ITEM
1. FINANCIAL STATEMENTS.
DIEGO
PELLICER WORLDWIDE, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
Unaudited
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
40,246
|
|
|
$
|
317,446
|
|
Accounts
receivable
|
|
|
523,645
|
|
|
|
391,273
|
|
Prepaid
expenses
|
|
|
-
|
|
|
|
12,111
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
563,891
|
|
|
|
720,830
|
|
|
|
|
|
|
|
|
|
|
Other receivables
|
|
|
1,030,281
|
|
|
|
788,177
|
|
Security deposits
|
|
|
150,000
|
|
|
|
150,000
|
|
Right
of Use Assets
|
|
|
2,675,157
|
|
|
|
3,009,163
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
4,419,329
|
|
|
$
|
4,668,170
|
|
|
|
|
|
|
|
|
|
|
Liabilities and deficiency
in stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
500,824
|
|
|
$
|
514,196
|
|
Accrued
payable - related party
|
|
|
1,340,760
|
|
|
|
1,293,238
|
|
Accrued
expenses
|
|
|
740,121
|
|
|
|
587,707
|
|
Notes
payable - related party
|
|
|
140,958
|
|
|
|
140,958
|
|
Notes
payable
|
|
|
189,847
|
|
|
|
133,403
|
|
Convertible
notes, net of discount and costs
|
|
|
3,203,211
|
|
|
|
2,352,530
|
|
Derivative
liabilities
|
|
|
3,857,429
|
|
|
|
5,024,321
|
|
Lease
Liabilities
|
|
|
694,869
|
|
|
|
676,336
|
|
Warrant
liabilities
|
|
|
995
|
|
|
|
967
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
10,669,014
|
|
|
|
10,723,656
|
|
|
|
|
|
|
|
|
|
|
Lease
Liabilities, net of current portion
|
|
|
1,940,979
|
|
|
|
2,299,152
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
12,609,993
|
|
|
|
13,022,808
|
|
|
|
|
|
|
|
|
|
|
Redeemable
convertible preferred stock, Series C, par value $.00001 per share; 1,500,000 shares authorized, 212,552 and 140,000 shares
issued and outstanding, net of discount of $166,092 and $131,250, respectively
|
|
|
56,287
|
|
|
|
8,750
|
|
|
|
|
|
|
|
|
|
|
Deficiency in stockholders’
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, Series A and B, par value $.0001 per share; 5,000,000 shares authorized, none issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
Common
stock, par value $.000001 per share; 840,000,000 shares authorized,135,187,691 and 113,926,332 shares issued, respectively
|
|
|
136
|
|
|
|
114
|
|
Additional paid-in
capital
|
|
|
43,881,123
|
|
|
|
43,478,139
|
|
Stock to be issued
|
|
|
119,668
|
|
|
|
127,261
|
|
Accumulated
deficit
|
|
|
(52,247,878
|
)
|
|
|
(51,968,902
|
)
|
|
|
|
|
|
|
|
|
|
Total
deficiency in stockholders’ equity
|
|
|
(8,246,951
|
)
|
|
|
(8,363,388
|
)
|
|
|
|
|
|
|
|
|
|
Total
liabilities and deficiency in stockholders’ equity
|
|
$
|
4,419,329
|
|
|
$
|
4,668,170
|
|
See
Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
DIEGO
PELLICER WORLDWIDE, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
Three Months Ended June 30, 2019
|
|
Six Months Ended June 30, 2020
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net rental revenue
|
|
$
|
344,849
|
|
|
|
419,022
|
|
|
$
|
728,880
|
|
|
|
869,037
|
|
Rental expense
|
|
|
(282,826
|
)
|
|
|
(296,799
|
)
|
|
|
(573,619
|
)
|
|
|
(577,523
|
)
|
Gross profit
|
|
|
62,023
|
|
|
|
122,223
|
|
|
|
155,261
|
|
|
|
291,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
262,655
|
|
|
|
438,323
|
|
|
|
529,657
|
|
|
|
922,478
|
|
Selling expense
|
|
|
8,237
|
|
|
|
16,224
|
|
|
|
15,041
|
|
|
|
30,137
|
|
Depreciation expense
|
|
|
—
|
|
|
|
69,797
|
|
|
|
—
|
|
|
|
139,595
|
|
Loss from operations
|
|
|
(208,869
|
)
|
|
|
(402,121
|
)
|
|
|
(389,437
|
)
|
|
|
(800,696
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
32,890
|
|
|
|
30
|
|
|
|
65,781
|
|
|
|
72
|
|
Interest expense
|
|
|
(627,075
|
)
|
|
|
(710,821
|
)
|
|
|
(1,294,652
|
)
|
|
|
(1,482,078
|
)
|
Gain on sale of lease
|
|
|
—
|
|
|
|
534,649
|
|
|
|
—
|
|
|
|
534,649
|
|
Extinguishment of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
1,931
|
|
|
|
—
|
|
Change in derivative liabilities
|
|
|
1,166,034
|
|
|
|
(1,551,437
|
)
|
|
|
1,468,038
|
|
|
|
(594,126
|
)
|
Change in value of warrants
|
|
|
(125
|
)
|
|
|
53,498
|
|
|
|
(28
|
)
|
|
|
14,076
|
|
Total other income (loss)
|
|
|
571,724
|
|
|
|
(1,674,081
|
)
|
|
|
241,070
|
|
|
|
(1,527,407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net income (loss)
|
|
|
362,855
|
|
|
|
(2,076,202
|
)
|
|
|
(148,367
|
)
|
|
|
(2,328,103
|
)
|
Accrued dividends and accretion of conversion feature
|
|
|
(32,028
|
)
|
|
|
—
|
|
|
|
(70,896
|
)
|
|
|
|
|
Deemed dividend on preferred stock
|
|
|
(40,125
|
)
|
|
|
—
|
|
|
|
(59,713
|
)
|
|
|
—
|
|
|
|
|
290,702
|
|
|
|
(2,076,202
|
)
|
|
|
(278,976
|
)
|
|
|
(2,328,103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share - basic
|
|
$
|
0.00
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.05
|
)
|
Income (loss) per share - diluted
|
|
$
|
0.00
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
|
|
129,746,795
|
|
|
|
50,469,278
|
|
|
|
128,720,377
|
|
|
|
43,632,529
|
|
Weighted average common shares outstanding - diluted
|
|
|
134,337,021
|
|
|
|
50,469,278
|
|
|
|
126,242,729
|
|
|
|
43,632,529
|
|
See
Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
DIEGO PELLICER WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
DEFICIT
|
|
Redeemable
Convertible Preferred Stock
|
|
Common Stock
|
|
Additional
|
|
Accumulated
|
|
Common
Stock
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Paid-in
Capital
|
|
Deficit
|
|
to
be issued
|
|
Total
|
Balance
- March 31, 2020
|
|
|
195,800
|
|
|
$
|
28,338
|
|
|
|
127,693,963
|
|
|
$
|
128
|
|
|
$
|
43,688,457
|
|
|
$
|
(52,538,580
|
)
|
|
$
|
156,290
|
|
|
$
|
(8,693,705
|
)
|
Common
Stock payable issued for services
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,200
|
|
|
|
10,200
|
|
Common
Stock payable issued for services - related parties
|
|
|
—
|
|
|
|
—
|
|
|
|
2,553,969
|
|
|
|
3
|
|
|
|
65,630
|
|
|
|
—
|
|
|
|
(46,822
|
)
|
|
|
18,808
|
|
Fair
value of warrants and options granted for services
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
40,595
|
|
|
|
—
|
|
|
|
|
|
|
|
40,595
|
|
Conversion
of preferred shares into common shares
|
|
|
(39,048
|
)
|
|
|
(12,176
|
)
|
|
|
4,939,759
|
|
|
|
5
|
|
|
|
86,441
|
|
|
|
—
|
|
|
|
—
|
|
|
|
86,446
|
|
Series
C preferred stock issued for cash, net of costs and discounts
|
|
|
55,800
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Accrued
dividends and accretion of conversion feature on Series preferred stock
|
|
|
—
|
|
|
|
40,125
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(40,125
|
)
|
|
|
—
|
|
|
|
(40,125
|
)
|
Deemed
dividends related to conversion feature of Series C preferred stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(32,028
|
)
|
|
|
—
|
|
|
|
(32,028
|
)
|
Net
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
362,855
|
|
|
|
|
|
|
|
362,855
|
|
Balance
- June 30, 2020
|
|
|
212,552
|
|
|
$
|
56,287
|
|
|
|
135,187,691
|
|
|
$
|
136
|
|
|
$
|
43,881,123
|
|
|
$
|
(52,247,878
|
)
|
|
$
|
119,668
|
|
|
$
|
(8,246,951
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
Convertible Preferred Stock
|
Common Stock
|
|
|
|
Additional
|
|
|
|
Accumulated
|
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Paid-in
Capital
|
|
|
|
Deficit
|
|
|
|
to
be issued
|
|
|
|
Total
|
|
Balance
- March 31, 2019
|
|
|
—
|
|
|
$
|
—
|
|
|
|
43,812,125
|
|
|
$
|
44
|
|
|
$
|
41,678,418
|
|
|
$
|
(49,605,931
|
)
|
|
$
|
579,983
|
|
|
$
|
(7,347,486
|
)
|
Issuance
of common shares for services
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
|
|
|
|
8,250
|
|
|
|
|
|
|
|
2,007
|
|
|
|
10,257
|
|
Issuance
of common shares for services - related parties
|
|
|
|
|
|
|
|
|
|
|
3,611,665
|
|
|
|
4
|
|
|
|
374,054
|
|
|
|
|
|
|
|
(245,138
|
)
|
|
|
128,920
|
|
Common
stock issued upon conversion of notes payable
|
|
|
|
|
|
|
|
|
|
|
7,606,841
|
|
|
|
7
|
|
|
|
233,819
|
|
|
|
|
|
|
|
—
|
|
|
|
233,826
|
|
Shares
cancelled for convertible note
|
|
|
|
|
|
|
|
|
|
|
(675,759
|
)
|
|
|
|
|
|
|
(108,121
|
)
|
|
|
|
|
|
|
108,121
|
|
|
|
—
|
|
Fair
value of warrants and options granted for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,595
|
|
|
|
|
|
|
|
|
|
|
|
40,595
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,076,202
|
)
|
|
|
|
|
|
|
(2,076,202
|
)
|
Balance
- June 30, 2019
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
