UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,Washington, D.C. 20549

FORM 10-Q

[X]☒  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017March 31, 2022

or

☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transitional period from _____________ to ______________

Commission File Number: 333-189731

DIEGO PELLICER WORLDWIDE, INC.

(Name of registrant as specified in its charter)

9030 Seward Park Ave, S, #501, Seattle, WA 981186160 Plumas Street, Suite 100, Reno, NV89519

(Address of principal executive offices) (Zip Code)

(516) (516) 900-3799

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] ☒ No [  ]☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 

Yes [X] ☒ No [  ]☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

Yes [  ] ☐ No [X] ☒

As of November 6, 2017May 10, 2022 there were 60,737,336260,661,121shares of common stock issued and outstanding.

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

DIEGO PELLICER WORLDWIDE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

Diego Pellicer Worldwide, Inc.

Condensed Consolidated Balance Sheets    

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

DIEGO PELLICER WORLDWIDE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Diego Pellicer Worldwide, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

DIEGO PELLICER WORLDWIDE, INC.INC

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWCondensed Consolidated Statements of Stockholders' Deficit

(Unaudited)For the Three Months Ended March 31, 2022 and 2021

(Unaudited)

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

Diego Pellicer Worldwide, Inc.

September30, 2017 and 2016Condensed Consolidated Statements of Cash Flows

(Unaudited)

Notes to the Condensed Consolidated Financial Statements

March 31, 2022 and 2021

(Unaudited)

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.

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 2022 and 2021 are as follows:

Until Federal law allows,The Company’s two properties in Denver, CO are leased to Royal Asset Management, LLC (“RAM”). RAM opened the Diego Denver branded flagship store in February 2017. This store is known as “Diego Colorado”. The retail facilities have shown steady growth in sales since opening. For the two properties subleased, RAM uses these properties for its cultivation facilities in Denver, CO. Production at these facilities began in late 2016. On July 27, 2021, the Company will not grow, harvest, process, distribute or sell marijuana or any other substances that violatefiled a lawsuit against Royal Asset Management, LLC (“RAM”) and Neil Demers (“Demers”) in the lawsDistrict Court, City and County of Denver, State of Colorado, alleging breach of contract on four subleases for which RAM has failed to make the United States of America or any other country.required payments to the Company pursuant to the respective sublease agreements (see Note 4).

In August 2021, the master lease and sublease associated with the 14,800 sq. cultivation warehouse were extended through July 31, 2024 (see Note 9).

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 for 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 of operations and that 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 unaudited condensed consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of Diego Pellicer Worldwide, Inc. werethe 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, 2021, 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 March 31, 2022 and for the three months ended March 31, 2022 and 2021 have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and therefore,Article 8 of Regulation S-X. Accordingly, they do not include all disclosuresof the information and footnotes required by U.S. GAAP for complete financial statements, preparedand should be read in conformityconjunction with U.S. GAAP.

This Form 10-Q relatesthe audited consolidated financial statements and related notes to the three months and nine months ended September 30, 2017 (the “Current Quarter”) andfinancial statements included in the three months and nine months ended September 30, 2016 (the “Prior Quarter”). The Company’s annual reportAnnual Report on Form 10-K for the year ended December 31, 20162021 as filed with the U.S. Securities and Exchange Commission (“2016 Form 10-K”SEC”) includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Form 10-Q. All material adjustments which, in. In the opinion of management, areall material adjustments (consisting of normal recurring adjustments) considered necessary for a fair statementpresentation 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 interim periods have been reflected. The results for the current quarterthree months ended March 31, 2022 are not necessarily indicative of the results tothat may be expected for the full year.year ending December 31, 2022 or any future periods.

