Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
1 – Nature of Business and Significant Accounting Policies
Nature
of Business
One
World Pharma, Inc. (the “Company,” “we,” “our” or “us”) was incorporated in Nevada
on September 2, 2014. On February 21, 2019, One World Pharma, Inc. (“One World Pharma”) entered into an Agreement
and Plan of Merger with OWP Merger Subsidiary, Inc., our wholly-owned subsidiary, and OWP Ventures, Inc. (“OWP Ventures”),
which is the parent company of One World Pharma SAS, a Colombian company (“OWP Colombia”). Pursuant to the Merger
Agreement, we acquired OWP Ventures (and indirectly, OWP Colombia) by the merger of OWP Merger Subsidiary with and into OWP Ventures,
with OWP Ventures being the surviving entity as our wholly-owned subsidiary (the “Merger”). As a result of the Merger
(a) holders of the outstanding capital stock of OWP Ventures received an aggregate of 39,475,398 shares of our common stock; (b)
options to purchase 825,000 shares of common stock of OWP Ventures at an exercise price of $0.50 automatically converted into
options to purchase 825,000 shares of our common stock at an exercise price of $0.50; (c) the outstanding principal and interest
under a $300,000 convertible note issued by OWP Ventures became convertible, at the option of the holder, into shares of our common
stock at a conversion price equal to the lesser of $0.424 per share or 80% of the price we sell our common stock in a future “Qualified
Offering”; (d) 875,000 shares of our common stock owned by OWP Ventures prior to the Merger were cancelled; and (e) OWP
Ventures’ chief operating officer became our chief operating officer and two of OWP Ventures’ directors became members
of our board of directors. The Company’s headquarters are located in Las Vegas, Nevada, and all of its customers are expected
to be outside of the United States. On January 10, 2019, the Company changed its name from Punto Group, Corp. to One World Pharma,
Inc.
OWP
Ventures is a holding company formed in Delaware on March 27, 2018 to enter and support the cannabis industry, and on May 30,
2018, it acquired OWP Colombia. OWP Colombia is a licensed cannabis cultivation, production and distribution (export) company
located in Popayán, Colombia (nearest major city is Cali). We plan to be a producer of raw cannabis and hemp plant ingredients
for both medical and industrial uses across the globe. We have received licenses to cultivate, produce and distribute the raw
ingredients of the cannabis and hemp plant for medicinal, scientific and industrial purposes. Specifically, we are one of the
only companies in Colombia to receive seed, cultivation, extraction and export licenses from the Colombian government. Currently,
we own approximately 30 acres and have a covered greenhouse built specifically to cultivate high-grade cannabis and hemp. In addition,
we have entered into agreements with local farming co-operatives that include small farmers and indigenous tribe members, under
which they will cultivate cannabis on up to approximately 140 acres of land using our seeds and propagation techniques, and sell
their harvested products to us on an exclusive basis. We planted our first crop of cannabis in 2018, which we began harvesting
in the first quarter of 2019 for the purpose of further research and development activities and quality control testing of the
cannabis we have produced. To date, we have not yet generated any revenues from our activities.
The
Merger was accounted for as a reverse merger (recapitalization) with OWP Ventures deemed to be the accounting acquirer. Accordingly,
the financial statements included in this Quarterly Report on Form 10-Q reflect the historical operations of OWP Ventures and
its wholly-owned subsidiary OWP SAS prior to the Merger, and that of the combined company following the Merger. The historical
financial information for One World Pharma, Inc. (formerly Punto Group Corp.) prior to the Merger has been omitted.
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (U.S. GAAP) and the rules of the Securities and Exchange Commission (SEC). Intercompany accounts
and transactions have been eliminated.
The
unaudited condensed consolidated financial statements of the Company and the accompanying notes included in this Quarterly Report
on Form 10-Q are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the Condensed Consolidated
Financial Statements have been included. Such adjustments are of a normal, recurring nature. The Condensed Consolidated Financial
Statements, and the accompanying notes, are prepared in accordance with GAAP and do not contain certain information included in
the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019. The interim Condensed Consolidated
Financial Statements should be read in conjunction with that Annual Report on Form 10-K. Results for the interim periods presented
are not necessarily indicative of the results that might be expected for the entire fiscal year.
