 2020

  (4)     -       -       -       -       40,000       -       (40,000 )     -  

March 2020

  (5)     -       -       -       -       9,928       -       (9,928 )     -  
                                                                     
        $ 812,400     $ 54,000     $ (114,000 )   $ 752,400     $ 49,928     $ -     $ (802,328 )   $ -  

 

Note Date

     

Accrued Interest 12/31/18

   

Interest Expense

   

Interest Conversion

   

Accrued Interest 12/31/19

   

Interest Expense

   

Interest Conversion

   

Amounts Settled (See NOTE 9)

   

Accrued Interest 6/30/2020

 
                                                                     

September 2017

      $ 56,544     $ 44,672     $ -     $ 101,216     $ 22,274     $ -     $ (123,490 )   $ -  

March 2018

        4,402       8,632       (13,034 )     -       -       -       -       -  

April 2018

        2,333       5,035       (7,368 )     -       -       -       -       -  

August 2018

        2,169       5,600       -       7,769       2,792       -       (10,561 )     0  

November 2018

        184       1,600       -       1,784       798       -       (2,582 )     (0 )

December 2018

        142       4,000       -       4,142       1,995       -       (6,137 )     (0 )

May 2019

  (1)     -       508       -       508       399       -       (907 )     0  

June 2019

  (2)     -       1,134       -       1,134       997       -       (2,132 )     (0 )

December 2019

  (3)     -       75       -       75       758       -       (833 )     (0 )

February 2020

  (4)     -       -       -       -       1,201       -       (1,201 )     0  

March 2020

  (5)     -       -       -       -       237       -       (237 )     (0 )
                                                                     
        $ 65,774     $ 71,257     $ (20,402 )   $ 116,629     $ 31,451     $ -     $ (148,080 )   $ (0 )

 

(1) 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 $907 through June 30, 2020.

 

(2) 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 $2,132 through June 30, 2020.

 

(3) 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 $833 through June 30, 2020.

 

(4) In February 2020, the Company entered into an unsecured promissory note agreement with one of its former director, in the amount of $40,000. 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 $1,201 through June 30, 2020.

 

(5) In March 2020, the Company entered into two unsecured promissory notes agreements with its former CEO and his spouse, in the amounts of $2,500 and $7,428. The promissory notes bear interest at a rate of 8% per annum. The principle balance and accrued interest is due 30 days from the dates of the notes. The Company accrued interest on these notes in the amount of $237 through June 30, 2020.

 

F-12

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

As a result, the total principle amount of notes payable to related parties from continuing operations was $802,328 and $752,400, at June 30, 2020 and December 31, 2019, respectively. Accrued interest on these notes payable to related parties from continuing operations was $148,080 and $116,629, at June 30, 2020 and December 31, 2019, respectively. The note balances and accrued interest on June 30, 2020 were settled when the Company disposed of its discontinued operations as described in Note 9.

 

Payable to Related Parties

 

Payable to related parties from continuing operations consisted of the followings at June 30, 2020 and December 31, 2019:

 

   

June 30, 2020

   

December 31, 2019

 

Short term loan from related entity (1)

  $ -     $ 35,348  

Receivable from related party for issuance of Series B Convertible Preferred Stock

    (1,475 )     -  

Auto allowances owed to former CEO (2)

    12,000       -  

Payable to Related Parties from continuing operations 

  $ 10,525     $ 35,348  

 

(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 have been included in payable to related parties as current liabilities on the consolidated balance sheets at June 30, 2020 and December 31, 2019

 

(2) 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 agreement provided for a monthly automobile allowance of $1,000 to the former CEO.

 

In May 2019, the board of directors approved issuance of 200,000 shares of the Company's restricted common stock to the Company's former CEO to settle the accrued automobile allowance expense in the amount of $8,000. The Company assumed the liability of the automobile allowance that was previously a subsidiary’s liability.

 

During the three months ended June 30, 2020 and 2019, expenses from continuing operations related to the automobile allowances totaled $0 and $3,000, respectively. During the six months ended June 30, 2020 and 2019, expenses from continuing operations related to the automobile allowances totaled $3,000 and $6,000, respectively.

 

NOTE 5 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses of continuing operations consisted of the followings at June 30, 2020 and December 31, 2019:

 

   

June 30, 2020

   

December 31, 2019

 

Accounts payable to vendors

  $ 58,843     $ 965  

Payroll taxes payable

    65,414       63,206  

Accrued salaries and bonuses

    247,992       207,062  

Accrued interest on notes payable

    16,529       11,472  

Accounts payable and accrued expenses of continuing operations 

  $ 388,778     $ 282,705  

 

F-13

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 6 – CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITY

 

On June 13, 2019, the Company issued a convertible promissory note ("Note 3") for $93,500. Note 3 was discounted at $85,000 and the Company received net proceeds of $82,000 after incurring $3,000 of debt issuance costs. The note bears an interest rate at 10% per annum, and principal and accrued interest is due on the maturity date of June 13, 2020. The conversion option price associated with the note has a 25% discount to the market price of the stock. The market price is based on the average of the two lowest trading prices during a ten day period prior to conversion. The note is convertible at any time. As a result of the variable feature associated with the conversion option, pursuant to ASC Topic 815, the Company bifurcated the conversion option, and utilized the Black Scholes valuation model to determine the fair value of the conversion option. At the issuance date, the Company recorded a derivative expense and derivative liability of $151,264. At the end of each reporting period, the Company revalued the derivative liability and recorded the change in this value as additional derivative expense. The Company recognized $33 and $35,039 as derivative income for the three and six months ended June 30, 2020, respectively. The Company recognized $120,573 as derivative expense for the three and six months ended June 30, 2019. The derivative liability was valued at $7,652 at March 31, 2020. As of June 30, 2020, the entire note principle balance of $93,500 was converted into 5,468,310 shares of the Company’s common stock. The note holder also converted $4,250 of accrued interest into 1,102,941 shares of the Company’s common stock. As a result of the conversion, the derivative liability was extinguished at June 30, 2020.