54,504,872
|
|
|
$
|
55
|
|
|
$
|
42,227,015
|
|
|
$
|
(51,682,133
|
)
|
|
$
|
444,973
|
|
|
$
|
(9,010,090
|
)
|
See
Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
DIEGO PELLICER WORLDWIDE, INC.CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
DEFICIT
|
|
Redeemable
Convertible Preferred Stock
|
|
Common Stock
|
|
Additional
|
|
Accumulated
|
|
Common
Stock
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Paid-in
Capital
|
|
Deficit
|
|
to
be issued
|
|
Total
|
Balance
- December 31, 2019
|
|
|
140,000
|
|
|
$
|
8,750
|
|
|
|
113,926,332
|
|
|
$
|
114
|
|
|
$
|
43,478,139
|
|
|
$
|
(51,968,902
|
)
|
|
$
|
127,261
|
|
|
$
|
(8,363,388
|
)
|
Common
Stock payable issued for services
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,203
|
|
|
|
12,203
|
|
Common
Stock payable issued for services - related parties
|
|
|
—
|
|
|
|
—
|
|
|
|
2,553,969
|
|
|
|
3
|
|
|
|
65,630
|
|
|
|
—
|
|
|
|
(19,796
|
)
|
|
|
45,831
|
|
Issuance
of common shares for services - related parties
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Fair
value of warrants and options granted for services
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
81,190
|
|
|
|
—
|
|
|
|
—
|
|
|
|
81,190
|
|
Common
stock issued upon conversion of notes payable
|
|
|
—
|
|
|
|
—
|
|
|
|
13,767,631
|
|
|
|
14
|
|
|
|
169,723
|
|
|
|
—
|
|
|
|
—
|
|
|
|
169,737
|
|
Series
C preferred stock converted to common stock
|
|
|
(39,048
|
)
|
|
|
(12,176
|
)
|
|
|
4,939,759
|
|
|
|
5
|
|
|
|
86,441
|
|
|
|
—
|
|
|
|
—
|
|
|
|
86,446
|
|
Series
C preferred stock issued for cash, net of costs and discounts
|
|
|
111,600
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
Accrued
dividends and accretion of conversion feature on Series C preferred stock
|
|
|
—
|
|
|
|
59,713
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(59,713
|
)
|
|
|
|
|
|
|
(59,713
|
)
|
Deemed
dividends related to conversion feature of Series C preferred stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(70,896
|
)
|
|
|
|
|
|
|
(70,896
|
)
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(148,367
|
)
|
|
|
|
|
|
|
(148,367
|
)
|
Balance
- June 30, 2020
|
|
|
212,552
|
|
|
$
|
56,287
|
|
|
|
135,187,691
|
|
|
$
|
136
|
|
|
$
|
43,881,123
|
|
|
$
|
(52,247,878
|
)
|
|
$
|
119,668
|
|
|
$
|
(8,246,951
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
Convertible Preferred Stock
|
|
|
|
Common Stock
|
|
|
|
Additional
|
|
|
|
Accumulated
|
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Paid-in
Capital
|
|
|
|
Deficit
|
|
|
|
to
be issued
|
|
|
|
Total
|
|
Balance
- December 31, 2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
28,287,414
|
|
|
$
|
28
|
|
|
$
|
40,378,973
|
|
|
$
|
(49,354,030
|
)
|
|
$
|
710,838
|
|
|
$
|
(8,264,191
|
)
|
Issuance
of common shares for services
|
|
|
|
|
|
|
|
|
|
|
2,997,250
|
|
|
|
3
|
|
|
|
373,125
|
|
|
|
|
|
|
|
(310,847
|
)
|
|
|
62,281
|
|
Issuance
of common shares for services - related parties
|
|
|
|
|
|
|
|
|
|
|
3,611,665
|
|
|
|
4
|
|
|
|
374,054
|
|
|
|
|
|
|
|
69,879
|
|
|
|
443,937
|
|
Common
stock issued upon conversion of notes payable
|
|
|
|
|
|
|
|
|
|
|
20,284,302
|
|
|
|
20
|
|
|
|
1,127,794
|
|
|
|
|
|
|
|
(133,018
|
)
|
|
|
994,796
|
|
Fair
value of warrants and options granted for services
|
|
|
|
|
|
|
|
|
|
|
(675,759
|
)
|
|
|
|
|
|
|
(108,121
|
)
|
|
|
|
|
|
|
108,121
|
|
|
|
—
|
|
Grants
and options granted for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,190
|
|
|
|
|
|
|
|
|
|
|
|
81,190
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,328,103
|
)
|
|
|
|
|
|
|
(2,328,103
|
)
|
Balance
- June 30, 2019
|
|
|
—
|
|
|
$
|
—
|
|
|
|
54,504,872
|
|
|
$
|
55
|
|
|
$
|
42,227,015
|
|
|
$
|
(51,682,133
|
)
|
|
$
|
444,973
|
|
|
$
|
(9,010,090
|
)
|
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, 2020
|
|
June 30, 2019
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(148,367
|
)
|
|
$
|
(2,328,103
|
)
|
Adjustments to reconcile net income (loss) to net
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
—
|
|
|
|
139,595
|
|
Change in fair value of derivative liability
|
|
|
(1,468,038
|
)
|
|
|
594,126
|
|
Change in value of warrants
|
|
|
28
|
|
|
|
(14,076
|
)
|
Amortization of debt related cost
|
|
|
916,804
|
|
|
|
948,990
|
|
Gain related to additional derivative liability
|
|
|
206,283
|
|
|
|
—
|
|
Extinguishment of debt
|
|
|
(1,931
|
)
|
|
|
350,594
|
|
Stock based compensation
|
|
|
127,027
|
|
|
|
537,408
|
|
Common Stock payable issued for services
|
|
|
12,203
|
|
|
|
—
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(132,372
|
)
|
|
|
(683,496
|
)
|
Prepaid expenses
|
|
|
12,111
|
|
|
|
54,170
|
|
Deferred rent receivable
|
|
|
—
|
|
|
|
—
|
|
Other receivables
|
|
|
(242,102
|
)
|
|
|
(39,776
|
)
|
Accounts payable
|
|
|
(13,373
|
)
|
|
|
(38,504
|
)
|
Accrued liability - related parties
|
|
|
47,522
|
|
|
|
171,023
|
|
Accrued expenses
|
|
|
158,694
|
|
|
|
127,515
|
|
Lease liabilities
|
|
|
(5,633
|
)
|
|
|
—
|
|
Contingent liabilities
|
|
|
—
|
|
|
|
(64,810
|
)
|
|
|
|
|
|
|
|
|
|
Cash used by operating activities
|
|
|
(531,144
|
)
|
|
|
(452,172
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Debt costs
|
|
|
—
|
|
|
|
(16,225
|
)
|
Proceeds from notes payable
|
|
|
56,444
|
|
|
|
—
|
|
Proceeds from convertible notes payable
|
|
|
100,000
|
|
|
|
517,725
|
|
Repayments of convertible notes payable
|
|
|
(2,500
|
)
|
|
|
—
|
|
Proceeds from sale of Preferred Stock, net
|
|
|
100,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities
|
|
|
253,944
|
|
|
|
501,500
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(277,200
|
)
|
|
|
49,328
|
|
Cash, beginning of period
|
|
|
317,446
|
|
|
|
60,437
|
|
Cash, end of period
|
|
$
|
40,248
|
|
|
$
|
109,765
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
—
|
|
|
$
|
—
|
|
Cash paid for taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of noncash financial activities:
|
|
|
|
|
|
|
|
|
Notes converted to stock
|
|
$
|
89,000
|
|
|
$
|
601,212
|
|
Discount related to convertible notes and Preferred C shares
|
|
$
|
200,000
|
|
|
|
—
|
|
Accrued interest converted to stock
|
|
$
|
6,282
|
|
|
$
|
41,560
|
|
Value of derivative liability extinguished upon conversion and pay off of notes and accrued interest
|
|
$
|
101,746
|
|
|
$
|
678,797
|
|
Value of derivative liability extinguished upon conversion and pay off of preferred stock
|
|
$
|
74,270
|
|
|
$
|
—
|
|
Accounts payable and accrued expenses paid with common stock
|
|
$
|
—
|
|
|
$
|
50,000
|
|
Note issue discount
|
|
$
|
—
|
|
|
$
|
541,725
|
|
$ Debt issuance costs deducted from proceeds of notes
|
|
$
|
—
|
|
|
$
|
16,225
|
|
Debt discount extinguished from note conversion
|
|
$
|
25,377
|
|
|
$
|
—
|
|
Conversion of Preferred Stock for Common Stock
|
|
$
|
12,176
|
|
|
$
|
—
|
|
Accrued dividends and accretion of conversion feature on Series C preferred stock
|
|
$
|
59,713
|
|
|
$
|
—
|
|
Deemed dividends related to conversion feature of Series C preferred stock
|
|
$
|
70,896
|
|
|
$
|
—
|
|
See
Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Diego
Pellicer Worldwide, Inc.
June
30, 2020 and 2019
Notes
to the Condensed Consolidated Financial Statements
Note
1 – Organization and Operations
History
On
March 13, 2015, Diego Pellicer Worldwide, Inc. (the Company) (f/k/a Type 1 Media, Inc.) closed on a merger and share exchange
agreement by and among (i) the Company, and (ii) Diego Pellicer World-wide 1, 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. The Company succeeded to and assumed all the rights, assets, liabilities,
debts, and obligations of Diego.
Prior
to the merger, 3,135,000 shares of Type 1 Media, Inc. were issued and outstanding. The principal owners of the Company agreed
to transfer their 2,750,000 issued and outstanding shares to a third party in consideration for $169,000 and cancellation of their
2,750,000 shares. The remaining issued and outstanding shares are still available for trading in the marketplace. At the time
of the merger, Type 1 Media, Inc. had no assets or liabilities. Accordingly, the business conducted by Type 1 prior to the merger
is not being operated by the combined entity post-merger.
At
the closing of the merger, Diego common stock issued and outstanding immediately prior to the closing of the merger was exchanged
for the right to receive one share of the surviving corporation for each share of Diego. An aggregate of 1,081,613 common shares
of the surviving corporation were issued to the holders of Diego in exchange for their common shares representing approximately
74% of the combined entity.
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 corporation.
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.
The
properties generating rents in 2019 and 2020 are as follows:
Purpose
|
|
Size
|
|
City
|
|
State
|
Retail store (recreational
and medical)
|
|
3,300 sq.
|
|
Denver
|
|
CO
|
Cultivation warehouse
|
|
18,600 sq.
|
|
Denver
|
|
CO
|
Cultivation warehouse
|
|
14,800 sq.
|
|
Denver
|
|
CO
|
Retail store (recreational
and medical) - Sold in May 2019
|
|
4,500 sq.
|
|
Seattle
|
|
WA
|
The
Company’s three properties in Denver, CO are leased to Royal Asset Management, LLC (“Royal Asset Management”).
Royal Asset Management opened the Diego Denver branded flagship store in February 2017. This store known as “Diego Colorado”.
The retail facilities have shown steady growth in sales since opening. For the other two properties subleased, Royal Asset Management
uses these properties for its cultivation facilities in Denver, CO. Production at these facilities began in late 2016. The Company
is currently exploring the acquisition of this entity, and the parties are in negotiation.
In
regards to the Seattle property, on May 6, 2019, the Company entered into an agreement with a third party, and sold the Seattle
leased location. The sale provided $550,000 in capital and executive resources for expansion which the company allocated to its
efforts in a new location and cannabis grow facilities in Colorado.
Note
2 - Significant and Critical 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 consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission (the “SEC”) and presented in accordance with accounting principles generally
accepted in the United States of America (US GAAP).
The
accompanying consolidated balance sheet at December 31, 2019, has been derived from audited consolidated financial statements,
but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S.
GAAP”). The accompanying unaudited condensed consolidated financial statements as of June 30, 2020 and for the six months
ended June 30, 2020 and 2019, have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions
to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by
U.S. GAAP for complete financial statements, and should be read in conjunction with the audited consolidated financial statements
and related notes to the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2019 as filed with the U.S. Securities and Exchange Commission (“SEC”) on the opinion of management, all material
adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been made to the condensed
consolidated financial statements. The condensed consolidated financial statements include all material adjustments (consisting
of normal recurring accruals) necessary to make the condensed consolidated financial statements not misleading as required by
Regulation S-X Rule 10-01. Operating results for the six months ended June 30, 2020 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2020 or any future periods.
Principles
of Consolidation
The
financial statements include the accounts of Diego Pellicer Worldwide, Inc., and its wholly-owned subsidiary Diego Pellicer World-wide
1, Inc. Intercompany balances and transactions have been eliminated in consolidation.
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, the collectability of accounts receivable and other receivables (See Note 5),
valuation of right of use assets and lease liabilities 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 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, 2020 and December 31, 2019. 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.
The
following table reflects assets and liabilities that are measured at fair value on a recurring basis (in thousands):
As
of June 30, 2020
|
|
Fair
Value Measurement Using
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level
3
|
|
Total
|
Derivative
liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,856
|
|
|
$
|
3,856
|
|
Stock
warrant liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
1
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,857
|
|
|
$
|
3,857
|
|
As
of December 31, 2019
|
|
Fair
Value Measurement Using
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level
3
|
|
|
Total
|
|
Derivative
Liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,024
|
|
|
$
|
5,024
|
|
Stock
warrant Liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
1
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,025
|
|
|
$
|
5,025
|
|
Derivative
liabilities and stock warrant liabilities were valued using the Binomial Option Pricing Model in calculating the embedded conversion
features for the six months ended June 30, 2020 and the year ended December 31, 2019.
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.
Revenue
recognition
In
accordance with ASC 842, Leases , the Company recognizes rent income on a straight-line basis over the lease
term to the extent that collection is considered probable.
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. Management may be required to exercise considerable judgment in estimating
revenue to be recognized.
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.
The
Company has adopted the new revenue recognition guidelines in accordance with ASC 606, Revenue from Contracts with Customers (ASC
606), commencing from January 1, 2019. The adoption of ASU 2016-10 did not have a material impact on the financial statements
and related disclosures since the Company is primarily a lessor for revenue purposes and recognizes rent income under ASC 842, Leases.
The
Company analyzes its contracts to assess that they are within the scope and in accordance with ASC 606. In determining the appropriate
amount of revenue to be recognized as the Company fulfills its obligations under each of its agreements, whether for goods and
services or licensing, the Company performs the following steps: (i) identification of the promised goods or services in the contract;
(ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in
the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv)
allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue
when (or as) the Company satisfies each performance obligation.
Advertising
During
the six months ended June 30, 2020 and 2019, advertising expense was $15,041 and $30,134, respectively.
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.
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.
The adoption of new standard did not have a material impact on the Company’s Consolidated Financial Statements.
Income
(loss) per common share
The Company utilizes
ASC 260, “Earnings per Share” for calculating the basic and diluted loss per share. In accordance with ASC 260, the
basic and diluted loss per share is computed by dividing net loss available to common stockholders by the weighted average number
of common shares outstanding. Diluted net loss per share is computed similar to basic loss per share except that the denominator
is adjusted for the potential dilution that could occur if stock options, warrants, and other convertible securities were exercised
or converted into common stock. Potentially dilutive securities are not included in the calculation of the diluted loss per share
if their effect would be anti-dilutive. The Company has 699,197,733 and
379,881,301 common stock equivalents at June 30, 2020 and 2019, respectively. For the six months ended June 30, 2020, the potential
shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would reduce net loss per
share. For the three months ended June 30, 2020,
the Company was in a net income position and fully diluted earnings per share has been updated accordingly.
Legal
and regulatory environment
The
cannabis industry is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations
include, but are not limited to, matters such as licensure, accreditation, and different taxation between federal and state. Federal
government activity may increase in the future with respect to companies involved in the cannabis industry concerning possible
violations of federal statutes and regulations.
Management
believes that the Company is in compliance with local, state and federal regulations, while no regulatory inquiries have been
made, compliance with such laws and regulations can be subject to future government review and interpretation, as well as regulatory
actions unknown or unasserted at this time.
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 $ 10,105,123, and has an accumulated
deficit of $52,247,878 at June 30, 2020. These factors raise substantial doubt about its ability to continue as a going concern
over the next twelve months. The financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
There
are 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 inability 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. 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. However, cash generated from lease revenues is currently exceeding lease costs, but is insufficient
to cover operating expenses.
Note
4 - Property and Equipment
As
of June 30, 2020 and December 31, 2019, fixed assets and the estimated lives used in the computation of depreciation are as follows:
|
|
Estimated
|
|
June
30,
|
|
|
December
31,
|
|
|
|
Useful
Lives
|
|
2020
|
|
|
2019
|
|
Leasehold
improvements
|
|
10 years
|
|
|
515,450
|
|
|
|
515,450
|
|
Less:
Accumulated depreciation and amortization
|
|
|
|
|
(515,450
|
)
|
|
|
(515,450
|
)
|
Property
and equipment, net
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
During
the six months ended June 30, 2020 and 2019, the Company recorded depreciation expense of $0 and $139,595, respectively.
Note
5 – Accounts Receivables and Other Receivables
As
disclosed in Note 1, the Company subleases three properties in Colorado to Royal Asset Management. At June 30, 2020, the Company
had outstanding receivables from the subleases totaling $5 23,645, and during the three months ended June 30, 2020,
the Company’s subleases with Royal Asset Management accounted for 100% of the Company’s revenues.
In
addition to the receivables from the subleases, the Company has agreed to provide Royal Asset Management and affiliates of Royal
Asset Management up to aggregate amount of $1,030,000 in financing. These notes accrue interest at the rates ranging from 12%
to 18% per annum. As of June 30, 2020 and December 31, 2019, the outstanding balance of these notes receivable total $1,259,247
and $1,017,143, respectively, including accrued interest of $219,201 and $153,509. The amount presented in our balance sheet is
$1,030,281 and $788,177, which represents the $1,259,247 and $1,017,143 due to us, less $228,966 and $228,966 that we owe
to Royal Asset Management for leasehold improvements. The notes are secured by a UCC filing and also $400,000 of the balance is
personally guaranteed by the managing member of Royal Asset Management. During the six months ended June 30, 2020, we loaned an
additional $242,104 under these contracts.
If
we do acquire Royal Asset Management, part of the purchase price will be paid through receivables that are owed to us.
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. On May 6, 2019, $20,000 security deposit related to the Seattle leased
location were expensed due to the sale of the Seattle leased location. As of June 30, 2020 and December 31, 2019, the remaining
balance was $150,000 and $150,000, respectively.
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. During the year ended December 31, 2019, we adopted ASC Topic 842, Leases,
as the result we reclassified remaining balance of prepaid rent to right of use assets and leases liabilities. As of June
30, 2020 and December 31, 2019, the remaining balance was $0.
Note
7 – Related Party Transactions
As
of June 30, 2020 and December 31, 2019, the Company has accrued compensation to CEO, CFO and Director in the amount of $235,997,
and $155,841, respectively. As of June 30, 2020 and December 31, 2019, accrued payable due to former officers were $1,104,763
and $1,137,397. For the three months ended June 30, 2020 and June 30, 2019, total cash-based compensation to related parties was
$90,000 and $148,199 respectively. For the six months ended June 30, 2020 and 2019, total cash-based compensation to related
parties was $180,000 and $257,498 , respectively. For the three months ended June 30, 2020 and June 30, 2019, total
share-based compensation to related parties was $59,406 and $169,515, respectively. For the six months ended June 30, 2020 and
2019, total share-based compensation to related parties was $127,027 and $525,126 respectively. These amounts are included in
general and administrative expenses in the accompanying financial statements.
From
2017 to 2019, Mr . Gonfiantini, CEO, personally and through his Company, Crystal Bay Financial LLC, loaned an aggregate amount
of $1,020,000 to Royal Asset Management. These notes accrue interest at 17%-18% per annum, and require monthly payment approximately
from $5,000 to $20,000. These notes are personally guaranteed by the managing member of Royal Asset Management, and secured by
certain equipment and other tangible properties of Royal Asset Management. Among these notes, $500,000 note was also secured by
the medical marijuana licenses held by Royal Asset Management.