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the following entities, all of which were under common
control and ownership at March 31, 2020:
|
|
|
State
of
|
|
|
|
|
|
Name
of Entity
|
|
|
Incorporation
|
|
|
|
Relationship
|
|
One World Pharma,
Inc.(1)
|
|
|
Nevada
|
|
|
|
Parent
|
|
OWP Ventures, Inc.(2)
|
|
|
Delaware
|
|
|
|
Subsidiary
|
|
One World Pharma
S.A.S.(3)
|
|
|
Colombia
|
|
|
|
Subsidiary
|
|
Colombian Hope,
S.A.S.(4)
|
|
|
Colombia
|
|
|
|
Subsidiary
|
|
(1)Holding
company in the form of a corporation.
(2)Holding
company in the form of a corporation and wholly-owned subsidiary of One World Pharma, Inc.
(3)Wholly-owned
subsidiary of OWP Ventures, Inc. since May 30, 2018, located in Colombia and legally constituted as a simplified stock company
registered in the Chamber of Commerce of Bogotá on July 18, 2017. Its headquarters are located in Bogotá.
(4)Wholly-owned
subsidiary of OWP Ventures, Inc., acquired on November 19, 2019, located in Colombia and legally constituted as a simplified stock
company. This company has yet to incur any income or expenses.
The
consolidated financial statements herein contain the operations of the wholly-owned subsidiaries listed above. The Company’s
headquarters are located in Las Vegas, Nevada and substantially all of its production efforts are within Popayán, Colombia.
Foreign
Currency Translation
The
functional currency of the Company is Columbian Peso (COP). The Company has maintained its financial statements using the functional
currency, and translated those financial statements to the US Dollar (USD) throughout this report. Monetary assets and liabilities
denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange
prevailing at the balance sheet dates. Transactions denominated in currencies other than the functional currency are translated
into the functional currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising
from foreign currency transactions are included in the determination of net income (loss) for the respective periods.
Comprehensive
Income
The
Company has adopted the Financial Accounting Standards Boards (“FASB”) Accounting Standards Codification (“ASC”)
220, Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive income, its components,
and accumulated balances in a full-set of general-purpose financial statements. Accumulated other comprehensive income represents
the accumulated balance of foreign currency translation adjustments.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of
contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Segment
Reporting
ASC
Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting.
The management approach model is based on the way a company’s management organizes segments within the company for making
operating decisions and assessing performance. The Company operates as a single segment and will evaluate additional segment disclosure
requirements as it expands its operations.
Fair
Value of Financial Instruments
Under
ASC 820-10-05, the FASB establishes a framework for measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The
adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The
carrying amounts of cash, accounts receivable, accounts payable and accrued expenses reported on the balance sheets are estimated
by management to approximate fair value primarily due to the short term nature of the instruments.
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Cash
in Excess of FDIC Insured Limits
The
Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed
by the Federal Deposit Insurance Corporation (FDIC) up to $250,000, under current regulations. The Company did not have cash in
excess of FDIC insured limits at March 31, 2020.
Revenue
Recognition
The
Company has not yet recognized revenue. The Company will recognize revenue in accordance with ASC 606 — Revenue from Contracts
with Customers. Under ASC 606, the Company will recognize revenue from the commercial sales of products, licensing agreements
and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify
the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance
obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
There
was no impact on the Company’s financial statements from ASC 606 for the three months ended March 31, 2020, or the year
ended December 31, 2019. Inventory consisted of $118,899 of raw materials at March 31, 2020.
Inventory
Inventories
are stated at the lower of cost or market. Cost is determined on a standard cost basis that approximates the first-in, first-out
(FIFO) method. Market is determined based on net realizable value. Appropriate consideration is given to obsolescence, excessive
levels, deterioration, and other factors in evaluating net realizable value. Our cannabis products consist of cannabis flower
grown in-house, along with produced extracts.