 

On July 12, 2019, the Company issued a convertible promissory note ("Note 4") for $91,300. Note 4 was discounted at $83,000 and the Company received net proceeds of $80,000 after incurring $3,000 of debt issuance costs. The note bears an interest rate at 10% per annum, and principal and accrued interest is due on the maturity date of July 12, 2020. The conversion option price associated with the note has a 25% discount to the market price of the stock. The market price is based on the average of the two lowest trading prices during a ten day period prior to conversion. The note is convertible at any time. As a result of the variable feature associated with the conversion option, pursuant to ASC Topic 815, the Company bifurcated the conversion option, and utilized the Black Scholes valuation model to determine the fair value of the conversion option. At the issuance date, the Company recorded a derivative expense and derivative liability of $117,886. At the end of each reporting period, the Company revalued the derivative liability and recorded the change in this value as additional derivative expense. The Company recognized $29,042 and $75,717 as derivative income for the three and six months ended June 30, 2020, respectively. The derivative liability was valued at $29,244 and $129,833 at June 30, 2020 and December 31, 2019, respectively. 

 

On October 10, 2019, the Company issued a convertible promissory note ("Note 5") for $91,300. Note 5 was discounted at $83,000 and the Company received net proceeds of $80,000 after incurring $3,000 of debt issuance costs. The note bears an interest rate at 10% per annum, and principal and accrued interest is due on the maturity date of October 10, 2020. The conversion option price associated with the note has a 25% discount to the market price of the stock. The market price is based on the average of the two lowest trading prices during a ten day period prior to conversion. The note is convertible at any time. As a result of the variable feature associated with the conversion option, pursuant to ASC Topic 815, the Company bifurcated the conversion option, and utilized the Black Scholes valuation model to determine the fair value of the conversion option. At the issuance date, the Company recorded a derivative expense and derivative liability of $128,642. At the end of each reporting period, the Company revalued the derivative liability and recorded the change in this value as additional derivative expense. The Company recognized $29,668 and $70,393 as derivative income for the three and six months ended June 30, 2020, respectively. The derivative liability was valued at $69,175 and $139,568 at June 30, 2020 and December 31, 2019, respectively. 

 

On May 21, 2020, the Company issued a convertible promissory note ("Note 6") for $103,000. The note holder disbursed the net proceeds of $103,000 to pay various professional fees on behalf of the Company. The note bears an interest rate at 12% per annum, and principal and accrued interest is due on the maturity date of May 21, 2021. The conversion option price associated with the note has a 39% discount to the market price of the stock. The market price is based on the average of the two lowest trading prices during a ten day period prior to conversion. The note is convertible at any time. As a result of the variable feature associated with the conversion option, pursuant to ASC Topic 815, the Company bifurcated the conversion option, and utilized the Black Scholes valuation model to determine the fair value of the conversion option. At the issuance date, the Company recorded a derivative expense and derivative liability of $480,598. At the end of each reporting period, the Company revalued the derivative liability and recorded the change in this value as additional derivative expense. The Company recognized $138,637 as derivative expense for the three and six months ended June 30, 2020, respectively. The derivative liability was valued at $138,686 at June 30, 2020. 

 

F-14

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

Liability measured at fair value on a recurring basis by level within the fair value hierarchy as of June 30, 2020 and December 31, 2019 is as follows:  

 

   

Fair Value Measurement at June 30, 2020 (1) Using Level 2

         
   

Note 4

   

Note 5

   

Note 6

   

Total

 

Liability:

                               

Derivative liability

  $ 29,244     $ 69,175     $ 138,636     $ 237,055  

Total liability

  $ 29,244     $ 69,175     $ 138,636     $ 237,055  

 

   

Fair Value Measurement at December 31, 2019 (1) Using Level 2

 
   

Note 3

   

Note 4

   

Note 5

   

Total

 

Liability:

                               

Derivative liability

  $ 111,928     $ 129,833     $ 139,569     $ 381,330  

Total liability

  $ 111,928     $ 129,833     $ 139,569     $ 381,330  

 

(1) The Company did not have any assets or liabilities measured at fair value using Level 1 or 3 of the fair value hierarchy as of June 30, 2020 and December 31, 2019.

 

The Company’s derivative liabilities are classified within Level 2 of the fair value hierarchy. The Company utilizes the Black-Scholes valuation model to value the derivative liabilities utilizing observable inputs such as the Company’s common stock price, the conversion price of the conversion option, and expected volatility, which is based on historical volatility. The Black-Scholes valuation model employs the market approach in determining fair value.

 

The following is a reconciliation of the beginning and ending balances for liabilities measured at fair value on a recurring basis during the six months ended June 30, 2020 and the year ended December 31, 2019

 

Balance at December 31, 2018

  $ 138,218     $ 58,300     $ -     $ -     $ -     $ -     $ 196,518  

Variable conversion feature in convertible notes payable

    -       -       151,264       117,886       128,643       -       397,793  

Change in fair value

    58,502       14,250       (25,489 )     11,947       10,926       -       70,136  

Conversion of derivative liability to equity from note conversion

    (196,719 )     (72,550 )     (13,847 )     -       -       -       (283,117 )

Balance at December 31, 2019

  $ -     $ (0 )   $ 111,928     $ 129,833     $ 139,569     $ -     $ 381,330  

Variable conversion feature in convertible notes payable

    -       -       -       -       -       480,598       480,598  

Change in fair value

    -       -       (35,038 )     (75,716 )     (70,392 )     (341,961 )     (523,108 )

Conversion of derivative liability to equity from note conversion

    -       -       (76,890 )     (24,873 )     -       -       (101,763 )

Balance at June 30, 2020

  $ -     $ (0 )   $ -     $ 29,244     $ 69,175     $ 138,636     $ 237,055  

 

F-15

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

Since the issuance of Note 3, the note holder elected to convert the entire note principle and accrued interest into the Company's common stock on the following dates, at the respective conversion prices, resulting in the following number of shares issued to the note holder: 

 

Date of Conversion of Note 3

 

Amounts Converted

   

Conversion Price

   

Number of Shares Issued

 

Principle conversion

                       

December 23, 2019

  $ 12,000     $ 0.0480       250,000  

January 6, 2020

  $ 15,000     $ 0.0465       322,581  

January 27, 2020

  $ 15,000     $ 0.0338       443,787  

February 4, 2020

  $ 20,000     $ 0.0338       591,716  

March 6, 2020

  $ 22,200     $ 0.0109       2,036,697  

April 1, 2020

  $ 9,300     $ 0.0051       1,823,529  
                         
    $ 93,500               5,468,310  

Accrued interest conversion

                       