At June 30, 2020,
the Company owed Mr. Throgmartin, former CEO (See Note 11), $140,958 pursuant to a promissory note dated August 12, 2016. This
note accrued interest at the rate of 8% per annum and was payable upon the earlier date of (i) the second anniversary date of the
promissory notes, (ii) the date all of the current investor notes, in the outstanding aggregate principal and accrued interest
amount of approximately $1,480,000 at September 30, 2016, have been paid in full and the Company has achieved gross revenues of
at least $3,000,000 over any consecutive 12-month period. The balance of related party note was $140,958 and $140,958 at June 30,
2020 and December 31, 2019, respectively. As of June 30, 2020, the note was past the maturity date, however the Company has not
yet received a default notice.
Note
8 – Notes Payable
On
August 31, 2015, the Company issued a note in the 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 June 30,
2020 and December 31, 2019 the outstanding principal balance of the note was $133,403. As of June 30, 2020, the note was past
the maturity date, however the Company has not yet received a default notice.
On
April 22, 2020, the Company was granted a loan from Numerica Credit Union, in the aggregate amount of $56,444, pursuant to the
Paycheck Protection Program, (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020.
The loan, which was in the form of a note dated April 22, 2020 issued by the Borrower, matures on April 22, 2022 and bears interest
at a rate of 1.0% per annum, payable monthly commencing October 22, 2020. The loan may be prepaid by the Borrower at any time
prior to maturity with no prepayment penalty. Funds from the Loan may only be used for payroll costs, costs used to continue group
health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before February 15,
2020. The Company intends to use the entire Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of
the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.
Note
9 – Convertible Notes Payable
The Company has issued
several convertible notes which are outstanding. The note holders shall have the right to convert principal and accrued interest
outstanding into shares of common stock at a discounted price to the market price of our common stock. The conversion feature was
recognized as an embedded derivative and was valued using a Binomial Option Pricing Model that resulted in a derivative liability
of $3,588,134 and $4,834,190 at June 30, 2020 and December 31, 2019, respectively. All notes accrue interest ranging from 8% to
12% and will mature in 2020. In connection with the issuance of certain of these notes, the Company also issued warrants
to purchase its common stock.
Several
convertible note holders elected to convert their notes to stock during the three months ended June 30, 2020. The table below
provides the note payable activity for the six months ended June 30, 2020, and also a reconciliation of the beginning and ending
balances for the derivative liabilities measured using fair significant unobservable inputs (Level 3) for the six months ended
June 30, 2020:
|
|
Convertible Notes
|
|
Discount
|
|
Convertible Notes, Net of Discount
|
|
Derivative Liabilities
|
Balance, December 31, 2019
|
|
$
|
3,266,775
|
|
|
$
|
914,245
|
|
|
$
|
2,352,530
|
|
|
$
|
4,834,190
|
|
Issuance of convertible notes
|
|
|
103,000
|
|
|
|
103,000
|
|
|
|
—
|
|
|
|
309,251
|
|
Conversion of convertible notes
|
|
|
(89,000
|
)
|
|
|
(25,377
|
)
|
|
|
(63,623
|
)
|
|
|
(97,848
|
)
|
Repayment of convertible notes
|
|
|
(2,500
|
)
|
|
|
—
|
|
|
|
(2,500
|
)
|
|
|
—
|
|
Change in fair value of derivatives
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,457,459
|
)
|
Amortization
|
|
|
—
|
|
|
|
(916,804
|
)
|
|
|
916,804
|
|
|
|
—
|
|
Balance June 30, 2020
|
|
$
|
3,278,275
|
|
|
$
|
75,064
|
|
|
$
|
3,203,211
|
|
|
$
|
3,588,134
|
|
During the six months
ended June 30, 2020, the Company entered into a convertible note in an aggregate amount of $103,000 which is a twelve months maturity,
bearing 12% interest per annum. The note is convertible at 35% discount to the average of the two lowest Volume Weighted Average
Prices (VWAPs) during the previous ten (10) trading days to the date of a Conversion Notice. The conversion features related were
determined in the amount of $135,710 using Binomial Option Pricing Model.
During the six months
ended June 30, 2020, $2,500 of note principal and $819 of accrued interest were repaid to a debt holder.
During the six months
ended June 30, 2020, $89,000 of notes, $6,282 of accrued interest and $210 additional fee was converted into 13,767,631
shares of common stock. A loss on extinguishment of debt of $1,931, extinguishment of debt discount of $25,377 and reduction of
derivative liabilities of $97,838 have been recorded related to these conversions. As of June 30, 2020, several convertible notes
in aggregate principal of $3,175,275 were past their maturity dates, however the Company has not yet received a default notice.
On
July 17, 2018, the Company entered into a certain Equity and Debt Restructure Agreement with two, long-time investors in the Company
(the “Restructure Agreement”). Pursuant to the material terms of the Restructure Agreement, the investors agreed to
return and cancel their collective 2,774,093 restricted Company common shares, which had been received from the prior conversion
of their older convertible notes, in exchange for the Company’s issue to them recast convertible promissory notes. Accordingly,
on the same date, these investors were each issued a First Priority Secured Promissory Note (the “Note” or “Notes”),
in the principal amount of $1,683,558 and $545,607, respectively. In connection with this transaction, one of these investors
agreed to loan the Company an additional $700,000. In 2018, the Company has received $220,000 cash proceeds of the additional
$700,000 loan. Fair value of 2,774,093 restricted Company common shares were determined in the amount of $443,855 using market
price and fair value of the embedded conversion feature were determined in the amount of $3,555,888 using Black Sholes Merton
Option Model. As the result of the transaction, the Company recorded $2,892,033 in financing costs, and $2,449,275 as debt discount
during year ended December 31, 2018. On March 29, 2019, the Company received $100,000 cash proceeds from the additional $700,000
loan. The conversion feature related to $100,000 were determined in the amount of $154,861 using Binomial Option Pricing Model.
During year ended December 31, 2019, the Company received $380,000 cash proceeds from the additional $700,000 loan. The conversion
feature related to $380,0000 were determined in the amount of $586,710 using Binomial Option Pricing Model. During the year ended
December 31, 2019, we recorded $206,710 loss related to financing costs and $380,000 as debt discount.
The
following assumptions were used in the Binomial Option Pricing Model in calculating the embedded conversion features and current
liabilities for the six months ended June 30, 2020 and 2019.
|
|
June
30, 2020
|
|
June
30, 2019
|
Risk-free interest
rates
|
|
0.11 – 1.58%
|
|
1.92%
|
Expected life (years)
|
|
0.25 – 1.00
|
|
0.08 – 1.25
|
Expected
dividends
|
|
0%
|
|
0%
|
Expected volatility
|
|
164 - 214%
|
|
70 - 557%
|
Note
10 – Stockholders’ Equity (Deficit)
Series
C Preferred Stock
On
December 16, 2019, Diego Pellicer Worldwide sold 140,000 of its Series C Convertible Preferred Shares, with an annual accruing
dividend of 10%, to Geneva Roth Remark Holdings, Inc. (“Geneva”), for $130,000 pursuant to a Series C Preferred Purchase
Agreement with Geneva. To accommodate this transaction, Registrant’s Board of Directors approved and filed a certain Certificate
of Designations with the Secretary of State of Delaware, designating 1,500,000 of its available preferred shares as Series C Preferred
Convertible Stock, Stated Value of $1.00 per share, and with a par value of $0.0001 per share. This Certificate of Designations
provides Registrant with the opportunity to redeem the Series C Shares at various increased prices at time intervals up to the
6-month anniversary of the closing and mandates full redemption on the 24-month anniversary. Geneva may convert the Series C Shares
into Registrant’s common shares, commencing on the 6-month anniversary of the closing at a 30% discount to the public market
price. The Company recorded a derivative liability of $165,218, valued using a Binomial Option Pricing Model, associated with
Series C Preferred Shares. On December 31, 2019, the fair value of the conversion feature was a derivative liability of $190,131,
valued using a Binomial Option Pricing Model, associated with Series C Preferred Shares. The Series C Preferred Stock is classified
as temporary equity due to that the shares are immediately convertible at the option of the note holder. During the year ended
Decembers 31, 2019, we recorded $8,750 accretion of discount. As of December 31, 2019, there were 140,000 shares outstanding and
a discount of $131,250. On June 16, 2020, a total of 39,048 shares of Series C Preferred Stock along with related discount of
$26,872 were converted to 4,939,759 shares of Common Stock per the terms of the Agreement. On June 30, 2020, the fair value of
the remaining conversion feature was a derivative liability of $116,880, valued using a Binomial Option Pricing Model, associated
with Series C Preferred Shares. During the six months ended June 30, 2020, we recorded $34,904 accretion of discount and $6,831
of accrued dividend. As of June 30, 2020, there were 100,952 shares outstanding and a discount of $69,474.
On
March 3, 2020, Diego Pellicer Worldwide sold 55,800 of its Series C Convertible Preferred Shares, with an annual accruing dividend
of 10%, to Geneva Roth Remark Holdings, Inc. (“Geneva”), for $50,000 pursuant to a Series C Preferred Purchase Agreement
with Geneva. The Company recorded a derivative liability of $88,868 valued using a Binomial Option Pricing Model, associated with
Series C Preferred Shares. On June 30, 2020, the fair value of the conversion feature was a derivative liability of $75,652, valued
using a Binomial Option Pricing Model, associated with Series C Preferred Shares. The Series C Preferred Stock is classified as
temporary equity due to that the shares are immediately convertible at the option of the note holder. During the six months ended
June 30, 2020, we recorded $9,096 accretion of discount and $1,819 of accrued dividend. As of June 30, 2020, there were 55,800
shares outstanding and a discount of $46,704.
