Commitments and Contingencies

3 Months Ended

Mar. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

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 March 31, 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 March 31, 2020, the maturities of operating leases liabilities are as follows (in thousands):

	Operating Leases
2020	$	718
2021		863
2022		719
2023		733
2024		445
2025 and beyond		45
Total		3,523
Less: amount representing interest		(731	)
Present value of future minimum lease payments		2,792
Less: current obligations under leases		669
Long-term lease obligations	$	2,123

Rent expense is recognized on a straight-line basis over the life of the lease. Rent expense consists of the following:

	Three months ended
	March 31, 2020
Operating lease costs	$	249,225
Variable rent costs	41,568
Total rent expense	$	290,793

Other information related to leases is as follows:

	Three months ended
	March 31, 2020
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	290,793
Weighted-average remaining lease term - operating leases	3.99		yr
Weighted-average discount rate - operating leases	12		%

The Company recognized sublease income of $384,031 and $450,015 during the three months ended March 31, 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 NNN.

As of March 31, 2020, the maturities of expected base sublease income are as follows (in thousands):

		Operating Leases
Remaining of 2020	$	921
2021		1,079
2022		855
2023		868
2024		550
2025 and beyond		58
Total	$	4,331

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 three months ended March 31, 2020, the Company accrued compensation expense of approximately $27,026 on 1,652,116 shares of common stock under these agreements.

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 months ended March 31, 2020 and the year ended December 31, 2019, $0 and $9,450 were paid under this agreement. As of March 31, 2020 and December 31, 2019, the outstanding balance was $196,800, 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 principle 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 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.