CARSON, Calif., May 15, 2018 (GLOBE NEWSWIRE) -- Solis Tek, Inc. (OTCQB:SLTK), a vertically integrated cannabis
technology innovator, manufacturer and distributor, is pleased to provide an update on its business transition, including expected
targets and milestones for its recently acquired cannabis cultivation and processing facility in Arizona, and its first quarter
2018 operating results.
Over the next few weeks, the Board and management plan on rebranding the corporate entity and public company
name to better reflect management’s strategy to transition to high growth opportunities in legalized cannabis jurisdictions,
including cultivation and processing. The Company will continue to aggressively develop and innovate its lighting division as Solis
Tek Digital Lighting and its nutrients division as Zelda Horticulture.
In regard to the recently acquired cannabis cultivation and processing facility in Arizona, the Company has
planned for 50,000 square feet of cultivation and 10,000 square feet of processing, which will be funded by the recently raised
$2.5 million and future commitments from its previously disclosed financial partner. Management is targeting for processing to
begin by November 2018 potentially generating up to $500,000 in processing revenue per month and targeting ramping up to $1 million
per month over time. Management also expects to begin the cultivation build out imminently with its sights on a first crop in
January 2019, and a capacity of producing 8,000 pounds per year, which would equate to $10 million at current wholesale prices.
Solis Tek Chief Executive Officer, Alan Lien, commented, “We are very excited with the transformation of our
business strategy and the incredible growth opportunities our team has identified in the legalized cannabis industry. We look
forward to a multi-prong approach in growing our business and creating long-term shareholder value through varying segments of the
legalized cannabis industry in the United States and potentially in Canada and overseas. We remain confident in our Solis Tek
lighting and newly introduced Zelda Horticulture nutrients, but feel this is the right time and opportunity to expand to the
touching the plant segment, which will lead to higher and more predictable revenue growth and profitability. Additional details of
our plans will be announced over the next few weeks and we look forward to communicating with our current shareholders and
prospective new shareholders.”
Financial Results for the First Quarter Ended March 31, 2018:
Revenue for the three months ended March 31, 2018 and 2017 was $1,011,749 and $2,901,826, respectively, a decrease of $1,890,077 or
65%. The decrease was due to several negative factors during the first quarter of 2018, as compared to the first quarter of
2017.
Such factors included, market instability and uncertainty, reports of over-capacity and price declines at the
wholesale level. U.S. Attorney General Jeff Sessions messaging, the Administration’s stance and announcements on marijuana
enforcement, particularly the rescinding of the Cole Memorandum and giving the Federal US Attorneys “free-reign” as to enforcement
priorities set a very negative tone and caused hesitation from buyers in the cannabis industry. Industry-wide build-outs slowed and
were pushed-out.
Specific reasons to beset to Solis Tek, included a change at the Chief Executive Officer level and change of
message and direction. Solis Tek had previously been a retail driven company servicing our 500+ hydro-stores targeting the home and
hobbyist growers. Solis Tek restructured its sales force to five nationwide commercial cultivation account managers and had to
re-program the sales team, change pricing and change marketing strategies. Its recent shift to convert to a commercial mindset,
also altered its inventory strategy to longer fulfillment and lead times.
Cost of sales for the three months ended March 31, 2018 and 2017, was $533,925 and $1,781,304,
respectively. Gross profit for the three months ended March 31, 2018 and 2017, was $477,824 and $1,120,522, respectively. The
decrease in gross profit of $642,698, or 57% was primarily due to our decrease in revenue. As a percentage of revenue, gross profit
for the three months ended March 31, 2018 was 47% compared to 39% for the three months ended March 31, 2017. The increase in
gross profit percentage was due to the change in product mix sold.
Selling, general and administrative expenses for the three months ended March 31, 2018 and 2017 was $3,448,271 and $4,764,655,
respectively, a decrease of $1,316,384 or 28%. For the three months ended March 31, 2018, stock-based compensation expense
decrease $1,857,866 to $1,780,288, compared to $3,638,154 for the prior year period. Excluding stock-based compensation
expense, our SG&A increased $541,482 due to the recording of a $449,000 severance obligation to our former Chief Executive
Officer, and $92,482 in increased operating expenses to support our operations.
Research and development (“R&D”) expenses for the three months ended March 31, 2018 and 2017 was $51,878 and $82,770,
respectively, a decrease of $30,892 or 37%. The decrease in R&D expenses was primarily due to decreased employee compensation
and royalty expense.
Other income for the three months ended March 31, 2018 was $2,651,620 as compared to other expense of $24,171
for the three months ended March 31, 2017. The increase in other income was due to the recording of a gain on the
extinguishment of derivatives of $674,254, a gain on the change in fair value of derivative liability of $2,630,052, and financing
costs of $607,717, all of which did not exist during the prior year period. Interest expense increased over the prior year
period by $20,798 due to our increase in borrowings.
Net loss for the three months ended March 31, 2018 was $370,705 compared to net loss of $3,751,987 for the three months ended March
31, 2017. The decrease in net loss was due to the increase in other income and expenses, decreased operating expenses, offset
by decreased revenues and gross profit as discussed above.
About Solis Tek, Inc.
Solis Tek, Inc. (OTCQB:SLTK) is a vertically integrated technology innovator, developer, manufacturer and distributor
focused on bringing products and solutions to commercial cannabis growers in both the medical and recreational space in legal
markets across the U.S. For nearly a decade, growers have used Solis Tek's lighting solutions to increase yield, lower costs and
grow better to maximize their return on investment. The Company's customers include retail stores, distributors and commercial
growers in the United States and abroad. For more information, please visit our website, www.solis-tek.com.
Safe Harbor Statement
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based on the current plans and
expectations of management and are subject to a number of uncertainties and risks that could significantly affect the Company's
current plans and expectations, as well as future results of operations and financial condition. The Company undertakes no
obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or
otherwise.
Investors Contact:
Hayden IR
917-658-7878
hart@haydenir.com
SOLIS TEK INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
March 31,
2018 |
|
|
December 31,
2017 |
|
|
|
|
(Unaudited) |
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash |
|
$ |
1,222,553 |
|
|
$ |
967,943 |
|
Accounts Receivable, net of allowance for doubtful accounts and returns
of $285,013 and $396,499 |
|
|
358,068 |
|
|
|
417,484 |
|
Inventories, net |
|
|
2,032,995 |
|
|
|
1,684,463 |
|
Advances to suppliers – formerly a related party |
|
|
540,050 |
|
|
|
735,730 |
|
Prepaid expenses and other current assets |
|
|
150,275 |
|
|
|
134,374 |
|
Total current assets |
|
|
4,303,941 |
|
|
|
3,939,994 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
120,333 |
|
|
|
138,243 |
|
Other assets |
|
|
52,980 |
|
|
|
37,980 |
|
TOTAL ASSETS |
|
$ |
4,477,254 |
|
|
$ |
4,116,217 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
1,253,797 |
|
|
$ |
1,124,349 |
|
Due to former related party vendor |
|
|
274,125 |
|
|
|
381,457 |
|
Note payable - related parties |
|
|
800,000 |
|
|
|
1,145,000 |
|
Convertible note payable, current portion, net of discount of $1,263,889
and $1,055,556, respectively |
|
|
486,111 |
|
|
|
194,444 |
|
Due to related parties |
|
|
113,103 |
|
|
|
146,534 |
|
Capital lease obligations, current portion |
|
|
6,074 |
|
|
|
9,665 |
|
Loans payable, current portion |
|
|
6,429 |
|
|
|
8,476 |
|
Total Current Liabilities |
|
|
2,939,639 |
|
|
|
3,009,925 |
|
|
|
|
|
|
|
|
|
|
Loans payable, net of current portion |
|
|
17,481 |
|
|
|
17,481 |
|
Convertible note payable, net of current portion, net of discount of $0 and
$500,000, respectively |
|
|
- |
|
|
|
- |
|
Notes payable related parties, net of current portion |
|
|
|
|
|
|
|
|
Derivative liability |
|
|
2,808,041 |
|
|
|
7,415,000 |
|
Total liabilities |
|
|
5,765,161 |
|
|
|
10,442,406 |
|
|
|
|
|
|
|
|
|
|
Series-A Convertible Preferred Shares, net of discount of $50,000
and $351,000, no par value, 50,000 and 351,000 shares issued and
outstanding at March 31, 2018 and December 31, 2017, respectively |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Deficit |
|
|
|
|
|
|
|
|
Preferred stock, no par value, 20,000,000 shares authorized; no shares
issued and outstanding at March 31, 2018 and December 31, 2017,
respectively |
|
|
- |
|
|
|
- |
|
Common stock, $0.001 par value, 100,000,000 shares authorized;
41,230,982 and 38,522,034 shares issued and outstanding at March 31,
2018 and December 31, 2017, respectively |
|
|
41,231 |
|
|
|
38,522 |
|
Additional paid-in-capital |
|
|
14,483,968 |
|
|
|
9,077,690 |
|
Accumulated deficit |
|
|
(15,813,106 |
) |
|
|
(15,442,401 |
) |
Total Shareholders’ Deficit |
|
|
(1,287,907 |
) |
|
|
(6,326,189 |
) |
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT |
|
$ |
4,477,254 |
|
|
$ |
4,116,217 |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
SOLIS TEK INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
|
|
Three Months
Ended
March 31, |
|
|
|
2018 |
|
|
2017 |
|
|
|
(Unaudited) |
|
|
|
|
|
Sales |
|
$ |
1,011,749 |
|
|
$ |
2,901,826 |
|
Cost of goods sold (including $412,722 and $1,465,996 from a former related
party) |
|
|
533,925 |
|
|
|
1,781,304 |
|
Gross profit |
|
|
477,824 |
|
|
|
1,120,522 |
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
3,448,271 |
|
|
|
4,764,655 |
|
Research and development |
|
|
51,878 |
|
|
|
82,770 |
|
Total operating expenses |
|
|
3,500,149 |
|
|
|
4,847,425 |
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(3,022,325 |
) |
|
|
(3,726,903 |
) |
|
|
|
|
|
|
|
|
|
Other income (expenses) |
|
|
|
|
|
|
|
|
Financing costs |
|
|
(607,717 |
) |
|
|
- |
|
Change in fair value of derivative liability |
|
|
2,630,052 |
|
|
|
- |
|
Gain on extinguishment of derivative liability |
|
|
674,254 |
|
|
|
- |
|
Interest expense (including $22,913 and $23,622 to related parties) |
|
|
(44,969 |
) |
|
|
(24,171 |
) |
Total other income (expenses) |
|
|
2,651,620 |
|
|
|
(24,171 |
) |
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(370,705 |
) |
|
|
(3,751,074 |
) |
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
- |
|
|
|
913 |
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(370,705 |
) |
|
$ |
(3,751,987 |
) |
|
|
|
|
|
|
|
|
|
BASIC NET LOSS PER SHARE |
|
$ |
(0.01 |
) |
|
$ |
(0.10 |
) |
|
|
|
|
|
|
|
|
|
DILUTED NET LOSS PER SHARE |
|
$ |
(0.01 |
) |
|
$ |
(0.10 |
) |
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING |
|
|
|
|
|
|
|
|
Basic and Diluted |
|
|
39,994,645 |
|
|
|
36,388,724 |
|
|
|
|
|
|
|
|
|
|
SOLIS TEK INC.
CONDENSED CONSOLIDATED STAEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
Three Month Ended
March 31, |
|
|
|
2018 |
|
|
2017 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(370,705 |
) |
|
$ |
(3,751,987 |
) |
Adjustments to reconcile net loss to net cash used in operating
activities |
|
|
|
|
|
|
|
|
Provision for allowance for doubtful accounts and sales returns |
|
|
(111,486 |
) |
|
|
52,487 |
|
Provision for inventory reserves |
|
|
(4,640 |
) |
|
|
- |
|
Depreciation and amortization |
|
|
17,910 |
|
|
|
17,745 |
|
Fair value of vested stock options |
|
|
561,671 |
|
|
|
|
|
Fair value of common stock issued for services |
|
|
718,200 |
|
|
|
3,663,154 |
|
Fair value of common stock issued to employees |
|
|
500,417 |
|
|
|
- |
|
Financing costs |
|
|
607,717 |
|
|
|
- |
|
Change in the fair value of derivative liability |
|
|
(2,630,052 |
) |
|
|
- |
|
Gain on extinguishment of derivative liability |
|
|
(674,254 |
) |
|
|
- |
|
Changes in Assets and Liabilities |
|
|
|
|
|
|
|
|
(Increase) Decrease in: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
170,902 |
|
|
|
(710,169 |
) |
Inventories |
|
|
(343,892 |
) |
|
|
865,984 |
|
Advances to suppliers |
|
|
195,680 |
|
|
|
(192,857 |
) |
Prepaid expenses and other |
|
|
(15,902 |
) |
|
|
(2,254 |
) |
Other assets |
|
|
(15,000 |
) |
|
|
- |
|
(Decrease) Increase in: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
129,448 |
|
|
|
183,461 |
|
Due to former related party vendor |
|
|
(107,332 |
) |
|
|
(661,238 |
) |
Due to related parties |
|
|
(33,431 |
) |
|
|
3,422 |
|
Net cash used in operating activities |
|
|
(1,404,749 |
) |
|
|
(532,252 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
- |
|
|
|
(3,200 |
) |
Net cash used in investing activities |
|
|
- |
|
|
|
(3,200 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Proceeds from sale of common stock |
|
|
1,068,000 |
|
|
|
400,000 |
|
Proceeds from exercise of warrants |
|
|
941,996 |
|
|
|
- |
|
Proceeds from notes payable related parties |
|
|
- |
|
|
|
300,000 |
|
Payments on notes payable related party |
|
|
(345,000 |
) |
|
|
(20,000 |
) |
Payments on capital lease obligations |
|
|
(3,591 |
) |
|
|
(3,355 |
) |
Payments on loans payable |
|
|
(2,046 |
) |
|
|
(2,039 |
) |
Net cash provided by financing activities |
|
|
1,659,359 |
|
|
|
674,606 |
|
|
|
|
|
|
|
|
|
|
Net increase in cash |
|
|
254,610 |
|
|
|
139,154 |
|
Cash beginning of period |
|
|
967,943 |
|
|
|
275,783 |
|
Cash end of period |
|
$ |
1,222,553 |
|
|
$ |
414,937 |
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
56,344 |
|
|
$ |
10,999 |
|
Taxes paid |
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Non-Cash Financing Activities |
|
|
|
|
|
|
|
|
Extinguishment of derivative liability |
|
$ |
1,302,653 |
|
|
$ |
- |
|
Common shares issued upon conversion of Series A preferred |
|
$ |
316,500 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
SOLIS TEK INC.
RECONCILIATION OF ADJUSTED EBITDA TO NET LOSS
(UNAUDITED)
Adjusted EBITDA (Non-GAAP Financial Measure)
In addition to our GAAP results, we present Adjusted EBITDA as a supplemental measure of our performance.
However, Adjusted EBITDA is not a recognized measurement under GAAP and should not be considered as an alternative to net income,
income from operations or any other performance measure derived in accordance with GAAP or as an alternative to cash flow from
operating activities as a measure of liquidity. We define Adjusted EBITDA as net income (loss), plus other expense, net, provision
for income taxes, depreciation and amortization, and stock-based compensation. Non-GAAP adjustments to our results prepared in
accordance with GAAP are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them
appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses
that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be
construed as an inference that our future results will be unaffected by unusual or non-recurring items.
Set forth below is a reconciliation of Adjusted EBITDA to net loss for the three months ended March 31, 2018 and
2017.
|
|
|
|
Three Months
Ended
March 31, |
|
|
|
2018 |
|
|
2018 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(370,705 |
) |
|
$ |
(3,751,987 |
) |
Provision for income taxes |
|
|
- |
|
|
|
913 |
|
Other (income) expense, net |
|
|
|
|
|
|
|
|
Financing costs |
|
|
607,717 |
|
|
|
- |
|
Gain on extinguishment of derivatives |
|
|
(674,254 |
) |
|
|
|
|
Change in fair value of derivative liability |
|
|
(2,630,052 |
) |
|
|
- |
|
Interest expense |
|
|
44,969 |
|
|
|
24,171 |
|
Total other (income) expense, net |
|
|
(2,651,620 |
) |
|
|
24,171 |
|
Depreciation and amortization expense |
|
|
17,910 |
|
|
|
17,745 |
|
Stock-based compensation expense |
|
|
1,780,288 |
|
|
|
3,663,154 |
|
Adjusted EBITDA |
|
$ |
(1,224,127 |
) |
|
$ |
(46,004 |
) |
|
|
|
|
|
|
|
|
|
We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our performance
across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating
performance. Adjusted EBITDA has limitations as an analytical tool, which includes, among others, the following:
- Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual
commitments;
- Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
- Adjusted EBITDA does not reflect interest expense, or the cash requirements necessary to service interest or principal
payments, on our debts; and
- Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be
replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.