On
April 14, 2020, Diego Pellicer Worldwide sold 55,800 of its Series C Convertible Preferred Shares, with an annual accruing dividend
of 10%, to Geneva Roth Remark Holdings, Inc. (“Geneva”), for $50,000 pursuant to a Series C Preferred Purchase Agreement
with Geneva. The Company recorded a derivative liability of $82,028 valued
using a Binomial Option Pricing Model, associated with Series C Preferred Shares. On June 30, 2020, the fair value of the conversion
feature was a derivative liability of $75,718, valued using a Binomial Option Pricing Model, associated with Series C Preferred
Shares. The Series C Preferred Stock is classified as temporary equity due to that the shares are immediately convertible at the
option of the note holder. During the six months ended June 30, 2020, we recorded $5,886 accretion of discount and $1,177 of accrued
dividend. As of June 30, 2020, there were 55,800 shares outstanding and a discount of $49,914.
|
|
Preferred Stock
|
|
Discount
|
|
Preferred Stock, Net of Discount
|
|
Derivative Liabilities
|
Balance, December 31, 2019
|
|
$
|
140,000
|
|
|
$
|
131,250
|
|
|
$
|
8,750
|
|
|
$
|
190,131
|
|
Issuance of Series C Preferred shares
|
|
|
111,600
|
|
|
|
111,600
|
|
|
|
—
|
|
|
|
164,586
|
|
Conversion of Series C Preferred shares
|
|
|
(39,048
|
)
|
|
|
(26,872
|
)
|
|
|
(12,176
|
)
|
|
|
(96,968
|
)
|
Accrued dividends on Series C preferred stock
|
|
|
—
|
|
|
|
—
|
|
|
|
9,827
|
|
|
|
—
|
|
Accretion of conversion feature on Series C preferred stock
|
|
|
—
|
|
|
|
—
|
|
|
|
49,886
|
|
|
|
—
|
|
Change in fair value of derivatives
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,551
|
|
Balance June 30, 2020
|
|
$
|
212,552
|
|
|
$
|
215,978
|
|
|
$
|
56,287
|
|
|
$
|
268,300
|
|
The
following assumptions were used in the Binomial Option Pricing Model in calculating the embedded conversion features and current
liabilities for the three months ended June 30, 2020 and the year ended December 31, 2019.
|
|
June
30, 2020
|
|
June
30, 2019
|
Risk-free interest
rates
|
|
0.16 – 0.71%
|
|
1.53 – 2.60%
|
Expected life (years)
|
|
1.45 – 2.00
|
|
0.08 – 1.25
|
Expected
dividends
|
|
0%
|
|
0%
|
Expected volatility
|
|
172 – 262%
|
|
70 - 557%
|
Common Shares
During
the six months ended June 30, 2020, $89,000 of notes, $6,282 of accrued interest and $210 additional fee was converted into
13,767,631 shares of common stock. A loss on extinguishment of debt of $1,931, extinguishment of debt discount of $25,377
and reduction of derivative liabilities of $97,838 have been recorded related to these conversions. As of June 30, 2020, 35,844
shares, valued at $35,844 for debt conversion were authorized, but not issued as of June 30, 2020.
During
the six months ended June 30, 2020, 2,553,969 shares of common stock were issued for related party services valued at $65,633.
These shares have been removed from shares to be issued as of June 30, 2020.
During the six months ended June 30, 2020,
4,939,759 shares of common stock were issued as a result of the conversion of 39,048 shares of Series C Preferred shares.
As
of June 30, 2020, 1,442,004 shares, valued at $59,645 for services were authorized, but not issued as of June 30, 2020. These
were classified as shares to be issued at June 30, 2020.
Common
stock warrant activity:
The
Company has determined that certain of its warrants are subject to derivative accounting. The table below provides a reconciliation
of the beginning and ending balances for the warrant liabilities measured using fair significant unobservable inputs (Level 3)
for the six months ended June 30, 2020:
Balance at December 31, 2019
|
|
$
|
967
|
|
Issuance of warrants
|
|
|
—
|
|
Change
in fair value during period
|
|
|
28
|
|
Balance at June
30, 2020
|
|
$
|
995
|
|
The
following assumptions were used in calculations of the Binomial Option Pricing Model for the periods ended June 30, 2020 and the
year ended December 31, 2019.
|
|
June
30, 2020
|
|
December 31,
2019
|
Annual
dividend yield
|
|
0%
|
|
0%
|
Expected life (years)
|
|
0.17-7.13
|
|
0.42 – 8.13
|
Risk-free interest
rate
|
|
0.11 – 0.55%
|
|
1.56 – 2.40%
|
Expected volatility
|
|
172 - 262%
|
|
165 - 318%
|
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, 2019
|
|
|
211,826
|
|
|
$
|
10.08
|
|
|
|
3.51
|
|
Expired
|
|
|
(71,250
|
)
|
|
|
30.00
|
|
|
|
-
|
|
Balance outstanding,
June 30, 2020
|
|
|
140,576
|
|
|
$
|
10.08
|
|
|
|
3.51
|
|
Exercisable, June
30, 2020
|
|
|
140,576
|
|
|
$
|
10.08
|
|
|
|
3.51
|
|
Common
stock option activity:
The
Company maintains an Equity Incentive Plan pursuant of which 124,000 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, 2020, 88,750 shares had been granted, with 10,000 of those shares granted with warrants attached.
There remain 35,250 shares available for future grants.
During the six months
ended June 30, 2020 and 2019, the Company recorded total option expense of $81,190 . Unamortized stock option expense at June
30, 2020 is $5,416, which will be charged to expense in remaining months of 2020. The aggregate intrinsic value of stock options
outstanding at June 30, 2020 is $0.
The
following represents a summary of all common stock option activity:
|
|
Number
of
Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual Term
|
|
Balance outstanding, December
31, 2019
|
|
|
172,479
|
|
|
$
|
5.29
|
|
|
|
5.47
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Balance outstanding,
June 30, 2020
|
|
|
172,479
|
|
|
$
|
5.25
|
|
|
|
5.22
|
|
Exercisable, June
30, 2020
|
|
|
162,479
|
|
|
$
|
5.25
|
|
|
|
5.47
|
|
Note
11 – COMMITMENTS AND CONTINGENCIES
Leases
The
Company leases property under operating leases. Property leases include retail and warehouse space with fixed rent payments and
lease terms ranging from three to five years. The Company is obligated to pay the lessor for maintenance, real estate taxes, insurance
and other operating expenses on certain property leases. These expenses are variable and are not included in the measurement of
the lease asset or lease liability. These expenses are recognized as variable lease expense when incurred.
The
Company records the lease asset and lease liability at the present value of lease payments over the lease term. The leases typically
do not provide an implicit rate; therefore, the Company uses its estimated incremental borrowing rate at the time of lease commencement
to discount the present value of lease payments. The Company’s discount rate for operating leases at June 30, 2020 was 12%.
Leases often include rental escalation clauses, renewal options and/or termination options that are factored into the determination
of lease payments when appropriate. Lease expense is recognized on a straight-line basis over the lease term to the extent that
collection is considered probable. As a result the Company been recognizing rents as they become payable. Our weighted-average
remaining lease term is 3.99 years.
As
of June 30, 2020, the maturities of operating leases liabilities are as follows (in thousands):
|
|
Operating
Leases
|
|
2020
|
|
$
|
482
|
|
2021
|
|
|
863
|
|
2022
|
|
|
719
|
|
2023
|
|
|
733
|
|
2024
|
|
|
445
|
|
2025
and beyond
|
|
|
45
|
|
Total
|
|
|
3,287
|
|
Less: amount representing
interest
|
|
|
(651
|
)
|
Present value of future
minimum lease payments
|
|
|
2,636
|
|
Less:
current obligations under leases
|
|
|
695
|
|
Long-term
lease obligations
|
|
$
|
1,941
|
|
Rent
expense is recognized on a straight-line basis over the life of the lease. Rent expense consists of the following:
|
Six
months ended
|
|
June
30, 2020
|
Operating
lease costs
|
$
|
498,453
|
|
Variable rent costs
|
75,166
|
|
Total
rent expense
|
$
|
573,619
|
|
Other
information related to leases is as follows:
|
Three
months ended
|
|
June
30, 2020
|
Other information:
|
|
Cash paid for amounts
included in the measurement of lease liabilities:
|
|
Operating
cash flows from operating leases
|
$
|
504,086
|
|
Weighted-average
remaining lease term - operating leases
|
4.24
|
yr
|
Weighted-average discount
rate - operating leases
|
12
|
%
|
The
Company recognized sublease income of $728,880 and $648,542 during the six months ended June 30, 2020 and 2019, respectively.
These
three leases have three to five years terms with optional extension, expiration dates range from July 2021 to June 2025, and monthly
base rent approximately $20,000-$40,000 plus variable triple net.
As
of June 30, 2020, the maturities of expected base sublease income are as follows (in thousands):
|
|
|
Operating
Leases
|
|
Remaining
of 2020
|
|
$
|
655
|
|
2021
|
|
|
1,154
|
|
2022
|
|
|
930
|
|
2023
|
|
|
944
|
|
2024
|
|
|
589
|
|
2025
and beyond
|
|
|
57
|
|
Total
|
|
$
|
4,329
|
|
Employment
Agreements
As
a condition of their employment, the Board of Directors approved employment agreements with three key executives. These 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. Nello Gofiniatini III, who became the Company’s
CEO in October 2019 receives an annual grant of additional shares each year to maintain his ownership percentage at 10% of the
outstanding stock. The Company’s CFO received a similar grant each to maintain his ownership percentage at 2% of the
outstanding stock. In addition, prior to his departure in October 2019, Ron Throgmartin, the Company’s previous CEO,
would receive a grant of additional shares to maintain his ownership at 7.5% of the Company’s outstanding stock. During the
six months ended June 30, 2020, the Company accrued compensation expense of approximately $45,837 on 2,244,887 shares of common
stock under these agreements. During the year ended December 31, 2019, the Company accrued
compensation expense of approximately $593,000 on 20,782,014 shares of common stock under these agreements.
As of June 30, 2020 and December 31, 2019, the ending balance of accrued
compensation was $60,022 and $79,817, respectively.
