0001622244 false Q1 --12-31 P5Y P5Y 0001622244 2023-01-01 2023-03-31 0001622244 2023-07-03 0001622244 2023-03-31 0001622244 2022-12-31 0001622244 us-gaap:NonrelatedPartyMember 2023-03-31 0001622244 us-gaap:NonrelatedPartyMember 2022-12-31 0001622244 us-gaap:RelatedPartyMember 2023-03-31 0001622244 us-gaap:RelatedPartyMember 2022-12-31 0001622244 OWPC:SeriesAConvertiblePreferredStockMember 2023-03-31 0001622244 OWPC:SeriesAConvertiblePreferredStockMember 2022-12-31 0001622244 OWPC:SeriesBConvertiblePreferredStockMember 2023-03-31 0001622244 OWPC:SeriesBConvertiblePreferredStockMember 2022-12-31 0001622244 2022-01-01 2022-03-31 0001622244 OWPC:SeriesAConvertiblePreferredStockMember 2022-03-31 0001622244 us-gaap:PreferredStockMember OWPC:SeriesAConvertiblePreferredStockMember 2022-12-31 0001622244 us-gaap:PreferredStockMember OWPC:SeriesBConvertiblePreferredStockMember 2022-12-31 0001622244 us-gaap:CommonStockMember 2022-12-31 0001622244 us-gaap:AdditionalPaidInCapitalMember 2022-12-31 0001622244 OWPC:SubscriptionsPayableMember 2022-12-31 0001622244 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-12-31 0001622244 us-gaap:RetainedEarningsMember 2022-12-31 0001622244 us-gaap:PreferredStockMember OWPC:SeriesAConvertiblePreferredStockMember 2021-12-31 0001622244 us-gaap:PreferredStockMember OWPC:SeriesBConvertiblePreferredStockMember 2021-12-31 0001622244 us-gaap:CommonStockMember 2021-12-31 0001622244 us-gaap:AdditionalPaidInCapitalMember 2021-12-31 0001622244 OWPC:SubscriptionsPayableMember 2021-12-31 0001622244 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-12-31 0001622244 us-gaap:RetainedEarningsMember 2021-12-31 0001622244 2021-12-31 0001622244 us-gaap:PreferredStockMember OWPC:SeriesAConvertiblePreferredStockMember 2023-01-01 2023-03-31 0001622244 us-gaap:PreferredStockMember OWPC:SeriesBConvertiblePreferredStockMember 2023-01-01 2023-03-31 0001622244 us-gaap:CommonStockMember 2023-01-01 2023-03-31 0001622244 us-gaap:AdditionalPaidInCapitalMember 2023-01-01 2023-03-31 0001622244 OWPC:SubscriptionsPayableMember 2023-01-01 2023-03-31 0001622244 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-01-01 2023-03-31 0001622244 us-gaap:RetainedEarningsMember 2023-01-01 2023-03-31 0001622244 us-gaap:PreferredStockMember OWPC:SeriesAConvertiblePreferredStockMember 2022-01-01 2022-03-31 0001622244 us-gaap:PreferredStockMember OWPC:SeriesBConvertiblePreferredStockMember 2022-01-01 2022-03-31 0001622244 us-gaap:CommonStockMember 2022-01-01 2022-03-31 0001622244 us-gaap:AdditionalPaidInCapitalMember 2022-01-01 2022-03-31 0001622244 OWPC:SubscriptionsPayableMember 2022-01-01 2022-03-31 0001622244 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-01-01 2022-03-31 0001622244 us-gaap:RetainedEarningsMember 2022-01-01 2022-03-31 0001622244 us-gaap:PreferredStockMember OWPC:SeriesAConvertiblePreferredStockMember 2023-03-31 0001622244 us-gaap:PreferredStockMember OWPC:SeriesBConvertiblePreferredStockMember 2023-03-31 0001622244 us-gaap:CommonStockMember 2023-03-31 0001622244 us-gaap:AdditionalPaidInCapitalMember 2023-03-31 0001622244 OWPC:SubscriptionsPayableMember 2023-03-31 0001622244 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-03-31 0001622244 us-gaap:RetainedEarningsMember 2023-03-31 0001622244 us-gaap:PreferredStockMember OWPC:SeriesAConvertiblePreferredStockMember 2022-03-31 0001622244 us-gaap:PreferredStockMember OWPC:SeriesBConvertiblePreferredStockMember 2022-03-31 0001622244 us-gaap:CommonStockMember 2022-03-31 0001622244 us-gaap:AdditionalPaidInCapitalMember 2022-03-31 0001622244 OWPC:SubscriptionsPayableMember 2022-03-31 0001622244 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-03-31 0001622244 us-gaap:RetainedEarningsMember 2022-03-31 0001622244 2022-03-31 0001622244 OWPC:SeriesAConvertiblePreferredStockMember 2023-01-01 2023-03-31 0001622244 OWPC:SeriesAConvertiblePreferredStockMember 2022-01-01 2022-03-31 0001622244 OWPC:MergerAgreementMember OWPC:OWPVenturesIncMember 2019-02-20 2019-02-21 0001622244 OWPC:MergerAgreementMember OWPC:OWPVenturesIncMember 2019-02-21 0001622244 OWPC:MergerAgreementMember 2019-02-20 2019-02-21 0001622244 OWPC:MergerAgreementMember 2019-02-21 0001622244 OWPC:MergerAgreementMember OWPC:OWPVenturesIncMember 2023-01-01 2023-03-31 0001622244 2022-10-01 0001622244 OWPC:OneWorldProductsIncMember 2023-01-01 2023-03-31 0001622244 OWPC:OWPVenturesIncMember 2023-01-01 2023-03-31 0001622244 OWPC:OneWorldPharmaSASMember 2023-01-01 2023-03-31 0001622244 OWPC:ColombianHopeSASMember 2023-01-01 2023-03-31 0001622244 OWPC:AgrobaseSASMember 2023-01-01 2023-03-31 0001622244 us-gaap:FairValueInputsLevel1Member 2023-03-31 0001622244 us-gaap:FairValueInputsLevel2Member 2023-03-31 0001622244 us-gaap:FairValueInputsLevel3Member 2023-03-31 0001622244 us-gaap:FairValueInputsLevel1Member 2022-12-31 0001622244 us-gaap:FairValueInputsLevel2Member 2022-12-31 0001622244 us-gaap:FairValueInputsLevel3Member 2022-12-31 0001622244 OWPC:RefundableDepositOnEquipmentPurchaseMember 2023-03-31 0001622244 OWPC:RefundableDepositOnEquipmentPurchaseMember 2022-12-31 0001622244 OWPC:DownPaymentonDistillationEquipmentMember 2023-03-31 0001622244 OWPC:DownPaymentonDistillationEquipmentMember 2022-12-31 0001622244 OWPC:SecurityDepositsOnLeasesHeldInColombiaMember 2023-03-31 0001622244 OWPC:SecurityDepositsOnLeasesHeldInColombiaMember 2022-12-31 0001622244 us-gaap:LandMember 2023-03-31 0001622244 us-gaap:LandMember 2022-12-31 0001622244 us-gaap:BuildingMember 2023-03-31 0001622244 us-gaap:BuildingMember 2022-12-31 0001622244 us-gaap:OfficeEquipmentMember 2023-03-31 0001622244 us-gaap:OfficeEquipmentMember 2022-12-31 0001622244 us-gaap:FurnitureAndFixturesMember 2023-03-31 0001622244 us-gaap:FurnitureAndFixturesMember 2022-12-31 0001622244 us-gaap:MachineryAndEquipmentMember 2023-03-31 0001622244 us-gaap:MachineryAndEquipmentMember 2022-12-31 0001622244 2022-01-02 0001622244 2021-12-27 2022-01-02 0001622244 2022-01-01 2022-12-31 0001622244 2022-10-01 2022-10-01 0001622244 2021-08-27 2021-09-01 0001622244 2021-09-01 0001622244 2022-06-01 2022-06-01 0001622244 2022-06-01 0001622244 us-gaap:ConvertibleDebtMember OWPC:PromissoryNoteMember 2023-03-31 0001622244 us-gaap:ConvertibleDebtMember OWPC:PromissoryNoteMember 2022-12-31 0001622244 us-gaap:ConvertibleDebtMember 2023-03-31 0001622244 us-gaap:ConvertibleDebtMember 2022-12-31 0001622244 OWPC:PromissoryNoteMember OWPC:JohnMcCabeInvestmentsLLCMember 2022-09-27 0001622244 OWPC:PromissoryNoteMember OWPC:JohnMcCabeInvestmentsLLCMember OWPC:SeriesBCommonStockMember 2022-09-27 0001622244 us-gaap:ConvertibleDebtMember 2023-01-01 2023-03-31 0001622244 us-gaap:ConvertibleDebtMember 2022-01-01 2022-03-31 0001622244 OWPC:UnsecuredPromissoryNoteOneMember 2023-03-31 0001622244 OWPC:UnsecuredPromissoryNoteOneMember 2022-12-31 0001622244 OWPC:UnsecuredPromissoryNoteTwoMember 2023-03-31 0001622244 OWPC:UnsecuredPromissoryNoteTwoMember 2022-12-31 0001622244 OWPC:UnsecuredPromissoryNoteThreeMember 2023-03-31 0001622244 OWPC:UnsecuredPromissoryNoteThreeMember 2022-12-31 0001622244 OWPC:UnsecuredPromissoryNoteFourMember 2023-03-31 0001622244 OWPC:UnsecuredPromissoryNoteFourMember 2022-12-31 0001622244 OWPC:UnsecuredPromissoryNoteFiveMember 2023-03-31 0001622244 OWPC:UnsecuredPromissoryNoteFiveMember 2022-12-31 0001622244 OWPC:UnsecuredPromissoryNoteSixMember 2023-03-31 0001622244 OWPC:UnsecuredPromissoryNoteSixMember 2022-12-31 0001622244 OWPC:UnsecuredPromissoryNoteSevenMember 2023-03-31 0001622244 OWPC:UnsecuredPromissoryNoteSevenMember 2022-12-31 0001622244 OWPC:UnsecuredPromissoryNoteEightMember 2023-03-31 0001622244 OWPC:UnsecuredPromissoryNoteEightMember 2022-12-31 0001622244 OWPC:UnsecuredPromissoryNoteOneMember OWPC:OneWorldPharmaSASMember 2022-09-14 2022-09-15 0001622244 OWPC:UnsecuredPromissoryNoteOneMember OWPC:OneWorldPharmaSASMember 2022-09-15 0001622244 OWPC:UnsecuredPromissoryNoteTwoMember OWPC:OneWorldPharmaSASMember 2022-06-16 2022-06-17 0001622244 OWPC:UnsecuredPromissoryNoteTwoMember OWPC:OneWorldPharmaSASMember 2022-06-17 0001622244 OWPC:UnsecuredPromissoryNoteThreeMember OWPC:OWPVenturesIncMember 2022-06-13 0001622244 OWPC:UnsecuredPromissoryNoteThreeMember OWPC:OWPVenturesIncMember 2022-06-12 2022-06-13 0001622244 OWPC:UnsecuredPromissoryNoteFourMember OWPC:OneWorldPharmaSASMember 2022-05-31 2022-05-31 0001622244 OWPC:UnsecuredPromissoryNoteFourMember OWPC:OneWorldPharmaSASMember 2022-05-31 0001622244 OWPC:UnsecuredPromissoryNoteFiveMember OWPC:OneWorldPharmaSASMember 2022-05-30 0001622244 OWPC:UnsecuredPromissoryNoteFiveMember OWPC:OneWorldPharmaSASMember 2022-05-30 2022-05-30 0001622244 OWPC:UnsecuredPromissoryNoteSixMember OWPC:OneWorldPharmaSASMember 2022-04-29 0001622244 OWPC:UnsecuredPromissoryNoteSixMember OWPC:OneWorldPharmaSASMember 2022-04-28 2022-04-29 0001622244 OWPC:UnsecuredPromissoryNoteSevenMember OWPC:OneWorldPharmaSASMember 2022-03-01 0001622244 OWPC:UnsecuredPromissoryNoteSevenMember OWPC:OneWorldPharmaSASMember 2022-02-27 2022-03-01 0001622244 OWPC:UnsecuredPromissoryNoteEightMember OWPC:OneWorldPharmaSASMember 2022-02-15 0001622244 OWPC:UnsecuredPromissoryNoteOneMember us-gaap:RelatedPartyMember 2023-03-31 0001622244 OWPC:UnsecuredPromissoryNoteOneMember us-gaap:RelatedPartyMember 2022-12-31 0001622244 OWPC:UnsecuredPromissoryNoteTwoMember us-gaap:RelatedPartyMember 2023-03-31 0001622244 OWPC:UnsecuredPromissoryNoteTwoMember us-gaap:RelatedPartyMember 2022-12-31 0001622244 OWPC:UnsecuredPromissoryNoteThreeMember us-gaap:RelatedPartyMember 2023-03-31 0001622244 OWPC:UnsecuredPromissoryNoteThreeMember us-gaap:RelatedPartyMember 2022-12-31 0001622244 OWPC:UnsecuredPromissoryNoteFourMember us-gaap:RelatedPartyMember 2023-03-31 0001622244 OWPC:UnsecuredPromissoryNoteFourMember us-gaap:RelatedPartyMember 2022-12-31 0001622244 OWPC:UnsecuredPromissoryNoteFiveMember us-gaap:RelatedPartyMember 2023-03-31 0001622244 OWPC:UnsecuredPromissoryNoteFiveMember us-gaap:RelatedPartyMember 2022-12-31 0001622244 OWPC:UnsecuredPromissoryNoteSixMember us-gaap:RelatedPartyMember 2023-03-31 0001622244 OWPC:UnsecuredPromissoryNoteSixMember us-gaap:RelatedPartyMember 2022-12-31 0001622244 OWPC:UnsecuredPromissoryNoteSevenMember us-gaap:RelatedPartyMember 2023-03-31 0001622244 OWPC:UnsecuredPromissoryNoteSevenMember us-gaap:RelatedPartyMember 2022-12-31 0001622244 OWPC:UnsecuredPromissoryNotesMember us-gaap:RelatedPartyMember 2023-03-31 0001622244 OWPC:UnsecuredPromissoryNotesMember us-gaap:RelatedPartyMember 2022-12-31 0001622244 OWPC:UnsecuredPromissoryNoteMember OWPC:DrKennethPeregoIIMember 2022-08-05 0001622244 OWPC:UnsecuredPromissoryNoteMember OWPC:IsiahThomasIIIMember 2022-08-02 0001622244 OWPC:UnsecuredPromissoryNoteMember OWPC:DrKennethPeregoIIMember 2022-07-07 0001622244 OWPC:UnsecuredPromissoryNoteMember OWPC:IsiahThomasIIIMember 2022-06-03 0001622244 OWPC:UnsecuredPromissoryNoteMember OWPC:IsiahThomasIIIMember 2022-05-05 0001622244 OWPC:UnsecuredPromissoryNoteMember OWPC:DrKennethPeregoIIMember 2022-05-05 0001622244 OWPC:UnsecuredPromissoryNoteMember OWPC:DrKennethPeregoIIMember 2021-12-29 0001622244 OWPC:UnsecuredPromissoryNoteMember OWPC:DrKennethPeregoIIMember 2021-12-26 2021-12-29 0001622244 us-gaap:RelatedPartyMember 2023-01-01 2023-03-31 0001622244 us-gaap:RelatedPartyMember 2022-01-01 2022-03-31 0001622244 us-gaap:SeriesAPreferredStockMember 2023-03-31 0001622244 us-gaap:SeriesBPreferredStockMember 2023-03-31 0001622244 us-gaap:SeriesAPreferredStockMember OWPC:PreferredStockSalesMember 2023-01-04 2023-01-04 0001622244 us-gaap:SeriesAPreferredStockMember 2023-01-04 2023-01-04 0001622244 us-gaap:SeriesAPreferredStockMember OWPC:PreferredStockSalesMember 2023-01-04 0001622244 us-gaap:SeriesAPreferredStockMember 2023-01-01 2023-01-01 0001622244 us-gaap:SeriesAPreferredStockMember 2023-01-01 2023-03-31 0001622244 us-gaap:SeriesBPreferredStockMember 2023-01-01 2023-03-31 0001622244 OWPC:TysadcoPartnersLLCMember OWPC:ELOCPurchaseAgreementMember 2022-09-01 2022-09-01 0001622244 OWPC:TysadcoPartnersLLCMember OWPC:ELOCPurchaseAgreementMember us-gaap:CommonStockMember 2022-09-01 2022-09-01 0001622244 OWPC:IsiahLThomasIIIMember us-gaap:SeriesBPreferredStockMember 2022-10-02 2022-10-03 0001622244 us-gaap:SeriesBPreferredStockMember 2022-10-02 2022-10-03 0001622244 2023-02-14 2023-02-14 0001622244 2023-02-14 0001622244 OWPC:BoardOfDirectorsMember OWPC:TwoThousandNineteenStockIncentivePlanMember 2020-02-11 2020-02-12 0001622244 OWPC:OfficersDirectorsAndEmployeesMember 2023-03-31 0001622244 OWPC:PromissoryNoteMember OWPC:AJBCapitalInvestmentsLLCMember us-gaap:SubsequentEventMember 2023-06-23 0001622244 OWPC:PromissoryNoteMember OWPC:AJBCapitalInvestmentsLLCMember OWPC:PurchaseAgreementMember us-gaap:SubsequentEventMember 2023-06-23 0001622244 OWPC:PromissoryNoteMember OWPC:AJBCapitalInvestmentsLLCMember OWPC:PurchaseAgreementMember us-gaap:SubsequentEventMember 2023-06-23 2023-06-23 0001622244 OWPC:PromissoryNoteMember OWPC:AJBCapitalInvestmentsLLCMember us-gaap:SubsequentEventMember 2023-06-23 2023-06-23 0001622244 us-gaap:SeriesAPreferredStockMember OWPC:PreferredStockSalesMember us-gaap:SubsequentEventMember 2023-04-03 2023-04-03 0001622244 us-gaap:SeriesAPreferredStockMember us-gaap:SubsequentEventMember 2023-04-03 2023-04-03 0001622244 us-gaap:SeriesAPreferredStockMember OWPC:PreferredStockSalesMember us-gaap:SubsequentEventMember 2023-04-03 0001622244 OWPC:MrJoergSommerMember us-gaap:CommonStockMember us-gaap:SubsequentEventMember 2023-06-15 2023-06-15 iso4217:USD xbrli:shares iso4217:USD xbrli:shares utr:sqft OWPC:Integer iso4217:COP xbrli:pure