New accounting pronouncementsPrinciples of Consolidation

In February 2016, the FASB issued guidance that requires a lessee to recognize assets and liabilities arising from leases on the balance sheet. Previous GAAP did not require lease assets and liabilities to be recognized for most leases. Additionally, companies are permitted to make an accounting policy election not to recognize lease assets and liabilities for leases with a term of 12 months or less. For both finance leases and operating leases, the lease liability should be initially measured at the present value of the remaining contractual lease payments. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee will not significantly change under this new guidance. This new guidance is effective for the company as of the first quarter of fiscal year 2020. The Company is evaluating the effect that this ASU will have on its financial statements include the accounts of Diego Pellicer Worldwide, Inc., and related disclosures.its wholly-owned subsidiary Diego Pellicer World-wide 1, Inc. Intercompany balances and transactions have been eliminated in consolidation.

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This ASU is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted. The Company is currently assessing the potential impact of ASU 2016-15 on its financial statements and related disclosures.

In April 2016 the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606). The core principle of Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services This ASU is effective for public business entities for fiscal years, and interim periods within those years, beginning after January 1. 2018. The Company is currently assessing the potential impact of ASU 2016-10 on its financial statements and related disclosures.

The Company believes that otherrecentlyissued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations and cash flows when implemented.

Reclassifications

Certain prior year amounts were reclassified to conform to the manner of presentation in the current period. These reclassifications had no effect on the Company’s balance sheet, net loss or stockholders’ equity.

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions include valuing equity securities and derivative financial instruments issued in financing transactions and share based payment arrangements, determining the fair value of the warrants received for the licensing agreement, the collectability of accounts receivable and other receivables (see Note 4), 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 thatand 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.

Accounts Receivable

Accounts receivable consist of rents receivable from the Company’s sublessee as disclosed in Note 4. Management periodically assesses the Company’s accounts receivable and, if necessary, establishes an allowance for estimated uncollectible amounts. Accounts determined to be uncollectible are charged to operations when that determination is made. The Company usually does not require collateral. We have not recorded an allowance for doubtful accounts as of March 31, 2022 and December 31, 2021. 

Fair Value Measurements

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

Fair Value of Financial Instruments

As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of September 30, 2017March 31, 2022 and December 31, 2016.2021. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts receivable, prepaid expenses, note receivable, accounts payable and accountsnotes payable. Fair values were assumed to approximate carrying values for cash, receivables, notes receivable, payables and payablesnotes payable 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):

CashDerivative liabilities and stock warrant liabilities were valued using the Binomial Option Pricing Model in calculating the embedded conversion features for the three months ended March 31, 2022 and the year ended December 31, 2021.

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.$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. There were no uninsured balances at March 31, 2022 and December 31, 2021.

Property and Equipment, and Depreciation PolicyRevenue recognition

Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided forIn accordance with ASC 842, Leases, the Company recognizes rent income on a straight-line basis over the useful lives of the assets. Leasehold improvements are amortized over thelease term of the lease. Expenditures for additions and improvements are capitalized; repairs and maintenance are expensed as incurred.

The Company intends to take depreciation or amortization on a straight-line basis for all properties, beginning when they are put into service, using the following life expectancy:

Equipment – 5 years

Leasehold Improvements – 10 years, or the term of the lease, whichever is shorter

Buildings – 20 years

Inventory

The company conforms to the FASB issued Accounting Standards Update (“ASU”) No. 2015-11, Inventory, which requires an entity to measure inventory within the scope at the lower of cost and net realizable value. Net realizable valueextent that collection is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company’s inventory is stated at the lower of cost or estimated realizable value, with cost primarily determined onconsidered probable. As a cost basis on the first-in, first-out (“FIFO”) method.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are presented at their face amount, less an allowance for doubtful accounts, on the balance sheets. Accounts receivable consist of revenue earned and currently due from sub lessee. We evaluate the collectability of accounts receivable based on a combination of factors. We recognize reserves for bad debts based on estimates developed using standard quantitative measures that incorporate historical write-offs and current economic conditions. As of September 30, 2017, the outstanding balance allowance for doubtful accounts is $9,908.

The policy for determining past due status is based on the contractual payment terms of each customer. Once collection efforts byresult, the Company and its collection agency are exhausted, the determination for charging off uncollectible receivables is made.has been recognizing rents as they become payable.