During
the three and six months ending June 30, 2020 and 2019, the Company accrued compensation expenses as follows:
|
|
Three Months ending June 30, 2020
|
|
Three Months ending June 30, 2019
|
|
Six Months ending June 30, 2020
|
|
Six Months ending June 30, 2019
|
|
Compensation
|
|
|
$
|
18,811
|
|
|
$
|
128,920
|
|
|
$
|
45,837
|
|
|
$
|
443,936
|
|
|
Number of Shares
|
|
|
|
592,771
|
|
|
|
4,334,596
|
|
|
|
2,244,887
|
|
|
|
8,715,105
|
|
Departure
of Executive Officer
On January 30, 2019,
the Company executed a Separation Agreement and Release with David Thompson, its former Senior Vice President- Finance, finalizing
his departure from the Company as an employee. Pursuant to its material terms, the Company agreed to pay Mr. Thompson aggregate
cash payments of $206,250 , based upon the Company’s receipt of certain gross sales receipts derived from its Alameda
Store in Colorado, and certain stock grants based upon the Company’s outstanding common shares as of February 1, 2019, including
a stock grant of 53,717 restricted common shares for accrued salary and 122,934 restricted common shares in exchange for his approximate
122,000 of stock options. During the three and six months ended June 30, 2020, $7,634 was paid under this agreement. During the
three and six months ended June 30, 2019 no amounts were paid under this agreement. As of June 30, 2020 and December 31, 2019,
the outstanding balance was $189,166 and $196,800, respectively, and is included in Accrued Payable – Related Party in the
accompanying Consolidated Balance Sheet.
On
October 29, 2019, Diego Pellicer Worldwide, Inc. (“Registrant”) accepted the resignation of Ron Throgmartin from his
positions as CEO, President and Director. Mr. Throgmartin’s resignation was not the result of any disagreements with
Registrant’s plan of operations, policies or management. On the same date, Registrant appointed Christopher D. Strachan,
Registrant’s Chief Financial Officer, to membership on Registrant’s Board of Directors and appointed Nello Gonfiatini
III, Regiatrant’s Chief Operations Officer, to the additional post of Chief Executive Officer.
Ron
Throgmartin signed a 5-year term Separation Agreement which, among other matters, terminated his Employment Agreement, as amended.
On the date of the Separation Agreement, the Company acknowledged it owed Mr. Throgmartin the amount of $517,252.06 in principal
and accrued interest of note payable, salary and fees, accrued during the 5 years of his employment. In addition, the Corporation
further acknowledged that it will pay Mr Throgmartin fifty (50%) percent of his compensation due under the remaining Employment
Agreement, or $614,583.33 under certain condition, which the Company accrued in full as of the date of Mr Throgmartin’s separation.
This agreement provides that the Registrant will pay him $5,000 monthly against his accrued salary/fees and 50% of future compensation
due under his terminated Employment Agreement, with certain accelerated payments in the event Registrant’s financial results
attain certain EBITA benchmarks. Registrant shall have the right to require Mr. Throgmartin to provide consulting services to Registrant
for a per diem fee of $500. As of June 30, 2020
and December 31, 2019, the outstanding balance was $915,597 and $940,597, respectively.
Note
13 – Subsequent Events
The
Company evaluated subsequent events and transactions that occur after the balance sheet date up to the date that the consolidated
financial statements are available to be issued. Any material events that occur between the balance sheet date and the date that
the consolidated financial statements were available for issuance are disclosed as subsequent events, while the consolidated financial
statements are adjusted to reflect any conditions that existed at the balance sheet date. Based upon this review, except as disclosed
within the footnotes or as discussed below, the Company did not identify any recognized or non-recognized subsequent events that
would have required adjustment or disclosure in the consolidated financial statements.
On
July 21, 2020, the company converted 20,000 shares of series C preferred stock into 1,800,000 shares of common stock.
On
July 27, 2020, the company issued 2,000,000 shares of common stock to Joseph Tomasek for services rendered.
On
July 30, 2020, the company converted 20,000 shares of series C preferred stock into 3,181,818 shares of common stock.
On
August 5, 2020, the company converted 15,000 shares of series C preferred stock into 2,423,077 shares of common stock.
On
August 11, 2020, the company converted 20,000 shares of series C preferred stock into 3,387,097 shares of common stock.
On
August 17, 2020, the company converted 20,000 shares of series C preferred stock into 3,442,623 shares of common stock.
On
January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency in response to a new strain
of a coronavirus (the “COVID-19 outbreak”). In March 2020, the WHO classified the COVID-19 outbreak as a pandemic
based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date
of this report. Management is actively monitoring the global situation and its effects on the Company’s industry, financial
condition, liquidity, and operations. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its
spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition,
or liquidity for fiscal year 2020. However, if the pandemic continues, it may have a material adverse effect on the Company’s
results of future operations, financial position, and liquidity in fiscal year 2020.
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
June 2, 2020 for the year ended December 31, 2019. 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 twofold: First to lease various properties to licensed operators in these jurisdictions to grow, process and sell cannabis
and related products, and the second the Diego Pellicer Management Company, will license the upscale Diego Pellicer brand to qualified
operators and receive royalty payments, while providing expertise in retail, product and manufacturing from Diego’s accomplished
management team with extensive industry experience, The Company will also provide educational training, compliance consultation,
branding, and related accessories to their tenants. These leases and management agreements are expected to provide substantial
streams 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:
Headset & 2018 Marijuana Business Daily, a division of Anne Holland Ventures Inc.
The
legalization taking place in other states such as California and Florida present opportunities many times 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
Summary
The
Company’s primary business objective is to lease various properties to licensed operators to grow, process and retail cannabis
and related products. By developing a premium brand name, building upscale facilities, and providing quality accessories to a
market where financing is difficult to obtain, these subleases are designed to 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 as well.
2018
was a year of growth for Diego Pellicer Worldwide. All tenants were open and generating lease revenue. The tenants were showing
steady revenue increases and operating improvements. The business model was being proven. The brand name was getting national
recognition and garnered the “Most Valuable Brand of the Year” at the 2018 National Cannabis Business Awards beating
out tough national competition including MedMen™, The Clinic, Lightshade and Olio. Diego was also honored as the “Best
Retail Center” for the second year in a row, defeating other highly regarded names including LiveWell, The Clinic, The Green
Solutions, Euflora and Kind Love.
2019
was a time of continued growth and a change of focus for the Company. An effective and experienced team was assembled from within
our operators to develop our newly formed management company, and to complement the current executives with knowledge and experience
in real estate operations, banking, site selection, branding, facility design, corporate finance, investor relations, store management,
and grow expertise, Additional capital needed to be raised in order to have sufficient capital to help support our operators expand
within their markets, and to begin the expansion into different markets in the US. Much of the Company’s debt was renegotiated,
and additional commitments were formalized for the expansion in the Colorado market. New markets had to be explored, new alliances
forged, and opportunities prioritized.
Diego
is exploring opportunities in California, Colorado, Nevada, Washington and other states. The Company will continue to raise
capital to finance that expansion. This should result in increased revenues for the future and increased opportunities into new
markets.
During the
first half of 2020, the company has embarked on a more inclusive approach to the industry and has explored the possibility of acquiring
all the operations of it’s tenants in Colorado. The Colorado state laws now allow publicly traded companies to have a more
direct role in ownership and management of cannabis companies which opens the door for the Company to acquire positive cashflow
companies that would be additive to the consolidated balance sheet. The goal of the company was to act as the incubator of successful
branded cannabis businesses, and then ultimately participate in their success by taking advantage of the cashflow and profitability
of retail and grow facilities by acquiring them as the laws might permit.
Opportunity
in an untapped industry with multi-billion-dollar potential
The
demand for marijuana products is a multi-billion-dollar market that has only recently begun to become mainstream. Many challenges
face the marijuana entrepreneur. Therein lies the opportunity.
Regulation
and the Economy
The marijuana industry
will deliver an estimated $39 billion - $48 billion economic impact on the United States in 2019. By 2023, we anticipate the potential
for the industry to surpass $100 billion in annual economic benefits. That becomes a very conservative estimate of the size of
the market in the United States when the black market in included in the equation. Distribution was driven underground for years
by the Controlled Substance Act passed by Congress nearly 50 years ago. The favorable public opinion towards the legalization is
rapidly changing the political attitude toward marijuana not only on the state level but on the federal level. If the Federal Government
legalized marijuana nationwide, sales might start out around that level, but would likely rise as cannabis gained mainstream acceptance
and the market evolved. Eventually, marijuana could surpass cigarette sales with the potential to rival beer in terms of overall
sales.
Financing
and banking
As
doubts remain, financing is still a challenge for this industry with banks in many states not only avoiding lending to these businesses
but also refusing deposits because of complicated FDIC requirements. Financing has been largely equity raises, vendor financing,
and expensive convertible debt. However, with the legalization and subsequent public capital raises in Canada and the change in
the political attitude, there has been an indication of more interest by institutional investors in providing capital to this
industry and more banks are accepting deposits.
A
fragmented industry
Most
industries evolve through the same business cycle. Many small independent companies initially operate in fragmented markets in
the early stages. Then there is a consolidation of the industry, with the consolidators thriving and the independent companies
dwindling. The larger companies have access to less expensive capital, lower costs, better merchandising, brand name recognition,
and more efficient operations. This what we offer our tenants when negotiating the lease: an agreement to acquire them when marijuana
is federally legalized. This gives the tenant the ultimate opportunity to participate in the rapid consolidation that we believe
will happen when marijuana is federally legalized. This consolidation will result in companies that have heretofore been unable
to participate in the rapidly growing industry to be scrambling to enter the space. Diego and its tenants will already be established
and consolidated. As an exit strategy, we want to position Diego to be a likely candidate for acquisition or a major player in
the marketplace.
The
opportunity
The
first mover advantage will continue to be possible for those willing to deal with the regulatory, banking, and financial challenges
in today’s market. The fragmented market, the shortage of executives skilled in challenges of the industry, scarcity of
brand names, provides a company like Diego, who has proven their business model, to be a consolidator in this industry.
States
with legalized marijuana
Thirty
six states and the District of Columbia have laws broadly legalizing marijuana in some form. Eleven states and the District of
Columbia have legalized marijuana for recreational use with the largest market by far, California, becoming legal.
The
majority of all states allow for use of medical marijuana under certain circumstances. Some states have also decriminalized the
possession of small amounts of marijuana. The industry is operating under stringent regulations within the various state jurisdictions.
This
map shows current state laws and recently approved ballot measures legalizing marijuana for medical or recreational purposes. 2
There
are estimated to be 25,000 – 30,000 marijuana businesses in the U.S., which derive most of their income from the cannabis
market. This includes cultivators, manufacturers, retailers, dispensaries, distributors, deliverers and test labs. Now over 300
million Americans live in a jurisdiction that has legalized some form of cannabis use.
The
recent legalization in states such as California and legalization in Florida present opportunities many times 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 such as Michigan, Nevada, Massachusetts, and New Jersey.
States
introducing and expanding legalized marijuana laws
The
legalized cannabis market has grown considerably bigger, with Canada federally legalizing recreational marijuana in
2018 and Eastern states in the U.S. rushing towards legalization.
In
May 2019, Colorado Governor Polis signed into law House Bill 19-1090. It is generally referred to as the "Public Company"
bill because it allows public companies to own Colorado marijuana licenses for the first time. This law went into effect on November
1, 2019 and the Company was instrumental in guiding the language in the final regulations, that favor companies like Diego Pellicer
Worldwide.
Recent
developments at the federal level
Pressures
from the states with legalized cannabis industries have been exerted by those state’s Senators and Congressmen. Both informal
and formal efforts have been increased by these states. The following are the most recent:
In
an April 2018 conversation with Republican U.S. Sen. Cory Gardner, President Donald Trump pledged to keep the Department of Justice
from interfering with state cannabis laws and, perhaps more significantly, support legislation protecting state-legal marijuana
businesses. White House officials later confirmed the president's policy stance.
Several
bills have been introduced to Congress seeking to reform federal marijuana laws in different ways, including the removal of cannabis
from the list of controlled substances, allowing MJ companies to access traditional banking services and amending the IRS code
to more fairly tax cannabis businesses.
Similar
bills have been introduced in previous sessions of Congress, but none have gained significant traction. This time, however, may
be different, as marijuana reform has become a bipartisan issue that has the support of many prominent Republicans.
Senate
Majority Leader Mitch McConnell, for example, introduced a bill in April to remove federal barriers on hemp, while former Republican
House Speaker John Boehner recently disclosed his involvement with a large, multistate cannabis company.
Whether
any significant reform of federal marijuana policy happens in 2020 and what shape it could take remains an open question, but
it's clear that attitudes toward cannabis on Capitol Hill are shifting.
The
passing of the 2018 Farm bill and signed into law by President Trump, opened up the opportunoity for the hemp and CBD industry
to belegally produced and marketed throughout the USA
The
SAFE Act has garnered the most bipartisan support to date, passing the full U.S. House in 2019 with a vote of 321-103. Cannabis
banking reform was being considered in the Senate Banking Committee before the coronavirus crisis, but any Senate bill probably
would take a different form than the House bill, pushing the issue to a joint committee.
New
York Democratic Senator Chuck Schumer introducing legislation to remove cannabis from the DEA’s list of controlled substances,
to decriminalize pot at a federal level and effectively allow states to decide how to regulate the use of medical or recreational
marijuana without concern for federal law.
President
Trump cut a deal with Colorado Senator Corey Gardner, R-Colo. to allow states to decide what to do about cannabis.
Former
Speaker of the House John Boehner became a director with cannabis company Acreage Holdings.
The
Food and Drug Administration setting up for an approval of the first cannabis-based drug from GW Pharmaceuticals Plc (“ GWPH” )
The
Veteran’s Administration now wants to study the effectiveness of cannabis for chronic pain and PTSD. (The Street, “Cannabis
Industry Sits on Precipice of Major Expansion, March 28, 2018, by Bill Meagher)
Source:
2020 Marijuana Business Daily, a division of Anne Holland Ventures Inc.
The
projected U.S. cannabis retail sales growth
The
Cannabis Industry retail sales estimates project a robust growth of legal marijuana sales:
What
is Diego's Strategy, Phases One and Two?
Diego
is a real estate and a consumer retail development company that is focused on high quality recurring revenues resulting from leasing
real estate to licensed cannabis operators, and the management of operations for these and other third party cannabis operators
deriving income from management and royalty fees. Diego provides a competitive advantage to these operators by developing “Diego
Pellicer” as the world’s first premium marijuana brand and by establishing the highest quality standards for its facilities
and products.
The
Company's first phase strategy is to acquire or lease and develop the most prominent and convenient real estate locations for
the purposes of leasing them to state licensed operators in the cannabis industry. Diego's first phase revenues result from leasing
real estate and selling non-cannabis related accessories to our tenants. The Company has developed a brand name strategy, providing
training, design services, branded accessories, systems and systems training, locational selection, and other advisory services
to their tenants. We enter into branding agreements with our tenants. In addition, part of the vetting process in finding the
proper tenant is selecting a tenant that shares the Company's values and strictly complies with state laws, follows strict safety
and testing requirements and provides consistent, high-quality products. If the tenants do not comply, they will not be allowed
to use the brand.
The
second phase of our strategy is to secure options to purchase the tenant's operations. When mutually advantageous for Diego and
the tenant, Diego will negotiate acquisition contracts with selected Diego operators/tenants. At the appropriate time Diego will
execute the acquisition contracts, consolidate our selected tenants and become a nationally branded marijuana retailer and producer
concurrent with the change of federal law.
Diego
Pellicer Management Company, will license the upscale Diego Pellicer brand to qualified operators and receive royalty payments,
while providing expertise in retail, product and manufacturing from Diego’s accomplished management team with extensive
industry experience
Value
Proposition
Value
proposition 1: By providing branding, management experience, training, unique accessories, purchasing services, locational experience,
standardized design, and experienced construction supervision, the tenant reduces his startup time, reduces cash drain, increases
his efficiency, and builds his gross margin. Diego provides the capital for preopening lease costs and tenant improvements. This
results in a turnkey retail location for the tenant. Thus, Diego’s real estate, management, consulting and accessory sales
are positioned to deliver a premium return on our investment.
Value
proposition 2: With each lease, Diego negotiates an acquisition contract with selected licensed tenants to acquire their operations.
This contract will be executed at Diego's option, and At the appropriate time introduces our second value proposition-ownership
of operations in an industry that is projected to exceed $30 billion by 2022.
What
does our premium branding accomplish?
A
very important aspect of our marketing plan is to build Diego Pellicer as a luxury brand. This not only enables us to establish
a premium brand, but also to generate significant revenues from non- cannabis products.
The
Company is establishing several levels of branding and will use these to appeal to the various segments of the marketplace depending
upon the location, competition, legal constraints, and budget. Standard store templates are being developed, complimentary accessories
selectively designed, and customer preferences and segments analyzed.
Denver
stores have been met with enthusiastic demand growing revenues quickly. This is proving the initial Diego concept.
We
have proven this to be a winning strategy
Diego
is positioning itself to be a dominate player in the marijuana marketplace. Diego has proven this by being a fully integrated
marijuana retail operation and premium brand, capitalizing on beautifully designed retail stores offering the finest quality products
at competitive prices.
What
we accomplished in 2020
Building
on the strategies incorporated in 2019 and a strong management team, the Company continued its growth in the Colorado market focusing
on protocols, branding and market share for our tenant. In the first half of 2020 considerable challenges were encountered with
the COVID-19 pandemic. Many businesses were shuttered and significant shrinking of the economy was felt by all industries. The
Company focused on core principals of expanding our market and elevating our premium brand. This helped lead our branded tenant
in Denver Colorado to experience significant growth in year on year revenues, including record breaking months in April and May.
Most of the growth came from exotic and premium products which the Company has continually stated as the key to success in this
industry. The Company moved forward with acquisition negotiations in Colorado and will continue to expand our market share.
What
we accomplished in 2019
2019
was a time of continued growth and a change of focus for the Company. An effective and experienced team was assembled from within
our operators to develop our newly formed management company, and to complement the current executives with knowledge and experience
in real estate operations, banking, site selection, branding, facility design, corporate finance, investor relations, store management,
and grow expertise, Additional capital needed to be raised in order to have sufficient capital to help support our operators expand
within their markets, and to begin the expansion into different markets in the US. Much of the Company’s debt was renegotiated,
and additional commitments were formalized for the expansion in the Colorado market. New markets had to be explored, new alliances
forged, and opportunities prioritized.
New
markets were explored. Three facilities continued to see year upon year increases in revenues, which lead to increased rental
revenue cash-flow to the Company. In 2019, Diego focused on our Colorado operations, and divested itself from the Washington
Tenant, citing restrictive rules and regulations for public company involvement in any part of the Washington State marijuana
industry. Diego received revenues from three Colorado facilities, and the first quarter for our Washington store. Diego now had
four facilities generating rent in 2019 for the year and we have actively been expanding in the Colorado markets with potential
acquisitions for our tenants, and our management company. The tenants growing their sales and improving operational efficiency.
The properties generating rents in 2019 are as follows:
Table
1: Property Portfolio
Purpose
|
|
Size
|
|
City
|
|
State
|
Retail store (recreational
and medical)
|
|
3,300 sq.
|
|
Denver
|
|
CO
|
Cultivation warehouse
|
|
18,600 sq.
|
|
Denver
|
|
CO
|
Cultivation warehouse
|
|
14,800 sq.
|
|
Denver
|
|
CO
|
Retail store (recreational
and medical) - Sold
|
|
4,500 sq.
|
|
Seattle
|
|
WA
|
Diego’s
Washington tenant opened our first flagship store in Seattle in October 2016. On May 6, 2019, the Company entered into an agreement
with a third party, which the Company sold the Seattle leased location provided $550,000 in capital and executive resources for
expansion which the company allocated to its efforts in a new location and cannabis grow facilities in Colorado. The Colorado
tenant opened the Diego Denver branded flagship store in February 2017. In addition, Diego’s two cultivation facilities
in Denver, CO began production in late 2016. The retail facilities have shown steady growth in sales since their opening. The
three Colorado properties were subleased to a single entity. The Company is currently is exploring the acquisition of this entity.
Diego
Pellicer Denver
Diego
will continue this strategy in states where recreational or medical marijuana sales and cultivation is legal under state law.
Our business model is recurring lease revenue, royalties, management fees, and is entirely scalable. Our success will dependent
upon continuing to raise capital for expansion, continual improvement of our business model, standardizing store design, controlling
costs, new store management opportunities, and continuing to develop the brand.
RESULTS
OF OPERATIONS
Three
months ended June 30, 2020 compared to three months ended June 30, 2019
After
rental expense the gross margins on the lease were as follows:
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Increase (Decrease)
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
$
|
|
|
%
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net rental revenue
|
|
$
|
344,849
|
|
|
$
|
419,022
|
|
|
$
|
(74,173
|
)
|
|
|
-18
|
%
|
Rental expense
|
|
|
282,826
|
)
|
|
|
(296,799
|
)
|
|
|
(13,973
|
)
|
|
|
5
|
%
|
Gross profit
|
|
|
62,023
|
|
|
|
122,223
|
|
|
|
(60,200
|
)
|
|
|
-49
|
%
|
General and administrative expenses
|
|
|
262,655
|
|
|
|
438,323
|
|
|
|
(175,668
|
)
|
|
|
-40
|
%
|
Selling expense
|
|
|
8,237
|
|
|
|
16,244
|
|
|
|
(8,007
|
)
|
|
|
-49
|
%
|
Depreciation expense
|
|
|
-
|
|
|
|
69,797
|
|
|
|
(69,797
|
)
|
|
|
-100
|
%
|
Income/(Loss) from operations
|
|
$
|
(208,869)
|
|
|
$
|
(402,141
|
)
|
|
$
|
193,252
|
|
|
|
-48
|
%
|
Revenues. For the three months
ended June 30, 2020 and 2019, the Company leased three facilities to licensees in Colorado. Total revenue for the three months
ended June 30, 2020 was $344,849, as compared to $419,022 for the three months ended June 30, 2019, a decrease of $74,173, because
we sold the Seattle leased location on May 6, 2019.
Gross profit. Rental revenue
for the periods ended June 30, 2020 increased over the prior three months ended June 30, 2019, resulting in a gross profit of $62,023.
Due to sale of the Seattle leased location on May 6, 2019.
General and administrative expense. Our
general and administrative expenses for the three months ended June 30, 2020 were $262,655, compared to $438,323 for the three
months ended June 30, 2019. The decline of $175,668 was largely attributable a reduction in executive stock compensation and consulting
fees during three months ended June 30, 2020.
Selling expense. Our selling
expenses for the three months ended June 30, 2020 were $8,237, compared to $16,224 for the three months ended June 30, 2019. The
decline of $7,987 was due to reduction of services used related to selling and marketing.
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Increase (Decrease)
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
$
|
|
|
%
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
$
|
32,890
|
|
|
$
|
30
|
|
|
$
|
32,860
|
|
|
|
10,953
|
%
|
Interest expense
|
|
|
(627,075
|
)
|
|
|
(710,821
|
)
|
|
|
(83,746)
|
|
|
|
-12
|
%
|
Gain on sale of lease
|
|
|
-
|
|
|
|
534,649
|
|
|
|
534,649
|
|
|
|
100
|
%
|
Change in derivative liabilities
|
|
|
1,166,034
|
|
|
|
(1,551,437
|
)
|
|
|
2,717,471
|
|
|
|
17,516
|
%
|
Change in value of warrants
|
|
|
(125)
|
|
|
|
53,498
|
|
|
|
(53,623
|
)
|
|
|
-10,023
|
%
|
Total other income (loss)
|
|
$
|
571,724
|
|
|
$
|
(1,674,081
|
)
|
|
$
|
2,245,805
|
|
|
|
-13,415
|
%
|
The Net Other Income was the effect that the
decline in market value of the Company’s stock had on the derivative liability of $3,588,134 offset by recording the cost
of triggering technical default penalties on certain convertible notes and the financing costs of new debt incurred by the Company.
Our other income for the three months ended June 30, 2020 were $32,890, compared to $30 for the three months ended June 30, 2019.
The increase of $32,860 was due to income from the receivables owed by the our sublease tenant of the Company’s Colorado
properties and affiliates of the tenant.
Six months ended June 30, 2020 compared
to six months ended June 30, 2019
After rental expense the gross margins on the
lease were as follows:
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
Increase (Decrease)
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
$
|
|
|
%
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net rental revenue
|
|
$
|
728,880
|
|
|
$
|
869,037
|
|
|
$
|
(140,157
|
)
|
|
|
-16
|
%
|
Rental expense
|
|
|
(573,619
|
)
|
|
|
(577,523
|
)
|
|
|
(3,904
|
)
|
|
|
-1
|
%
|
Gross profit
|
|
|
155,261
|
|
|
|
291,514
|
|
|
|
(136,253
|
)
|
|
|
-47
|
%
|
General and administrative expenses
|
|
|
529,657
|
|
|
|
922,478
|
|
|
|
(392,821
|
)
|
|
|
-43
|
%
|
Selling expense
|
|
|
15,041
|
|
|
|
30,137
|
|
|
|
(15,096
|
)
|
|
|
-150
|
%
|
Depreciation expense
|
|
|
-
|
|
|
|
139,595
|
|
|
|
(139,595
|
)
|
|
|
-100
|
%
|
Income/(Loss) from operations
|
|
$
|
(389,437)
|
|
|
$
|
(800,696
|
)
|
|
$
|
411,259
|
|
|
|
-51
|
%
|
Revenues. For the six months
ended June 30, 2020 and 2019, the Company leased three facilities to licensees in Colorado. Total revenue for the six months ended
June 30, 2020 was $728,880, as compared to $869,037 for the three months ended June 30, 2019, a decrease of $140,157, because we
sold the Seattle leased location on May 6, 2019.
Gross profit. Rental revenue
for the periods ended June 30, 2020 increased over the prior six months ended June 30, 2019, resulting in a gross profit of $155,261.
Due to sale of the Seattle leased location on May 6, 2019.
General and administrative expense. Our
general and administrative expenses for the six months ended June 30, 2020 were $529,657, compared to $922,478 for the six months
ended June 30, 2019. The decline of $392,821 was largely attributable a reduction in executive stock compensation and consulting
fees during six months ended June 30, 2020.
Selling expense. Our selling
expenses for the six months ended June 30, 2020 were $15,041, compared to $30,137 for the three months ended June 30, 2019. The
decline of $15,096 was due to reduction of services used related to selling and marketing.
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
Increase (Decrease)
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
$
|
|
|
%
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
$
|
65,781
|
|
|
$
|
72
|
|
|
$
|
65,709
|
|
|
|
91,263
|
%
|
Interest expense
|
|
|
(1,294,652
|
)
|
|
|
(1,482,078
|
)
|
|
|
(187,426)
|
|
|
|
-13
|
%
|
Gain on sale of lease
|
|
|
-
|
|
|
|
534,649
|
|
|
|
(534,649)
|
|
|
|
100
|
%
|
Change in derivative liabilities
|
|
|
1,468,038
|
|
|
|
(594,126
|
)
|
|
|
2,062,164
|
|
|
|
347
|
%
|
Change in value of warrants
|
|
|
(28)
|
|
|
|
14,076
|
|
|
|
(14,104
|
)
|
|
|
-100
|
%
|
Total other income (loss)
|
|
$
|
239,139
|
|
|
$
|
(1,527,407
|
)
|
|
$
|
2,569,173
|
|
|
|
-110
|
%
|
The Net Other Income was the effect that the
decline in market value of the Company’s stock had on the derivative liability of $3,588,134 offset by recording the cost
of triggering technical default penalties on certain convertible notes and the financing costs of new debt incurred by the Company.
Our other income for the six months ended June 30, 2020 were $65,781, compared to $72 for the six months ended June 30, 2019. The
increase of $65,709 was due to income from the receivables owed by the our sublease tenant of the Company’s Colorado properties
and affiliates of the tenant.
LIQUIDITY AND CAPITAL RESOURCES
|
|
Six Months Ended
|
|
Six Months Ended
|
|
Increase (Decrease)
|
|
|
June 30, 2020
|
|
June 30, 2019
|
|
$
|
|
%
|
Net Cash used in operating activities
|
|
$
|
(531,144
|
)
|
|
$
|
(452,172
|
)
|
|
$
|
(78,972
|
)
|
|
|
60
|
%
|
Net Cash provided by financing activities
|
|
|
253,944
|
|
|
|
501,500
|
|
|
|
(247,556
|
)
|
|
|
-58
|
%
|
Net Increas e/(Decrease) in Cash
|
|
|
(277,200
|
)
|
|
|
49,328
|
|
|
|
(326,528
|
)
|
|
|
-291
|
%
|
Cash - beginning of period
|
|
|
317,446
|
|
|
|
60,437
|
|
|
|
257,009
|
|
|
|
|
|
Cash - end of period
|
|
$
|
40,246
|
|
|
$
|
109,765
|
|
|
$
|
(69,519
|
)
|
|
|
-49
|
%
|
Operating
Activities. For the six months ended June 30, 2020, the net cash used of $(531,144) was
an increase over the same period of the prior year of net cash provided of $(452,172). The loss from operations after non-cash
adjustments from prior year reflected an decrease of $2,179,736 under the prior year, and an increase in net assets and liabilities
of $175,152.
Financing
Activities. During the six months ended June 30, 2020, $100,000 in proceeds were from convertible notes payable
and $100,000 from the sale of preferred stock. Payments of convertible notes payable was $2,500. For the six months ended June
30, 2019, $100,000 in proceeds were from convertible
notes payable. Payment of debt cost was $8,225.
COVID-19
On
January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency in response to a new strain
of a coronavirus (the “COVID-19 outbreak”). In March 2020, the WHO classified the COVID-19 outbreak as a pandemic
based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date
of this report. Management is actively monitoring the global situation and its effects on the Company’s industry, financial
condition, liquidity, and operations. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its
spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition,
or liquidity for fiscal year 2020. However, if the pandemic continues, it may have a material adverse effect on the Company’s
results of future operations, financial position, and liquidity in fiscal year 2020.
Critical
Accounting Policies
For
the six month period ending June 30, 2020, there were no other material changes to the “Critical Accounting Policies”
discussed in Part II, Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of
our Annual Report on Form 10-K for the year ended December 31, 2019.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements.