DIEGO PELLICER WORLDWIDE, INC. Special Note Regarding Forward-Looking Information
The following discussion and analysis of the results of operations and financial condition ofDiego Pellicer Worldwide, Inc. should be read in conjunction with the financial statements ofDiego Pellicer Worldwide, Inc. and the notes to those financial statements that are included elsewhere in this Form 10-Q. References in this Management's Discussion and Analysis of Financial Condition and Results of Operations to "us", "we", "our" and similar terms refer to the Company. This Quarterly Report contains forward-looking statements as that term is defined in the federal securities laws. The events described in forward-looking statements contained in this Quarterly Report may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words "may," "will," "expect," "believe," "anticipate," "project," "plan," "intend," "estimate," and "continue," and their opposites and similar expressions, are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. Except as required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.
COVID-19 OnJanuary 30, 2020 , theWorld Health Organization ("WHO") announced a global health emergency in response to a new strain of a coronavirus (the "COVID-19 outbreak"). InMarch 2020 , theWHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in exposure globally. The COVID-19 pandemic is a highly fluid situation and it is not currently possible for us to reasonably estimate the impact it may have on our financial and operating results. We will continue to evaluate the impact of the COVID-19 pandemic on our business as we learn more and the impact of COVID-19 on our industry becomes clearer. We are complying health guidelines regarding safety procedures, including, but are not limited to, social distancing, remote working, and teleconferencing. The extent of the future impact of the COVID-19 pandemic on our business is uncertain and difficult to predict. Adverse global economic and market conditions as a result of COVID-19 could also adversely affect our business. If the pandemic continues to cause significant negative impacts to economic conditions, our results of operations, financial condition and liquidity could be adversely impacted. Overview of the MarketDiego Pellicer Worldwide, Inc. was established onAugust 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 cannabis market has a multi-billion dollar potential. The industry is still in a development stage, and is being rapidly propelled towards its potential by the state legalization and the rush by suppliers to meet the pent-up demand. Most suppliers are small, unsophisticated but capable operators. The federal legal constraints provide an opportunity to those companies early to the market to gain a first mover advantage and to the successful ones, an opportunity to be a consolidator in the industry.
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 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 respective 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. When it becomes federally legal to do so, 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 , a wholly owned subsidiary, will license the upscaleDiego Pellicer ("DP") brand to qualified operators and receive royalty payments, while providing expertise in retail, product and manufacturing from Diego's management team. Recent Developments
During the fiscal quarter, the Company continued its focus on seeking complimentary acquisitions that are additive to the Company's overall strategic plan.
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RESULTS OF OPERATIONS
Three months ended
After rental expense the gross margins on the lease were as follows:
Three Months Three Months
Ended Ended Increase (Decrease)
March 31, March 31,
2022 2021 $ %
Revenues
Net rental revenue $ 186,506 $ 191,753 $ (5,247 ) -3 %
Rental expense (148,402 ) (159,027 ) (10,625 ) -7 %
Gross profit 38,104 32,726 5,378 16 %General and administrative expenses 223,095 198,251
24,844 13 % Selling expense 8,465 9,881 (1,416 ) -14 % Loss from operations$ (193,456 ) $ (175,406 ) $ (18,050 ) 10 % Revenues. For the three months endedMarch 31, 2022 and 2021, the Company leased two facilities to a licensee inColorado . Total revenue for the three months endedMarch 31, 2022 was$186,506 , as compared to$191,753 for the three months endedMarch 31, 2021 , a decrease of$5,247 , primarily due to a lease extension in the third quarter of 2021.
Gross profit. Rental revenue and rental expense for the period endedMarch 31, 2022 decreased over the prior three months endedMarch 31 , 20201 resulting in a gross profit of$38,104 , an increase of$5,378 from a gross profit of$32,726 for the three months endedMarch 31, 2021 , resulting from a lease extension in the third quarter of 2021 which reduced both sublease income and rental expense. General and administrative expense. Our general and administrative expenses for the three months endedMarch 31, 2022 were$223,095 , compared to$198,251 for the three months endedMarch 31, 2021 . The increase of$24,844 was largely attributable to an increase in professional fees, partially offset by a reduction in executive stock compensation expense during the three months endedMarch 31, 2022 .
Selling expense. Our selling expenses for the three months endedMarch 31, 2022 were$8,465 , compared to$9,881 for the three months endedMarch 31, 2021 . The decrease of$1,416 was due to reduced website costs. Three Months Three Months Ended Ended Increase (Decrease) March 31, March 31, 2022 2021 $ % Other income (expense) Interest income$ 19,579 $ 26,912 $ (7,333 ) -27 % Forgiveness of debt income - 56,908 (56,908 ) -100 % Interest expense (496,452 ) (209,542 ) 286,910 137 % Lease termination payments 34,866 33,851 1,015 3 % Extinguishment of debt - 389,550 (389,550 ) -100 % Change in derivative liabilities (2,898,993 ) 698,449 3,597,442 515 % Change in value of warrants (202 ) (4,442 ) 4,240 -95 % Total other income (loss)$ (3,341,202 ) $ 991,686 $ (4,332,888 ) 437 %
The increase in net other expense resulted primarily from the effects that the changes in market value of the Company's stock had on the derivative liability associated with our convertible debt and preferred stock, including a reduction in gain resulting from the extinguishment of derivative liabilities during the period, and from increased financing costs of new debt incurred by the Company.
LIQUIDITY AND CAPITAL RESOURCES
Three Months Three Months
Ended Ended Increase (Decrease)
March 31, March 31,
2022 2021 $ %
Net Cash used in operating
activities $ (187,999 ) $ (196,763 ) $ 8,764 5 %
Net Cash provided by financing
activities 245,339 67,000 178,339 266 %
Net Increase (Decrease) in Cash 57,340 (129,763 ) 187,103 144 %
Cash - beginning of period 49,149 327,864 (278,715 )
Cash - end of period $ 106,489 $ 198,101 $ (91,612 ) -46 %
Operating Activities. For the three months ended March 31, 2022 , the net cash
used of $187,999 was a decrease over the same period of the prior year of
$8,764 . Cash used for operating assets and liabilities decreased by $45,112 ,
which was partially offset by an increase in loss from operations after non-cash
adjustments of $36,348 .
Financing Activities. During the three months ended March 31, 2022 , we loaned an
aggregate of $120,000 to an entity and received repayments of principal of
$55,339 . We received $310,000 from the issuance of convertible notes payable.
During the three months ended March 31, 2021 , we received $267,000 in proceeds
from the sale of preferred stock and we made $200,000 of principal repayments of
convertible notes payable.
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Going Concern Qualification
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 atMarch 31, 2022 , and it has an accumulated deficit of$55,672,640 atMarch 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. 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. Critical Accounting Policies
Our critical accounting policies are included in Note 2 - "Summary of Significant Accounting Policies" of Notes to Condensed Consolidated Financial Statements included in this Quarterly Report.
Recently Issued Accounting Standards
Our recently issued accounting standards are included in Note 2 - "Summary of Significant Accounting Policies" of Notes to Consolidated Financial Statements included in this Quarterly Report.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
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