Stock-Based
Compensation
The
Company accounts for equity instruments issued to employees in accordance with the provisions of ASC 718 Stock Compensation (ASC
718) and Equity-Based Payments to Non-employees pursuant to ASC 505-50 (ASC 505-50). All transactions in which goods or services
are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration
received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the
fair value of the equity instrument issued is the earlier of the date on which the counterparty’s performance is complete
or the date at which a commitment for performance by the counterparty to earn the equity instruments is reached because of sufficiently
large disincentives for nonperformance.
Basic
and Diluted Loss Per Share
The
basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding.
Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by
the weighted average number of common shares outstanding plus potential dilutive securities. For the periods presented, potential
dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.
Recent
Accounting Pronouncements
From
time to time, new accounting pronouncements are issued by the FASB that are adopted by the Company as of the specified effective
date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not
have a material impact on the Company’s financial statements upon adoption.
In
August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820) (“ASU
2018-13”). The new guidance removes, modifies and adds to certain disclosure requirements on fair value measurements in
Topic 820, Fair Value Measurement. The update is effective for annual reporting periods, including interim periods, beginning
after December 15, 2019. The adoption of the new standard did not have an effect on our financial position, results of operations
or cash flows.
In
January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill
Impairment (“ASU 2017-04”). The update simplifies the subsequent measurement of goodwill by eliminating Step 2 from
the goodwill impairment test. An entity should perform its annual, or interim, goodwill impairment test by comparing the fair
value of a reporting unit with its carrying amount, and recognize an impairment charge for the amount by which the carrying amount
exceeds the reporting unit’s fair value, if applicable. The loss recognized should not exceed the total amount of goodwill
allocated to the reporting unit. The same impairment test also applies to any reporting unit with a zero or negative carrying
amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative
impairment test is necessary. The update is effective for annual reporting periods, including interim periods, beginning after
December 15, 2019, on a prospective basis. The adoption of the new standard did not have an effect on our financial position,
results of operations or cash flows.
There
are no other recently issued accounting pronouncements that the Company has yet to adopt that are expected to have a material
effect on its financial position, results of operations, or cash flows.
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
2 –Going Concern
As
shown in the accompanying condensed consolidated financial statements as of March 31, 2020, the Company had cash on hand of $20,782,
negative working capital of $1,195,838 and an accumulated deficit of $9,355,082, and the Company’s cash on hand may not
be sufficient to sustain operations. These factors raise substantial doubt about the Company’s ability to continue as a
going concern. Management is actively pursuing new customers to generate revenues. In addition, the Company is currently seeking
additional sources of capital to fund short term operations. Management believes these factors will contribute toward achieving
profitability. There can be no assurance that we will be successful in achieving these objectives, becoming profitable or continuing
our business without either a temporary interruption or a permanent cessation. Additional financing may result in substantial
dilution to existing stockholders
The
condensed consolidated financial statements do not include any adjustments that might result from the outcome of any uncertainty
as to the Company’s ability to continue as a going concern. These financial statements also do not include any adjustments
relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that
might be necessary should the Company be unable to continue as a going concern.
Note
3 –Mergers and Acquisitions
Acquisition
On
December 6, 2019, the Company, through its wholly-owned subsidiary OWP Ventures, Inc., acquired 51% of the outstanding shares
of capital stock (the “Shares”) of Colombian Hope, S.A.S., then known as Colcannapy S.A.S., a Colombian company (“Colombian
Hope”), for a purchase price of US$102,000, pursuant to a Share Purchase Agreement (the “Purchase Agreement”)
among OWP Ventures, Inc. and Colombian Hope’s shareholders. Colombian Hope is the holder of a Colombian seed license and
23 registered Colombian cultivars.
Concurrently,
with the Company’s acquisition of the Shares, Federación Colombiana de Consejos Regionales (“Fedecoré”)
was supposed to have purchased the remaining 49% of Colombian Hope’s outstanding shares of capital stock from Colombian
Hope’s shareholders, so that the Company and Fedecoré would be the only shareholders of Colombian Hope. However,
Fedecoré, a non-profit Colombian entity, was unable to acquire such shares, which were then acquired by OWP Ventures, Inc.,
resulting in 100% ownership. No assets or liabilities were acquired pursuant to the acquisition, resulting in $102,000 of goodwill
that was impaired and expensed on December 31, 2019 due to the lack of current operations. To date, Colombian Hope has not incurred
any income or expenses.
Note
4 – Fair Value of Financial Instruments
Under
FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation
framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements
and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50
details the disclosures that are required for items measured at fair value.
The
Company has certain financial instruments that must be measured under the new fair value standard. The Company’s financial
assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level
1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability
to access at the measurement date.
Level
2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar
assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability
(e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market
data by correlation or other means (market corroborated inputs).
Level
3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset
or liability.
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
The
following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheet as
of March 31, 2020 and December 31, 2019, respectively:
|
|
Fair
Value Measurements at March 31, 2020
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
20,782
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Right-of-use
asset
|
|
|
-
|
|
|
|
-
|
|
|
|
443,815
|
|
Total
assets
|
|
|
20,782
|
|
|
|
-
|
|
|
|
443,815
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
451,195
|
|
Convertible note payable
|
|
|
-
|
|
|
|
-
|
|
|
|
507,332
|
|
Notes payable
|
|
|
-
|
|
|
|
216,000
|
|
|
|
-
|
|
Total
liabilities
|
|
|
-
|
|
|
|
(216,000
|
)
|
|
|
(958,527
|
)
|
|
|
$
|
20,782
|
|
|
$
|
(216,000
|
)
|
|
$
|
(514,712
|
)
|
|
|
Fair
Value Measurements at December 31, 2019
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
282,380
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Right-of-use
asset
|
|
|
-
|
|
|
|
-
|
|
|
|
502,706
|
|
Total
assets
|
|
|
282,380
|
|
|
|
-
|
|
|
|
502,706
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
508,352
|
|
Convertible note payable
|
|
|
-
|
|
|
|
-
|
|
|
|
507,332
|
|
Notes payable
|
|
|
-
|
|
|
|
130,000
|
|
|
|
-
|
|
Total
liabilities
|
|
|
-
|
|
|
|
130,000
|
|
|
|
1,015,684
|
|
|
|
$
|
282,380
|
|
|
$
|
(130,000
|
)
|
|
$
|
(512,978
|
)
|
There
were no transfers of financial assets or liabilities between Level 1, Level 2 and Level 3 inputs for the three months ended March
31, 2020 or the year ended December 31, 2019.
Note
5 – Inventory
Inventories
are stated at the lower of cost or market. Cost is determined on a standard cost basis that approximates the first-in, first-out
(FIFO) method. Market is determined based on net realizable value. Appropriate consideration is given to obsolescence, excessive
levels, deterioration, and other factors in evaluating net realizable value. Our cannabis products consist of cannabis flower
grown in-house, along with produced extracts. Inventory consisted of $118,899 and $24,682 of raw materials at March 31, 2020 and
December 31, 2019, respectively.