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2023

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to ____________

 

Commission file number: 000-56151

 

 

ONE WORLD PRODUCTS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   61-1744826

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

     

6605 Grand Montecito Pkwy, Suite 100,

Las Vegas, Nevada 89149

  89149
(Address of principal executive offices)   (zip code)

 

(800) 605-3210

(Registrant’s telephone number, including area code)

 

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

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
N/A   N/A   N/A

 

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 ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

 

Yes ☒ No ☐

 

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

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
  Emerging growth company

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

 

The number of shares of registrant’s common stock outstanding as of July 3, 2023 was 73,369,574.

 

 

 

 

 

 

TABLE OF CONTENTS

 

  Page
PART I - FINANCIAL INFORMATION 1
ITEM 1.   FINANCIAL STATEMENTS (Unaudited) 1
    Condensed Consolidated Balance Sheets as of March 31, 2023 (Unaudited) and December 31, 2022 1
    Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2023 and 2022 (Unaudited) 2
    Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Three Months Ended March 31, 2023 and 2022 (Unaudited) 3
    Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 (Unaudited) 4
    Notes to the Condensed Consolidated Financial Statements (Unaudited) 5
ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 19
ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 23
ITEM 4.   CONTROLS AND PROCEDURES 23
PART II - OTHER INFORMATION 24
ITEM 1.   Legal Proceedings 24
ITEM 1A.   RISK FACTORS 24
ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 24
ITEM 3.   DEFAULTS UPON SENIOR SECURITIES 24
ITEM 4.   MINE SAFETY DISCLOSURES 24
ITEM 5.   OTHER INFORMATION 24
ITEM 6.   EXHIBITS 25
    SIGNATURES 26

 

 

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

ONE WORLD PRODUCTS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   March 31,   December 31, 
   2023   2022 
   (Unaudited)     
Assets          
           
Current assets:          
Cash  $84,709   $11,016 
Accounts receivable   10,682    12,355 
Inventory   279,190    54,153 
Other current assets   73,296    45,943 
Total current assets   447,877    123,467 
           
Other assets   186,950    179,927 
Right-of-use assets   403,727    425,969 
Security deposits   50,411    1,449,808 
Fixed assets, net   2,385,138    988,536 
           
Total Assets  $3,474,103   $3,167,707 
           
Liabilities and Stockholders’ Equity (Deficit)          
           
Current liabilities:          
Accounts payable  $747,723   $798,067 
Accrued expenses   1,119,725    948,458 
Deferred revenues   10,114    11,808 
Dividends payable   150,616    137,843 
Current portion of lease liabilities   88,612    86,235 
Convertible notes payable   750,000    750,000 
Notes payable, current maturities   151,277    145,524 
Notes payable, related parties, current maturities   99,500    99,500 
Total current liabilities   3,117,567    2,977,435 
           
Long-term lease liability   318,556    341,680 
Notes payable, long-term portion   700,000    700,000 
Notes payable, related parties, long-term portion   200,000    200,000 
           
Total Liabilities   4,336,123    4,219,115 
           
Series A convertible preferred stock, $0.001 par value, 500,000 shares authorized; 89,733 and 70,233 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively   897,330    702,330 
Series B convertible preferred stock, $0.001 par value, 300,000 shares authorized; 272,168 shares issued and outstanding at March 31, 2023 and December 31, 2022   4,082,520    4,082,520 
           
Stockholders’ Equity (Deficit):          
Preferred stock, $0.001 par value, 9,200,000 shares authorized; no shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively   -    - 
Common stock, $0.001 par value, 300,000,000 shares authorized; 70,202,907 and 67,202,907 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively   70,203    67,203 
Additional paid-in capital   17,445,960    17,123,603 
Accumulated other comprehensive income (loss)   134,270    (50,699)
Accumulated (deficit)   (23,492,303)   (22,976,365)
Total Stockholders’ Equity (Deficit)   (5,841,870)   (5,836,258)
           
Total Liabilities and Stockholders’ Equity (Deficit)  $3,474,103   $3,167,707 

 

See accompanying notes to financial statements.

 

1

 

 

ONE WORLD PRODUCTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

 

   2023   2022 
   For the Three Months Ended 
   March 31, 
   2023   2022 
         
Revenues  $2,101   $10,147 
Cost of goods sold   967    9,956 
Gross profit   1,134    191 
           
Operating expenses:          
General and administrative   347,297    381,383 
Professional fees   103,848    171,050 
Depreciation expense   7,857    12,485 
Total operating expenses   459,002    564,918 
           
Operating loss   (457,868)   (564,727)
           
Other income (expense):          
Gain on early extinguishment of debt   -    121,372 
Interest income   -    41 
Interest expense   (58,070)   (166,192)
Total other expense   (58,070)   (44,779)
           
Net loss  $(515,938)  $(609,506)
           
Other comprehensive loss:          
Gain on foreign currency translation  $184,969   $16,804 
           
Net other comprehensive loss  $(330,969)  $(592,702)
Series A convertible preferred stock declared ($0.60 per share)   (12,773)   (10,258)
Net loss attributable to common shareholders  $(343,742)  $(602,960)
           
Weighted average number of common shares outstanding - basic and diluted   68,702,907    65,605,389 
           
Net loss per share - basic and diluted  $(0.01)  $(0.01)
           
Dividends declared per share of common stock  $0.00   $0.00 

 

See accompanying notes to financial statements.

 

2

 

 

ONE WORLD PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

 

   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Payable   Income (Loss)   Deficit   (Deficit) 
   For the Three Months Ended March 31, 2023 
   Series A Convertible   Series B Convertible           Additional       Accumulated  Other      

Total

Stockholders’

 
   Preferred Stock   Preferred Stock   Common Stock   Paid-In   Subscriptions   Comprehensive   Accumulated   Equity 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Payable   Income (Loss)   Deficit   (Deficit) 
                                             
Balance, December 31, 2022   70,233   $702,330    272,168   $4,082,520    67,202,907   $67,203   $17,123,603   $         -   $(50,699)  $(22,976,365)  $         (5,836,258)
                                                        
Series A Convertible Preferred Stock sold for cash   15,000    150,000    -    -    -    -    -    -    -    -    - 
                                                        
Series A Convertible Preferred Stock issued for services   4,500    45,000    -    -    -    -    -    -    -    -    - 
                                                        
Common stock sold for cash   -    -    -    -    3,000,000    3,000    297,000    -    -    -    300,000 
                                                        
Amortization of common stock options issued for services   -    -    -    -    -    -    38,130    -    -    -    38,130 
                                                        
Series A convertible preferred stock dividend declared ($0.60 per share)   -    -    -    -    -    -    (12,773)   -    -    -    (12,773)
                                                        
Gain on foreign currency translation   -    -    -    -    -    -    -    -    184,969    -    184,969 
                                                        
Net loss   -    -    -    -    -    -    -    -    -    (515,938)   (515,938)
                                                        
Balance, March 31, 2023   89,733   $897,330    272,168   $4,082,520    70,202,907   $70,203   $17,445,960   $-   $134,270   $(23,492,303)  $(5,841,870)

 

   For the Three Months Ended March 31, 2022 
   Series A Convertible   Series B Convertible           Additional       Accumulated Other       Total Stockholders’ 
   Preferred Stock   Preferred Stock   Common Stock   Paid-In   Subscriptions   Comprehensive   Accumulated   Equity 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Payable   Income (Loss)   Deficit   (Deficit) 
                                             
Balance, December 31, 2021   65,233   $652,330    238,501   $3,577,515    65,599,565   $65,600   $16,843,656   $21,725   $(64,347)  $(19,916,888)  $(3,050,254)
                                                        
Common stock issued for services   -    -    -    -    262,066    262    21,463    (21,725)   -    -    - 
                                                        
Amortization of common stock options issued for services   -    -    -    -    -    -    41,114    -    -    -    41,114 
                                                        
Series A convertible preferred stock dividend declared ($0.60 per share)   -    -    -    -    -    -    (10,258)   -    -    -    (10,258)
                                                        
Gain on foreign currency translation   -    -    -    -    -    -    -    -    16,804    -    16,804 
                                                        
Net loss   -    -    -    -    -    -    -    -    -    (609,506)   (609,506)
                                                        
Balance, March 31, 2022   65,233   $652,330    238,501   $3,577,515    65,861,631   $65,862   $16,895,975   $-   $(47,543)  $(20,526,394)  $(3,612,100)

 

See accompanying notes to financial statements.

 

3

 

 

ONE WORLD PRODUCTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   2023   2022 
   For the Three Months Ended 
   March 31, 
   2023   2022 
Cash flows from operating activities          
Net loss  $(515,938)  $(609,506)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization expense   7,857    12,485 
Gain on early extinguishment of debt   -    (121,372)
Amortization of debt discounts   -    142,849 
Series A preferred stock issued for services   45,000    - 
Stock options issued for services   38,130    41,114 
Decrease (increase) in assets:          
Accounts receivable   1,673    (9,469)
Inventory   (225,037)   (94,163)
Other current assets   (27,353)   91,019 
Other assets   (7,023)   - 
Right-of-use assets   22,242    33,430 
Security deposits   (16)   (291,679)
Increase (decrease) in liabilities:          
Accounts payable   (50,344)   93,596 
Accrued expenses   171,267    89,690 
Deferred revenues   (1,694)   908 
Lease liability   (20,747)   (26,497)
Net cash used in operating activities   (561,983)   (647,595)
           
Cash flows from investing activities          
Purchase of fixed assets   (5,046)   (3,482)
Net cash used in investing activities   (5,046)   (3,482)
           
Cash flows from financing activities          
Proceeds from notes payable   -    600,000 
Proceeds from sale of preferred and common stock   450,000    - 
Net cash provided by financing activities   450,000    600,000 
           
Effect of exchange rate changes on cash   190,722    16,804 
           
Net increase (decrease) in cash   73,693    (34,273)
Cash - beginning   11,016    119,678 
Cash - ending  $84,709   $85,405 
           
Supplemental disclosures:          
Interest paid  $22,192   $15,694 
Income taxes paid  $-   $- 
           
Non-cash investing and financing transactions:          
Dividends payable  $12,773   $10,258 

 

See accompanying notes to financial statements.

 

4

 

 

ONE WORLD PRODUCTS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 1 – Nature of Business and Significant Accounting Policies

 

Nature of Business

 

One World Products, Inc. (the “Company,” “we,” “our” or “us”) was incorporated in Nevada on September 2, 2014. On February 21, 2019, we 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., and on November 23, 2021, the Company changed its name to One World Products, Inc. through the merger of One World Products, Inc., a recently formed Nevada corporation wholly-owned by the Company, with and into the Company (the “Name Change Merger”) pursuant to the applicable provisions of the Nevada Revised Statutes (“NRS”). As permitted by the NRS, the articles of merger filed with the Secretary of State of the state of Nevada to effect the Name Change Merger amended Article I of the Company’s Articles of Incorporation to change the Company’s name to “One World Products, Inc.” The Name Change Merger was effected solely to effect the change of the Company’s name, and had no effect on the Company’s officers, directors, operations, assets or liabilities.

 

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 few companies in Colombia to receive all four licenses, including seed use, cultivation of non-psychoactive cannabis, cultivation of psychoactive cannabis, and manufacturing allowing for extraction and export. 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 began harvesting cannabis in the first quarter of 2019 for the purpose of further research and development activities, quality control testing and extraction. We have been generating revenue from the sale of our seeds since the second quarter of 2020. During the first quarter of 2022, we made payments of approximately $1,400,000 for a state of the art distillation machine that was placed in service during the second quarter of 2023 within our vertically integrated extraction facility in which we entered into a 5-year lease on October 1, 2022, where we have combined our office and extraction facilities into the same building.

 

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, 2022. 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.

 

5

 

 

ONE WORLD PRODUCTS, 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, 2023:

 

   State of   
Name of Entity  Incorporation  Relationship
One World Products, 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
Agrobase, S.A.S.(5)  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 Products, 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 substantive income or expenses.
(5) Wholly-owned subsidiary of OWP Ventures, Inc., formed on September 12, 2019, located in Colombia and legally constituted as a simplified stock company. This company has yet to incur any substantive 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.

 

Reclassifications

 

Certain reclassifications have been made to the prior years’ financial statements to conform to current year presentation. These reclassifications had no effect on previously reported results of operations or retained earnings.

 

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 of America requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and 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 these estimates.

 

6

 

 

ONE WORLD PRODUCTS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

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

 

The Company discloses the fair value of certain assets and liabilities in accordance with ASC 820 – Fair Value Measurement and Disclosures (ASC 820). 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.

 

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 any cash in excess of FDIC insured limits at March 31, 2023, and has not experienced any losses in such accounts.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes 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. The Company’s sales to date have primarily consisted of the sale of seeds. These sales include multi-element arrangements whereby the Company collects 50% of the sale upon delivery of the sales, and the remaining 50% upon the completion of the harvest, whether the seeds result in a successful crop, or not. In addition, the Company has a right of first refusal to purchase products resulting from the harvest. At March 31, 2023, the Company had $10,114 of deferred revenues and $5,923 of deferred cost of goods sold, as included in other current assets on the balance sheet, that are expected to be recognized upon the customers’ completion of their future harvests.

 

Inventory

 

Inventories are stated at the lower of cost or net realizable value. Cost is determined on a standard cost basis that approximates the first-in, first-out (FIFO) method. 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 and non-employees in accordance with the provisions of ASC 718 Stock Compensation (ASC 718). 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.

 

7

 

 

ONE WORLD PRODUCTS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

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 October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which creates an exception to the general recognition and measurement principle for contract assets and contract liabilities from contracts with customers acquired in a business combination. The new guidance will require companies to apply the definition of a performance obligation under accounting standard codification ASC Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination. Under current GAAP, an acquirer in a business combination is generally required to recognize and measure the assets it acquires and the liabilities it assumes at fair value on the acquisition date. The new guidance will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. These amendments are effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The adoption of ASU 2021-08 did not have a material impact on the Company’s financial statements or related disclosures.

 

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity Classified Written Call Options. ASU 2021-04 addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. ASU 2021-04 is effective for fiscal years beginning after December 15, 2021 and interim periods within those fiscal years, with early adoption permitted. The adoption of ASU 2021-04 has not had a material impact on the Company’s financial statements or related disclosures.

 

In March 2020, the FASB issued ASU 2020-04 establishing Topic 848, Reference Rate Reform. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The adoption of ASU 2020-04 did not have a material impact on the Company’s consolidated financial statements, as we transitioned from the London Interbank Offered Rate, commonly referred to as LIBOR, to alternative references rates, as well as utilizing the aforementioned expedients and exceptions provided in ASU 2020-04.

 

In August 2020, the FASB issued ASU No. 2020-06, Debt–Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging–Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if converted method. The new guidance is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2021, with early adoption permitted. The adoption of ASU 2020-06 has not had a material impact on the Company’s financial statements or related disclosures.

 

No other new accounting pronouncements, issued or effective during the period ended March 31, 2023, have had or are expected to have a significant impact on the Company’s financial statements.

 

Note 2 –Going Concern

 

As shown in the accompanying condensed consolidated financial statements as of March 31, 2023, our balance of cash on hand was $84,709, and we had negative working capital of $2,669,690 and an accumulated deficit of $23,492,303. We are too early in our development stage to project future revenue levels, and may not be able to generate sufficient funds to sustain our operations for the next twelve months. Accordingly, we may need to raise additional cash to fund our operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

In the event sales do not materialize at the expected rates, management would seek additional financing and would attempt to conserve cash by further reducing expenses. There can be no assurance that we will be successful in achieving these objectives; therefore, without sufficient financing it would be unlikely for the Company to continue as a going concern.

 

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. The condensed consolidated 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. Our ability to scale production and distribution capabilities and further increase the value of our brands, is largely dependent on our success in raising additional capital.

 

8

 

 

ONE WORLD PRODUCTS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 3 – 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.

 

The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheet as of March 31, 2023 and December 31, 2022, respectively:

 

   Level 1   Level 2   Level 3 
   Fair Value Measurements at March 31, 2023 
   Level 1   Level 2   Level 3 
Assets               
Cash  $84,709   $-   $- 
Right-of-use asset   -    -    403,727 
Total assets   84,709    -    403,727 
Liabilities               
Lease liabilities   -    -    407,168 
Convertible notes payable   -    750,000    - 
Notes payable   -    851,277    - 
Notes payable, related parties   -    299,500    - 
Total liabilities   -    (1,900,777)   (407,168)
Total assets and liabilities  $84,709   $(1,900,777)  $(3,441)

 

   Level 1   Level 2   Level 3 
   Fair Value Measurements at December 31, 2022 
   Level 1   Level 2   Level 3 
Assets               
Cash  $11,016   $-   $- 
Right-of-use asset   -    -    425,969 
Total assets   11,016    -    425,969 
Liabilities               
Lease liabilities        -    427,915 
Convertible notes payable   -    750,000    - 
Notes payable   -    845,524    - 
Notes payable, related parties   -    299,500    - 
Total liabilities   -    (1,895,024)   (427,915)

 

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, 2023 or the year ended December 31, 2022.

 

9

 

 

ONE WORLD PRODUCTS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 4 – Inventory

 

Inventories are stated at the lower of cost or net realizable value. Cost is determined on a standard cost basis that approximates the first-in, first-out (FIFO) method. 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 the following at March 31, 2023 and December 31, 2022, respectively.

 

   March 31,   December 31, 
   2023   2022 
Raw materials  $19,215   $18,580 
Work in progress   37,059    1,464 
Finished goods   271,513    80,858 
Less obsolescence   (48,597)   (46,749)
Total inventory  $279,190   $54,153 

 

Note 5 – Other Current Assets

 

Other current assets included the following as of March 31, 2023 and December 31, 2022, respectively:

 

   March 31,   December 31, 
   2023   2022 
Prepaid expenses  $67,373   $39,288 
Deferred cost of goods sold   5,923    6,655 
Total  $73,296   $45,943 

 

Note 6 – Other Assets

 

Other assets consist entirely of VAT receivables in the amounts of $186,950 and $179,927 at March 31, 2023 and December 31, 2022, respectively, which will be repaid to the Company by the applicable taxing authority upon the successful export of the products for which the taxes were originally paid.

 

Note 7 – Security Deposits

 

Security deposits included the following as of March 31, 2023 and December 31, 2022, respectively:

 

   March 31,   December 31, 
   2023   2022 
Refundable deposit on equipment purchase  $50,000   $50,000 
Down payment on distillation equipment   -    1,399,413 
Security deposits on leases held in Colombia   411    395 
Security deposits  $50,411   $1,449,808 

 

10

 

 

ONE WORLD PRODUCTS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 8 – Fixed Assets

 

Fixed assets consist of the following at March 31, 2023 and December 31, 2022, respectively:

 

   March 31,   December 31, 
   2023   2022 
Land  $138,248   $138,248 
Buildings   473,971    473,971 
Office equipment   30,902    30,902 
Furniture and fixtures   6,495    6,495 
Equipment and machinery   1,828,006    423,547 
Fixed assets, gross   2,477,622    1,073,163 
Less: accumulated depreciation   (92,484)   (84,627)
Total  $2,385,138   $988,536 

 

Depreciation and amortization expense totaled $7,857 and $12,485 for the three months ended March 31, 2023 and 2022, respectively.

 

Note 9 – Accrued Expenses

 

Accrued expenses consisted of the following at March 31, 2023 and December 31, 2022, respectively:

 

   March 31,   December 31, 
   2023   2022 
Accrued payroll  $757,086   $613,569 
Accrued withholding taxes and employee benefits   34,336    31,632 
Accrued ICA fees and contributions   156,205    167,037 
Accrued interest   172,098    136,220 
Accrued expenses  $1,119,725   $948,458 

 

Note 10 – Deferred Revenues

 

Arrangements with customers include multiple deliverables, consisting of an initial delivery of seeds and a contingent portion of the purchase price that is payable on the customer’s future harvest of the plants grown from such seeds. Deferred revenues associated with these multiple-element arrangements were $10,114 and $11,808 at March 31, 2023 and December 31, 2022, respectively. Related deferred cost of goods sold were $5,923 and $6,655 at March 31, 2023 and December 31, 2022, respectively, resulting in deferred gross margins of $4,191 and $5,153 at March 31, 2023 and December 31, 2022, respectively, that is expected to be recognized upon the customers’ completion of their harvests in future periods.

 

Note 11 – Leases

 

The Company leased its 12,400 square foot extraction facility under a non-cancelable real property lease agreement that commenced on January 1, 2022 and was to expire on December 31, 2027, at a monthly lease rate of 57,339,000 COP (approximately $15,290). The Company terminated the lease on September 30, 2022, resulting in termination fees of approximately $7,700. A gain of $20,148 was recognized on the early extinguishment of the lease for the year ended December 31, 2022.

 

On October 1, 2022, the Company entered into a five-year non-cancelable property lease, with an automatic five year extension, for a new extraction facility with combined office space, at a monthly lease term of 29,000,000 COP plus VAT and administration fees (approximately $6,300 in the aggregate), with annual escalation of lease payments equal to the consumer price index, plus 2%.

 

The Company also leases a residential premise under a non-cancelable real property lease agreement that commenced on September 1, 2021 and expires on August 31, 2024, at a monthly lease term of 3,800,000 COP (approximately $1,013), with approximately a 3% annual escalation of lease payments commencing September 1, 2022.

 

11

 

 

ONE WORLD PRODUCTS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

The Company leases another residential premise under a non-cancelable real property lease agreement that commenced on June 1, 2022 and expires on May 30, 2024, at a monthly lease term of 1,900,000 COP (approximately $507), with an 8% annual escalation of lease payments commencing June 1, 2023.

 

In addition, the Company leases its corporate offices and operational facility in Colombia under short-term non-cancelable real property lease agreements that expire within a year. The Company doesn’t have any other office or equipment leases that would require capitalization. The office lease contains provisions requiring payment of property taxes, utilities, insurance, maintenance and other occupancy costs applicable to the leased premise. In the locations in which it is economically feasible to continue to operate, management expects to enter into a new lease upon expiration. The extraction facility lease contained 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 implicit discount rates, 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:

 

   2023   2022 
   For the Three Months Ended 
   March 31, 
   2023   2022 
Operating lease cost:          
Amortization of right-of-use assets  $22,242   $33,431 
Interest on lease liabilities   7,105    26,463 
Lease payments on short term leases   -    12,590 
Total operating lease cost  $29,347   $72,484 

 

Supplemental balance sheet information related to leases was as follows:

 

   March 31,   December 31, 
   2023   2022 
Operating lease:          
Operating lease assets  $403,727   $425,969 
           
Current portion of operating lease liabilities  $88,612    86,235 
Noncurrent operating lease liabilities   318,556    341,680 
Total operating lease liability  $407,168   $427,915 
           
Weighted average remaining lease term:          
Operating leases   4 years    4.25 years 
           
Weighted average discount rate:          
Operating lease   6.75%   6.75%

 

12

 

 

ONE WORLD PRODUCTS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Supplemental cash flow and other information related to operating leases was as follows:

 

   2023   2022 
   For the Three Months Ended 
   March 31, 
   2023   2022 
Cash paid for amounts included in the measurement of lease liabilities:          
Operating cash flows used for operating leases  $20,747   $26,497 
           
Leased assets obtained in exchange for lease liabilities:          
Total operating lease liabilities  $-   $1,535,706 

 

Future minimum annual lease commitments under non-cancelable operating leases are as follows at March 31, 2023:

 

   Operating 
   Leases 
     
2023 (for the nine months remaining)  $84,656 
2024   107,632 
2025   99,186 
2026   102,162 
2027   78,336 
Total minimum lease payments   471,972 
Less interest   64,804 
Present value of lease liabilities   407,168 
Less current portion   88,612 
Long-term lease liabilities  $318,556 

 

Note 12 – Convertible Notes Payable

 

Convertible notes payable consists of the following at March 31, 2023 and December 31, 2022, respectively:

 

   March 31,   December 31, 
   2023   2022 
On September 27, 2022,  $750,000   $750,000 
On September 27, 2022, the Company completed the sale of a Convertible Promissory Note in the principal amount of $750,000 (the “Convertible McCabe Note”) to Dr. John McCabe. The unsecured note matures on 16, 2024 (the “Maturity Date”), bears interest at a rate of 8% per annum, and the principal and interest is convertible into shares of the Company’s convertible Series B common stock at a conversion price of $15 per share.  $750,000   $750,000 
           
Total convertible notes payable   750,000    750,000 
Less: unamortized debt discounts   -    - 
Convertible note payable, net of discounts  $750,000   $750,000 

 

The Company recorded interest expense pursuant to the stated interest rates on the convertible note in the amount of $14,795 for both the three months ended March 31, 2023 and 2022.

 

13

 

 

ONE WORLD PRODUCTS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 13 – Notes Payable

 

   March 31,   December 31, 
   2023   2022 
         
On September 15, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received proceeds of 55,488,000 COP, or approximately $12,243, on a loan with a face value of 70,000,000 COP, or approximately $15,445, from an individual pursuant to an unsecured promissory note, bearing interest at 4% per month, or 48% per annum, due on demand. The debt discount of $3,202 was expensed as finance costs at the time of origination. The face value of the note has been adjusted by $317 due to foreign currency translation adjustments.  $15,128   $14,552 
           
On June 17, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received proceeds of 230,400,000 COP, or approximately $55,821, on a loan with a face value of 240,000,000 COP, or approximately $58,147, from an individual pursuant to an unsecured promissory note, bearing interest at 4% per month, or 48% per annum, due on demand. The debt discount of $2,326 was expensed as finance costs at the time of origination. The face value of the note has been adjusted by $3,955 due to foreign currency translation adjustments.   51,866    49,894 
           
On June 13, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $100,000 from an individual pursuant to an unsecured promissory note, maturing on January 1, 2024, that carries an 8% interest rate.   100,000    100,000 
           
On May 31, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received proceeds of 314,640,000 COP, or approximately $76,231, on a loan with a face value of 360,000,000 COP, or approximately $87,220, from an individual pursuant to promissory note, security by equipment, bearing interest at 2.1% per month, or 25% per annum, which matured on November 28, 2022 and is currently past due. The debt discount of $10,990 was expensed as finance costs at the time of origination. The face value of the note has been adjusted by $9,420 due to foreign currency translation adjustments.   77,800    74,841 
           
On May 30, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received a non-interest bearing loan of 20,000,000 COP, or approximately $4,846, from an individual pursuant to an unsecured promissory note, due on demand. The face value of the note has been adjusted by $524 due to foreign currency translation adjustments.   4,322    4,158 
           
On April 29, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received a non-interest bearing loan of 10,000,000 COP, or approximately $2,423, from an individual pursuant to an unsecured promissory note, due on demand. The face value of the note has been adjusted by $262 due to foreign currency translation adjustments.   2,161    2,079 
           
On March 1, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $400,000 from an individual pursuant to an unsecured promissory note, maturing on January 1, 2024, that carries an 8% interest rate.   400,000    400,000 
           
On February 15, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $200,000 from an individual pursuant to an unsecured promissory note, maturing on January 1, 2024, that carries an 8% interest rate.   200,000    200,000 
           
Total notes payable   851,277    845,524 
Less: current maturities   151,277    145,524 
Notes payable, long-term portion  $700,000   $700,000 

 

The Company recorded interest expense pursuant to the stated interest rates on the notes payable in the amount of $37,808 and $3,888 for the three months ended March 31, 2023 and 2022, respectively.

 

14

 

 

ONE WORLD PRODUCTS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 14 – Notes Payable, Related Party

 

Notes payable, related party, consists of the following at March 31, 2023 and December 31, 2022, respectively:

 

   March 31,   December 31, 
   2023   2022 
         
On August 5, 2022, the Company received an advance of $50,000 from Dr. Kenneth Perego, II, M.D., our Vice Chairman of the Board pursuant to an unsecured promissory note due on demand that carries a 6% interest rate.  $50,000   $50,000 
           
On August 2, 2022, the Company received an advance of $4,500 from Isiah Thomas, III, our Chairman of the Board and CEO, pursuant to an unsecured promissory note due on demand that carries a 6% interest rate.   4,500    4,500 
           
On July 7, 2022, the Company received an advance of $5,000 from Dr. Kenneth Perego, II, M.D., our Vice Chairman of the Board pursuant to an unsecured promissory note due on demand that carries a 6% interest rate.   5,000    5,000 
           
On June 3, 2022, the Company received an advance of $10,000 from Isiah Thomas, III, our Chairman of the Board and CEO, pursuant to an unsecured promissory note due on demand that carries a 6% interest rate.   10,000    10,000 
           
On May 5, 2022, the Company received an advance of $10,000 from Isiah Thomas, III, our Chairman of the Board and CEO, pursuant to an unsecured promissory note due on demand that carries a 6% interest rate.   10,000    10,000 
           
On May 5, 2022, the Company received an advance of $20,000 from Dr. Kenneth Perego, II, M.D., our Vice Chairman of the Board pursuant to an unsecured promissory note due on demand that carries a 6% interest rate.   20,000    20,000 
           
On December 29, 2021, the Company received an advance of $200,000 from Dr. Kenneth Perego, II, M.D., our Vice Chairman of the Board pursuant to an unsecured promissory note due January 1, 2024 that carries an 8% interest rate.   200,000    200,000 
           
Total notes payable. related party   299,500    299,500 
Less: current maturities   99,500    99,500 
Notes payable, related party, long-term portion  $200,000   $200,000 

 

The Company recorded interest expense pursuant to the stated interest rates on the notes payable, related party, in the amount of $5,467 and $3,967 for the three months ended March 31, 2023 and 2022, respectively.

 

The Company recognized interest expense for the three months ended March 31, 2023 and 2022, as follows:

 

   March 31,   March 31, 
   2023   2022 
         
Interest on convertible notes  $14,795   $14,795 
Interest on notes payable   37,808    3,888 
Interest on notes payable, related party   5,467    3,967 
Amortization of debt discounts   -    17,569 
Amortization of debt discounts, common stock   -    37,002 
Amortization of debt discounts, warrants   -    88,278 
Interest on accounts payable   -    693 
Total interest expense  $58,070   $166,192 

 

15

 

 

ONE WORLD PRODUCTS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 15 – Convertible Preferred Stock

 

Preferred Stock

 

The Company has 10,000,000 authorized shares of $0.001 par value “blank check” preferred stock, of which 500,000 shares have been designated Series A Preferred Stock and 600,000 shares have been designated Series B Preferred Stock, as amended on August 2, 2022. The shares of Series A Preferred Stock and Series B Preferred Stock are each currently convertible into one hundred (100) shares of the Company’s common stock. The Series A Preferred Stock accrues dividends at the rate of 6% per annum, payable in cash as and when declared by the Board or upon a liquidation. The shares of Series B Preferred Stock are not entitled to dividends, other than the right to participate in dividends payable to holders of common stock on an as-converted basis. As of March 31, 2023, there were 89,733 and 272,168 shares of Series A Preferred Stock and Series B Preferred Stock, respectively, issued and outstanding. The Series A and B Preferred Stock are presented as mezzanine equity on the balance sheet due because they carry a stated value of $10 and $15 per share, respectively, and a deemed liquidation clause, which entitles the holders thereof to receive proceeds thereof in an amount equal to the stated value per share, plus any accrued and unpaid dividends, before any payment may be made to holders of common stock. Each share of Preferred Stock carries a number of votes equal to the number of shares of common stock into which such Preferred Stock may then be converted. The Preferred Stock generally will vote together with the common stock and not as a separate class.

 

The Series A and B Preferred Stock have been classified outside of permanent equity and liabilities. the Series A Preferred Stock embodies conditional obligations that the Company may settle by issuing a variable number of equity shares, and in both the Series A and B Preferred Stock, monetary value of the obligation is based on a fixed monetary amount known at inception.

 

Series A Preferred Stock Sales

 

On various dates between January 4, 2023 and January 27, 2023, the Company received total proceeds from three accredited investors of $150,000 from the sale of 15,000 units, consisting in the aggregate of 15,000 shares of series A preferred stock and five-year warrants to purchase an aggregate 1,500,000 shares of common stock at an exercise price of $0.25 per share. The proceeds received were allocated between the Series A Preferred Stock and warrants on a relative fair value basis.

 

Series A Preferred Stock Issued for Services, Consultants

 

On January 1, 2023, the Company issued 4,500 shares of series A preferred stock in consideration of consulting services. The fair value of the shares was $45,000, based on recent sales prices of the Company’s series A preferred stock on the date of grant.

 

Preferred Stock Dividends

 

The Series A Preferred Stock accrues dividends at the rate of 6% per annum, payable in cash as and when declared by the Board or upon a liquidation. The Company recognized $12,773 and $10,258 for the three months ended March 31, 2023 and 2022, respectively. A total of $150,616 of dividends had accrued as of March 31, 2023.

 

Series B Preferred Stock Issuances

 

No shares of Series B Preferred Stock were issued during the three months ending March 31, 2023.

 

Note 16 – Commitments and Contingencies

 

Equity Line of Credit

 

On September 1, 2022, the Company entered into a Purchase Agreement (the “ELOC Purchase Agreement”) with Tysadco Partners, LLC (“Tysadco”). Pursuant to the ELOC Purchase Agreement, Tysadco has agreed to purchase from the Company, from time to time upon delivery by the Company to Tysadco of “Request Notices,” and subject to the other terms and conditions set forth in the ELOC Purchase Agreement, up to an aggregate of $10,000,000 of the Company’s common stock. The purchase price of the shares of common stock to be purchased under the Purchase Agreement will be equal to 88% of the lowest daily “VWAP” during the period of 10 trading days beginning five trading days preceding the applicable Request. Each purchase under the Purchase Agreement will be in a minimum amount of $25,000 and a maximum amount equal to the lesser of (i) $1,000,000 and (ii) 500% of the average daily trading value of the common stock over the seven trading days preceding the delivery of the applicable Request Notice.

 

In connection with the ELOC Purchase Agreement, the Company entered into a Registration Rights Agreement with Tysadco under which the Company agreed to file a registration statement with the Securities and Exchange Commission covering the shares of common stock issuable under the ELOC Purchase Agreement and conversion of the Commitment Fee Shares (the “Registration Rights Agreement”). There have not been any advances on this arrangement to date.

 

16

 

 

ONE WORLD PRODUCTS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Commitment for the Sale of Series B Preferred Stock

 

On October 3, 2022, the Company and ISIAH International, LLC (“ISIAH International”), an entity in which the Company’s CEO, Isiah L. Thomas, III, is the sole member, entered into a securities purchase agreement under which ISIAH International has agreed to purchase from the Company an aggregate of 33,333 shares of the Company’s Series B Preferred Stock initially convertible into an aggregate of three million three hundred thirty three thousand three hundred (3,333,300) shares of the Company’s common stock, for a total purchase price of $499,995. To date, no purchases under this agreement have occurred.

 

Note 17 – Changes in Stockholders’ Equity

 

Common Stock

 

The Company is authorized to issue an aggregate of 300,000,000 shares of common stock with a par value of $0.001. As of March 31, 2023, there were 70,202,907 shares of common stock issued and outstanding.

 

Common Stock Sales

 

On February 14, 2023, the Company sold 3,000,000 shares of common stock at a price of $0.10 per share for total cash proceeds of $300,000.

 

Amortization of Stock-Based Compensation

 

A total of $38,130 and $41,114 of stock-based compensation expense was recognized from the amortization of options to purchase common stock over their vesting period during the three months ended March 31, 2023 and 2022, respectively.

 

Note 18 – Common Stock Options

 

Stock Incentive Plan

 

On February 12, 2020, the Company’s stockholders approved our 2019 Stock Incentive Plan (the “2019 Plan”), which had been adopted by the Company’s Board of Directors (the “Board”) as of December 10, 2019. The 2019 Plan provides for the issuance of up to 10,000,000 shares of common stock to the Company and its subsidiaries’ employees, officers, directors, consultants and advisors, stock options (non-statutory and incentive), restricted stock awards, stock appreciation rights (“SARs”), restricted stock units (“RSUs”) and other performance stock awards. Options granted under the 2019 Plan may either be intended to qualify as incentive stock options under the Internal Revenue Code of 1986, or may be non-qualified options, and are exercisable over periods not exceeding ten years from date of grant. Unless sooner terminated in accordance with its terms, the Stock Plan will terminate on December 10, 2029.

 

The Company recognized a total of $38,130, and $41,114 of compensation expense during the three months ended March 31, 2023 and 2022, respectively, related to common stock options issued in the prior year to officers, directors, and employees that are being amortized over the implied service term, or vesting period, of the options. The remaining unamortized balance of these options is $93,897 as of March 31, 2023.

 

Note 19 – Income Taxes

 

The Company accounts for income taxes under FASB ASC 740-10, which requires use of the liability method. FASB ASC 740-10-25 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences.

 

For the three months ended March 31, 2023, and the year ended December 31, 2022, the Company incurred a net operating loss and, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. At March 31, 2023, the Company had approximately $9,476,000 of federal net operating losses. The net operating loss carry forwards, if not utilized, will begin to expire in 2025.

 

Based on the available objective evidence, including the Company’s history of its loss, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets at March 31, 2023 and December 31, 2022, respectively.

 

In accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions.

 

17

 

 

ONE WORLD PRODUCTS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 20 – Subsequent Events

 

The Company evaluates events that have occurred after the balance sheet date through the date these financial statements were issued.

 

Debt Offering & Commitment Fee Stock Issuance

 

On June 23, 2023, the Company completed the sale of a Promissory Note in the principal amount of $300,000 (the “Third AJB Note”) to AJB Capital Investments LLC (“AJB Capital”) for an aggregate purchase price of $276,000, pursuant to a Securities Purchase Agreement between the Company and AJB Capital (the “Purchase Agreement”). The Company received net proceeds of $262,500 after deduction of an original issue discount of $24,000, $7,500 of legal fees and a $6,000 broker fee, which are being amortized as a debt discount over the life of the loan.

 

The Third AJB Note matures on March 23, 2024 (the “Maturity Date”), bears interest at a rate of 12% per annum, and, following an event of default only, is convertible into shares of the Company’s common stock at a conversion price equal to the lesser of the Volume Weighted Average Price (“VWAP”) during (i) the 10 trading day period preceding the issuance date of the note, or (ii) the 10 trading day period preceding date of conversion of the Note. The Note is also subject to covenants, events of defaults, penalties, default interest and other terms and conditions customary in transactions of this nature.

 

Pursuant to the Purchase Agreement, the Company paid a commitment fee to AJB Capital in the amount of $100,000 (the “Commitment Fee”) in the form of 1,666,667 shares of the Company’s common stock (the “Commitment Fee Shares”). During the period commencing on the six-month anniversary of the closing date and ending on the five-year anniversary of the closing date, AJB Capital is entitled to be issued additional shares of common stock or receive a cash payment to the extent AJB Capital’s sale of the Commitment Fee Shares has resulted in net proceeds in an amount less than the Commitment Fee. The Commitment Fee Shares resulted in a debt discount of $121,667 that is being amortized over the life of the loan.

 

In connection with the issuance of the Third AJB Note and Commitment Fee Shares, the Company entered into a Registration Rights Agreement with AJB Capital in which the Company agreed to file a registration statement with the SEC within 180 days of June 23, 2023, registering the shares of common stock issuable under the Third AJB Note and Purchase Agreement.

 

Series A Preferred Stock Sale

 

On April 3, 2023, the Company received $100,000 from the sale of 10,000 units, consisting in the aggregate of 10,000 shares of series A preferred stock and five-year warrants to purchase an aggregate 1,000,000 shares of common stock at an exercise price of $0.25 per share to an accredited investor. The proceeds received were allocated between the Series A Preferred Stock and warrants on a relative fair value basis.

 

Common Stock Issued for Services

 

On June 15, 2023, the Company issued 1,500,000 shares of common stock to Mr. Joerg Sommer in consideration of his appointment as the Company’s President. The fair value of the shares was $89,850, based on the closing price of the Company’s common stock on the date of grant.

 

18

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended December 31, 2022 and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our financial statements and the notes to the financial statements included elsewhere in this Form 10-Q.

 

The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guarantees of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Forward-looking statements speak only as of the date of this quarterly report. You should not put undue reliance on any forward-looking statements. We strongly encourage investors to carefully read the factors described in the Form 10-K in the section entitled “Risk Factors” for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. We assume no responsibility to update the forward-looking statements contained in this quarterly report on Form 10-Q. The following should also be read in conjunction with the unaudited Financial Statements and notes thereto that appear elsewhere in this report.

 

Overview

 

Through our wholly-owned subsidiary, One World Pharma S.A.S, 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. We have been generating revenue from the sale of our seeds since the second quarter of 2020. From August 2021 through March 2022, we made payments of approximately $1,400,000 for the purchase of a state of the art distillation machine that was placed in service within our vertically integrated extraction facility during the second quarter of 2023. Once the equipment is placed in service, we will be one of the only companies in Colombia to both hold licenses and possess the capability to extract high-quality CBD and THC oils. We terminated our lease on September 30, 2022, and during the fourth quarter of 2022, have begun to install the equipment at a new extraction facility. We entered into a 5-year lease at this new location on October 1, 2022, where we have combined our office and extraction facilities into the same building. The new facility is approximately half the cost of the former, and already contained the necessary electrical and epoxy floors, which has significantly reduce our tenant improvement costs.

 

We recently added to our product pipeline premium coffee certified by the Colombian National Coffee Federation infused with CBD, teas infused with CBD and a series of wellness products, including sports CBD energy drinks for optimum performance, CBD facial and body creams for anti-inflammatory and anti-aging use. We expect to start exporting products in 2023, including CBD flower and distillate oil, while developing white label commercial agreements with partners in Europe, USA, and Latin America.

 

19

 

 

Results of Operations for the Three Months Ended March 31, 2023 and 2022:

 

The following table summarizes selected items from the statement of operations for the three months ended March 31, 2023 and 2022.

 

   Three Months Ended March 31,   Increase / 
   2023   2022   (Decrease) 
Revenues  $2,101   $10,147   $(8,046)
Cost of goods sold   967    9,956    (8,989)
Gross profit   1,134    191    943 
                
Operating expenses:               
General and administrative   347,297    381,383    (34,086)
Professional fees   103,848    171,050    (67,202)
Depreciation expense   7,857    12,485    (4,628)
Total operating expenses:   459,002    564,918    (105,916)
                
Operating loss   (457,868)   (564,727)   (106,859)
                
Total other expense   (58,070)   (44,779)   13,291 
                
Net loss  $(515,938)  $(609,506)  $(93,568)

 

Revenues

 

Revenues during the three months ended March 31, 2023 were $2,101, compared to $10,147 during the three months ended March 31, 2022, a decrease of $8,046, or 79%. Revenues decreased as we transitioned to new management at our operating facility.

 

Cost of Goods Sold

 

Cost of goods sold for the three months ended March 31, 2023 were $967, compared to $9,956 for the three months ended March 31, 2022, a decrease of $8,989, or 90%. Cost of goods sold consists primarily of labor, agricultural raw materials, depreciation and overhead.

 

General and Administrative Expenses

 

General and administrative expenses for the three months ended March 31, 2023 were $347,297, compared to $381,383 during the three months ended March 31, 2022, a decrease of $34,086, or 9%. The expenses for the current period consisted primarily of compensation expenses, office rent, and travel costs. General and administrative expenses decreased primarily due to decreased salaries and wages and lease expenses in Colombia over the prior year, as we transitioned to new management. General and administrative expenses included non-cash, stock-based compensation of $29,347 and $29,347 during the three months ended March 31, 2023 and 2022, respectively.

 

Professional Fees

 

Professional fees for the three months ended March 31, 2023 were $103,848, compared to $171,050 during the three months ended March 31, 2022, a decrease of $67,202, or 39%. Professional fees included non-cash, stock-based compensation of $53,783 and $11,767 during the three months ended March 31, 2023 and 2022, respectively. Professional fees decreased primarily due to decreased legal fees during the current period.

 

Depreciation Expense

 

Depreciation expense for the three months ended March 31, 2023 was $7,857, compared to $12,485 during the three months ended March 31, 2022, a decrease of $4,628, or 37%. Depreciation expense decreased due to the prior year disposal of office equipment.

 

Other Income (Expense)

 

Other expenses, on a net basis, for the three months ended March 31, 2023 were $58,070, compared to other expenses, on a net basis, of $44,779 during the three months ended March 31, 2022, an increase in net expenses of $13,291, or 30%. Other expenses consisted entirely of $58,070 of interest expense for the three months ended March 31, 2023, compared to $166,192 of interest expense, including $125,280 of stock-based finance costs on the amortization of debt discounts, as partially offset by a gain on early extinguishment of debt of $121,372 on the forgiveness of a PPP Loan and $41 of interest income, during the three months ended March 31, 2022.

 

Net Loss

 

Net loss for the three months ended March 31, 2023 was $515,938, or $0.01 per share, compared to $609,506, or $0.01 per share, during the three months ended March 31, 2022, a decrease of $93,568, or 15%. The net loss decreased primarily due to decreased compensation and office expenses during the current period as we transitioned to new management over our Colombian subsidiary.

 

20

 

 

Liquidity and Capital Resources

 

The following is a summary of the Company’s cash flows provided by (used in) operating, investing, financing activities and effect of exchange rate changes on cash for the three months ended March 31, 2023 and 2022:

 

   2023   2022 
Operating Activities  $(561,983)  $(647,595)
Investing Activities   (5,046)   (3,482)
Financing Activities   450,000    600,000 
Effect of Exchange Rate Changes on Cash   190,722    16,804 
Net Increase (Decrease) in Cash  $73,693   $(34,273)

 

Net Cash Used in Operating Activities

 

During the three months ended March 31, 2023, net cash used in operating activities was $561,983, compared to net cash used in operating activities of $647,595 for the three months ended March 31, 2022. The cash used in operating activities was primarily attributable to our net loss.

 

Net Cash Used in Investing Activities

 

During the three months ended March 31, 2023, net cash used in investing activities was $5,046, compared to net cash used in investing activities of $3,482 for the three months ended March 31, 2022. The cash used in investing activities consisted entirely of purchases of fixed assets.

 

Net Cash Provided by Financing Activities

 

During the three months ended March 31, 2023, net cash provided by financing activities was $450,000, compared to net cash provided by financing activities of $600,000 for the three months ended March 31, 2022. The current period consisted of $150,000 of proceeds received on the sale of preferred stock and $300,000 from the sale of common stock, compared to $600,000 of proceeds received on debt financing during the three months ended March 31, 2022.

 

Ability to Continue as a Going Concern

 

As of March 31, 2023, our balance of cash on hand was $84,709, and we had negative working capital of $2,669,690 and an accumulated deficit of $23,492,303. We are too early in our development stage to project future revenue levels, and may not be able to generate sufficient funds to sustain our operations for the next twelve months. Accordingly, we may need to raise additional cash to fund our operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

In the event sales do not materialize at the expected rates, management would seek additional financing and would attempt to conserve cash by further reducing expenses. There can be no assurance that we will be successful in achieving these objectives; therefore, without sufficient financing it would be unlikely for the Company to continue as a going concern.

 

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. The condensed consolidated 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. Our ability to scale production and distribution capabilities and further increase the value of our brands, is largely dependent on our success in raising additional capital.

 

21

 

 

Off-Balance Sheet Arrangements

 

We have no outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the presentation of our financial condition and results of operations and require management’s subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments.

 

While our significant accounting policies are more fully described in notes to our consolidated financial statements appearing elsewhere in this Form 10-Q, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we used in the preparation of our financial statements.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes 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. The Company’s sales to date have primarily consisted of the sale of seeds. These sales include multi-element arrangements whereby the Company collects 50% of the sale upon delivery of the sales, and the remaining 50% upon the completion of the harvest, whether the seeds result in a successful crop, or not. In addition, the Company has a right of first refusal to purchase products resulting from the harvest. At March 31, 2023, the Company had $10,114 of deferred revenues and $5,923 of deferred cost of goods sold, as included in other current assets on the balance sheet, that are expected to be recognized upon the customers’ completion of their future harvests.

 

Inventory

 

Inventories are stated at the lower of cost or net realizable value. Cost is determined on a standard cost basis that approximates the first-in, first-out (FIFO) method. 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 and non-employees in accordance with the provisions of ASC 718 Stock Compensation (ASC 718). 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.

 

22

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item

 

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective at the reasonable assurance level.

 

Changes in Internal Control over Financial Reporting

 

There have been no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) or in other factors that occurred during the period of our evaluation or subsequent to the date we carried out our evaluation which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any system of controls and procedures will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

 

23

 

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We are not a party to any legal or administrative proceedings that we believe, individually or in the aggregate, would be likely to have a material adverse effect on our financial condition or results of operations.

 

ITEM 1A. RISK FACTORS

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

The following issuances of equity securities by the Company during the three month period ended March 31, 2023 were exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Regulation D thereunder:

 

Series A Preferred Stock Sales

 

On January 27, 2023, the Company issued 10,000 shares of series A preferred stock, restricted in accordance with Rule 144, to an accredited investor for proceeds of $100,000.

 

On January 9, 2023, the Company issued 2,500 shares of series A preferred stock, restricted in accordance with Rule 144, to an accredited investor for proceeds of $25,000.

 

On January 4, 2023, the Company issued 2,500 shares of series A preferred stock, restricted in accordance with Rule 144, to an accredited investor for proceeds of $25,000.

 

Series A Preferred Stock Issued for Services

 

On January 1, 2023, the Company issued 4,500 shares of series A preferred stock, restricted in accordance with Rule 144, to an accredited investor for services provided. The fair value of the shares was $45,000, based on recent sales prices of the Company’s series A preferred stock on the date of grant.

 

Common Stock Sales

 

On February 14, 2023, the Company issued 3,000,000 shares of common stock, restricted in accordance with Rule 144, to an accredited investor for proceeds of $300,000.

 

In connection with the above security issuances, we did not pay any underwriting discounts or commissions. None of the sales of securities described or referred to above was registered under the Securities Act. In making the sales without registration under the Securities Act, we relied upon one or more of the exemptions from registration contained in Section 4(2) of the Securities Act, and in Regulation D promulgated under the Securities Act. No general solicitation or advertising was used in connection with the sales.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

On June 23, 2023, the Company completed the sale of a Promissory Note in the principal amount of $300,000 (the “Third AJB Note”) to AJB Capital Investments LLC (“AJB Capital”) for an aggregate purchase price of $276,000, pursuant to a Securities Purchase Agreement between the Company and AJB Capital (the “Purchase Agreement”). The Company received net proceeds of $262,500 after deduction of an original issue discount of $24,000, $7,500 of legal fees and a $6,000 of broker fee, which are being amortized as a debt discount over the life of the loan.

 

The Third AJB Note matures on March 23, 2024 (the “Maturity Date”), bears interest at a rate of 12% per annum, and, following an event of default only, is convertible into shares of the Company’s common stock at a conversion price equal to the lesser of the Volume Weighted Average Price (“VWAP”) during (i) the 10 trading day period preceding the issuance date of the note, or (ii) the 10 trading day period preceding date of conversion of the Note. The Note is also subject to covenants, events of defaults, penalties, default interest and other terms and conditions customary in transactions of this nature.

 

Pursuant to the Purchase Agreement, the Company paid a commitment fee to AJB Capital in the amount of $100,000 (the “Commitment Fee”) in the form of 1,666,667 shares of the Company’s common stock (the “Commitment Fee Shares”). During the period commencing on the six-month anniversary of the closing date and ending on the five-year anniversary of the closing date, AJB Capital is entitled to be issued additional shares of common stock or receive a cash payment to the extent AJB Capital’s sale of the Commitment Fee Shares has resulted in net proceeds in an amount less than the Commitment Fee. The Commitment Fee Shares resulted in a debt discount of $121,667 that is being amortized over the life of the loan.

 

In connection with the issuance of the Third AJB Note and Commitment Fee Shares, the Company entered into a Registration Rights Agreement with AJB Capital in which the Company agreed to file a registration statement with the SEC within 180 days of June 23, 2023, registering the shares of common stock issuable under the Third AJB Note and Purchase Agreement.

 

24

 

 

ITEM 6. Exhibits

 

Exhibit   Description
2.1   Agreement and Plan of Merger dated February 21, 2019, among the Registrant, OWP Merger Subsidiary Inc. and OWP Ventures, Inc. (incorporated by reference to Exhibit 2.1 of the Form 8-K filed with the Securities and Exchange Commission by the Company on February 25, 2019)
3.1   Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on November 24, 2014)
3.2   Certificate of Amendment to Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 8, 2019)
3.3   Certificate of Amendment to Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 25, 2020)
3.4   Certificate of Designation of Series A Preferred Stock of the Registrant dated June 1, 2020 (incorporated by reference to Exhibit 3.4 of the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on June 26, 2020)
3.5   Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 of the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on November 24, 2014)
3.6   Certificate of Designation of Series B Preferred Stock of the Registrant dated February 2, 2021 (incorporated by reference to Exhibit 3.1 of the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on February 8, 2021)
4.1*   Promissory Note of the Company in the Principal Amount of $300,000 issued to AJB Capital Investments LLC, dated June 23, 2023
10.1   2019 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission by the Company on February 25, 2020)
10.2   Form of Stock Option Grant Notice for grants under the 2019 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on February 25, 2020)
10.3   Form of Option Agreement for grants under the 2019 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 25, 2020)
10.4   Letter Agreement between the Company and Isiah L. Thomas, III, dated June 3, 2020 (incorporated by reference to Exhibit 10.2 of the Form 8-K filed with the Securities and Exchange Commission by the Company on June 9, 2020)
10.5*   Securities Purchase Agreement, dated as of June 23, 2023, between the Company and AJB Capital Investments LLC
10.6   Securities Purchase Agreement, dated as of February 7, 2021, between the Company and ISIAH International LLC (incorporated by reference to Exhibit 10.1 of the Form 8-K filed with the Securities and Exchange Commission by the Company on February 8, 2021)
10.7*   Registration Rights Agreement, dated June 23, 2023, between the Company and AJB Capital Investments LLC
10.8   Commercial Lease Agreement dated November 26, 2021, between R&B Inversiones S.A.S. and One World Pharma S.A.S. (incorporated by reference to Exhibit 10.10 of the Form 10-Q filed with the Securities and Exchange Commission by One World Products, Inc. on May 16, 2022)
10.9   Purchase Agreement, dated September 1, 2022, between One World Products, Inc. and Tysadco Partners, LLC (incorporated by reference to Exhibit 10.1 of the Form 8-K filed with the Securities and Exchange Commission by One World Products, Inc. on September 7, 2022)
10.10   Securities Purchase Agreement, dated September 1, 2022, between One World Products, Inc. and Tysadco Partners, LLC (incorporated by reference to Exhibit 10.2 of the Form 8-K filed with the Securities and Exchange Commission by One World Products, Inc. on September 7, 2022)
10.11   Registration Rights Agreement, dated September 1, 2022, between One World Products, Inc. and Tysadco Partners, LLC (incorporated by reference to Exhibit 10.3 of the Form 8-K filed with the Securities and Exchange Commission by One World Products, Inc. on September 7, 2022)
10.12   Convertible Promissory Note Purchase Agreement, dated September 16, 2022, between One World Products, Inc. and Dr. John McCabe (incorporated by reference to Exhibit 10.15 of the Form 10-Q filed with the Securities and Exchange Commission by One World Products, Inc. on November 14, 2022)
10.13   Convertible Note, dated September 16, 2022, between One World Products, Inc. and Dr. John McCabe (incorporated by reference to Exhibit 10.16 of the Form 10-Q filed with the Securities and Exchange Commission by One World Products, Inc. on November 14, 2022)
31.1*   Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a)
31.2*   Certification of Chief Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a)
32.1*   Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*   Certification of Chief Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*   Inline XBRL Instance Document
101.SCH*   Inline XBRL Schema Document
101.CAL*   Inline XBRL Calculation Linkbase Document
101.DEF*   Inline XBRL Definition Linkbase Document
101.LAB*   Inline XBRL Labels Linkbase Document
101.PRE*   Inline XBRL Presentation Linkbase Document
104*   Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

* Filed herewith.

 

25

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: July 5, 2023  
   
  One World Products, Inc.
   
  /s/ Isiah L. Thomas III
  Isiah L. Thomas III
  Chief Executive Officer
  (Principal Executive Officer)
   
  /s/ Timothy Woods
  Timothy Woods
  Chief Financial Officer
  (Principal Financial Officer)

 

26

 

Exhibit 4.1

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT OR OTHER APPLICABLE EXEMPTION. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

Principal Amount: US$300,000.00 Issue Date: June 23, 2023  
Purchase Price: US$276,000.00    

 

PROMISSORY NOTE

 

FOR VALUE RECEIVED, ONE WORLD PRODUCTS, INC., a Nevada corporation (hereinafter called the “Borrower”) (Trading Symbol: OWPC), hereby promises to pay to the order of AJB Capital Investments LLC, a Delaware limited liability company, or registered assigns (the “Holder”) the sum of US$300,000.00 (the “Principal”) together with interest (the “Interest”) on the Principal balance hereof in the amount of twelve percent (12%) (the “Interest Rate”) per calendar year from the date hereof (the “Issue Date”). Interest shall be payable on a monthly basis beginning on the date that is one month following the Issue Date. All Principal and accrued but unpaid Interest owing hereunder, along with any and all other amounts, shall be due and owing on March 23, 2024, unless extended as provided herein or accelerated in accordance with the terms hereof (the “Maturity Date”). This Note may be prepaid in whole or in part as set forth herein without penalty. Any amount of Principal or Interest on this Note which is not paid when due shall bear interest at the rate of the lesser of (i) eighteen percent (18%) per annum and (ii) the maximum amount permitted under law from the due date thereof until the same is paid (the “Default Interest”). Default Interest shall commence accruing upon an Event of Default and shall be computed on the basis of a 360-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share, of the Borrower (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”).

 

 

 

 

This Note carries an original issue discount of $24,000 (the “OID”), to cover the Holder’s monitoring costs associated with the purchase and sale of the Note, which is included in the principal balance of this Note. Thus, the purchase price of this Note shall be $276,000 computed as follows: the Principal Amount minus the OID (the “Purchase Price”).

 

This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.

 

The following terms shall also apply to this Note:

 

Article I. CONVERSION RIGHTS UPON EVENT OF DEFAULT

 

1.1 Conversion Right. The Holder shall have the right, from time to time following an Event of Default, and ending on the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III (the “Conversion Period”), each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal, interest, penalties, and all other amounts under this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the Conversion Price (as defined below) determined as provided herein (a “Conversion”); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 9.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso. The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower or Borrower’s transfer agent by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower or Borrower’s transfer agent before 11:59 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Holder’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, provided however, that the Borrower shall have the right to pay any or all interest in cash plus (3) at the Holder’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.

 

 2 

 

 

1.2 Conversion Price.

 

(a) Calculation of Conversion Price. Subject to the adjustments described herein, the conversion price (as adjusted, the “Conversion Price”) shall equal the ten (10) day VWAP prices of the trailing twenty (20) days prior to (i) the date of issuance of the Note or (ii) the date of conversion of the Note. To the extent the Conversion Price of the Borrower’s Common Stock closes below the par value per share, the Borrower will take all steps necessary to solicit the consent of the stockholders to reduce the par value to the lowest value possible under law. The Borrower agrees to honor all conversions submitted pending this adjustment. If the shares of the Borrower’s Common Stock have not been delivered within three (3) business days to the Borrower or Borrower’s transfer agent, the Notice of Conversion may be rescinded. At any time after the Closing Date, if in the case that the Borrower’s Common Stock is not deliverable by DWAC (including if the Borrower’s transfer agent has a policy prohibiting or limiting delivery of shares of the Borrower’s Common Stock specified in a Notice of Conversion), an additional 10% discount will apply for all future conversions under all Notes until DWAC delivery becomes available. If in the case that the Borrower’s Common Stock is “chilled” for deposit into the DTC system and only eligible for clearing deposit, a 15% discount shall apply for all future conversions under all Note until such chill is lifted. Additionally, if the Borrower ceases to be a reporting company pursuant to the 1934 Act or if the Note cannot be converted into free trading shares after one hundred eighty-one (181) days from the Issue Date (other than as a result of the Holder’s status as an affiliate of the Company), an additional 15% discount will be attributed to the Conversion Price. “VWAP” shall mean the daily dollar volume-weighted average sale price for the Common Stock on the Trading Market on any particular Trading Day during the period beginning at 9:30 a.m., New York City Time (or such other time as the Trading Market publicly announces is the official open of trading), and ending at 4:00 p.m., New York City Time (or such other time as the Trading Market publicly announces is the official close of trading), as reported by Bloomberg through its “Volume at Price”, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the Trading Market. If the VWAP cannot be calculated for such security on such date on any of the foregoing bases, the VWAP of such security on such date shall be the fair market value as mutually determined by the Borrower and the Holder. All such determinations of VWAP shall be appropriately and equitably adjusted in accordance with the provisions set forth herein for any stock dividend, stock split, stock combination or other similar transaction occurring during any period used to determine the Market Price (or other period utilizing VWAPs). “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the Trading Market. “Trading Market” shall mean the OTCQB or on any other principal securities exchange or other securities market on which the Common Stock is then being traded. The Borrower shall be responsible for the fees of its transfer agent and all DTC fees associated with any such issuance. Holder shall be entitled to deduct $500.00 from the conversion amount in each Notice of Conversion to cover Holder’s deposit fees associated with each Notice of Conversion.

 

 3 

 

 

While this Note is outstanding, each time any 3rd party has the right to convert monies owed to that 3rd party (or receive shares pursuant to a settlement or otherwise), including but not limited to under Section 3(a)(9) and Section 3(a)(10), at a discount to market greater than the Conversion Price in effect at that time (prior to all other applicable adjustments in the Note), but excluding any 3rd party loans that are already outstanding on the Issue Date, then the Holder, in Holder’s sole discretion, may utilize such greater discount percentage (prior to all applicable adjustments in this Note) until this Note is no longer outstanding. While this Note is outstanding, each time any 3rd party has a look back period greater than the look back period in effect under the Note at that time, including but not limited to under Section 3(a)(9) and Section 3(a)(10), excluding any 3rd party loans that are already outstanding on the Issue Date, then the Holder, in Holder’s sole discretion, may utilize such greater number of look back days until this Note is no longer outstanding. The Borrower shall give written notice to the Holder within one (1) business day of becoming aware of any event that could permit the Holder to make any adjustment described in the two immediately preceding sentences

 

(b) Conversion Price During Major Announcements. Notwithstanding anything contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than a merger in which the Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the Borrower or (ii) any person, group or entity (including the Borrower) publicly announces a tender offer to purchase 50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the date of the announcement referred to in clause (i) or (ii) is hereinafter referred to as the “Announcement Date”), then the Conversion Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), be equal to the lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect. From and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as set forth in this Section 1.2(a). For purposes hereof, “Adjusted Conversion Price Termination Date” shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcement as contemplated by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment of the proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative.

 

(c) Pro Rata Conversion; Disputes. In the event of a dispute as to the number of shares of Common Stock issuable to the Holder in connection with a conversion of this Note, the Borrower shall issue to the Holder the number of shares of Common Stock not in dispute and resolve such dispute in accordance with Section 4.13.

 

 4 

 

 

(d) If at any time the Conversion Price as determined hereunder for any conversion would be less than the par value of the Common Stock, then the Conversion Price hereunder shall equal such par value for such conversion and the Conversion Amount for such conversion shall be increased to include Additional Principal, where “Additional Principal” means such additional amount to be added to the Conversion Amount to the extent necessary to cause the number of conversion shares issuable upon such conversion to equal the same number of conversion shares as would have been issued had the Conversion Price not been subject to the minimum price set forth in this Section 1.2(d).

 

1.3 Authorized Shares. The Borrower covenants that during the period while any outstanding balance is owing hereunder or any conversion of the Note is available, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note issued pursuant to the Purchase Agreement. The Borrower is required at all times to have authorized and reserved at least four (4) times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Notes in effect from time to time) (the “Reserved Amount”). The Reserved Amount shall be increased from time to time in accordance with the Borrower’s obligations pursuant to Section 3(d) of the Purchase Agreement. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note. Notwithstanding the foregoing, in no event shall the Reserved Amount be lower than the initial Reserved Amount, regardless of any prior conversions.

 

If, at any time the Borrower does not maintain or replenish the Reserved Amount as required hereunder within three (3) business days of the request of the Holder, the principal amount of the Note shall increase by Five Thousand and No/100 United States Dollars ($5,000) (under Holder’s and Borrower’s expectation that any principal amount increase will tack back to the Issue Date) per occurrence.

 

1.4 Method of Conversion.

 

(a) Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time during the Conversion Period, by (A) submitting to the Borrower or Borrower’s transfer agent a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 11:59 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.

 

 5 

 

 

(b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.

 

(c) Payment of Taxes. The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid.

 

(d) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement.

 

(e) Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 11:59 p.m., New York, New York time, on such date.

 

 6 

 

 

(f) Delivery of Common Stock by Electronic Transfer. In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower shall use its commercially reasonable best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal At Custodian (“DWAC”) system.

 

(g) DTC Eligibility & Market Loss. If the Borrower fails to maintain its status as “DTC Eligible” for any reason, the principal amount of the Note shall increase by Five Thousand and No/100 United States Dollars ($5,000) (under Holder’s and Borrower’s expectation that any principal amount increase will tack back to the Issue Date) and the Conversion Price shall be redefined to mean seventy percent (70%) multiplied by the Market Price, subject to adjustment as provided in this Note.

 

(h) Failure to Deliver Common Stock Prior to Delivery Deadline. Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $1,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock until the Borrower issues and delivers a certificate to the Holder or credit the Holder’s balance account with OTC for the number of shares of Common Stock to which the Holder is entitled upon such Holder’s conversion of any Conversion Amount (under Holder’s and Borrower’s expectation that any damages will tack back to the Issue Date). Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, or interference with such conversion right are difficult if not impossible to qualify. Accordingly, the parties acknowledge that the liquidated damages provisions contained in this Section 1.4(h) are justified.

 

 7 

 

 

(i) Rescindment of a Notice of Conversion. If (i) the Borrower fails to respond to Holder within one (1) business day from the Conversion Date confirming the details of Notice of Conversion, (ii) the Borrower fails to provide any of the shares of the Borrower’s Common Stock requested in the Notice of Conversion within three (3) business days from the date of receipt of the Note of Conversion, (iii) the Holder is unable to procure a legal opinion required to have the shares of the Borrower’s Common Stock issued unrestricted and/or deposited to sell for any reason related to the Borrower’s standing, (iv) the Holder is unable to deposit the shares of the Borrower’s Common Stock requested in the Notice of Conversion for any reason related to the Borrower’s standing, (v) at any time after a missed Deadline, at the Holder’s sole discretion, or (vi) if OTC Markets changes the Borrower’s designation to ‘Limited Information’ (Yield), ‘No Information’ (Stop Sign), ‘Caveat Emptor’ (Skull & Crossbones), ‘OTC’, ‘Other OTC’ or ‘Grey Market’ (Exclamation Mark Sign) or other trading restriction on the day of or any day after the Conversion Date, the Holder maintains the option and sole discretion to rescind the Notice of Conversion (“Rescindment”) with a “Notice of Rescindment.”

 

1.5 Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or other applicable exemption or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Holder who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 or other applicable exemption without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:

 

“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT OR OTHER APPLICABLE EXEMPTION. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

 

 8 

 

 

The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be reasonably accepted by the Borrower so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 or other applicable exemption without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Borrower does not accept the opinion of counsel provided by the Holder with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note

 

1.6 Effect of Certain Events.

 

(a) Effect of Merger, Consolidation, Etc. At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation, reverse split, forward spilt, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either: (i) be deemed to be an Event of Default (as defined in Article III) pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof. “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.

 

(b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not affect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, fifteen (15) days prior written notice (but in any event at least ten (10) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section 1.6(b). The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.

 

 9 

 

 

(c) Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.

 

(d) Adjustment Due to Dilutive Issuance. If, at any time when any Notes are issued and outstanding, the Borrower issues or sells, or in accordance with this Section 1.6(d) hereof is deemed to have issued or sold, except for shares of Common Stock issued in an Exempt Issuance (as defined in the Purchase Agreement) and any shares issued under conversion or exercise of 3rd party securities that are already outstanding on the Issue Date, any shares of Common Stock for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than the Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a “Dilutive Issuance”), then immediately upon the Dilutive Issuance, the Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.

 

The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.

 

 10 

 

 

Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than in an Exempt Issuance), and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For the purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

 

(e) Purchase Rights. If, at any time when any Notes are issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

 

(f) Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 1.6, the Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note.

 

 11 

 

 

1.7 Status as Shareholder. Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other than the shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted. In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 1.3 to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 1.3) for the Borrower’s failure to convert this Note.

 

1.8 Prepayment. The Borrower may at any time pay or prepay all or any portion of the amounts outstanding hereunder by making a payment to the Holder of an amount in cash equal to the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note plus (y) Default Interest, if any.

Article II. CERTAIN COVENANTS

 

2.1 Distributions on Capital Stock. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders’ rights plan which is approved by a majority of the Borrower’s disinterested directors.

 

2.2 Restriction on Stock Repurchases. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares.

 

 12 

 

 

2.3 Borrowings. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, create, incur, assume guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any person, firm, partnership, joint venture or corporation, except by the endorsement of negotiable instruments for deposit or collection, or suffer to exist any liability for borrowed money, except (a) borrowings in existence or committed on the date hereof and of which the Borrower has informed Holder in writing prior to the date hereof, (b) indebtedness to trade creditors financial institutions or other lenders incurred in the ordinary course of business, (c) borrowings, the proceeds of which shall be used to repay this Note, (d) borrowings which are expressly subordinated to this Note, and (e) indebtedness incurred by the Borrower solely for the purposes of immediate material working capital needs. The Borrower shall use the proceeds from any borrowings or financings following the date hereof to repay this Note and the Borrower’s failure to comply with this covenant shall constitute an Event of Default hereunder.

 

2.4 Sale of Assets. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business. Any consent to the disposition of any assets shall be conditioned on a specified use of the proceeds towards the repayment of this Note.

 

2.5 Advances and Loans. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $50,000.

 

2.6 Section 3(a)(9) or 3(a)(10) Transaction. So long as this Note is outstanding, the Borrower shall not enter into any transaction or arrangement structured in accordance with, based upon, or related or pursuant to, in whole or in part, either Section 3(a)(9) of the Securities Act (a “3(a)(9) Transaction”) or Section 3(a)(10) of the Securities Act (a “3(a)(10) Transaction”). In the event that the Borrower does enter into, or makes any issuance of Common Stock related to a 3(a)(9) Transaction or a 3(a)(10) Transaction while this note is outstanding, a liquidated damages charge of 25% of the outstanding principal balance of this Note, but not less than Fifteen Thousand Dollars $15,000, will be assessed and will become immediately due and payable to the Holder at its election in the form of cash payment or addition to the balance of this Note.

 

2.7 Preservation of Existence, etc. The Borrower shall maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, its existence, rights and privileges, and become or remain, and cause each of its Subsidiaries (other than dormant Subsidiaries that have no or minimum assets) to become or remain, duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary.

 

 13 

 

 

2.8 Non-circumvention. The Borrower hereby covenants and agrees that the Borrower will not, by amendment of its Certificate or Articles of Incorporation or Bylaws, or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, and will at all times in good faith carry out all the provisions of this Note and take all action as may be required to protect the rights of the Holder.

 

Article III. EVENTS OF DEFAULT

 

If any of the following events of default (each, an “Event of Default”) shall occur:

 

3.1 Failure to Pay Principal or Interest. The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise and such failure continues for a period of three (3) days.

 

3.2 Conversion and the Shares. The Borrower (i) fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, (ii) fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, (iii) directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, (iv) fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion, (v) fails to remain current in its obligations to its transfer agent, (vi) causes a conversion of this Note to be delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent, (vii) fails to repay Holder, within forty eight (48) hours of a demand from the Holder, any amount of funds advanced by Holder to Borrower’s transfer agent in order to process a conversion, (viii) fails to reserve sufficient amount of shares of common stock to satisfy the Reserved Amount at all times, (ix) fails to provide a Rule 144 opinion letter from the Borrower’s legal counsel to the Holder, covering the Holder’s resale into the public market of the respective conversion shares under this Note, within two (2) business days of the Holder’s submission of a Notice of Conversion to the Borrower (provided that the Holder must request the opinion from the Borrower at the time that Holder submits the respective Notice of Conversion and the date of the respective Notice of Conversion must be on or after the date which is six (6) months after the date that the Holder funded the Purchase Price under this Note), and/or (x) an exemption under Rule 144 is unavailable for the Holder’s deposit into Holder’s brokerage account and resale into the public market of any of the conversion shares under this Note at any time after the date which is six (6) months after the date that the Holder funded the Purchase Price under this Note (other than as a result of Holder’s status as an affiliate of the Borrower).

 

 14 

 

 

3.3 Failure to Deliver Transaction Expense Amount. The Borrower fails to deliver the Transaction Expense Amount (as defined in the Purchase Agreement) to the Holder within three (3) business days of the date such amount is due.

 

3.4 Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of five (5) days after written notice thereof to the Borrower from the Holder.

 

3.5 Breach of Representations and Warranties. Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, the Purchase Agreement), shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.

 

3.6 Receiver or Trustee. The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors or commence proceedings for its dissolution, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed for the Borrower or for a substantial part of its property or business without its consent and shall not be discharged within fifteen (15) days after such appointment.

 

3.7 Judgments. Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of ten (10) days unless otherwise consented to by the Holder.

 

3.8 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower, or the Borrower admits in writing its inability to pay its debts generally as they mature, or have filed against it an involuntary petition for bankruptcy relief, all under federal or state laws as applicable or the Borrower admits in writing its inability to pay its debts generally as they mature, or have filed against it an involuntary petition for bankruptcy relief, all under international, federal or state laws as applicable.

 

3.9 Delisting of Common Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCQB, Nasdaq Capital Market, Nasdaq Small Cap Market, New York Stock Exchange, NYSE MKT, or an equivalent replacement exchange.

 

 15 

 

 

3.10 Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange Act (including but not limited to becoming delinquent in its filings); and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.

 

3.11 Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.

 

3.12 Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.

 

3.13 Maintenance of Assets. The failure by Borrower to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future), or any disposition or conveyance of any material asset of the Borrower.

 

3.14 Financial Statement Restatement. The restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.

 

3.15 Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.

 

3.16 Replacement of Transfer Agent. In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.

 

3.17 Cessation of Trading. Any cessation of trading of the Common Stock on at least one of the OTCQB, Nasdaq Capital Market, Nasdaq Small Cap Market, New York Stock Exchange, NYSE MKT, or an equivalent replacement exchange, and such cessation of trading shall continue for a period of five consecutive (5) Trading Days.

 

3.18 Cross-Default. Notwithstanding anything to the contrary contained in this Note or the other Transaction Documents (as defined in the Purchase Agreement), a breach of or the occurrence of an Event of Default under any of the other Transaction Documents or under loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof; (b) made in the ordinary course of business; or (c) otherwise permitted under Section 2.5 of this Note, which in any instance is continuing after the expiration of applicable notice, grace or cure periods shall, at the option of the Holder, be considered an Event of Default under this Note and the other Transaction Documents. In such event, the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the other Transaction Documents by reason of a breach, default or Event of Default having occurred under this Note or any other Transaction Document.

 

 16 

 

 

3.19 Bid Price. The Borrower shall lose the “bid” price for its Common Stock ($0.001 on the “Ask” with zero market makers on the “Bid” per Level 2) and/or a market (including the OTCQB, OTC Pink or an equivalent replacement exchange).

 

3.20 OTC Market Designation. OTC Markets changes the Borrower’s designation to ‘No Information’ (Stop Sign), ‘Caveat Emptor’ (Skull and Crossbones), or ‘OTC’, ‘Other OTC’ or ‘Grey Market’ (Exclamation Mark Sign).

 

3.21 Inside Information. Any attempt by the Borrower or its officers, directors, and/or affiliates to transmit, convey, disclose, or any actual transmittal, conveyance, or disclosure by the Borrower or its officers, directors, and/or affiliates of, material non-public information concerning the Borrower, to the Holder or its successors and assigns, which is not immediately cured by Borrower’s filing of a Form 8-K pursuant to Regulation FD on that same date.

 

3.22 Unavailability of Rule 144. If, at any time on or after the date which is six (6) months after the Issue Date, the Holder is unable to (i) obtain a standard “144 legal opinion letter” from an attorney reasonably acceptable to the Holder, the Holder’s brokerage firm (and respective clearing firm), and the Borrower’s transfer agent in order to facilitate the Holder’s conversion of any portion of the Note into free trading shares of the Borrower’s Common Stock pursuant to Rule 144, and (ii) thereupon deposit such shares into the Holder’s brokerage account (in each case, other than as a result of Holder’s status as an affiliate of the Borrower).

 

3.23 Delisting or Suspension of Trading of Common Stock. If, at any time on or after the Issue Date, the Borrower’s Common Stock (i) is suspended from trading, (ii) halted from trading, and/or (iii) fails to be quoted or listed (as applicable) on any tier of the OTC Markets, any tier of the NASDAQ Stock Market, the New York Stock Exchange, or the NYSE American.

 

3.24 Failure to File Registration Statement. If the Borrower shall fail to file a registration statement as required under Section 4(q) of the Purchase Agreement.

 

 17 

 

 

UPON THE OCCURRENCE OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3 OF THIS NOTE, THE NOTE SHALL BECOME IMMEDIATELY AND AUTOMATICALLY DUE AND PAYABLE WITHOUT DEMAND, PRESENTMENT, OR NOTICE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (A) IN THE EVENT OF AN OCCURRENCE OF ANY EVENT OF DEFAULT SPECIFIED IN OF SECTION 3.2, 3.9, 3.10, 3.16, 3.17, 3.19, 3.20, 3.22, 3.23 OR 3.24, the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof, MULTIPLIED BY TWO (2); OR (B) IN THE EVENT OF THE OCCURRENCE OF ANY EVENT OF DEFAULT SPECIFIED IN ANY OTHER SECTION, the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Mandatory Prepayment Date, plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) at the option of the Holder, the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest trading price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity. Further, if a breach of Sections 3.9, 3.10 and/or 3.19 occurs or is continuing after the nine (9) month anniversary of this Note, then the principal amount of the Note shall increase by Fifteen Thousand and No/100 United States Dollars ($15,000) (under Holder’s and Borrower’s expectation that any principal amount increase will tack back to the Issue Date) and the Holder shall be entitled to use the lowest trading price during the delinquency period as a base price for the conversion with the Variable Conversion Price shall be redefined to mean forty percent (40%) multiplied by the Market Price, subject to adjustment as provided in this Note. For example, if the lowest trading price during the delinquency period is $0.50 per share and the conversion discount is 50%, then the Holder may elect to convert future conversions at $0.25 per share. If this Note is not paid at Maturity Date, then the outstanding principal due under this Note shall increase by Fifteen Thousand and No/100 United States Dollars ($15,000).

 

The Holder shall have the right at any time after an Event of Default occurs under this Note to require the Borrower, to immediately issue, in lieu of the Default Amount and/or Default Sum, the number of shares of Common Stock of the Borrower equal to the Default Amount and/or Default Sum divided by the Conversion Price then in effect, pursuant to the terms of this Note (including but not limited to any beneficial ownership limitations contained herein). This requirement by the Borrower shall automatically apply upon the occurrence of an Event of Default without the need for any party to give any notice or take any other action.

 

If the Holder shall commence an action or proceeding to enforce any provisions of this Note, including, without limitation, engaging an attorney, then if the Holder prevails in such action, the Holder shall be reimbursed by the Borrower for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

 18 

 

 

If the Holder shall commence an action or proceeding to enforce any provisions of this Note, including, without limitation, engaging an attorney, the Holder shall be entitled to use the lowest trading price during the delinquency period as a base price for the conversion and the Variable Conversion Price shall be redefined to mean forty percent (40%) multiplied by the Market Price, subject to adjustment as provided in this Note.

 

Article IV. MISCELLANEOUS

 

4.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.

 

4.2 Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, electronic mail, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written no