July 17, 2019
Kevin Hagen
Chief Executive Officer
PotNetwork Holdings, Inc.
3531 Griffin Road
Fort Lauderdale, FL 33312
Re: PotNetwork Holdings, Inc.
Amendment No. 1 to Form 10-12G
Filed July 5, 2019
File No. 000-55969
Dear Mr. Hagen:
We have reviewed your filing and have the following comments. In some of
our
comments, we may ask you to provide us with information so we may better
understand your
disclosure.
Please respond to these comments within ten business days by providing
the requested
information or advise us as soon as possible when you will respond. If you do
not believe our
comments apply to your facts and circumstances, please tell us why in your
response.
After reviewing your response and any amendment you may file in response
to these
comments, we may have additional comments.
Amendment No. 1 to Form 10-12G
Liquidity and Capital Resources, page 17
1. We note your response to prior comment nine regarding your 2018 increase
in advances in
accounts receivable. Please revise to disaggregate the $4.6 million
balance at December
31, 2018 between advances, accounts receivable and prepaid expenses, and
separately
describe the reasons for changes in each category from December 31, 2017
amounts.
2. As previously requested, please revise to describe the causes underlying
the changes in
your accounts payable, notes payable and due to third party for all
periods presented.
Kevin Hagen
FirstName LastNameKevin Hagen
PotNetwork Holdings, Inc.
Comapany NamePotNetwork Holdings, Inc.
July 17, 2019
July 17, 2019 Page 2
Page 2
FirstName LastName
Critical Accounting Policies and Estimates
Impact of Most Recent Accounting Pronouncements, page 19
3. Your revenue recognition policy as of January 1, 2019 on page F-26
continues to be based
on the guidance of ASC 605. Please address the following:
Revise to disclose if you have adopted ASU 2016-02 (ASC 606)
"Revenue for
Contracts with Customers," when you expect to adopt and the expect
impact upon
adoption.
If you have adopted ASC 606, please revise to provide the required
transitional
disclosures, including when you adopted, what method you used, and
the nature and
amount of adjustments upon adoption.
To the extent you do not believe there were any adjustments upon
your adoption of
ASC 606, disclose that fact and tell us in detail how you arrived
at that conclusion.
Revise your revenue recognition policies throughout your document to
reflect your
appropriate consideration of the guidance and framework of ASC
606.
Item 10. Recent Sales of Unregistered Securities, page 25
4. We note your revised disclosure in response to comment 13. For each
issuance of
unregistered securities by the company, please disclose the value of
the consideration the
company received for the securities (e.g., the value of debt converted
into common stock)
as well as the exemption from registration that the company relied on
to issue the
securities (e.g., Section 4(a)(2) of the Securities Act). Please refer
to Item 701 of
Regulation S-K.
Report of Independent Registered Public Accounting Firm, page F-1
5. Please revise the language in your audit report for the year ended
December 31,
2018 to comply with the guidance in PCAOB AS 3101 and SEC Release
34-81916.
Balance Sheet, page F-2
6. As previously requested, please revise to state separately on the face
of your balance sheet
or in a note thereto amounts receivable from customers, related
parties and others in
accordance with ASC 210-10-S99-1. Please also quantify the amount of
any allowance
for doubtful accounts, if any, for each period presented.
7. As previously requested, please revise to label your Notes Payable,
which are convertible
into shares of your common stock, as convertible on the face of your
Balance Sheet for all
periods presented. Please also classify the balance of the notes
between current and long-
term based on its payment terms.
8. As previously requested, please revise the Stockholders' Equity
section of your Balance
Sheet to quantify the amount of common and preferred shares issued and
outstanding at
each balance sheet date. In this regard, it does not appear that you
have disclosed the
Kevin Hagen
FirstName LastNameKevin Hagen
PotNetwork Holdings, Inc.
Comapany NamePotNetwork Holdings, Inc.
July 17, 2019
July 17, 2019 Page 3
Page 3
FirstName LastName
amounts issued and outstanding as of December 31, 2017.
Cash Flow Statement, page F-7
9. Your response to prior comment 19 indicates that you made certain
reclassifications
within your Statement of Cash Flows; however, we did not note any such
changes in your
amended filing. As such, please revise your Statement of Cash Flows to
reclassify your
cash flows for third party loans and convertible note payable from
operating to financing
activities, or tell us why this is not necessary.
Statement of Stockholders' Equity, page F-8
10. As previously requested, please revise your Statements of
Stockholders' Equity for all
periods to include your Preferred shares.
11. Your response to prior comment 21 indicates that you made changes to
your Statement of
Stockholders' Equity with respect to your additional paid in capital;
however, we did not
note any such changes in your amended filing. As such, we reissue our
initial comment.
Given that the par value of your common stock is $0.00001 per share,
it is unclear how
you accounted for your common share issuances in both 2017 and 2018
and the resulting
impact (or lack thereof) on Additional Paid-in Capital. Please advise
or revise.
Note 1 - Organization and Description of Business, page F-9
12. We note your response to prior comment 22 regarding your various
organization
transactions. Please provide us the following:
As you accounted for your January 30, 2017 "reverse triangular
merger" under ASC
805-40 as a reverse acquisition, please provide us the initial
accounting on your
financial statements of this transactions on a stand-alone basis,
including the
calculation of goodwill.
Tell us how the March 31, 2017 holding company reorganization was
accounted for on
a stand-alone basis and what accounting guidance was used and how
this impacted
your financial statements at that time.
At reversal, with the February 2018 "reversal ab initio," tell us
how this event was
accounted for on a stand-alone basis, what accounting guidance was
used, and how
this impacted your financial statements at that time.
Note 2 - Summary of Significant Accounting Policies, page F-10
13. As previously requested, please revise your Accounts Receivable policy
to include a
discussion of your assessment of collectibility and any establishment
of an allowance for
doubtful accounts. If you determine no allowance is necessary for any
period, disclose
such.
14. We note that you revised your property & equipment footnote on page
F-11 in response to
prior comment 24; however, similar revisions were not made to your
property
Kevin Hagen
PotNetwork Holdings, Inc.
July 17, 2019
Page 4
& equipment footnote on page on F-27. Please revise your footnote on page
F-27
accordingly.
Note 11 - Notes Payable to Sign N Drive, page F-14
15. Your response to prior comment 24 indicates that you made changes to Note
11 to provide
additional detail regarding the terms of the loan; however, we did not
note any such
changes in your amended filing. As previously requested, please revise to
provide a more
robust description of the terms of your notes payable (including
interest, maturity and
conversion terms), as well as a discussion of any conversions and/or
modifications made
during the periods presented. Please also explain your accounting for the
embedded
conversion option.
Note 11 - Notes Payable to Illiad Research & Trading, LP, page F-32
16. Please revise to provide a more detailed description of the terms of your
notes payable to
Illiad Research & Trading, LP (including maturity date, future amounts
that can be
borrowed, etc.).
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
You may contact Bonnie Baynes at (202) 551-4924 or Angela Connell,
Accounting Branch Chief, at (202) 551-3426 if you have questions regarding
comments on the
financial statements and related matters. Please contact Tonya K. Aldave at
(202) 551-3601 or
Dietrich King at (202) 551-8071 with any other questions.
Sincerely,
FirstName LastNameKevin Hagen
Division of
Corporation Finance
Comapany NamePotNetwork Holdings, Inc.
Office of Healthcare
& Insurance
July 17, 2019 Page 4
cc: Jonathan D. Leinwand, Esq.
FirstName LastName