Notes
to the Consolidated Financial Statements
Note
1 – Organization and Operations
The
Company leases real estate to licensed marijuana operators providing complete turnkey growing space, processing space, recreational
and medical retail sales space and related facilities to licensed marijuana growers, processors, dispensary and recreational store
operators. Additionally, the Company plans to explore ancillary opportunities in the regulated marijuana industry as well as offering
for wholesale distribution branded non-marijuana clothing and accessories.
Until
Federal law allows, the Company will not grow, harvest, process, distribute or sell marijuana or any other substances that violate
the laws of the United States of America or any other country.
Note
2 – Significant Accounting Policies and Practices
The
management of the Company is responsible for the selection and use of appropriate accounting policies and the appropriateness
of accounting policies and their application. Critical accounting policies and practices are those that are both most important
to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective,
or complex judgments, often because of the need to make estimates about the effects of matters that are inherently uncertain.
The Company’s significant and critical accounting policies and practices are disclosed below as required by generally accepted
accounting principles.
Basis
of Presentation
The
accompanying condensed consolidated financial statements of Diego Pellicer Worldwide, Inc. were prepared in accordance with the
instructions to Form 10-Q and, therefore, do not include all disclosures required for financial statements prepared in conformity
with U.S. GAAP.
This
Form 10-Q relates to the three months and nine months ended September 30, 2017 (the “Current Quarter”) and the three
months and nine months ended September 30, 2016 (the “Prior Quarter”). The Company’s annual report on Form 10-K
for the year ended December 31, 2016 (“2016 Form 10-K”) includes certain definitions and a summary of significant
accounting policies and should be read in conjunction with this Form 10-Q. All material adjustments which, in the opinion of management,
are necessary for a fair statement of the results for the interim periods have been reflected. The results for the current quarter
are not necessarily indicative of the results to be expected for the full year.
New
accounting pronouncements
In
February 2016, the FASB issued guidance that requires a lessee to recognize assets and liabilities arising from leases on the
balance sheet. Previous GAAP did not require lease assets and liabilities to be recognized for most leases. Additionally, companies
are permitted to make an accounting policy election not to recognize lease assets and liabilities for leases with a term of 12
months or less. For both finance leases and operating leases, the lease liability should be initially measured at the present
value of the remaining contractual lease payments. The recognition, measurement and presentation of expenses and cash flows arising
from a lease by a lessee will not significantly change under this new guidance. This new guidance is effective for the company
as of the first quarter of fiscal year 2020. The Company is evaluating the effect that this ASU will have on its financial statements
and related disclosures.
In
August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies
the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This ASU is effective
for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early
adoption is permitted. The Company is currently assessing the potential impact of ASU 2016-15 on its financial statements and
related disclosures.
In
April 2016 the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606). The core principle of Topic 606 is
that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services This ASU is effective for
public business entities for fiscal years, and interim periods within those years, beginning after January 1. 2018. The Company
is currently assessing the potential impact of ASU 2016-10 on its financial statements and related disclosures.
The
Company believes that other
recently
issued accounting pronouncements and other authoritative
guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such
impact will not be material to its financial position, results of operations and cash flows when implemented.
Reclassifications
Certain
prior year amounts were reclassified to conform to the manner of presentation in the current period. These reclassifications had
no effect on the Company’s balance sheet, net loss or stockholders’ equity.
Use
of Estimates
The
preparation of the financial statements in conformity with 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 dates of the financial
statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those
estimates. These estimates and assumptions include valuing equity securities and derivative financial instruments issued in financing
transactions and share based payment arrangements, determining the fair value of the warrants received for the licensing agreement,
the collectability of accounts receivable and deferred taxes and related valuation allowances.
Certain
estimates, including evaluating the collectability of accounts receivable, could be affected by external conditions, including
those unique to our industry, and general economic conditions. It is possible that these external factors could influence our
estimates that could cause actual results to differ from our estimates. The Company intends to re-evaluate all its accounting
estimates at least quarterly based on these conditions and record adjustments when necessary.
Fair
Value Measurements
The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify
as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument
is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported
in the condensed consolidated statements of operations. The classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities
are classified in the balance sheet as current or non-current based on whether net-cash settlement of the derivative instrument
could be required within 12 months of the balance sheet date.
Fair
Value of Financial Instruments
As
required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair
value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level
1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or
liabilities;
Level
2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially
the full term of the asset or liability; and
Level
3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable
(supported by little or no market activity).
Fair
value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as
of September 30, 2017 and December 31, 2016. The respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash, prepaid expenses and accounts payable. Fair values were
assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts
approximate fair values or they are payable on demand.
Cash
The
Company maintains cash balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit
Insurance Corporation, and the National Credit Union Share Insurance Fund, up to $250,000. The Company’s accounts at these
institutions may, at times, exceed the federal insured limits. The Company has not experienced any losses in such accounts.
Property
and Equipment, and Depreciation Policy
Property
and equipment are stated at cost less accumulated depreciation. Depreciation is provided for on a straight-line basis over the
useful lives of the assets. Leasehold improvements are amortized over the term of the lease. Expenditures for additions and improvements
are capitalized; repairs and maintenance are expensed as incurred.
The
Company intends to take depreciation or amortization on a straight-line basis for all properties, beginning when they are put
into service, using the following life expectancy:
Equipment
– 5 years
Leasehold
Improvements – 10 years, or the term of the lease, whichever is shorter
Buildings
– 20 years
Inventory
The
company conforms to the FASB issued Accounting Standards Update (“ASU”) No. 2015-11, Inventory, which requires an
entity to measure inventory within the scope at the lower of cost and net realizable value. Net realizable value is the estimated
selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
The Company’s inventory is stated at the lower of cost or estimated realizable value, with cost primarily determined on
a cost basis on the first-in, first-out (“FIFO”) method.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable are presented at their face amount, less an allowance for doubtful accounts, on the balance sheets. Accounts receivable
consist of revenue earned and currently due from sub lessee. We evaluate the collectability of accounts receivable based on a
combination of factors. We recognize reserves for bad debts based on estimates developed using standard quantitative measures
that incorporate historical write-offs and current economic conditions. As of September 30, 2017, the outstanding balance allowance
for doubtful accounts is $9,908.
The
policy for determining past due status is based on the contractual payment terms of each customer. Once collection efforts by
the Company and its collection agency are exhausted, the determination for charging off uncollectible receivables is made.
Revenue
recognition
The
Company recognizes revenue from rent, tenant reimbursements, and other revenue sources once all the following criteria are met
in accordance with SEC Staff Accounting Bulletin 104,
Revenue Recognition
: (a) the agreement has been fully executed and
delivered; (b) services have been rendered; (c) the amount is fixed or determinable; and (d) the collectability of the amount
is reasonably assured. Thus, during the initial term of the lease, management has a policy of partial rent forbearance when the
tenant first opens the facility to assure that the tenant has the opportunity for success.
When
the collectability is reasonably assured, in accordance with ASC Topic 840 “Leases” as amended and interpreted, minimum
annual rental revenue is recognized for rental revenues on a straight-line basis over the term of the related lease.
When
management concludes that the Company is the owner of tenant improvements, management records the cost to construct the tenant
improvements as a capital asset. In addition, management records the cost of certain tenant improvements paid for or reimbursed
by tenants as capital assets when management concludes that the Company is the owner of such tenant improvements. For these tenant
improvements, management records the amount funded or reimbursed by tenants as deferred revenue, which is amortized as additional
rental income over the term of the related lease. When management concludes that the tenant is the owner of tenant improvements
for accounting purposes, management records the Company’s contribution towards those improvements as a lease incentive,
which is amortized as a reduction to rental revenue on a straight-line basis over the term of the lease.
In
January 2014, the Company entered into an agreement to license certain intellectual property to an unrelated company. In consideration,
the Company received warrants to purchase shares of the licensee’s common stock, the value of the warrants was
recorded as an investment and the deferred revenue is being amortized over the ten year term of the licensing agreement.
Leases
as Lessor
The
Company currently leases properties to licensed cannabis operators for locations that meet the regulatory criteria applicable
by the respective regulatory jurisdiction for the sale, production, and development of cannabis products. The Company evaluates
the lease to determine its appropriate classification as an operating or capital lease for financial reporting purposes. The Company
leases are currently all classified as operating leases.
Minimum
base rent is recorded on a straight-line basis over the lease term after an initial period during which the tenant is establishing
the business and during which the Company may forbear some or all of the rent. The Company is more likely than not to forbear
some or all of the rental income which it considers uncollectable during the tenant’s initial ramp-up period (see
Revenue
Recognition
above). The tenant is still liable for the full rent, although the collectability may be unlikely and the Company
may not expect to collect it.
Leases
as Lessee
The
Company recognizes rent expense on a straight-line basis over the non-cancelable lease term and certain option renewal periods
where failure to exercise such options would result in an economic penalty in such amount that renewal appears, at the inception
of the lease, to be reasonably assured. Deferred rent is presented on current liabilities section on the consolidated balance
sheets.
Income
Taxes
Income
taxes are provided for using the liability method of accounting in accordance with the Income Taxes Topic of the FASB ASC. Deferred
tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation
allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized and when, in the opinion
of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The computation
of limitations relating to the amount of such tax assets, and the determination of appropriate valuation allowances relating to
the realizing of such assets, are inherently complex and require the exercise of judgment. As additional information becomes available,
the Company continually assesses the carrying value of their net deferred tax assets.
Preferred
Stock
The
Company applies the guidance enumerated in ASC Topic 480 “Distinguishing Liabilities from Equity” when determining
the classification and measurement of preferred stock. Preferred shares subject to mandatory redemption are classified as liability
instruments and are measured at fair value. The Company classifies conditionally redeemable preferred shares which includes preferred
shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence
of uncertain events not solely within our control, as temporary equity. At all other times, it classifies its preferred shares
in stockholders’ equity. Preferred shares do not feature any redemption rights within the holders’ control or conditional
redemption features not within our control. Accordingly, all issuances of preferred stock are presented as a component of consolidated
stockholders’ equity.
Common
Stock Purchase Warrants and Other Derivative Financial Instruments
The
Company classifies as equity any contracts that require physical settlement or net-share settlement or provide us a choice of
net cash settlement or settlement in our own shares (physical settlement or net-share settlement) provided that such contracts
are indexed to our own stock as defined in ASC Topic 815-40 “Contracts in Entity’s Own Equity.” The Company
classifies as assets or liabilities any contracts that require net-cash settlement including a requirement to net cash settle
the contract if an event occurs and if that event is outside our control or give the counterparty a choice of net-cash settlement
or settlement in shares. The Company assesses classification of its common stock purchase warrants and other free-standing derivatives
at each reporting date to determine whether a change in classification between assets and liabilities is required.
Stock-Based
Compensation
The
Company recognizes compensation expense for stock-based compensation in accordance with ASC Topic 718. The Company calculates
the fair value of the award on the date of grant using the Black-Scholes method for stock options and the quoted price of our
common stock for unrestricted shares; the expense is recognized over the service period for awards expected to vest. The estimation
of stock-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ
from original estimates, such amounts are recorded as a cumulative adjustment in the period estimates are revised. The Company
considers many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience.
Earnings
(loss) per common share
Earnings
(loss) per share is provided in accordance with ASC Subtopic 260-10. The Company presents basic loss per share (“EPS”)
and diluted EPS on the face of statements of operations. Basic EPS is computed by dividing reported earnings (loss) by the weighted
average shares outstanding. Loss per common share has been computed using the weighted average number of common shares outstanding
during the year.
Note
3 – Going Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company
believes that it has sufficient cash on hand and cash generated by real estate leases to sustain operations provided that
management and board members continue to agree to be paid company stock in exchange for accrued compensation. Through September
30, 2017, management and board members have accepted stock for accrued compensation at the same discount that has been extended
to the convertible noteholders of fifty percent. There are other future noncash charges in connection with financing such as a
change in derivative liability that will affect income but have no effect on cash flow.
Although
the Company has been successful raising additional capital, there is no assurance that the company will sell additional
shares of stock or borrow additional funds. The Company’s ability to raise additional cash could have a material adverse
effect on its financial position, results of operations, and its ability to continue in existence. These financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
Note
4 – Investment
In
January 2014, the Company entered into an agreement with Plandai Biotechnology, Inc. (a publicly traded company) to license to
them certain intellectual property rights in exchange for warrants to purchase 1,666,667 shares of Plandai Biotechnology, Inc.
common stock. This licensing agreement carries a 10-year term with an exercise price of $0.01 per share. The Company was to obtain
certain trademark rights certified by the government. The warrant has a restriction on them requiring that the sale of such shares
must reach a certain traded price of $0.50 per share. In 2014, the Company used a third-party appraisal firm to ascertain the
fair value of warrants held by the Company, which was determined to be $525,567 at the date of issuance. During the year ended
December 31, 2016, the Company recorded an impairment loss of $73,334. The Company recorded an additional impairment loss for
the nine months ended September 30, 2017 of $43,333.
Note
5– Property and Equipment
As
of September 30, 2017, and December 31, 2016, fixed assets and the estimated lives used in the computation of depreciation
are as follows:
|
|
Estimated
|
|
|
|
|
|
|
|
|
Useful
Lives
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
Machinery
and equipment
|
|
5
years
|
|
|
-
|
|
|
$
|
39,145
|
|
Leasehold
improvements
|
|
10
years
|
|
|
853,413
|
|
|
|
728,413
|
|
Less:
Accumulated depreciation and amortization
|
|
|
|
|
(335,575
|
)
|
|
|
(9,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
|
$
|
517,838
|
|
|
$
|
758,112
|
|
Note
6 – Other Assets
Security
deposits
: Security deposits reflect the deposits on various property leases, most of which require for two months’ rental
expense in the form of a deposit. These have remained unchanged, and are reported as $170,000 for December 31, 2016, and for September
30, 2017.
Deposits
– end of lease
: These deposits represent an additional two months of rent on various property leases that apply to the
“end-of- lease” period. These have remained unchanged, and are reported as $150,000 for December 31, 2016, and for
September 30, 2017.
Note
7– Notes Payable
On
April 11, 2017, the Company issued two convertible notes (see Note 8). These were issued to refinance the following notes:
On
May 20, 2015, the Company issued a note in total amount of $450,000 with third parties for use as operating capital. As of December
31, 2016, the outstanding principle balance of the note was $450,000.
On
July 8, 2015, the Company issued a note in total amount of $135,628 with third parties for use as operating capital. As of December
31, 2016, the outstanding principle balance of the note is $135,628.
On
February 8, 2016, the Company issued notes in total amount of $470,000 with third parties, bearing interest at 12% per annum with
a maturity date of February 7, 2017. As of December 31, 2016, the outstanding principle balance of the note is $470,000.
In
accordance with in accordance with FASB Codification- Liabilities, 470-50-40-10, these liabilities were considered extinguished
and the cost of the new financing of $5,607,836 was expensed in the quarter ended June 30, 2017.
On
August 31, 2015, the Company issued a note in total amount of $126,000 with third parties for use as operating capital. The note
was amended to include accrued interest on October 31, 2016 and extended the maturity date to October 31, 2018. As of September
30, 2017, the outstanding principal balance of the note was $126,000.
Note
8 – Convertible Note Payable
In
addition to the two notes issued on April 11, 2017 referred to in Footnote 7, the Company issued several convertible notes
in the nine months ending September 30, 2017. The note holder shall have the right to convert the amount outstanding
into shares of common stock at a discounted price. The conversion feature was recognized as an embedded derivative and was
valued using a Black Scholes model that resulted in a derivative liability of $4
,767,377
for the quarter ended September 30, 2017
.
In connection with the issuance of certain of these notes, the Company also issued warrants to purchase its common stock.
The Company allocated the proceeds of the notes and warrants based on the relative fair value at inception for these notes.