Revenue recognition

The Company recognizes revenue from rent, tenant reimbursements, and other revenue sources once all the following criteria are met in accordance with SEC Staff Accounting Bulletin 104,Revenue Recognition: (a) the agreement has been fully executed and delivered; (b) services have been rendered; (c) the amount is fixed or determinable; and (d) the collectability of the amount is reasonably assured. Thus, duringDuring 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 the collectability is reasonably assured, in accordance with ASC Topic 840 “Leases” as amended and interpreted, minimum annual rental revenue is recognized for rental revenues on a straight-line basis over the term of the related lease.

When management concludes that the Company is the owner of tenant improvements, managementthe Company records the cost to construct the tenant improvements as a capital asset. In addition, managementthe Company 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, managementthe Company 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 recordswe record 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 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.

Leases

In January 2014,We have elected the Company entered into an agreementpractical expedient provided by ASC 842 that allows lessees to license certain intellectual propertychoose to an unrelated company. In consideration,not separate lease and non-lease components by class of underlying asset and are applying this expedient to all relevant asset classes. We have also elected the Company received warrantspractical expedient package to purchase shares of the licensee’s common stock, the value of the warrants was recorded as an investment and the deferred revenue is being amortized over the ten year term of the licensing agreement.

Leases as Lessor

The Company currently leases properties to licensed cannabis operatorsnot reassess at adoption (i) expired or existing contracts for locations that meet the regulatory criteria applicable by the respective regulatory jurisdiction for the sale, production, and development of cannabis products. The Company evaluateswhether they are or contain a lease, (ii) the lease to determine its appropriate classification as an operatingof any existing leases or capital lease(iii) initial indirect costs for financial reporting purposes. The Company leases are currently all classified as operatingexisting leases.

Minimum base rent is recorded on a straight-line basis overAdvertising

During the lease term after an initial period during which the tenant is establishing the businessthree months ended March 31, 2022 and during which the Company may forbear some or all of the rent. The Company is more likely than not to forbear some or all of the rental income which it considers uncollectable during the tenant’s initial ramp-up period (seeRevenue Recognitionabove). The tenant is still liable for the full rent, although the collectability may be unlikely2021, advertising expense was $8,465 and the Company may not expect to collect it.$9,881, respectively.

Leases as Lessee

The Company recognizes rent expense on a straight-line basis over the non-cancelable lease term and certain option renewal periods where failure to exercise such options would result in an economic penalty in such amount that renewal appears, at the inception of the lease, to be reasonably assured. Deferred rent is presented on current liabilities section on the consolidated balance sheets.

Income Taxes

Income taxes are provided for using the liability method of accounting in accordance with the Income Taxes Topic of the FASB ASC. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized and when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The computation of limitations relating to the amount of such tax assets, and the determination of appropriate valuation allowances relating to the realizing of such assets, are inherently complex and require the exercise of judgment. As additional information becomes available, the Company continually assesses the carrying value of their net deferred tax assets.

Preferred Stock

The Company applies the guidance enumerated in ASC Topic 480 “Distinguishing Liabilities from Equity” when determining the classification and measurement of preferred stock. Preferred shares subject to mandatory redemption are classified as liability instruments and are measured at fair value. The Company classifies conditionally redeemable preferred shares which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control, as temporary equity. At all other times, it classifies its preferred shares in stockholders’ equity. Preferred shares do not feature any redemption rights within the holders’ control or conditional redemption features not within our control. Accordingly, all issuances of preferred stock are presented as a component of consolidated stockholders’ equity.

Common Stock Purchase Warrants and Other Derivative Financial Instruments

The Company classifies as equity any contracts that require physical settlement or net-share settlement or provide us a choice of net cash settlement or settlement in our own shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own stock as defined in ASC Topic 815-40 “Contracts in Entity’s Own Equity.” The Company classifies as assets or liabilities any contracts that require net-cash settlement including a requirement to net cash settle the contract if an event occurs and if that event is outside our control or give the counterparty a choice of net-cash settlement or settlement in shares. The Company assesses classification of its common stock purchase warrants and other free-standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.

Stock-Based Compensation

The Company recognizes compensation expense for stock-based compensation in accordance with ASC Topic 718. The Company calculates the fair value of the award on the date of grant using the Black-Scholes method for stock options and the quoted price of our common stock for unrestrictedcommon 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.

EarningsIncome (loss) per common share

Earnings (loss)The Company utilizes ASC 260, “Earnings per share is provided inShare” for calculating the basic and diluted loss per share. In accordance with ASC Subtopic 260-10. The Company presents260, the basic and diluted loss per share (“EPS”) and diluted EPS on the face of statements of operations. Basic EPS is computed by dividing reported earnings (loss)net loss available to common stockholders by the weighted average shares outstanding. Loss per common share has been computed using the weighted average number of common shares outstanding duringoutstanding. Diluted net loss per share is computed similar to basic loss per share except that the year.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 999,630,483 and 132,973,796 common stock equivalents at March 31, 2022 and 2021, respectively. For the three months ended March 31, 2022 and 2021, these potential shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would reduce net loss per share. There are 840,000,000 shares authorized resulting in 420,291,604 insufficient shares as of March 31, 2022. Substantially all of these excess shares are included in the derivative liability calculations for convertible notes payable and warrants and are therefore accounted for at fair value.

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 and, 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.

Recent accounting pronouncements.   

The Company believes recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations and cash flows when implemented.

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 $11,893,402 at March 31, 2022, and it has an accumulated deficit of $55,672,640 at March 31, 2022. 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.

The Company believes that it has sufficient cash on hand and cash generated by real estate leases to sustain operations provided that management and board members continue to agree to be paid company stock in exchange for accrued compensation. Through September 30, 2017, management and board members have accepted stock for accrued compensation at the same discount that has been extended to the convertible noteholders of fifty percent. There are other future noncash charges in connection with financingfinancings 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 abilityinability 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 – Accounts Receivables and Other Receivables

As disclosed in Note 1, the Company subleases two properties in Colorado to Royal Asset Management at March 31, 2022. At March 31, 2022 and December 31, 2021, the Company had outstanding receivables from the subleases totaling $673,695 and $598,667, respectively, and during the three months ended March 31, 2022 and 2021 the Company’s subleases with RAM accounted for 100% of the Company’s revenues.

In addition to the receivables from the subleases, the Company has agreed to provide RAM and affiliates of RAM up to an aggregate amount of $1,030,000 in financing. These notes accrue interest at the rates ranging from 12% to 18% per annum. As of March 31, 2022 and December 31, 2021, the outstanding balance of these notes receivable total $635,631 and $620,781, respectively, including accrued interest of $305,631 and $290,781, respectively. The notes are secured by a UCC filing and also $400,000 of the balance was personally guaranteed by the managing member of RAM. Our position was subordinate to the CEO’s note described in Note 5. We have recorded interest income of $14,850 and $26,850 during the three months ended March 31, 2022 and 2021, respectively. In April 2021, we received a payment of $400,000 of note principal and $93,770 of related accrued interest.

On September 9, 2020, we closed on a Membership Interest Purchase Agreement dated September 4, 2020, and obtained the right to acquire a 15.13% membership interest in Blue Bronco, LLC. The purchase of the 15.13% interest in Blue Bronco LLC is subject to the approval of the Colorado Marijuana Enforcement Division. Necessary approval by governing authorities is expected to be received in the third or fourth quarter of 2022 pending the resolution of a lawsuit between the RAM and other parties related to the transaction. Accrued interest receivable of approximately $68,000 will be applied to the purchase of the membership interest upon approval of the purchase by the Colorado Marijuana Enforcement Division.