April 1, 2020

  $ 1,500     $ 0.0051       294,118  

May 7, 2020

  $ 2,750     $ 0.0034       808,824  
                         

Total amount converted

  $ 97,750               6,571,251  

 

Since the issuance of Note 4, the note holder elected to convert $21,300 of principle balance into the Company's common stock on the following dates, at the respective conversion prices, resulting in the following number of shares issued to the note holder: 

 

Date of Conversion of Note 4

 

Amounts Converted

   

Conversion Price

   

Number of Shares Issued

 

Principle conversion

                       

May 7, 2020

  $ 4,900     $ 0.0034       1,441,176  

May 13, 2020

  $ 8,000     $ 0.0034       2,352,941  

May 14, 2020

  $ 8,400     $ 0.0034       2,470,588  
                         

Total amount converted

  $ 21,300               6,264,706  

 

NOTE 7 – STOCKHOLDERS’ DEFICIT

 

Preferred Stock

 

The Company's board of directors is authorized by the Article of Incorporation to issue 2,000,000 shares of preferred stock at $0.001 par value, in one or more series. In August 2019, the Company's board of directors designated and authorized the issuance of 1,475,000 shares of Series B Convertible Preferred Stock (the “Preferred Stock”). Each share of Preferred Stock will have 50 votes per share and may be converted into 50 $0.001 par value common stock. The holders of the Preferred Stock are entitled to receive, when and if as declared by the board of directors, cumulative dividends payable in cash. The board of directors set the dividend rate on each share of Preferred Stock at 0%. The holders of Preferred Stock are also given preference over common stock holders in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and subject and subordinate to the rights of secured creditors of the Company.

 

F-16

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

As a result of a change in control, 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 June 30, 2020, the Company had 52,481,499 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. The parties agree that the change in control would not be effective until all conditions of the Acquisition Agreement are satisfied, including, but not limited to, the acquisition of funding by OFH to satisfy certain debts of the Company and the resignation of its existing board of directors. On May 20, 2020, the Company’s existing board of directors resigned.

 

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 $666,000. 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., was appointed as a director for Acacia Diversified Holdings, Inc. (the “Company”). Mr. Simpson also was appointed to the position of Vice President.

 

Common Stock

 

The Company has been authorized to issue 150,000,000 shares of common stock, $.001 par value.  Each share of issued and outstanding common stock shall entitle the holder thereof to fully participate in all shareholder meetings, to cast one vote on each matter with respect to which shareholders have the right to vote, and to share ratably in all dividends and other distributions declared and paid with respect to common stock, as well as in the net assets of the corporation upon liquidation or dissolution.

 

During the six months ended June 30, 2020, the Company issue 12,897,956 shares of its restricted common stock as follows:

 

 

1.

2,000 shares to a consultant for services rendered, valued at $44.

 

2.

250,000 shares to the Company's board of directors for services rendered, valued at $5,451.

 

3.

40,000 shares issued to employees from the employee stock plan, valued at $6,996.

 

4.

20,000 shares issued to an employee for services rendered, valued at $436.

 

5.

12,585,956 shares issued to the convertible notes holder who elected to convert principle and accrued interest of $107,050 and extinguish $101,763 of derivative liability, into the Company's common stock.

 

Warrants and Options

 

At June 30, 2020, 20,000 options were outstanding and there were no warrants outstanding. The Company did not issue any common stock purchase warrants or options during the six months ended June 30, 2020 and 2019.

 

Restricted Stock Awards to Key Employees

 

In March 2017, the board of directors approved issuance of 100,000 shares of the Company’s restricted common stock to its key employees. The award is subject to a four or five-year vesting requirements, i.e. the requisite service period. The shares are issued as the vesting restriction lapses. The Company valued these shares at fair value on commitment date which is the date on which the employee accepted the award and recorded stock based compensation expense over the requisite service period. As a result of winding down its operations, the Company laid off all its employees as of March 31, 2020. As such, stock based compensation expense for these awards for the three months ended June 30, 2020 and 2019 was $0 and $8,116, respectively, and $6,996 and $20,402 for the six months ended June 30, 2020 and 2019, respectively.

 

F-17

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 8 – COMMITMENTS

 

At June 30, 2020, the Company owed its former CEO $103,845 of unpaid salary, $52,500 of accrued bonus and $12,000 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 employment agreement was effectively terminated as a result of the change in control but these amounts remained outstanding as part of the Company’s continuing operations.

 

At June 30, 2020, the Company owed its former COO $12,085 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 employment agreement was effectively terminated as a result of the change in control but these amounts remained outstanding as part of the Company’s continuing operations.

 

In August 2016, the Company entered into a licensing agreement to use exclusively a brand name for one of its discontinued subsidiary’s 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 at the beginning of the agreement and 2,000 shares at the end of each of the next four years. At June 30, 2020, there remains 2,000 shares to be issued to the brand owner.

 

NOTE 9 – DISCONTINUED OPERATIONS

 

As a result of the insufficient cash flows from the operations of our subsidiaries as well as the disruption of our business from the COVID-19 pandemic, as of March 31, 2020, the Company discontinued the operations of all of its wholly-owned subsidiaries. The financial results for these subsidiaries have been presented as discontinued operations in the accompanying consolidated financial statements.

 

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. The parties agree that the change in control would not be effective until all conditions of the Acquisition Agreement are satisfied, including, but not limited to, the acquisition of funding by OFH to satisfy certain debts of the Company and the resignation of its existing board of directors. On May 20, 2020, the Company’s existing board of directors resigned. 

 

Pursuant to the terms of the Acquisition Agreement, the parties agree that the Company will transfer to Richard K. Pertile (“Pertile”), our former CEO, all the issued and outstanding shares of each of the Company’s wholly-owned subsidiaries and Pertile agreed to forgive all amounts due him or his related parties from the Company. The forgiveness of debt was approximately $910,000 and the value of the net assets of the subsidiaries was approximately $267,000 (net of $240,000 of liabilities). The Acquisition Agreement also specified which accounts payable, accrued liabilities and convertible notes would remain as liabilities of the Company. OFH has agreed to the payment of the followings:

 

Professional fees

  $ 110,000  

Accounts payable

    28,050  

Accrued compensation to our former CEO

    187,000  

Accrued compensation to our former COO

    91,000  

Convertible notes

    250,000  
    $ 666,050  

 

As of the date of the issuance of the consolidated financial statements, the Company settled professional fees in the amount of $110,000 and other liabilities remained outstanding.

 

F-18

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

In accordance with the provisions of ASC 205-20, the Company has separately reported the assets and liabilities of the discontinued operations in the consolidated balance sheets. The assets and liabilities were presented as assets and liabilities of discontinued operations in the consolidated balance sheets as of March 31, 2020 and December 31, 2019. These assets and liabilities were disposed of during the three months ended June 30, 2020 and resulted in a gain on disposition of $724,286.

 

Liabilities forgiven pursuant to the Acquisition Agreement

               

Accounts payable

  $ 5,476          

Payable to related party

    35,348          

Notes payable to related parties

    802,328          

Accrued interest on notes payable to related parties

    148,079          

Total liabilities forgiven

            991,231  
                 

Net assets of discontinued operations

               

Cash

    574          

Inventories

    30,686          

Prepaid expense and other current assets

    558          

Property & equipment, net of accumulated depreciation of $454,548

    313,105          

Deposits

    3,810          

ROU asset - finance lease, net of accumulated amortization of $18,598

    159,040          

Accounts payable and accrued expenses

    (31,218 )        

Long-term debt

    (14,130 )        

Lease liability - finance lease

    (171,060 )        

Payable to related parties

    (24,420 )        

Total net assets of discontinued operations

            (266,945 )
                 

Gain on disposition of net assets of discontinued operations

          $ 724,286  

 

Assets and liabilities of discontinued operations as of December 31, 2019 consisted of the following:

 

CURRENT ASSETS OF DISCONTINUED OPERATIONS:

       

Cash

  $ 27,149  

Accounts receivable

    52,461  

Inventories (1)

    46,197  

Prepaid expenses and other current assets

    3,560  

Total Current Assets of Discontinued Operations

    129,367  
         

NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS:

       

Property and equipment, net of accumulated depreciation of $417,144 in 2019 (2)

    350,509  

Deposits

    3,810  

ROU asset - finance lease, net of accumulated amortization of $14,879 in 2019 (3)

    162,759  

Total Non-Current Assets of Discontinued Operations

    517,078  
         

TOTAL ASSETS OF DISCONTINUED OPERATIONS

  $ 646,445  
         

CURRENT LIABILITIES OF DISCONTINUED OPERATIONS:

       

Accounts payable and accrued expenses (4)

  $ 113,560  

Current portion of long-term debt (5)

    4,359  

Current portion of lease liability - finance lease (3)

    9,008  

Payable to related parties (6)

    33,420  

Total Current Liabilities of Discontinued Operations

    160,347  
         

LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS:

       

Long-term debt (5)

    10,861  

Lease liability - finance lease (3)

    164,255  

Total Long-term Liabilities of Discontinued Operations

    175,116  
         

TOTAL LIABILITIES OF DISCONTINUED OPERATIONS

  $ 335,463  

 

F-19

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

(1) Inventories

 

The Company’s inventories of the discontinued operations consisted of the followings at June 30, 2020 and December 31, 2019:

 

   

June 30, 2020

   

December 31, 2019

 

Raw materials

  $ 32,294     $ 32,294  

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

    13,392       13,903  

Inventory valuation allowance

    (15,000

)

    -  
      30,686       46,197  

Inventory disposed of during the three months ended June 30, 2020

    (30,686 )     -  

Inventory of discontinued operations 

  $ -     $ 46,197  

 

As a result of suspending its operations and the increasingly competitive market for its products, the Company provided a valuation allowance of $15,000 to reduce the cost of its inventory to its estimated net realizable value.

 

(2) Property and equipment

 

Property and equipment of the discontinued operations consisted of the followings at June 30, 2020 and December 31, 2019:

 

   

June 30, 2020

   

December 31, 2019

 

Computer equipment

  $ 7,582     $ 7,582  

Website

    7,000       7,000  

Furniture & equipment

    557,273       557,273  

Farm equipment

    52,295       52,295  

Farm improvement

    61,495       61,495  

Leasehold improvement

    82,008       82,008  

Total property and equipment

    767,653       767,653  

Less accumulated depreciation

    (454,548

)

    (417,144

)

      313,105       350,509  

Property and equipment disposed of during the three months ended June 30, 2020

    (313,105 )     -  

Net property and equipment of discontinued operations

  $ -     $ 350,509  

 

Depreciation expense from discontinued operations for the three months ended June 30, 2020 and 2019 were $0 and $4792, respectively, and $37,404 and $41,693 for the six months ended June 30, 2020 and 2019, respectively.

 

(3) Right-of-use assets and lease liabilities

 

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 contains 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 discontinued operations 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).

 

F-20

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

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

 

The board of directors approved for the Company to enter into a lease 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 also contained an option for the Company to purchase the property from the Company's former CEO. 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, utilities, etc.

 

In applying ASC 842 on adoption date, the Company considered the followings:

 

 

1.

The lease is with a related party of the Company.

 

2.

Although the initial lease term is for one year, the Company is reasonably certain to acquire the property from the related party.

 

3.

Contrary to leases with fixed lease payments, this lease requires the Company to pay all expenses related to the acquisition and operations of the property which are variable. Although the Company can exclude variable lease payments in applying ASC 842, the lease provides the necessary cash flows for the related party to service his debt. Therefore, the Company estimates future incremental borrowing costs to be incurred by the related party when measuring the initial finance lease liability. This amounts to approximately $1,600 per month.

 

4.

The related party's debt term was 15 years at a borrowing rate of 5.99%

 

5.

The Company considered the most objective measure of the right-of-use asset to be the purchase price paid by the related party for the property. The purchase price is then allocated among land and improvement and the Company amortizes the improvement over the estimated useful life of 10 years.

 

ROU asset - finance lease - land

  $ 37,530  

ROU asset - finance lease - improvement

    148,787  

ROU asset - finance lease obtained in exchange for lease liability - finance lease

    186,317  

Cumulative effect adjustment to ROU asset - finance lease on adoption date

    (8,679

)

Amortization of ROU asset - finance lease

    (18,598

)

      159,040  

ROU asset – finance lease disposed of during the three months ended June 30, 2020

    (159,040 )

ROU asset – finance lease of discontinued operations

  $ -  
         

Lease liability - finance lease on adoption date

  $ 186,318  

Cumulative effect adjustment to ROU lease liability - finance lease on adoption date

    (4,277

)

Payments on lease liability - finance lease

    (10,981

)

      171,060  

Lease liability – finance lease disposed of during the three months ended June 30, 2020

    (171,060 )

Lease liability – finance lease of discontinued operations

  $ -  

 

F-21

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

Interest expense related to lease liability - finance lease was $0 and $2,633 for the three months ended June 30, 2020 and 2019, respectively, and $2,515 and $5,256 for the six months ended June 30, 2020 and 2019, respectively.

 

Variable lease expense was $0 and $11,513 for the three months ended June 30, 2020 and 2019, respectively, and $9,671 and $19,233 for the six months ended June 20, 2020 and 2019, respectively. 

 

(4) Accounts payable and accrued expenses

 

Accounts payable and accrued expense of discontinued operations consisted of the followings at June 30, 2020 and December 31, 2019:

 

   

June 30, 2020

   

December 31, 2019

 

Accounts payable to vendors

  $ 113,560     $ 31,218  
      113,560       31,218  

Accounts payable and accrued expenses disposed of during the three months ended June 30, 2020

    (113,560 )     -  

Accounts payable and accrued expenses of discontinued operations

  $ -     $ 31,218  

 

(5) Long-term debt

 

In June 2018, the Company entered into a financing agreement to finance the purchase of a farm tractor for its discontinued operations. The financing agreement was secured by the tractor. The total amount financed was $21,794 at 0% interest per annum. The first monthly payment of $363 began in July 2018 and continued for 60 months. The following is the total payment amounts for the next four years:

 

Twelve Months ending

 

June 30,

   

December 31,

 

2020

  $ -     $ 4,359  

2021

    4,359       4,359  

2022

    4,359       4,359  

2023

    4,359       2,143  

2024

    1,053       -  
      14,130       15,220  

Long-term debt disposed of during the three months ended June 30, 2020

    (14,130 )     -  

Long-term debt of discontinued operations

  $ -     $ 15,220  

 

 

The current and long-term portions of principle amounts due are as follow:

 

   

June 30, 2020

   

December 31, 2019

 

Amount of principle due in the next 12 months

  $ 4,359     $ 4,359  

Long term portion of principle due

    9,771       10,861  
      14,130       15,220  

Long-term debt disposed of during the three months ended June 30, 2020

    (14,130 )     -  

Total principle amounts due from discontinued operations

  $ -     $ 15,220  

 

F-22

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

(6) Payable to related parties

 

Payable to related parties from continuing operations consisted of the followings at June 30, 2020 and December 31, 2019:

 

   

June 302020

   

December 31, 2019

 

Short term loan from related entity (a)

  $ 24,420     $ 33,420  
    $ 24,420     $ 33,420  

Payable to related parties disposed of during the three months ended June 30, 2020

    (24,420 )     -  

Payable to related parties from discontinued operations

  $ -     $ 33,420  

 

(a) 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 have been included in payable to related parties as current liabilities of discontinued operations on the consolidated balance sheets at June 30, 2020 and December 31, 2019

 

In January 2020, the Company’s former CEO provided a short term advance in the amount of $18,000 for working capital for the discontinued operations. The Company repaid the advance to the former CEO in the same month.

 

In accordance with the provisions of ASC 205-20, we have not included the results of operations from discontinued operations in the results of continuing operations in the consolidated statements of operations. The results of operations from discontinued operations for the three and six months ended June 30, 2020 have been reflected as discontinued operations in the consolidated statements of operations. The results of operations from discontinued operations for the three and six months ended June 30, 2019 consisted of the following:

 

   

Three Months Ended

June 30, 2019

   

Six Months Ended

June 30, 2019

 
                 

REVENUE

  $ 140,724     $ 304,229  
                 

COSTS OF GOODS SOLD

               

Costs of goods sold

    132,569       181,311  

Depreciation expense

    36,844       73,229  
      169,413       254,540  
                 

GROSS PROFIT (LOSS)

    (28,689 )     49,689  
                 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

               

Employee compensation expenses

    20,491       49,596  

General and administrative expenses (7)

    43,637       87,783  

Depreciation and amortization expense

    4,241       8,476  
      68,369       145,855  
                 

LOSS FROM DISCONTINUED OPERATIONS

    (97,058 )     (96,166 )
                 

OTHER INCOME (EXPENSE)

               

Interest expense

    (2,613 )     (5,256 )

Other income (expense)

    3,719       5,802  

TOTAL OTHER INCOME

    1,106       546  
                 

NET LOSS FROM DISCONTINUED OPERATIONS

    (95,952 )     (95,620 )

Income taxes

    -       -  

NET LOSS FROM DISCONTINUED OPERATIONS, net of tax

  $ (95,952 )   $ (95,620 )

 

F-23

 

ACACIA DIVERSIFIED HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

(7) Other Related Party Transactions

 

The board of directors approved for the Company to enter into a lease 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 three months ended June 30, 2020 and 2019, the Company incurred $0 and $11,513, respectively, in operating expenses of discontinued operations for this property, and $9,864 and $19,233, for the six months ended June 30, 2020 and 2019.

 

NOTE 10 – SUBSEQUENT EVENTS

 

The Company evaluated subsequent events through the date the financial statements were issued, and determined that there were no other material events to disclose, other than the followings:

 

Subsequent to June 30, 2020, the holder of our convertible notes converted $20,000 of principle balance of Note 4 in the amount of into 1,801,802 shares of the Company’s common stock. The remaining balance of Note 4 is $50,000.

 

NOTE 11 – RECENT ACCOUNTING PRONOUNCEMENTS

 

We regularly monitor our compliance with applicable financial reporting standards and review new pronouncements and drafts thereof that are relevant to us. As a result of new standards, changes to existing standards and changes in their interpretation, we might be required to change our accounting policies, particularly concerning revenue recognition, the capitalized incremental costs to obtain a customer contract and lease accounting, to alter our operational policies and to implement new or enhance existing systems so that they reflect new or amended financial reporting standards, or to restate our published financial statements. Such changes may have an adverse effect on our business, financial position, and operating results, or cause an adverse deviation from our revenue and operating profit target, which may negatively impact our financial results.

 

Accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements, other than the followings.

 

The Security and Exchange Commission ("SEC") recently amended its rules to require an analysis of changes in stockholders’ equity in the financial statements included in quarterly reports on Form 10-Q. The analysis, which can be presented as a note or separate statement, is required for the current and comparative quarter and year-to-date interim periods. The amended rules will become effective 30 days after they are published in the Federal Register. The SEC's transition guidance states that the amendments are effective for all filings made on or after the effective date; however, it also states the SEC staff would not object if a filer’s first presentation of the changes in stockholders’ equity was included in its Form 10-Q for the quarter that begins after the effective date of the amendments. As such, the Company presented an analysis of changes in stockholders' deficit as a separate statement in this Form 10-Q.

 

Except as noted above and in our Form 10-K, the Company’s management does not believe that recent codified pronouncements by the Financial Accounting Standards Board (“FASB”) (including its EITF), the AICPA or the SEC will have a material impact on the Company’s current or future consolidated financial statements.

 

F-24

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward-Looking Information

 

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 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-Q 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. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

 

General

 

These unaudited interim consolidated financial statements should be read in conjunction with the annual financial statements for the Company most recently completed fiscal year ended December 31, 2019. These unaudited interim consolidated financial statements do not include all disclosures required in annual financial statements, but rather are prepared in accordance with recommendations for interim financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). These unaudited interim consolidated financial statements have been prepared using the same accounting policies and methods as those used by the Company in the annual audited financial statements for the year ended December 31, 2019.

 

Discussion on the Company’s Operations and Recent Event

 

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, Eufloria Medical of Tennessee, Inc. (“EMT”), a company incorporated in the state of Tennessee, and Medahub Operations Group, Inc. and Medahub, Inc., technology companies (collectively “Medahub”) incorporated in the state of Florida.

 

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 which provided the Company the license to grow, manufacture, and dispense organic hemp oil in Tennessee. The Company also had a retail store in Tennessee selling hemp infused products. Revenue generated from retail sales was not material to the Company based on its 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. Around this time, the Company also suspended its operations, laid off all of its employees and ceased to generate any revenue.

 

As a result of the insufficient cash flows from the operations of our subsidiaries as well as the disruption of our business from the COVID-19 pandemic, as of March 31, 2020, the Company discontinued the operations of all of its wholly-owned subsidiaries. The financial results for these subsidiaries have been presented as discontinued operations in the accompanying consolidated financial statements.

 

1

 

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 43,290,324 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. The parties agree that the change in control would not be effective until all conditions of the Acquisition Agreement are satisfied, including, but not limited to, the acquisition of funding by OFH to satisfy certain debts of the Company and the resignation of its existing board of directors. On May 20, 2020, the Company’s existing board of directors resigned. 

 

Pursuant to the terms of the Acquisition Agreement, the parties agree that the Company will transfer to Richard K. Pertile (“Pertile”), our former CEO, all the issued and outstanding shares of each of the Company’s wholly-owned subsidiaries and Pertile agreed to forgive all amounts due him or his related parties from the Company. The forgiveness of debt was approximately $910,000 and the value of the net assets of the subsidiaries was approximately $267,000 (net of $240,000 of liabilities). The Acquisition Agreement also specified which accounts payable, accrued liabilities and convertible notes would remain as liabilities of the Company. OFH has agreed to the payment of the followings:

 

Professional fees

  $ 110,000  

Accounts payable

    28,050  

Accrued compensation to our former CEO

    187,000  

Accrued compensation to our former COO

    91,000  

Convertible notes

    250,000  
    $ 666,050  

 

As of the date of the issuance of the consolidated financial statements, the Company settled professional fees in the amount of $110,000 and other liabilities remained outstanding.

 

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 $666,000. 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., 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.

 

Operating results for the three months ended June 30, 2020 and 2019:

 

Continuing Operations

 

For the three months ended June 30, 2019, selling, general and administrative expenses were $174,110, compared to $24,906 during the three months ended June 30, 2020, a decrease of $149,204 or 86%. The decrease in these expenses is a result of the Company winding down its operations and laid off its workforce.

 

During the three months ended June 30, 2019, the Company incurred interest expense of $25,544, compared to $19,255 for the three months ended June 30, 2020, a decrease of $6,289, or 25%. Interest expense decreased because a related party settled certain outstanding balances of his notes through issuance of the Company’s common stock, therefore, reducing the overall balance of the notes during the current period.

 

During the three months ended June 30, 2019, the Company recognized $214,308 of derivative expense, compared to $79,894 derivative expense for the three months ended June 30, 2020, a decrease of $134,414, or 63%. The increase in the amount of outstanding convertible notes payable with variable conversion feature that gave rise to derivative liability, coupled with the reduction in our share price during the current period gave rise to the decrease of the derivative expense.

 

2

 

As a result of the changes described above, the Company incurred a net loss from continuing operations of $413,962 for the three months ended June 30, 2019, compared to a net loss from continuing operations of $124,055 for the three months ended June 30, 2020, the loss decreased by $289,907, or 70%.

 

Based on operating losses and negative cash from operations and the discontinued operations of the Company’s operations, substantial doubt exists about the Company’s ability to continue as a going concern. Management’s plan in this regard is to find new operations to enter into and focus on building profitable operations. To finance operations while it finds new operations, the Company will continue financing activity such as entering into loan agreements and issuing new shares of the Company’s common stock. Therefore, the Company expects to continue to incur operating losses and 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.

 

Discontinued Operations

 

For the three months ended June 30, 2019, the Company’s subsidiaries generated revenues of $140,724 from operations and incurred costs of goods sold of $169,413. As a result, the Company’s subsidiaries gross loss was $28,689.

 

For the three months ended June 30, 2019, selling, general and administrative expenses were $68,369. The Company’s subsidiaries also incurred interest expense of $2,613 and earned other income of $3,719.

 

As a result of the changes in revenues, costs and expenses, the Company’s subsidiaries incurred net loss from discontinued operations of $95,952 for the three months ended June 30, 2019.

 

The Company discontinued its subsidiaries operations on March 31, 2020. Therefore, there was no operations to report for the three months ended June 30, 2020.

 

Operating results for the six months ended June 30, 2020 and 2019:

 

Continuing Operations

 

For the six months ended June 30, 2019, selling, general and administrative expenses were $378,885, compared to $191,070 during the six months ended June 30, 2020, a decrease of $187,815 or 50%. The decrease in these expenses is primarily attributable to the Company winding down its operations and laid off its workforce during the current period.

 

During the six months ended June 30, 2019, the Company incurred interest expense of $46,306, compared to $40,755 for the six months ended June 30, 2020, a decrease of $5,551, or 12%. Interest expense decreased because a related party settled certain outstanding balances of his notes through issuance of the Company’s common stock, therefore, reducing the overall balance of the notes during the current period.

 

During the six months ended June 30, 2019, the Company recognized $187,128 of derivative expense, compared to $42,512 of derivative income for the six months ended June 30, 2020, an increase of $229,640, or 123%. The increase in the amount of outstanding convertible notes payable with variable conversion feature that gave rise to derivative liability, coupled with the reduction in our share price during the current period gave rise to derivative income and its increase.

 

As a result of the changes described above, the Company incurred a net loss from continuing operations of $612,319 for the six months ended June 30, 2019, compared to a net loss from continuing operations of $189,313 for the six months ended June 30, 2020, a decrease in the loss of $423,006, or 69%.

 

3

 

Based on operating losses and negative cash from operations and the discontinued operations of the Company’s operations, substantial doubt exists about the Company’s ability to continue as a going concern. Management’s plan in this regard is to find new operations to enter into and focus on building profitable operations. To finance operations while it finds new operations, the Company will continue financing activity such as entering into loan agreements and issuing new shares of the Company’s common stock. Therefore, the Company expects to continue to incur operating losses and 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.

 

Discontinued Operations

 

For the six months ended June 30, 2020, the Company’s subsidiaries generated revenues of $1,622 from operations as compared to $304,229 for the six months ended June 30, 2019, a decrease of $302,607, or 99%. The decrease is a result of the Company winding down of its subsidiaries’ operations.

 

For the six months ended June 30, 2020, the Company’s subsidiaries incurred costs of goods sold of $110,103, compared to $254,540 for the six months ended June 30, 209, a decrease of $144,437, or 57%. As a result of winding down its operations, the subsidiaries incurred minimal costs related to production but continued to employ a workforce until it laid off its workers. During the current period, the subsidiaries also wrote down its inventory to its net realizable value.

 

As a result of the changes in revenues and costs of good sold above, the Company’s subsidiaries incurred a gross loss of $108,481 during the six months ended June 30, 2020, compared to a gross profit of $49,689 during the six months ended June 30, 2019, a decrease of $158,170, or 318%.

 

For the six months ended June 30, 2020, selling, general and administrative expenses were $28,309, compared to $145,855 for the six months ended June 30, 2019, a decrease of $117,546, or 81%. The decrease is due to the subsidiaries winding down its operations and laying off its workforce.

 

As a result of the changes in revenues, costs and expenses, the Company’s subsidiaries incurred net loss from discontinued operations of $140,353 for the six months ended June 30, 2020, compared to a net loss from discontinued operations of $95,620 for the six months ended June 30, 2019.

 

Liquidity and Capital Resources

 

The Company’s cash position at June 30, 2020 decreased by $2,195 to $421, as compared to a balance of $2,616, as of December 31, 2019. The net decrease in cash for the six months ended June 30, 2020 was primarily attributable to cash used by operating activities from increase in accounts payable and accrued expenses.

 

As of June 30, 2020, the Company had negative working capital of $658,848 compared to negative working capital of $1,475,211 at December 31, 2019, an increase of $816,363, attributable primarily to disposing its subsidiaries’ assets and liabilities from discontinued operations during the current period.

 

Net cash used in operating activities of $96,161 during the six months ended June 30, 2020, was lower compared to the prior period of $286,745, primarily due to the wind down of the subsidiaries’ operations and an increase in accounts payable and accrued expenses during the current period.

 

Net cash provided by financing activities of $49,928 during the six months ended June 30, 2020, decreased by $158,272 compared to $208,200 during the six months ended June 30, 2019. In the current period, as the Company’s share price was decreasing, the Company turned to its related parties to generate cash flows from issuance of notes payable to related parties. In the prior period, the Company was able to generate cash flows through sale of its common stock and issuance of convertible notes payable.

 

4

 

During the six months ended June 30, 2020, the Company issued shares of its common stock to settle $107,050 of principle and accrued interest of its convertible notes payable and the related derivative liability of $101,763. The Company also issued a convertible note payable to settle accounts payable with certain vendors and issued Series B Convertible Preferred Stock valued at $1,475 as a result of a change in control. During the six months ended June 30, 2019, the Company issued shares of its common stock to settle $174,200 of principle and accrued interest of its convertible notes payable and the related derivative liability of $230,938. In addition, the Company also issued common stock to settle $8,000 of accrued expense with a related party and $122,984 of notes payable and accrued interest with a related party.

 

As reported in the accompanying consolidated financial statements, for the six months ended June 30, 2020 and 2019, the Company incurred net losses from continuing operations of $189,313 and $612,319, respectively. Management’s plan in this regard is to find new operations to enter into and focus on building profitable operations. To finance operations while it finds new operations, the Company will continue financing activity such as entering into loan agreements and issuing new shares of the Company’s common stock. Therefore, the Company expects to continue to incur operating losses and 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 from continuing operations for all periods presented and has a substantial accumulated deficit. As of June 30, 2020, these factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

 

Financial Condition

 

The Company’s total assets at June 30, 2020 was $4,755, compared to total assets at December 31, 2019 of $654,237, a decrease of $649,482, or 99%. As a result of discontinuing its subsidiaries operations, the Company reclassified $507,774 and $646,445 of the subsidiaries total assets as assets of discontinued operations on March 31, 2020 and December 31, 2019, respectively, and disposed of them during the three months ended June 30, 2020.

 

Total liabilities at June 30, 2020 consisted of current liabilities of $663,603 and derivative liability of $237,055. Total liabilities at December 31, 2019 consisted of current liabilities of $1,611,529 and long-term liabilities of $556,446, a decrease of $1,267,317, or 58%. As a result of discontinuing its subsidiaries operations, the Company reclassified $240,828 and $335,463 of the subsidiaries liabilities as liabilities of discontinued operations on March 31, 2020 and December 31, 2019, respectively, and disposed of them during the three months ended June 30, 2020.

 

The change in the Company’s financial condition is a result of discontinuing and disposing its subsidiaries operations in the six months ended June 30, 2020. The Company continues to incur professional fees in order to maintain its reporting company status. As a result of these changes, the Company’s cash position of its continuing operations decreased from $2,616 on December 31, 2019 to $421 on June 30, 2020.

 

Off-Balance Sheet Arrangements

 

We have made no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We are a Smaller Reporting Company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

5

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2020. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2020, the Company’s disclosure controls and procedures were not effective. The controls were determined to be ineffective due to the lack of segregation of duties. In January 2017, the Company hired a part-time financial controller to assist with technical accounting issues and the preparation of the filings. However, until the Company begins generating sufficient revenues, it is unable to remediate the weakness. Despite the existence of material weaknesses, management believes the financial information presented herein is materially correct and fairly presents the financial position and operating results of the six months ended June 30, 2020, in accordance with U.S. GAAP.

 

Changes in Internal Control Over Financial Reporting

 

No change in the Company’s internal control over financial reporting occurred during the six months ended June 30, 2020, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

 

6

 

PART II. OTHER INFORMATION

 

Item 1.  Legal Proceedings.

 

None.

 

Item 1A.  Risk Factors

 

The Company is a Smaller Reporting Company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and is not required to provide the information under this item.

 

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

 

During the six months ended June 30, 2020, the Company issue 12,897,956 shares of its restricted common stock as follows:

 

 

1.

2,000 shares to a consultant for services rendered, valued at $44.

 

2.

250,000 shares to the Company's board of directors for services rendered, valued at $5,451.

 

3.

40,000 shares issued to employees from the employee stock plan, valued at $6,996.

 

4.

20,000 shares issued to an employee for services rendered, valued at $436.

 

5.

12,585,956 shares issued to the convertible notes holder who elected to convert principle and accrued interest of $107,050 and extinguish $101,763 of derivative liability, into the Company's common stock.

 

The shares of our common stock were issued pursuant to an exemption from registration in Section 4(a)(2) of the Securities Act of 1933.  These shares of our common stock qualified for exemption under Section 4(a)(2) of the Securities Act of 1933 since the issuance of shares by us did not involve a public offering.  The offering was not a “public offering” as defined in Section 4(a)(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of shares offered.  We did not undertake an offering in which we sold a high number of shares to a high number of investors.  In addition, these shareholders had necessary investment intent as required by Section 4(a)(2) since they agreed to receive share certificates bearing a legend stating that such shares are restricted pursuant to Rule 144 of the 1933 Act.  This restriction ensures that these shares would not be immediately redistributed into the market and therefore not be part of a “public offering.”  All shareholders are “sophisticated investors” and are business acquaintances of our officers and directors.  Based on an analysis of the above factors, we believe we have met the requirements to qualify for exemption under section 4(a)(2) of the Securities Act of 1933 for this transaction.

 

Item 3.  Defaults Upon Senior Securities

 

None.

 

Item 4.  Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

7

 

Item 6. Exhibits

 

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 Pharmaceuticals, 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.

 

8

 

SIGNATURES

 

Pursuant to the requirements of the Securities exchange Act of 1934, registrant has duly caused this report to be signed on its behalf by the undersigned.

 

 

Acacia Diversified Holdings, Inc.

 

 

 

 

 

Date: August 19, 2020

By:

/s/ Jeffrey D. Bearden           

 

 

 

Jeffrey D. Bearden

 

 

 

Principal Executive Officer

 

 

 

Principal Financial Officer

 

 

 

9

Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing    Date    Other Filings
5/21/21
12/31/20NT 10-K
10/10/20
Filed on:8/19/20
8/14/20
7/12/20
For Period end:6/30/20NT 10-Q
6/26/2010-K
6/20/20
6/13/20
5/21/20
5/20/203,  8-K
5/14/20NT 10-K
5/13/208-K
5/7/20
4/1/20
3/31/2010-Q,  3,  8-K,  NT 10-Q
3/26/208-K
3/6/20
2/4/20
1/27/20
1/6/20
12/31/1910-K,  NT 10-K
12/23/19
11/30/19
10/10/19
7/12/19
6/30/1910-Q
6/20/19
6/13/19
1/1/19
12/31/1810-K
12/15/18
11/5/1810-Q
6/1/18
4/2/1810-K
1/1/18
11/13/1710-Q,  RW
11/3/178-K
8/7/1710-Q
5/1/16
7/16/154,  4/A,  8-K
 List all Filings 


6 Previous Filings that this Filing References

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

11/05/18  Acacia Diversified Holdings, Inc. 10-Q        9/30/18   49:3.3M                                   Federal Filings, LLC/FA
11/13/17  Acacia Diversified Holdings, Inc. 10-Q        9/30/17   40:2.2M                                   Federal Filings, LLC/FA
11/03/17  Acacia Diversified Holdings, Inc. 8-K:1,2,9   9/25/17    7:428K                                   Federal Filings, LLC/FA
 8/07/17  Acacia Diversified Holdings, Inc. 10-Q        6/30/17   38:2M                                     Federal Filings, LLC/FA
 3/28/17  Acacia Diversified Holdings, Inc. 10-K       12/31/16   60:3.8M                                   Federal Filings, LLC/FA
 7/16/15  Acacia Diversified Holdings, Inc. 8-K:1,2,5,7 6/30/15   15:727K                                   Pacifix Media LLC/FA
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