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, 2019 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 produce 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 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
generated initial sales of fully registered non-psychoactive seeds during the
second quarter of 2020.
On June 3, 2020, we appointed Isiah L. Thomas III to serve as the Company's
Chief Executive Officer and Vice Chairman pursuant to a letter agreement with
the Company; entered into a Separation and Release Agreement with Craig Ellins,
pursuant to which Mr. Ellins resigned from all of his positions with the Company
and its subsidiaries, including his positions as Chief Executive Officer and
Chairman of the Board of the Company; and appointed Dr. Kenneth Perego, II to
serve as the Executive Chairman of the Company's Board of Directors.
Mr. Thomas, 59, has been the Chairman and Chief Executive Officer of Isiah
International, LLC, a holding company with interests in a diversified portfolio
of businesses, since 2011. Mr. Thomas also has been a Commentator and Analyst
for NBA TV, since 2014, and Turner Sports, since 2012. He previously served as
the President & Alternate Governor of the New York Liberty of the Women's
National Basketball Association from 2015 to February 2019, the Head Basketball
Coach at Florida International University, from 2009 to 2012, the General
Manager, President of Basketball Operation and Head Coach of the New York Knicks
of the National Basketball Association ("NBA"), from 2006 to 2008, the Head
Coach of the Indiana Pacers of the NBA from 2000 to 2003, the Owner of the
Continental Basketball Association from 1998 to 2000, Minority Owner & Executive
Vice President of the Toronto Raptors of the NBA from 1994 to 1998 and point
guard for the Detroit Pistons of the NBA from 1981 to 1994. Mr. Thomas has
served as a director of Get in Chicago, an organization focused on stopping gun
and related violence in Chicago, since 2013, and as a director of Madison Square
Garden Entertainment Corp. since April 2020. He is also the Founder of Mary's
Court Foundation, a charitable organization established in 2010.
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Results of Operations for the Three Months Ended June 30, 2020 and 2019:
The following table summarizes selected items from the statement of operations
for the three months ended June 30, 2020 and 2019.
Three Months Ended June 30, Increase /
2020 2019 (Decrease)
Revenues $ 60,786 $ - $ 60,786
Cost of goods sold 16,751 - 16,751
Gross profit 44,035 - 44,035
Operating expenses:
General and administrative 2,222,320 565,167 1,657,153
Professional fees 2,204,501 741,542 1,462,959
Total operating expenses: 4,426,821 1,306,709 3,120,112
Operating loss (4,382,786 ) (1,306,709 ) 3,076,077
Total other income (expense) (10,545 ) (18,519 ) (7,974 )
Net loss $ (4,393,331 ) $ (1,325,228 ) $ 3,068,103
Revenues
We began to generate revenues from the sale of seeds during the three months
ended June 30, 2020. Revenues were $60,786 for the three months ended June 30,
2020.
Cost of Goods Sold
Cost of goods sold for the three months ended June 30, 2020 were $16,751. 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 June 30, 2020
were $2,222,320, compared to $565,167 during the three months ended June 30,
2019, an increase of $1,657,153, or 293%. The expenses for the current period
consisted primarily of compensation expenses, office rent, and travel costs.
General and administrative expenses increased primarily due to increased
stock-based compensation issued to officers, as offset to a lesser degree by
staffing reductions related to the worldwide economic disruption from COVID-19
in the current period. General and administrative expenses included non-cash,
stock-based compensation of $1,973,799 and $-0- during the three months ended
June 30, 2020 and 2019, respectively.
Professional Fees
Professional fees for the three months ended June 30, 2020 were $2,204,501,
compared to $741,542 during the three months ended June 30, 2019, an increase of
$1,462,959, or 197%. Professional fees included non-cash, stock-based
compensation of $2,021,122 and $395,715 during the three months ended June 30,
2020 and 2019, respectively. Professional fees increased primarily due to
increased stock-based compensation during the current period.
Other Income (Expense)
Other expenses, on a net basis, for the three months ended June 30, 2020 were
$10,545, compared to other expenses, on a net basis, of $18,519 during the three
months ended June 30, 2019, a decrease in net expenses of $7,974, or 43%. Other
expenses consisted of $10,545 of interest expense for the three months ended
June 30, 2020, compared to a $4,087 loss on disposal of fixed assets, and
$14,579 of interest expense, as offset by $147 of interest income, during the
three months ended June 30, 2019.
Net Loss
Net loss for the three months ended June 30, 2020 was $4,393,331, or $0.09 per
share, compared to $1,325,228, or $0.03 per share, during the three months ended
June 30, 2019, an increase of $3,068,103, or 232%. The net loss increased
primarily due to increased stock-based compensation during the current period,
as partially offset by reductions in operating costs related to the worldwide
economic disruption from COVID-19 in the current period.
21
Results of Operations for the Six Months Ended June 30, 2020 and 2019:
The following table summarizes selected items from the statement of operations
for the six months ended June 30, 2020 and 2019.
Six Months Ended June 30, Increase /
2020 2019 (Decrease)
Revenues $ 60,786 $ - $ 60,786
Cost of goods sold 16,751 - 16,751
Gross profit 44,035 - 44,035
Operating expenses:
General and administrative 2,513,373 1,044,787 1,468,586
Professional fees 3,090,855 1,444,422 1,646,433
Total operating expenses: 5,604,228 2,489,209 3,115,019
Operating loss (5,560,193 ) (2,489,209 ) 3,070,984
Total other income (expense) (21,054 ) (159,535 ) (138,481 )
Net loss $ (5,581,247 ) $ (2,648,744 ) $ 3,103,707
Revenues
We began to generate revenues from the sale of seeds during the second quarter
of 2020. Revenues were $60,786 for the six months ended June 30, 2020.
Cost of Goods Sold
Cost of goods sold for the six months ended June 30, 2020 were $16,751. Cost of
goods sold consists primarily of labor, agricultural raw materials, depreciation
and overhead.
General and Administrative Expenses
General and administrative expenses for the six months ended June 30, 2020 were
$2,513,373, compared to $1,044,787 during the six months ended June 30, 2019, an
increase of $1,468,586, or 141%. The expenses for the current period consisted
primarily of compensation expenses, office rent, and travel costs. General and
administrative expenses increased primarily due to increased stock-based
compensation issued to officers, as offset to a lesser degree by staffing
reductions related to the worldwide economic disruption from COVID-19 in the
current period. General and administrative expenses included non-cash,
stock-based compensation of $1,973,799 and $-0- during the six months ended June
30, 2020 and 2019, respectively
Professional Fees
Professional fees for the six months ended June 30, 2020 were $3,090,855,
compared to $1,444,422 during the six months ended June 30, 2019, an increase of
$1,646,433, or 114%. Professional fees included non-cash, stock-based
compensation of $2,584,400 and $664,255 during the six months ended June 30,
2020 and 2019, respectively. Professional fees increased primarily due to
increased stock-based compensation during the current period.
Other Income (Expense)
Other expenses, on a net basis, for the six months ended June 30, 2020 were
$21,054, compared to other expenses, on a net basis, of $159,535 during the six
months ended June 30, 2019, a decrease in net expenses of $138,481, or 87%.
Other expenses consisted of $21,054 of interest expense for the six months ended
June 30, 2020, compared to a $4,087 loss on disposal of fixed assets, and
$155,696 of interest expense, as offset by $248 of interest income, during the
six months ended June 30, 2019.
Net Loss
Net loss for the six months ended June 30, 2020 was $5,581,247, or $0.12 per
share, compared to $2,648,744, or $0.06 per share, during the six months ended
June 30, 2019, an increase of $3,103,707, or 124%. The net loss increased
primarily due to increased stock-based compensation during the current period,
as partially offset by reductions in operating costs related to the worldwide
economic disruption from COVID-19 in the current period.
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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 six months ended June 30, 2020 and 2019:
2020 2019
Operating Activities $ (761,224 ) $ (1,933,479 )
Investing Activities (2,213 ) (366,585 )
Financing Activities 611,274 2,243,602
Effect of Exchange Rate Changes on Cash (28,203 ) 143,001
Net Increase (Decrease) in Cash
$ (180,366 ) $ 86,539
Net Cash Used in Operating Activities
During the six months ended June 30, 2020, net cash used in operating activities
was $761,224, compared to net cash used in operating activities of $1,933,479
for the six months ended June 30, 2019. The cash used in operating activities
was primarily attributable to our net loss.
Net Cash Used in Investing Activities
During the six months ended June 30, 2020, net cash used in investing activities
was $2,213, compared to net cash used in investing activities of $366,585 for
the six months ended June 30, 2019. The cash used in investing activities
consisted of purchases of fixed assets.
Net Cash Provided by Financing Activities
During the six months ended June 30, 2020, net cash provided by financing
activities was $611,274, compared to net cash provided by financing activities
of $2,243,602 for the six months ended June 30, 2019. The current period
consisted of $211,274 of debt financing, net of repayments, and $400,000 of
proceeds from the sale of stock, compared to $293,000 of net proceeds received
on debt financing and $1,950,602 of equity financing received during the six
months ended June 30, 2019.
Ability to Continue as a Going Concern
As of June 30, 2020, our balance of cash on hand was $102,014, and we had
negative working capital of $1,194,352 and an accumulated deficit of
$13,748,413. We currently may not have sufficient funds to sustain our
operations for the next twelve months and we may need to raise additional cash
to fund our operations to the extent necessary to provide working capital.
The Company has incurred recurring losses from operations resulting in an
accumulated deficit, and, as set forth above, the Company's cash on hand is not
sufficient to sustain operations. These factors raise substantial doubt about
the Company's ability to continue as a going concern. Management is actively
pursuing new customers to generate revenues. In addition, the Company is
currently seeking additional sources of capital to fund short term operations.
Management believes these factors will contribute toward achieving
profitability. The accompanying financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern. There can be no assurance that we will be successful in achieving
these objectives, becoming profitable or continuing our business without either
a temporary interruption or a permanent cessation. Additional financing may
result in substantial dilution to existing stockholders.
The condensed consolidated financial statements do not include any adjustments
that might result from the outcome of any uncertainty as to the Company's
ability to continue as a going concern. These financial statements also do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts, or amounts and classifications of liabilities that might
be necessary should the Company be unable to continue as a going concern.
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.
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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.
There was no impact on the Company's financial statements from ASC 606 for the
six months ended June 30, 2020, or the year ended December 31, 2019. Inventory
consisted of $13,395 of raw materials, $59,545 of work in progress and $100,200
of finished goods at June 30, 2020.
Stock-Based Compensation
The Company accounts for equity instruments issued to employees in accordance
with the provisions of ASC 718 Stock Compensation (ASC 718) and Equity-Based
Payments to Non-employees pursuant to ASC 505-50 (ASC 505-50). All transactions
in which goods or services are the consideration received for the issuance of
equity instruments are accounted for based on the fair value of the
consideration received or the fair value of the equity instrument issued,
whichever is more reliably measurable. The measurement date of the fair value of
the equity instrument issued is the earlier of the date on which the
counterparty's performance is complete or the date at which a commitment for
performance by the counterparty to earn the equity instruments is reached
because of sufficiently large disincentives for nonperformance.
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ONE WORLD PRODUCTS, INC. 