Lease Termination

On October 1, 2020, the master and sublease associated with the 18,600 sq. cultivation warehouse in Denver were terminated. In connection with that termination, we entered into a Sublease Termination Agreement (“Termination Agreement”) with RAM and an affiliate of RAM Venture Product Consulting, LLC (“VPC”). Pursuant to this agreement, RAM acknowledged a debt of deferred rent to the Company in the amount of $1,418,480 and VPC acknowledged a debt of deferred rent to the Company in the amount of $64,344. RAM and VPC executed promissory notes for these amounts, respectively. The notes accrue interest on the unpaid balance at a rate equal to the Applicable Federal Rate for mid-term obligations as published by the Internal Revenue Service. No payment under the promissory notes will be due to the Company until the earlier of (i) the date on which RAM and the Company consummate a change of control event, which is defined as: the acquisition of RAM by the Company or an affiliated entity by means of any transaction or series of related transactions to which RAM is a party (including, without limitation, any membership interest acquisition, reorganization, merger or consolidation, (generally, a “Merger”), or, (ii) the date one (1) business day following the earlier of (x) at any time, receipt by the Company from RAM or VPC of a written notice stating such party no longer desires to pursue the Merger, or (y) beginning eighteen (18) months after the date of this Agreement, receipt by RAM or VPC from the Company of a written notice stating that the Company no longer desires to pursue the Merger (the “Maturity Date”).

We have recorded the promissory notes as long term notes receivable of $1,482,824 at March 31, 2022 and December 31, 2021. Due to the uncertainty of the collectability, we have also recorded a long term deferred credit in the same amount. We will record income under the deferred rent notes as payments are received or deemed collectible. This asset and related credit have been netted on the accompanying condensed consolidated balance sheet.

Additionally, in connection with the termination of the sublease, RAM will continue to pay the remaining future sublease premium payments due to the company on the Denver sublease (the “Future Rent Debt”) beginning on the termination date, and until the earlier of the Maturity Date or June 30, 2024, notwithstanding the termination of the Subleases. However, no payment under the Future Rent Debt agreement will be due to the Company until the Maturity Date, at which time the entire Future Rent Debt shall be due and payable in full, except for any month in which RAM earns $725,000 of gross sales revenue, including taxes, at its Alameda location, in which case RAM shall pay the Future Rent Debt for the following month to the Company on or before the 5th day of the following month, and such amount will not accrue as a Future Rent Debt. RAM shall continue to accrue debt to the company, assessed on the first day of each month, according to the schedule below:

 We will record income pursuant to the Future Rent Debt as payments are received based on the Company’s analysis of collectability including, but not limited to, the potential application toward the purchase price. During the three months ended March 31, 2022 and 2021, we have recorded $34,866 and $33,851 as Lease Termination Payments in the Statement of Operations.

Note 4 – Investment

Notes Receivable

In January 2014,

During 2022 and 2021, the Company entered into an agreement with Plandai Biotechnology, Inc. (a publicly traded company) to license to them certain intellectual property rights in exchange for warrants to purchase 1,666,667 shares of Plandai Biotechnology, Inc. common stock. This licensing agreement carries a 10-year termfour promissory notes with an exercise priceunrelated party, aggregating $244,000 (see Note 9). The notes all mature 11 months after issuance and have an effective interest rate of $0.01 per share. The Company was to obtain certain trademark rights certified by the government. The warrant has a restriction on them requiring that the sale8.33%. Payments of such shares must reach a certain traded price of $0.50 per share. In 2014, the Company used a third-party appraisal firm to ascertain the fair value of warrants held by the Company, which was determined to be $525,567 atprincipal and interest are due monthly, beginning 30 days after the date of issuance. DuringPrincipal repayments of $55,339 were received during the year ended December 31, 2016, the Company recorded an impairment loss of $73,334. The Company recorded an additional impairment loss for the ninethree months ended September 30, 2017 of $43,333.March 31, 2022.