Several
convertible note holders elected to convert their notes to stock during the nine months ended September 30, 2017. The table
below provides a reconciliation of the beginning and ending balances for the liabilities measured using fair significant unobservable
inputs (Level 3):
|
|
Convertible
notes
|
|
|
Discount
|
|
|
Convertible
Note Net of Discount
|
|
|
Derivative
Liabilities
|
|
Balance,
December 31, 2016
|
|
|
370,500
|
|
|
|
36,344
|
|
|
|
334,156
|
|
|
|
338,282
|
|
Issuance
of convertible notes
|
|
|
3,762,342
|
|
|
|
1,278,500
|
|
|
|
2,483,842
|
|
|
|
7,622,392
|
|
Conversion
of convertible notes
|
|
|
(3,031,843
|
)
|
|
|
(116,180
|
)
|
|
|
(2,915,663
|
)
|
|
|
(5,509,516
|
)
|
Change
in fair value of derivatives
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,316,219
|
|
Amortization
|
|
|
—
|
|
|
|
(466,827
|
)
|
|
|
466,827
|
|
|
|
—
|
|
Balance September
30, 2017
|
|
$
|
1,100,999
|
|
|
$
|
731,837
|
|
|
$
|
369,162
|
|
|
$
|
4,767,377
|
|
The
following assumptions were used in calculations of the Black Scholes model for the period ended September 30, 2017 and
2016.
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
Risk-free
interest rates
|
|
|
1.06-1.39
|
%
|
|
|
0.29-0.59
|
%
|
Expected
life
|
|
|
0.24-1.53
year
|
|
|
|
0.25-1
year
|
|
Expected
dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected
volatility
|
|
|
174-230
|
%
|
|
|
142-356
|
|
Diego
Pellicer Worldwide, Inc. Common Stock fair value
|
|
$
|
0.18
|
|
|
$
|
0.20
-0.77
|
|
Note
9 – Stockholders’ Equity
The
following table presents the company’s warrants and option features which have no observable market data and are derived
using Black-Scholes measured at fair value on a recurring basis, using Level 3 inputs, as of December 31, 2016 and September 30,
2017:
|
|
For
the Nine
Months Ended
September
30, 2017
|
|
|
For
the Year Ended
December
31, 2016
|
|
Annual
dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected
life (years)
|
|
|
3-10
|
|
|
|
5
|
|
Risk-free
interest rate
|
|
|
1.10
– 2.34
|
%
|
|
|
0.90
|
%
|
Expected
volatility
|
|
|
232
- 234
|
|
|
|
266
|
|
The
following represents a summary of all common stock warrant activity:
|
|
Number
of
Warrants
|
|
|
Weighted
Average Exercise
Price
|
|
|
Weighted
Average Remaining
Contractual
Term
|
|
Balance
outstanding, December 31, 2016
|
|
|
2,027,313
|
|
|
$
|
1.18
|
|
|
|
3.43
|
|
Exercisable, December 31, 2016
|
|
|
2,027,313
|
|
|
$
|
1.18
|
|
|
|
3.43
|
|
Granted
|
|
|
2,900,000
|
|
|
|
-
|
|
|
|
-
|
|
Balance
outstanding, September 30, 2017
|
|
|
4,927,313
|
|
|
$
|
0.65
|
|
|
|
5.07
|
|
Exercisable,
September 30, 2017
|
|
|
4,927,313
|
|
|
$
|
0.65
|
|
|
|
5.07
|
|
The
Company maintains an Equity Incentive Plan pursuant to which 2,480,000 shares of Common Stock are reserved for issuance thereunder.
This Plan was established to award certain founding members, who were instrumental in the development of the Company, as well
as key employees, directors and consultants, and to promote the success of the Company’s business. The terms allow for each
option to vest immediately, with a term no greater than 10 years from the date of grant, at an exercise price equal to
par value at date of the grant. As of September 30, 2017, no shares had been granted under the plan.
As
a condition of their employment, the Board of Directors approved employment agreements with three key executives. This agreement
provided that additional shares will be granted each year over the term of the agreement should their shares as a percentage of
the total shares outstanding fall below prescribed ownership percentages. The CEO received an annual grant of additional shares
each year to maintain his ownership percentage at 10% of the outstanding stock. The other two executives received a similar grant
each to maintain his ownership percentage at 7.5% of the outstanding stock.
Options
have been granted to several executives and consultants as contractual incentives as shown below:
|
|
Number
of Options
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Contractual Term
|
|
Balance
outstanding, December 31, 2016
|
|
|
1,000,000
|
|
|
$
|
0.30
|
|
|
|
4.50
|
|
Exercisable,
December 31, 2016
|
|
|
200,000
|
|
|
$
|
0.30
|
|
|
|
4.50
|
|
Granted
|
|
|
4,899,180
|
|
|
|
0.25
|
|
|
|
5.00
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance
outstanding, September 30, 2017
|
|
|
5,899,180
|
|
|
$
|
0.26
|
|
|
|
8.40
|
|
Exercisable,
September 30, 2017
|
|
|
2,849,590
|
|
|
$
|
0.26
|
|
|
|
8.56
|
|
During
the nine months ended September 30, 2017 3,609,990 common shares valued at $513,585 were issued as security
for the payment of convertible notes. Among these shares issued for security deposits, 1,899,990 shares valued at $257,259
is refundable and were recorded in a contra equity account.
During
the nine months ended September 30, 2017, 4,918,965 shares of common stock valued at $1,119,403 were issued as share-based compensation.
1,205,128 shares were authorized but not issued as of September 30, 2017.
During
the nine months ended September 30, 2017, the Company incurred total option expense of $975,330.
During
the nine months ended September 30, 2017, 1,000,000 shares of common stock valued at $245,600 were issued for a debt settlement.
During
the nine months ended September 30, 2017, owners of convertible notes have converted their notes in exchange for 67,435,366 shares
of common stock valued at $6,672,953. Among these shares issued for notes conversion, 66,966,106 were authorized but not issued
as of September 30, 2017.
Note
10 – COMMITMENTS AND CONTINGENCIES
The
Company’s business is to lease property in appropriate and desirable locations, and to make available such property for
sub-lease to specifically assigned businesses that grow, process, and sell certain products to the public. Currently the Company
has four separate properties under lease in the states of Colorado and Washington.
In
Colorado, there are three properties leased in 2017 and 2016. Properties were leased for a three to five year period with an option
for an additional five years, and carry terms requiring triple net payments. Each of the properties have fixed monthly rentals
with periodic increases in the monthly rental rate. In Washington, there is one property which was leased in 2014. The property
was leased for a five (5) year period with an option for an additional five (5) years, and carry terms requiring triple net (NNN)
conditions. The property has an escalating annual rental. As of September 30, 2017, the aggregate remaining minimal annual lease
payments under these operating leases were as follows:
2017
|
|
$
|
541,110
|
|
2018
|
|
|
1,131,078
|
|
2019
|
|
|
746,039
|
|
2020
|
|
|
594,444
|
|
2021
|
|
|
431,227
|
|
2022
|
|
|
240,000
|
|
2023
|
|
|
240,000
|
|
2024
|
|
|
240,000
|
|
2025
|
|
|
40,000
|
|
Total
|
|
$
|
4,203,898
|
|
Rent
expense for the Company’s operating leases for the three months ended September 30, 2017 and 2016 was $191,556 and $257,599
respectively and for the nine months ending September 30, 2017 and 2016 was $828,677 and $831,262 respectively.
Note
11 – Subsequent Events
In
November 2017, the Company notified its shareholders of its intention to amend its Certificate of Incorporation to increase the
number of authorized shares of Common Stock from 95,000,000 shares to 195,000,000 shares. A majority of shareholders of record
as of September 17, 2017 approved this increase.
Subsequent
to September 30, 2017, the Company has issued
3,729,038 shares
of common stock to convertible notes holders who converted their notes during nine months ended September 30, 2017, resulting
in the increase in shares of common stock authorized and issued from 57,008,298 at September 30, 2017 to 60,737,336 as
of November 20, 2017.