Note
6 – Other Current Assets
Other
current assets included the following as of March 31, 2020 and December 31, 2019, respectively:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
VAT tax receivable
|
|
$
|
58,027
|
|
|
$
|
54,814
|
|
Prepaid expenses
|
|
|
51,423
|
|
|
|
132,338
|
|
Other receivables
|
|
|
39,301
|
|
|
|
79,954
|
|
Total
|
|
$
|
148,751
|
|
|
$
|
267,106
|
|
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
7 – Security Deposits
Security
deposits included the following as of March 31, 2020 and December 31, 2019, respectively:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Refundable deposit on
equipment purchase
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
Security deposits on leases held
in Colombia
|
|
|
15,022
|
|
|
|
18,033
|
|
Security deposit on office lease
|
|
|
4,494
|
|
|
|
4,494
|
|
Security deposit
on utilities
|
|
|
660
|
|
|
|
-
|
|
|
|
$
|
70,176
|
|
|
$
|
72,527
|
|
Note
8 – Fixed Assets
Fixed
assets consist of the following at March 31, 2020 and December 31, 2019, respectively:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Land
|
|
$
|
138,248
|
|
|
$
|
138,248
|
|
Office equipment
|
|
|
44,027
|
|
|
|
44,027
|
|
Furniture and fixtures
|
|
|
27,914
|
|
|
|
27,914
|
|
Equipment and machinery
|
|
|
176,285
|
|
|
|
174,072
|
|
Construction
in progress
|
|
|
335,231
|
|
|
|
335,231
|
|
|
|
|
721,705
|
|
|
|
719,492
|
|
Less: accumulated
depreciation
|
|
|
(27,541
|
)
|
|
|
(21,629
|
)
|
Total
|
|
$
|
694,164
|
|
|
$
|
697,863
|
|
Construction
in progress consists of equipment and capital improvements on the Popayán farm have not yet been placed in service.
Depreciation
and amortization expense totaled $5,912 and $2,436 for the three months ended March 31, 2020 and 2019, respectively.
Note
9 – Accrued Expenses
Accrued
expenses consisted of the following at March 31, 2020 and December 31, 2019, respectively:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Accrued payroll
|
|
$
|
34,520
|
|
|
$
|
67,479
|
|
Accrued withholding taxes and employee
benefits
|
|
|
47,611
|
|
|
|
14,386
|
|
Accrued ICA fees and contributions
|
|
|
1,494
|
|
|
|
1,912
|
|
Accrued interest
|
|
|
36,002
|
|
|
|
25,888
|
|
|
|
$
|
119,627
|
|
|
$
|
109,665
|
|
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
10 – Leases
The
Company’s corporate offices and operational facility in Colombia under non-cancelable real property lease agreements that
expire on October 31, 2021 and September 30, 2029, respectively. The Company doesn’t have any other office or equipment
leases subject to the recently adopted ASU 2016-02. In the locations in which it is economically feasible to continue to operate,
management expects that lease options will be exercised. The Company’s corporate office is under a real property lease that
contains a one-time renewal option for an additional 36 months that we determined would be reasonably certain to be extended,
while the Company’s operational facility in Colombia contains a 60 month extension option that we did not determine to be
reasonably certain to be extended. The office lease contains provisions requiring payment of property taxes, utilities, insurance,
maintenance and other occupancy costs applicable to the leased premise. As the Company’s leases do not provide an implicit
discount rate, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining
the present value of lease payments.
The
components of lease expense were as follows:
|
|
For the Three
|
|
|
|
Months Ended
|
|
|
|
March
31, 2020
|
|
Operating lease cost:
|
|
|
|
|
Amortization
of assets
|
|
$
|
58,891
|
|
Interest
on lease liabilities
|
|
|
7,757
|
|
Total lease
cost
|
|
$
|
66,648
|
|
Supplemental
balance sheet information related to leases was as follows:
|
|
March 31, 2020
|
|
Operating leases:
|
|
|
|
|
Operating
lease assets
|
|
$
|
443,815
|
|
|
|
|
|
|
Current portion
of operating lease liabilities
|
|
$
|
54,275
|
|
Noncurrent
operating lease liabilities
|
|
|
396,920
|
|
Total
operating lease liabilities
|
|
$
|
451,195
|
|
|
|
|
|
|
Weighted average remaining lease
term:
|
|
|
|
|
Operating leases
|
|
|
9.5
years
|
|
|
|
|
|
|
Weighted average discount rate:
|
|
|
|
|
Operating leases
|
|
|
6.75
|
%
|
Supplemental
cash flow and other information related to leases was as follows:
|
|
For the Three
|
|
|
|
Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
Cash paid for amounts included in
the measurement of lease liabilities:
|
|
|
|
|
Operating
cash flows used for operating leases
|
|
$
|
57,157
|
|
|
|
|
|
|
Leased assets obtained in exchange
for lease liabilities:
|
|
|
|
|
Total
operating lease liabilities
|
|
$
|
451,195
|
|
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Future
minimum annual lease commitments under non-cancelable operating leases are as follows at March 31, 2020:
|
|
Operating
|
|
|
|
Leases
|
|
|
|
|
|
2020
|
|
$
|
115,934
|
|
2021
|
|
|
80,877
|
|
2022
|
|
|
34,528
|
|
2023
|
|
|
35,909
|
|
2024
|
|
|
37,345
|
|
Thereafter
|
|
|
198,669
|
|
Total minimum
lease payments
|
|
|
503,262
|
|
Less interest
|
|
|
52,067
|
|
Present value
of lease liabilities
|
|
|
451,195
|
|
Less current
portion
|
|
|
54,275
|
|
Long-term
lease liabilities
|
|
$
|
396,920
|
|
Note
11 – Convertible Note Payable
Convertible
note payable consists of the following at March 31, 2020 and December 31, 2019, respectively:
|
|
March
31,
2020
|
|
|
December
31,
2019
|
|
|
|
|
|
|
|
|
On November 30, 2018,
the Company received proceeds of $300,000 on a secured convertible note that carries a 6% interest rate from CSW Ventures,
LP (“CSW”). The proceeds were used to fund the Company’s purchase of 875,000 shares of common stock, on
a 1:4 split adjusted basis, of One World Pharma, Inc. The Note is due on demand. In the event that the Company consummated
the closing of a public or private offering of its equity securities, resulting in gross proceeds of at least $500,000 (“Qualified
Financing”) at any time prior to the repayment of this note, then the outstanding principal and unpaid interest may,
at the option of the holder, be converted into such equity securities at a conversion price equal to eighty percent (80%)
of the purchase price paid by the investors purchasing the equity securities in the Qualified Financing. A Qualified Financing
subsequently occurred on February 4, 2019, at which time the convertible note became convertible at a fixed conversion price
of $0.40 per share. The Company’s obligations under this Note are secured by a lien on the assets of the Company.
|
|
$
|
300,000
|
|
|
$
|
300,000
|
|
|
|
|
|
|
|
|
|
|
On July 22, 2019, a total of $207,332,
consisting of $200,000 of principal and $7,332 of unpaid interest, on two outstanding demand notes owed to CSW that originated
on November 26, 2018 and December 26, 2018, were exchanged for a convertible promissory note in the principal amount of $207,332,
due on demand (the “Second Convertible CSW Note”). The Second Convertible CSW Note bears interest at 6% per annum
and is convertible at the option of the holder into shares of common stock at a price of $0.50 per share.
|
|
|
207,332
|
|
|
|
207,332
|
|
Less: unamortized
debt discounts
|
|
|
-
|
|
|
|
-
|
|
Convertible
note payable
|
|
$
|
507,332
|
|
|
$
|
507,332
|
|
In
addition, the Company recognized and measured the embedded beneficial conversion feature present in the convertible notes by allocating
a portion of the proceeds equal to the intrinsic value of the feature to additional paid-in-capital. The intrinsic value of the
feature was calculated on the commitment date using the effective conversion price of the convertible notes. This intrinsic value
is limited to the portion of the proceeds allocated to the convertible debt.
The
aforementioned accounting treatment resulted in a total debt discounts equal to $332,332 for the year ended December 31, 2019.
The Company recorded finance expense in the amount of $125,000 for the three months ended March 31, 2019.
The
convertible note limits the maximum number of shares that can be owned by the note holder as a result of the conversions to common
stock to 4.99% of the Company’s issued and outstanding shares.
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
The
Company recorded interest expense pursuant to the stated interest rates on the convertible notes in the amount of $7,589 and $5,836
for the three months ended March 31, 2020 and 2019, respectively, and $125,000 of interest expense related to the debt discount
for the three months ended March 31, 2019.
Note
12 – Notes Payable
Notes
payable consists of the following at March 31, 2020 and December 31, 2019, respectively:
|
|
March
31, 2020
|
|
|
December
31, 2019
|
|
|
|
|
|
|
|
|
On
various dates between January 29, 2020 and March 31, 2020, the Company received advances
from CSW Ventures, LP aggregating of $86,000, pursuant to unsecured promissory notes
due on demand that carry a 6% interest rate, as follows:
$25,000
– January 29, 2020
$25,000
– February 13, 2020
$15,000
– February 26, 2020
$15,000
– March 11, 2020
$
6,000 – March 31, 2020
|
|
$
|
86,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
On November 14, 2019, the Company
received an advance of $50,000 from MCK Investments LLC pursuant to an unsecured promissory note due on demand that carries
a 6% interest rate.
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
On November 14, 2019, the Company
received an advance of $80,000 from MCK Investments LLC on an unsecured promissory note due on demand that carries a 6% interest
rate.
|
|
|
80,000
|
|
|
|
80,000
|
|
|
|
|
|
|
|
|
|
|
Total notes
payable
|
|
$
|
216,000
|
|
|
$
|
130,000
|
|
The
Company recorded interest expense in the amount of $2,526 and $2,959 for the three months ended March 31, 2020 and 2019, respectively.
The
Company recognized interest expense for the three months ended March 31, 2020 and 2019, as follows:
Note
15 – Subsequent Events
Debt
Financings
On
May 4, 2020, the Company, through its wholly-owned subsidiary OWP Ventures, Inc., borrowed $119,274 from Customers Bank (“Lender”),
pursuant to a Promissory Note issued by OWP Ventures to Lender (the “PPP Note”). The loan was made pursuant to the
Payroll Protection Program established as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).
The PPP Note bears interest at 1.00% per annum, payable monthly beginning December 4, 2020, and is due on May 4, 2022. The PPP
Note may be repaid at any time without penalty.
Under
the Payroll Protection Program, the Company will be eligible for loan forgiveness up to the full amount of the PPP Note and any
accrued interest. The forgiveness amount will be equal to the amount that the Company spends during the 24-week period beginning
May 4, 2020 on payroll costs, payment of rent on any leases in force prior to February 15, 2020 and payment on any utility for
which service began before February 15, 2020. The maximum amount of loan forgiveness for non-payroll expenses is 40% of the amount
of the PPP Note. No assurance is provided that the Company will obtain forgiveness under the PPP Note in whole or in part.
The
PPP Note contains customary events of default relating to, among other things, payment defaults, breach of representations and
warranties, or provisions of the promissory note. The occurrence of an event of default may result in a claim for the immediate
repayment of all amounts outstanding under the PPP Note.
On
May 4, 2020, the Company received proceeds of $20,000 from Woodman Management in exchange for a demand note, bearing 6% interest
per annum. The note was repaid in full on May 14, 2020.
On
April 2, 2020, the Company received proceeds of $6,000 from MCKP Investments LLC in exchange for a demand note, bearing 6% interest
per annum.
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Preferred
Stock Sales
On
various dates between April 14, 2020 and May 7, 2020, the Company received total proceeds of $210,000 on the sale of 21,000 units,
consisting of 21,000 shares of Series A Preferred Stock and warrants to acquire an aggregate 1,050,000 shares of common stock
at an exercise price of $0.25 per share over five years from the issuance dates, to nine accredited investors. Each share of Preferred
Stock is currently convertible into fifty (50) shares of the Company’s common stock. The Series A Preferred Stock accrues
dividends at the rate of 6% per annum, payable annually in cash or additional shares of Series A Preferred Stock, at the Company’s
election.
Common
Stock Issued for Services
On
May 31, 2020, the Company awarded an aggregate of 1,950,000 shares of common stock to seven consultants for services provided.
The aggregate fair value of the common stock was $1,092,000 based on the closing price of the Company’s common stock on
the date of grant.
Craig
Ellins Separation
On
June 3, 2020, the Company entered into a Separation and Release Agreement with Craig Ellins (the “Separation Agreement”),
pursuant to which Mr. Ellins has resigned from all of his positions with the Company and its subsidiaries, including his positions
as Chief Executive Officer and Chairman of the Board of the Company. Pursuant to the Separation Agreement, the Company will (i)
issue Mr. Ellins 2,000,000 shares of the Company’s Common Stock, (ii) reimburse Mr. Ellins for $55,000 of expenses previously
incurred by him on behalf of the Company, and (iii) make 12 monthly payments to Mr. Ellins in the amount of $8,000 each in the
12-month period following the date on which the Company has raised $1.5 million in gross proceeds from the sale of its securities
following the date of the Separation Agreement. The Separation Agreement also contains mutual releases and prohibits Mr. Ellins
from competing with the Company for a period of two years.
Appointment
of Isiah L. Thomas III as Chief Executive Officer and Vice Chairman
On
June 3, 2020, Isiah L. Thomas III was appointed to serve as the Company’s Chief Executive Officer and Vice Chairman pursuant
to a letter agreement with the Company (the “Employment Agreement”).
Mr.
Thomas, 59, has been the Chairman and Chief Executive Officer of Isiah International, LLC, a holding company with interests in
a diversified portfolio of businesses, since 2011. Mr. Thomas also has been a Commentator and Analyst for NBA TV, since 2014,
and Turner Sports, since 2012. He previously served as the President & Alternate Governor of the New York Liberty of the Women’s
National Basketball Association from 2015 to February 2019, the Head Basketball Coach at Florida International University, from
2009 to 2012, the General Manager, President of Basketball Operation and Head Coach of the New York Knicks of the National Basketball
Association (“NBA”), from 2006 to 2008, the Head Coach of the Indiana Pacers of the NBA from 2000 to 2003, the Owner
of the Continental Basketball Association from 1998 to 2000, Minority Owner & Executive Vice President of the Toronto Raptors
of the NBA from 1994 to 1998 and point guard for the Detroit Pistons of the NBA from 1981 to 1994. Mr. Thomas has served as a
director of Get in Chicago, an organization focused on stopping gun and related violence in Chicago, since 2013, and as a director
of Madison Square Garden Entertainment Corp. since April 2020. He is also the Founder of Mary’s Court Foundation, a charitable
organization established in 2010.
Pursuant
to the Employment Agreement:
|
●
|
Mr.
Thomas will be entitled to be paid a base salary of $120,000 in the first year of his employment; $240,000 in the second year
of his employment; and $300,000 in the third year of his employment.
|
|
|
|
|
●
|
The
Company will have the option to pay Mr. Thomas’s salary with shares of the Company’s Common Stock until the Company
has raised gross proceeds of at least $1.5 million from the sale of its securities following the date of his employment. If
the Company so elects to pay his salary with shares of Common Stock, the number of shares of Common Stock shall be issued
be equal to (a) 1.25 times the cash payment to which he would have been otherwise entitled, divided by (b) the closing price
of the Common Stock on the day such cash payment was due.
|
|
●
|
The
Company has awarded Mr. Thomas 500,000 shares of the Company’s Common Stock, and an option (the “Option”)
to purchase 5,500,000 shares of the Company’s Common Stock at an exercise price equal to $0.55 per share. The Option
will vest as to 1,500,000 shares immediately, as to 1,000,000 shares 120 days following the issuance of the Option (the “Second
Vesting Date”), and as to the remaining 3,000,000 shares quarterly over the three years following the Second Vesting
Date.
|
|
|
|
|
●
|
Mr.
Thomas will be employed by the Company on at-will basis.
|
Appointment
of Eric Stoppenhagen as Interim Chief Financial Officer
On
June 8, 2020, Eric Stoppenhagen, through NYX Advisors, Inc., was appointed to serve as the Interim Chief Financial Officer. Mr.
Stoppenhagen was awarded 200,000 shares of common stock and will be compensated at $200 per hour, up to a maximum of $5,000 per
month.
Dr.
Kenneth Perego, II Appointment as Executive Chairman of the Board
On
June 3, 2020, Dr. Kenneth Perego, II, who has been a director of the Company since February 2019, was appointed to serve as the
Executive Chairman of the Company’s Board of Directors.