Note 5– Property and Equipment5 – Related Party Transactions

As of September 30, 2017,March 31, 2022 and December 31, 2016, fixed assets2021, the Company has accrued compensation to its CEO and director and to its CFO aggregating $289,689 and $263,289, respectively. As of March 31, 2022 and December 31, 2021, accrued payable due to former officers was $931,986 and $946,986, respectively. For each of the three months ended March 31, 2022 and 2021, total cash-based compensation to related parties was $90,000. For the three months ended March 31, 2022 and 2021, total share-based compensation to related parties was $8,183 and $24,843, 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 accrued interest at 17% - 18% per annum, and required monthly payments of approximately $5,000 to $20,000. These notes were personally guaranteed by the managing member of Royal Asset Management, and were secured by certain equipment and other tangible properties of Royal Asset Management. Among these notes, $500,000 was also secured by the medical marijuana licenses held by Royal Asset Management. As of October 20, 2021 these notes were fully paid by Royal Asset Management and the estimated lives used insecurity was released.

At March 31, 2022 and December 31, 2021, the computationCompany owed Mr. Throgmartin, former CEO (See Note 9), $140,958 pursuant to a promissory note dated August 12, 2016. This note accrues interest at the rate of depreciation are as follows:8% per annum and was past the maturity date, however the Company has not yet received a default notice. The balance of related party note was $140,958 at March 31, 2022 and December 31, 2021 and accrued interest on the note was $63,458 and $60,677 at March 31, 2022 and December 31, 2021, respectively.

The Company leases its office space from an entity controlled by its CEO. The lease may be terminated by either party with 30 days’ notice. Rent expense pursuant to the lease was $4,500 for each of the three month periods ended March 31, 2022 and 2021. 

Note 6 – Other Assets

Security deposits: Security deposits reflect the deposits on various property leases, most of which require for two months’ rental expense in the form of a deposit. These have remained unchanged, and are reported as $170,000 for December 31, 2016, and for September 30, 2017.

Deposits – end of lease: These deposits represent an additional two months of rent on various property leases that apply to the “end-of- lease” period. These have remained unchanged, and are reported as $150,000 for December 31, 2016, and for September 30, 2017.

Note 7– Notes Payable

On April 11, 2017, the Company issued two convertible notes (see Note 8). These were issued to refinance the following notes:

On May 20, 2015, the Company issued a note in total amount of $450,000 with third parties for use as operating capital. As of December 31, 2016, the outstanding principle balance of the note was $450,000.

On July 8, 2015, the Company issued a note in total amount of $135,628 with third parties for use as operating capital. As of December 31, 2016, the outstanding principle balance of the note is $135,628.

On February 8, 2016, the Company issued notes in total amount of $470,000 with third parties, bearing interest at 12% per annum with a maturity date of February 7, 2017. As of December 31, 2016, the outstanding principle balance of the note is $470,000.

In accordance with in accordance with FASB Codification- Liabilities, 470-50-40-10, these liabilities were considered extinguished and the cost of the new financing of $5,607,836 was expensed in the quarter ended June 30, 2017.

On August 31, 2015, the Company issued a note in totalthe amount of $126,000 with$126,000 to a third partiesparty for use as operating capital. The note was amended to include accrued interest on October 31, 2016 and extendedextend the maturity date to October 31, 2018.2018. As of September 30, 2017,March 31, 2022 and December 31, 2021, the outstanding principal balance of the note was $126,000.$133,403, and accrued interest on the note was $78,416 and $76,772 at March 31, 2022 and December 31, 2021, respectively. As of March 31, 2022 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. The loan, which was in the form of a note dated April 22, 2020 issued by the Borrower, was scheduled to mature on April 22, 2022 and bore interest at a rate of 1.0% per annum, payable monthly commencing October 22, 2020. No payments made towards this loan, as the full amount of the loan and accrued interest was forgiven in full during February 2021 and the Company recorded income of $56,908.

On June 30, 2020, the Company was granted a loan from the Small Business Association, in the aggregate amount of $150,000, pursuant to the Economic Injury Disaster Loan, (the “EIDL”) under Division A, Title I of the CARES Act. The loan, which is in the form of a note dated June 30, 2020 issued by the Borrower, matures on June 30, 2050 and bears interest at a rate of 3.75% per annum, payable monthly commencing July 1, 2023.

Note 7 – Convertible Notes Payable

Note 8 – Convertible Note Payable

In addition to the two notes issued on April 11, 2017 referred to in Footnote 7, theThe Company has issued several convertible notes in the nine months ending September 30, 2017.which are outstanding. The note holder shallholders have the right to convert the amountprincipal and accrued interest outstanding into shares of common stock at a discounted price.price to the market price of our common stock. The conversion feature wasfeatures were recognized as an embedded derivativederivatives and wasare valued using a Black Scholes modelBinomial Option Pricing Model that resulted in a derivative liability of $4,767,377 for$6,269,337 and $2,733,803 at March 31, 2022 and December 31, 2021, respectively. The notes accrue interest at 8% - 10% and the quarter ended September 30, 2017. In connection with the issuance of certain of these notes, the Company also issued warrants to purchase its common stock. The Company allocated the proceedsmajority of the notes and warrants based on the relative fair valuehad matured at inception for these notes.March 31, 2022.

Several convertible note holders elected to convert their notes to stock during the ninethree months ended September 30, 2017.March 31, 2021. The tables below provide the note payable activity for the three months ended March 31, 2022 and 2021, and also a reconciliation of the beginning and ending balances for the derivative liabilities measured using fair significant unobservable inputs (Level 3) for the three months ended March 31, 2022 and 2021:

During the three months ended March 31, 2022, the Company entered into two convertible promissory notes with an investor in the aggregate amount of $330,000, and received aggregate proceeds of $310,000, after deducting OID and costs. The notes mature one year from issue and bear interest at 8% per year. Upon a default, the holder shall have the right from time to time, and at any time following an event of default, and ending on the date of payment of the default amount (as defined), to convert all or any part of the outstanding and unpaid principal, interest, penalties, and all other amounts under the notes into fully paid and non-assessable shares of common stock at a conversion price equal to 65% of the three lowest trading prices of the Company common stock for the 15 trading days immediately preceding the delivery of a notice of conversion resulting from such default. The Company issued a total of 3,400,000 shares of common stock, valued at $29,580, to the investor in connection with the issuance of the notes. The Company recorded a derivative liability associated with the notes of $525,010, valued using a Binomial Option Pricing Model, of which $280,420 was recorded as debt discount and $244,590 was charged to expense. We have recorded a total debt discount of $330,000 related to the notes, which will be amortized over the one year term of each note. During the three months ended March 31, 2022, we amortized $57,411 of debt discount to interest expense.

As of March 31, 2022, convertible notes in the aggregate principal amount of $2,941,274 were past their maturity dates; however the Company has not yet received any default notices. No default or penalty was paid or required to be paid.

During the three months ended March 31, 2021, $100,000 of notes was converted into 4,444,444 shares of common stock with a value of $697,779. A gain on extinguishment of debt of $59,999 and reduction of derivative liabilities of $657,778 have been recorded related to these conversions.

During the three months ended March 31, 2021, $6,256 of accrued interest was converted into 581,969 shares of common stock with a value of $7,856. A gain on extinguishment of debt of $1,709 and reduction of derivative liabilities of $3,309 have been recorded related to these conversions.

During the three months ended March 31, 2021, we repaid an aggregate of $200,000 of note principal. A gain on extinguishment of debt of $177,116 and reduction of derivative liabilities of $177,116 have been recorded related to these payments.

During the three months ended March 31, 2021, we paid an aggregate of $70,000 in settlement of accrued interest in the amount of $95,390. A gain on extinguishment of debt of $150,726 and reduction of derivative liabilities of $125,336 have been recorded related to these payments.

During the three months ended March 31, 2021, we recorded noncash additions to convertible notes aggregating $2,000.

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 March 31, 2022 and 2021:

Note 8 – Stockholders’ Equity (Deficit)

Series C Preferred Stock

On February 24, 2021, the Company sold 179,850 of its Series C Convertible Preferred Shares, with an annual accruing dividend of 8%, to Geneva Roth Remark Holdings, Inc. (“Geneva”), for $163,500 pursuant to a Series C Preferred Purchase Agreement with Geneva. The Company may redeem the Series C Shares at various increased prices at time intervals up to the 6-month anniversary of the closing and must redeem any outstanding shares on the 24-month anniversary. Geneva may convert the Series C Shares into our common shares, commencing on the 6-month anniversary of the closing at a 25% discount to the public market price. The Company recorded a derivative liability associated with Series C Preferred Shares of $1,208,971, valued using a Binomial Option Pricing Model. On March 16, 2021, the Company sold an additional 113,850 shares for $103,500 and recorded a derivative of $165,142. The Series C Preferred Stock is classified as temporary equity due to the fact that the shares are redeemable at the option of the holder. The holder converted the entire amount of $293,700 of the February and March preferred shares plus accrued dividends of $11,748 into 26,159,396 shares of common stock during the year ended December 31, 2021. As of March 31, 2022 and December 31, 2021, there were no shares of Series C Convertible Preferred Stock outstanding.

The table below provides the preferred stock activity for the three months ended March 31, 2022 (there was no preferred stock activity during the three months ended March 31, 2022), and also a reconciliation of the beginning and ending balances for the derivative liabilities measured using Level 3 fair value inputs for the three months ended March 31, 2021.

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 March 31, 2021:  

Common Stock

2022 Transactions

During the three months ended March 31, 2022, we issued 3,400,000 shares of common stock, valued at $29,580, in connection with the issuance of convertible notes payable. 

During the three months ended March 31, 2022, 463,637 shares of common stock, valued at $8,183, were accrued for related party services. At March 31, 2022 and December 31, 2021, shares to be issued for related party services were 1,058,169 and 594,532, respectively, and the value of shares to be issued at March 31, 2022 and December 31, 2021 was $11,769 and $3,586, respectively.

During the three months ended March 31, 2022, 192,308 shares of common stock, valued at $2,000, were accrued for services. At March 31, 2022 and December 31, 2021, shares to be issued for services were 687,424 and 495,116, respectively, and the value of shares to be issued at March 31, 2022 and December 31, 2021 was $8,000 and $6,000, respectively.

At March 31, 2022 and December 31, 2021, shares to be issued for debt conversions were 31,960, and the value of shares to be issued was $21,861.

2021 Transactions

During the three months ended March 31, 2021, $100,000 of notes and $6,256 of accrued interest and fees were converted into 5,026,413 shares of common stock with a value of $705,635.

During the three months ended March 31, 2021, 606,769 shares of common stock, valued at $24,843, were accrued for related party services. At March 31, 2021 and December 31, 2020, shares to be issued for related party services were 2,338,456 and 1,731,687, respectively, and the value of shares to be issued at March 31, 2021 and December 31, 2020 was $38,207 and $13,364, respectively.

During the three months ended March 31, 2021, 31,696 shares of common stock, valued at $2,000, were accrued for services. At March 31, 2021 and December 31, 2020, shares to be issued for services were 1,137,553 and 1,105,857, respectively, and the value of shares to be issued at March 31, 2021 and December 31, 2020 was $16,000 and $14,000, respectively.

At March 31, 2021 and December 31, 2020, shares to be issued for debt conversions were 31,960, and the value of shares to be issued was $21,861.

During the three months ended March 31, 2021, we issued 30,000 shares of common stock, valued at $1,915, for consulting services.

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 three months ended March 31, 2022 and 2021:

The following assumptions were used in calculations of the Black Scholes modelBinomial Option Pricing Model in calculating the embedded conversion features and current liabilities for the periodthree months ended September 30, 2017March 31, 2022 and 2016.2021:

Note 9 – Stockholders’ Equity

The following table presents the company’s warrants and option features which have no observable market data and are derived using Black-Scholes measured at fair value on a recurring basis, using Level 3 inputs, asSchedule of December 31, 2016 and September 30, 2017: