ITEM
1. FINANCIAL STATEMENTS.
DIEGO
PELLICER WORLDWIDE, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
June
30, 2017
|
|
|
December
31, 2016
|
|
Assets
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
and equivalents
|
|
$
|
8,544
|
|
|
$
|
51,333
|
|
Accounts receivable
|
|
|
144,503
|
|
|
|
-
|
|
Prepaid expenses
|
|
|
71,717
|
|
|
|
482,765
|
|
Inventory
|
|
|
32,400
|
|
|
|
47,025
|
|
Total current
assets
|
|
|
257,164
|
|
|
|
581,123
|
|
Property and equipment,
net
|
|
|
626,547
|
|
|
|
758,112
|
|
Investments,
at cost
|
|
|
-
|
|
|
|
43,333
|
|
Security deposits
|
|
|
320,000
|
|
|
|
320,000
|
|
Other
assets
|
|
|
8,000
|
|
|
|
-
|
|
Total
assets
|
|
$
|
1,211,711
|
|
|
$
|
1,702,568
|
|
Liabilities and Stockholder's Deficit
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
543,014
|
|
|
$
|
823,797
|
|
Accrued Payable -
Related Party
|
|
|
814,233
|
|
|
|
509,294
|
|
Accrued Expenses
|
|
|
316,224
|
|
|
|
1,207,803
|
|
Notes Payable - Related
Party
|
|
|
307,312
|
|
|
|
307,312
|
|
Notes Payable
|
|
|
126,000
|
|
|
|
1,310,678
|
|
Convertible Note,
net of discount
|
|
|
2,645,300
|
|
|
|
334,156
|
|
Deferred rent
|
|
|
269,765
|
|
|
|
107,957
|
|
Deferred Revenue
|
|
|
53,000
|
|
|
|
53,000
|
|
Derivative liabilities
|
|
|
5,783,534
|
|
|
|
338,282
|
|
Warrant
Liabilities
|
|
|
311,216
|
|
|
|
-
|
|
Total
current liabilities
|
|
|
11,169,598
|
|
|
|
4,992,279
|
|
Deferred revenue
|
|
|
289,000
|
|
|
|
316,000
|
|
Total
liabilities
|
|
|
11,458,598
|
|
|
|
5,308,279
|
|
Stockholder's deficit
|
|
|
|
|
|
|
|
|
Series A and B Preferred
Stock, $0.0001 par value, 5,000,000 shares authorized, 0 share issued and outstanding as of June 30, 2017 and December 31,
2016
|
|
|
-
|
|
|
|
-
|
|
Common Stock, $0.000001 par value, 95,000,000
shares authorized, 52,598,307 and 49,081,878 shares were issued and outstanding as of June 30, 2017 and December 31,
2016, respectively
|
|
|
53
|
|
|
|
49
|
|
Additional paid-in capital
|
|
|
26,002,501
|
|
|
|
24,508,365
|
|
Stock
to be issued
|
|
|
157,096
|
|
|
|
-
|
|
Accumulated deficit
|
|
|
(36,406,537
|
)
|
|
|
(28,114,125
|
)
|
Total
stockholder's deficit
|
|
|
(10,246,886
|
)
|
|
|
(3,605,711
|
)
|
Total
liabilities and stockholder's deficit
|
|
$
|
1,211,711
|
|
|
$
|
1,702,568
|
|
See
Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
DIEGO
PELLICER WORLDWIDE, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30 2017
|
|
|
June 30 2016
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Rental Revenue
|
|
$
|
545,035
|
|
|
|
149,601
|
|
|
$
|
854,997
|
|
|
$
|
222,868
|
|
Rental Expense
|
|
|
(289,918
|
)
|
|
|
(278,921
|
)
|
|
|
(637,121
|
)
|
|
|
(573,663
|
)
|
Gross Profit
|
|
$
|
255,117
|
|
|
$
|
(129,320
|
)
|
|
$
|
217,876
|
|
|
$
|
(350,795
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
1,674,826
|
|
|
|
2,648,745
|
|
|
|
2,567,821
|
|
|
|
3,342,927
|
|
Selling Expense
|
|
|
33,877
|
|
|
|
-
|
|
|
|
33,889
|
|
|
|
-
|
|
Depreciation Expense
|
|
|
108,710
|
|
|
|
-
|
|
|
|
239,499
|
|
|
|
-
|
|
Income (Loss) from Operations
|
|
$
|
(1,562,296
|
)
|
|
$
|
(2,778,065
|
)
|
|
$
|
(2,623,333
|
)
|
|
$
|
(3,693,722
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing Revenue
|
|
|
13,500
|
|
|
|
13,500
|
|
|
|
27,000
|
|
|
|
27,000
|
|
Other Income (Expense)
|
|
|
3,061
|
|
|
|
-
|
|
|
|
45,830
|
|
|
|
-
|
|
Interest Expense
|
|
|
(446,762
|
)
|
|
|
(58,370
|
)
|
|
|
(734,998
|
)
|
|
|
(105,656
|
)
|
Impairment Loss
|
|
|
(15,833
|
)
|
|
|
-
|
|
|
|
(82,478
|
)
|
|
|
-
|
|
Extinguishment of Debt
|
|
|
(5,607,836
|
)
|
|
|
-
|
|
|
|
(5,607,836
|
)
|
|
|
|
|
Change in derivative liabilities
|
|
|
943,780
|
|
|
|
110,360
|
|
|
|
994,619
|
|
|
|
106,336
|
|
Change in value of Warrants
|
|
|
(311,216
|
)
|
|
|
-
|
|
|
|
(311,216
|
)
|
|
|
-
|
|
Total Other Income (Loss)
|
|
$
|
(5,421,306
|
)
|
|
$
|
65,490
|
|
|
$
|
(5,669,079
|
)
|
|
$
|
27,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
NET INCOME (LOSS)
|
|
$
|
(6,983,602
|
)
|
|
$
|
(2,712,575
|
)
|
|
$
|
(8,292,412
|
)
|
|
$
|
(3,666,04
|
2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share - basic and fully diluted
|
|
|
(0.13
|
)
|
|
|
(0.07
|
)
|
|
|
(0.16
|
)
|
|
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic and fully diluted
|
|
|
52,598,308
|
|
|
|
41,312,180
|
|
|
|
52,598,308
|
|
|
|
39,568,485
|
|
See
Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
DIEGO
PELLICER WORLDWIDE, INC.
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)
|
|
Six
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30, 2017
|
|
|
June
30, 2016
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(8,292,412
|
)
|
|
$
|
(3,666,042
|
)
|
Adjustments
to reconcile net loss to net cash used in operations:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
239,499
|
|
|
|
-
|
|
Amortization
of Debt Costs
|
|
|
-
|
|
|
|
4,141
|
|
Amortization
of discount
|
|
|
190,984
|
|
|
|
-
|
|
Share-based
compensation
|
|
|
1,527,713
|
|
|
|
2,792,544
|
|
Impairment
on investment
|
|
|
82,478
|
|
|
|
-
|
|
Change
in fair value of derivative liabilities
|
|
|
(994,619
|
)
|
|
|
(106,336
|
)
|
Extinguishment
of Debt
|
|
|
5,607,836
|
|
|
|
-
|
|
Change
in value of warrants
|
|
|
311,216
|
|
|
|
-
|
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Change
in accounts receivable
|
|
|
(144,503
|
)
|
|
|
(151,538
|
)
|
Change
in inventory
|
|
|
14,624
|
|
|
|
(8,096
|
)
|
Prepaid
expenses
|
|
|
411,048
|
|
|
|
24,476
|
|
Change
in other assets
|
|
|
(8,000
|
)
|
|
|
(33,152
|
)
|
Change
in accounts payable
|
|
|
(302,862
|
)
|
|
|
512,912
|
|
Change
in accrued liability - Related party
|
|
|
304,939
|
|
|
|
360,400
|
|
Change
in accrued liability
|
|
|
388,511
|
|
|
|
-
|
|
Change
in deferred rent
|
|
|
161,808
|
|
|
|
(43,174
|
)
|
Change
in deferred revenue
|
|
|
(27,000
|
)
|
|
|
(27,000
|
)
|
Net cash provided in operating
activities
|
|
|
(528,739
|
)
|
|
|
(340,865
|
)
|
Investing Activities
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(125,000
|
)
|
|
|
(394,090
|
)
|
Net cash used in investing
activities
|
|
|
(125,000
|
)
|
|
|
(394,090
|
)
|
Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds
from note payable
|
|
|
-
|
|
|
|
470,000
|
|
Proceeds
from sale of common stock
|
|
|
-
|
|
|
|
245,001
|
|
Proceeds
from convertible notes payable
|
|
|
740,000
|
|
|
|
-
|
|
Repayment
of notes payable
|
|
|
(129,050
|
)
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
610,950
|
|
|
$
|
715,001
|
|
Net (Decrease) increase in
Cash
|
|
|
(42,789
|
)
|
|
|
(19,954
|
)
|
Cash
- beginning of period
|
|
|
51,333
|
|
|
|
36,001
|
|
Cash
- end of the period
|
|
$
|
8,544
|
|
|
$
|
16,047
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash
paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental
noncash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issued for debt settlement
|
|
$
|
50,000
|
|
|
$
|
-
|
|
See
Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Diego
Pellicer Worldwide, Inc.
June
30,
2017 and 2016
Notes
to the Consolidated Financial Statements
Note
1 – Organization and Operations
History
On
March 13, 2015 (the “closing date”), Diego Pellicer Worldwide, Inc. f/k/a Type 1 Media, Inc. (the “Company”)
closed on a merger and share exchange agreement by and among (i) the Company, and (ii) Diego Pellicer World-wide, Inc., a Delaware
corporation, (“Diego”), and (iii) Jonathan White, the majority shareholder of the Company. Diego was merged with and
into the Company, with the Company to continue as the surviving corporation in the Merger and the Company succeeding to and assuming
all the rights, assets, liabilities, debts, and obligations of Diego.
The
Merger has been accounted for as a reverse merger and recapitalization in which Diego is treated as the accounting acquirer and
Diego Pellicer Worldwide, Inc. is the surviving legal entity.
Business
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 six months ended June 30, 2017 (the “Current Quarter”) and the three
months and six months ended June 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
August 2014, the Financial Accounting Standards Board (“FASB”) issued Presentation of Financial Statements —
Going Concern. This standard requires management to evaluate for each annual and interim reporting period whether it is probable
that the reporting entity will not be able to meet its obligations as they become due within one year after the date that the
financial statements are issued. If the entity is in such a position, the standard provides for certain disclosures depending
on whether or not the entity will be able to successfully mitigate its going concern status. This guidance is effective for annual
periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. Early application
is permitted. The Company does not anticipate that this adoption will have a significant impact on its consolidated financial
position, results of operations, or cash flows.
In
July 2015, 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
effective date for the standard is for fiscal years beginning after December 15, 2016.
In
September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period
Adjustments. To simplify the accounting for adjustments made to provisional amounts recognized in a business combination, the
amendments eliminate the requirement to retrospectively account for those adjustments. For public business entities, the amendments
are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments
should be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application
permitted for financial statements that have not been issued.
In
May 2014, the FASB issued No. 2014-09, Revenue from Contracts with Customers, which supersedes the revenue recognition requirements
in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification.
The standard requires that an entity recognizes 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. In
August 2015, the FASB approved a one-year deferral of the effective date of the new revenue recognition standard. Public business
entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual
reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier
application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods
within that reporting period. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606), Principal
versus Agent Considerations (Reporting Revenue versus Net). In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts
with Customers (Topic 606), Identifying Performance Obligations and Licensing. In May 2016, the FASB issued ASU 2016-11, Revenue
from Contracts with Customers (Topic 606) and Derivatives and Hedging (Topic 815) - Rescission of SEC Guidance Because of ASU
2014-09 and 2014-16, and ASU 2016-12, Revenue from Contracts with Customers (Topic 606) - Narrow Scope Improvements and Practical
Expedients. These ASUs clarify the implementation guidance on a few narrow areas and adds some practical expedients to the guidance
Topic 606. The Company is evaluating the effect that these ASUs will have on its consolidated financial statements and related
disclosures.
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 us as of the
first quarter of fiscal year 2020. The Company is evaluating the effect that this ASU will have on its consolidated financial
statements and related disclosures.
On
March 30, 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which includes amendments
to accounting for income taxes at settlement, forfeitures, and net settlements to cover withholding taxes. The amendments in ASU
2016-09 are effective for public companies for fiscal years beginning after December 31, 2016, and interim periods within those
annual periods.
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
October 2016, the FASB issued ASU No. 2016-16—Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.
This ASU improves the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. For
public business entities, the amendments in this update are effective for annual reporting periods beginning after December 15,
2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company does
not anticipate that the adoption of this ASU will have a significant impact on its consolidated financial statements.
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
reclassifications have been made to the prior years’ financial statements to conform to the current year presentation. These
reclassifications had no effect on previously reported results of operations, shareholders equity or accumulated deficit.
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 June 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’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. Inventory consists of finished goods.
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 June 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 were recorded
as an investment and the deferred revenue was being amortized over the ten year term of the licensing agreement.
Leases
as Lessor
The
Company currently leases properties in locations that meet the regulatory criteria applicable to cannabis operations by the respective
regulatory jurisdiction and acceptable to sub-lessees for the sale, production, and development of their 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 has
incurred losses since inception, its current liabilities exceed its current assets by $10,912,434, and has an accumulated
deficit of $36,406,537 at June 30, 2017. These factors, among others raise substantial doubt about its ability to continue
as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Management
believes that the Company’s future success is dependent upon its ability to achieve profitable operations, generate cash
from operating activities and obtain additional financing. There is no assurance that the Company will be able to generate sufficient
cash from operations, sell additional shares of stock or borrow additional funds. The Company’s inability to obtain 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.
The
Company intends to continue to raise additional capital to be used for ongoing expenses, capital expenditures or repayment of
debt. When, in the opinion of the Company, the tenants achieve sufficient profitability to pay full rents, rental revenues should
exceed rental expense for the four subleased properties.
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 six months ended June 30, 2017 of $43,333.
Note
5– Property and Equipment
As
of June 30, 2017, and December 31, 2016, fixed assets and the estimated lives used in the computation of depreciation are
as follows:
|
|
Estimated
|
|
|
|
|
|
|
|
|
Useful
Lives
|
|
June
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
|
|
|
|
|
(226,866
|
)
|
|
|
(9,447
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment,
net
|
|
|
|
$
|
626,547
|
|
|
$
|
758,111
|
|
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 June 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 June 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 notes
payable agreements required the Company to repay the principal, together with 5% annual interest by the maturity date of October
31, 2015 or the closing of a financing whereby the company receives a minimum of $126,000. In connection with the issuance of
these notes, the Company issued 126,000 shares of common stock. The Company allocated the proceeds of the notes and equity
based on the relative fair value at inception. The Company allocated $84,000 to the common stock and $42,000 to the debt.
The difference between the face value of the notes and the allocated value has been accreted to interest expense over the life
of the loan. As of June 30, 2017, and December 31, 2016, the outstanding principal balance of the note is $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 second quarter ended June 30, 2017, The convertible notes require the Company to repay the principal, together with interest.
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 $5,694,844 for the quarter ended June 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. The company recorded a derivative liability of $88,690 for accrued
interest relating to these notes.
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
|
|
|
2,923,842
|
|
|
|
575,945
|
|
|
|
2,347,897
|
|
|
|
6,036,297
|
|
Conversion of convertible notes
|
|
|
(50,000
|
)
|
|
|
(13,247
|
)
|
|
|
(36,753
|
)
|
|
|
(85,022
|
)
|
Change in fair value of derivatives
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(683,403
|
)
|
Balance June 30,
2017
|
|
$
|
3,244,342
|
|
|
$
|
599,042
|
|
|
$
|
2,645,300
|
|
|
$
|
5,694,844
|
|
The
following assumptions were used in calculations of the Black Scholes model for the period ended June 30, 2017 and 2016.
|
|
June
30, 2017
|
|
|
June
30, 2016
|
|
Risk-free interest rates
|
|
|
0.52-1.38
|
%
|
|
|
0.20-1.01
|
%
|
Expected life
|
|
|
0.49-1.99
year
|
|
|
|
0.25-1 year
|
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
157-284
|
%
|
|
|
142-252
|
|
Diego Pellicer Worldwide, Inc. Common Stock
fair value
|
|
$
|
0.28-0.28
|
|
|
$
|
0.20 -0.77
|
|
Note
9 – Stockholder’s Equity (Deficit)
As a condition of their employment, the Board of Directors approved employment agreements with two new executives.
This agreement provided among other things that additional shares will be granted each year over the term of the agreement should
their shares as granted by this agreement fall below an ownership percentage of 7.5% of the outstanding stock. In addition,
the board of directors affirmed an oral commitment that will entitle the CEO an annual grant of additional shares each year should
his ownership percentage fall below of 10% of the outstanding stock. The Company has recorded an expense in the quarter ended June
30, 2017 related to the shares which will be issuable under these agreements for $157,096. For the six months ended June 30, 2017
the Company issued shares and options as equity compensation and signing bonuses in the amount of $1,527,713.
The
following table presents our 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 June 30, 2017:
|
|
For
the Six
Months Ended
June
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
|
|
Granted
|
|
|
2,650,000
|
|
|
|
-
|
|
|
|
-
|
|
Balance outstanding,
June 30, 2017
|
|
|
4,677,313
|
|
|
$
|
0.65
|
|
|
|
5.34
|
|
Exercisable,
June 30, 2017
|
|
|
4,677,313
|
|
|
$
|
0.65
|
|
|
|
5.34
|
|
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 June 30, 2017, no shares had been granted under the plan.
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,
March 31, 2017
|
|
|
5,899,180
|
|
|
$
|
0.30
|
|
|
|
4.50
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance
outstanding, June 30, 2017
|
|
|
5,899,180
|
|
|
$
|
0.26
|
|
|
|
8.67
|
|
Exercisable,
June 30, 2017
|
|
|
200,000
|
|
|
$
|
0.30
|
|
|
|
4.01
|
|
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 general public. Currently
the Company has four (4) 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 (3) to five (5) year period with
an option for an additional five (5) years, and carry terms requiring triple net (NNN) conditions. Each of the properties, except
for one, have fixed monthly rentals (exclusive of the triple net terms). 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 (exclusive of the triple net terms).
As
of June 30, 2017, the aggregate remaining minimal annual lease payments under these operating leases were as follows:
2017
|
|
$
|
564,549
|
|
2018
|
|
|
1,075,271
|
|
2019
|
|
|
681,504
|
|
2020
|
|
|
76,163
|
|
Total
|
|
$
|
2,397,487
|
|
Rent
expense for the Company’s operating leases for the three months ended June 30, 2017 and 2016 was $289,918 and $278,921,
respectively and for the 6 months ending June 30, 2017 and 2016 was $637,121 and $573,663, respectively.
Note
11 – Subsequent Events
In
July 2017, the company closed two convertible notes, one for $63,000 and one for $163,500. Both notes provide that the borrower
can convert the principle and accrued interest to a discounted value of common stock at the discretion of the borrower. In
addition to the note, 5,109,990 security shares were issued to the note holders.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS
The
following discussion and analysis of the results of operations and financial condition of Diego Pellicer Worldwide, Inc. (the
“Company”, “we”, “us” or “our”) should be read in conjunction with the financial
statements of Diego Pellicer Worldwide, Inc. and the notes to those financial statements that are included elsewhere in this Form
10-Q. This discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties,
such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from
those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the
Risk Factors and Business sections in the financial statements and footnotes included in the Company’s Form 10-K filed on
May 31, 2017 for the year ended December 31, 2016. Words such as “anticipate,” “estimate,” “plan,”
“project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,”
“may,” “will,” “should,” “could,” and similar expressions are used to identify
forward-looking statements.
Overview
Diego
Pellicer Worldwide, Inc. was established on August 26, 2013 to take advantage of growing market for legalized cannabis being made
possible by the escalating legislation allowing for the legalization of cannabis operations in the majority of states:
The
industry is operating under stringent regulations within the various state jurisdictions. The company’s primary
business plan is to lease, at a premium, various property to licensed operators in these jurisdictions to grow, process and
sell cannabis and related products. The Company will also provide educational training, compliance consultation, branding,
and related accessories to their tenants.
These leases are expected provide a substantial stream of income. We believe
that as laws evolve, it is possible that we will have the opportunity to participate directly in these operations.
Accordingly, the Company will selectively negotiate an option on our tenants’ operating company.
The
company has already established four facilities in markets that have experienced high growth, Washington and Colorado. This growth
is illustrated in the tables below:
Source:
Washington State Liquor and Cannabis Board and Colorado Department of Revenue
The
legalization taking place in other states such as California and Florida present opportunities many time that of Washington and
Colorado. The Company is exploring opportunities in Oregon, California and Florida and is getting inquiries from other potential
operators in other jurisdictions.
This
market is projected to grow rapidly in the future as this chart below illustrates:
Source:
Marijuana Business Daily
TRANSITION
COSTS
This
past six months has been a time of great transition for the company. An effective and experienced team had to be assembled to
complement the current executives with knowledge and experience in real estate operations, banking, site selection, branding,
facility design, corporate finance, investor relations, Additional capital needed to be raised in order to have sufficient cash
to finish construction of the four facilities, build more facilities, and achieve a positive cash flow. Much of the Company’s
debt was delinquent needed to be repaid or renegotiated. All the while, new markets had to be explored, new alliances forged and
new opportunities prioritized.
Two
executives joined the team in the first quarter after having been serving in a consulting capacity since the summer of 2016. One
had been the CEO of a publicly traded company for 15 years the other had been a member on the boards of public companies, owned
banks, and had extensive real estate operational and negotiation experience. We also engaged an advisor with extensive experience
in national brand retail site selection, a consultant for branding and design that had been instrumental in the design of Apple
stores and other facilities, and a world-renowned architect to design and standardize our retail facilities.
$740,000
in new capital was raised. New markets explored. Four facilities were opened and generating rents. Delinquent notes were renegotiated.
The Company used options to convert to common stock and warrants of common stock to pay for these costs. The non-cash costs of
$5,607,836 associated with renegotiating these notes are not capitalized but rather expensed in accordance with GAAP in the six
months ended June 30, 2017.
Thus,
much of the loss shown on the Income Statement in 2017 is the result of these transitional non-cash expenditures.
RESULTS
OF OPERATIONS
After
rental expense, the gross margins on the lease were as follows:
|
|
Three
Months Ended
|
|
|
Three
Months Ended
|
|
|
Increase
(Decrease)
|
|
|
|
June
30, 2017
|
|
|
June
30, 2016
|
|
|
$
|
|
|
%
|
|
Total revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental Income
|
|
$
|
545,035
|
|
|
$
|
149,601
|
|
|
$
|
395,434
|
|
|
|
264
|
%
|
Rent
expense
|
|
|
(289,918
|
)
|
|
|
(278,921
|
)
|
|
|
10,997
|
|
|
|
4
|
%
|
Gross Profit
|
|
$
|
255,117
|
|
|
$
|
(129,320
|
)
|
|
$
|
384,437
|
|
|
|
297
|
%
|
General
and administrative expense
|
|
|
1,674,826
|
|
|
|
2,648,745
|
|
|
|
(973,919
|
)
|
|
|
(37
|
)%
|
Selling
expense
|
|
|
33,877
|
|
|
|
-
|
|
|
|
33,877
|
|
|
|
*
|
%
|
Depreciation
expense
|
|
|
108,710
|
|
|
|
-
|
|
|
|
108,710
|
|
|
|
*
|
%
|
Loss from operations
|
|
$
|
(1,562,296
|
)
|
|
$
|
(2,778,065
|
)
|
|
$
|
(1,215,769
|
)
|
|
|
(44
|
)%
|
|
|
Six
Months Ended
|
|
|
Six
Months Ended
|
|
|
Increase
(Decrease)
|
|
|
|
June
30, 2017
|
|
|
June
30, 2016
|
|
|
$
|
|
|
%
|
|
Total revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental Income
|
|
$
|
854,997
|
|
|
$
|
222,868
|
|
|
$
|
632,129
|
|
|
|
284
|
%
|
Rent
expense
|
|
|
(637,121
|
)
|
|
|
(573,663
|
)
|
|
|
63,458
|
|
|
|
11
|
%
|
Gross Profit
|
|
$
|
217,876
|
|
|
$
|
(350,795
|
)
|
|
$
|
568,671
|
|
|
|
162
|
%
|
General
and administrative expense
|
|
|
2,567,821
|
|
|
|
3,342,928
|
|
|
|
(775,107
|
)
|
|
|
(23
|
)%
|
Selling
expense
|
|
|
33,889
|
|
|
|
-
|
|
|
|
33,889
|
|
|
|
*
|
%
|
Depreciation
expense
|
|
|
239,499
|
|
|
|
-
|
|
|
|
239,499
|
|
|
|
*
|
%
|
Loss from operations
|
|
$
|
(2,623,333
|
)
|
|
$
|
(3,693,722
|
)
|
|
$
|
(1,070,389
|
)
|
|
|
(29
|
)%
|
*
Not divisible by zero
Gross
profit.
Rent revenue exceeded rental expense by $255,117 and 217,876 for the three and six months ended June 30, 2017 respectively,
compared to a loss of $129,320 and $350,795 for the for the three and six months ended June 30, 2017 respectively. The increase
in gross profit was primarily attributable to rental income from the opening of various locations for our tenants.
General
and administrative.
Our general and administrative expenses for the three and six months ended June 30, 2017 were $1,674,826,
and $2,567,821 respectively, compared to $2,648,745 and $3,342,928 for the three and six months ended June 30, 2016 respectively.
The decrease of $775,107 was mostly attributable to a reduction in salaries during the six months ended June 30, 2017.
|
|
Three Months
Ended
|
|
Three Months
Ended
|
|
Increase (Decrease)
|
|
|
June 30, 2017
|
|
June 30, 2016
|
|
$
|
|
%
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
(446,762
|
)
|
|
$
|
(58,370
|
)
|
|
$
|
(388,392
|
)
|
|
|
665
|
%
|
Other income and expense
|
|
|
(5,607,108
|
)
|
|
|
13,500
|
|
|
|
(5,620,608
|
)
|
|
|
(41,634
|
)%
|
Change in fair value of derivative and warrant liabilities
|
|
|
632,564
|
|
|
|
110,360
|
|
|
|
522,204
|
|
|
|
473
|
%
|
Net other income
|
|
$
|
(5,421,306
|
)
|
|
$
|
65,490
|
|
|
$
|
(5,486,796
|
)
|
|
|
(8,378
|
)%
|
|
|
Six Months
Ended
|
|
Six Months
Ended
|
|
Increase (Decrease)
|
|
|
June 30, 2017
|
|
June 30, 2016
|
|
$
|
|
%
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
(734,998
|
)
|
|
$
|
(105,656
|
)
|
|
$
|
(629,342
|
)
|
|
|
(596
|
)%
|
Other income and expense
|
|
|
(7,087,480
|
)
|
|
|
27,000
|
|
|
|
(7,114,480
|
)
|
|
|
(26,350
|
)%
|
Change in fair value of derivative and warrant liabilities
|
|
|
683,403
|
|
|
|
106,336
|
|
|
|
410,774
|
|
|
|
(372
|
)%
|
Net other income
|
|
$
|
(5,669,079
|
)
|
|
$
|
27,680
|
|
|
$
|
(6,023,759
|
)
|
|
|
(21,762
|
)%
|
*
Not divisible by zero
The
increase of $6,023,759 for the six months ended June 30, 2017 over the six months ended June 30, 2016 was largely the result of
the expensing of the entire financing costs for the convertible notes issued in the second quarter in connection with the refinancing
of notes that had come due.
LIQUIDITY
AND CAPITAL RESOURCES
|
|
Six
Months Ended
|
|
|
Six
Months Ended
|
|
|
Increase
(Decrease)
|
|
|
|
June
30, 2017
|
|
|
June
30, 2016
|
|
|
$
|
|
|
%
|
|
Net Cash
used in operating activities
|
|
$
|
(528,739
|
)
|
|
$
|
(340,865
|
)
|
|
|
(187,874
|
)
|
|
$
|
55
|
%
|
Net Cash used in investing
activities
|
|
|
(125,000
|
)
|
|
|
(394,090
|
)
|
|
$
|
269,090
|
|
|
|
(68
|
)%
|
Net Cash used by financing
activities
|
|
|
610,950
|
|
|
|
715,001
|
|
|
|
104,051
|
|
|
|
(15
|
)%
|
Net Increase in
Cash
|
|
|
(42,789
|
)
|
|
|
(19,954
|
)
|
|
|
22,835
|
|
|
|
114
|
%
|
Cash - beginning of
period
|
|
|
51,333
|
|
|
|
36,001
|
|
|
|
15,332
|
|
|
|
43
|
%
|
Cash - end of period
|
|
$
|
8,544
|
|
|
$
|
16,047
|
|
|
$
|
(7,503
|
)
|
|
|
(47
|
)%
|
Net
Cash used in Operating Activities.
For the Six months ended June 30, 2017, the operations used
net cash of $528,739 due to a net loss.
Investing
Activities.
The cash used in investing activities for the six months ended June 30, 2017 of $125,000 for acquisition of property
and equipment for facility construction.
Financing
Activities.
During the Six months ended June 30, 2017, $740,000 in proceeds were from convertible notes payable and
there was a repayment of 129,050 for a note payable. During the Six months ended June 30, 2016, we received $715,001
from proceeds from note payable.
Non-Cash
Investing and Financing Activities.
Non-cash activities for the six months ended June 30, 2017 was the conversion of a convertible
note for $50,000 in principal and $3,303 in interest. 469,260 shares of common stock were issued for this conversion.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements.