OWPC 10-K
One World Products, Inc. (OWPC)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended
OR
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission
file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
One World Products, Inc.
(Address of principal executive offices and zip code)
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 |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes
☐
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.
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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 the 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 | ☐ |
| ☒ | 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.
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by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐ No
The
aggregate market value of the registrant’s common stock held by non-affiliates of the registrant based upon the closing price of
$0.08225 per share as of June 30, 2023 was approximately $
As of May 21, 2024, there were shares of registrant’s common stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE:
TABLE OF CONTENTS
PART I
Forward Looking Statements
This Form 10-K contains “forward-looking” statements including statements regarding our expectations of our future operations. For this purpose, any statements contained in this Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control.
These risks and uncertainties include our limited operating history; changes in cannabis laws, regulations and guidelines; our reliance on Colombian licenses, our ability to obtain authorizations and quotas; regulatory compliance risks; competition in our industry; our ability to establish and maintain bank accounts; our ability to comply with foreign trade policies; the continued demand for cannabis and derivate products; our ability to retain and acquire skilled personnel; and the risks involved in conducting operations in Colombia, as well as other factors set forth under the caption “Risk Factors” in this Form 10-K. Although the forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. In light of these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Except as required by law, we undertake no obligation to announce publicly revisions we make to these forward-looking statements to reflect the effect of events or circumstances that may arise after the date of this report. All written and oral forward-looking statements made subsequent to the date of this report and attributable to us or persons acting on our behalf are expressly qualified in their entirety by this section.
ITEM 1. BUSINESS
Overview
On February 21, 2019, we entered into an Agreement and Plan of Merger (“Merger Agreement”) with OWP Merger Subsidiary, Inc. (“OWP Merger Sub), our wholly-owned subsidiary, and OWP Ventures, Inc. (“OWP Ventures”). Under the Merger Agreement, the acquisition of OWP Ventures by us was effected by the merger of OWP Merger Sub with and into OWP Ventures, with OWP Ventures being the surviving entity as our wholly-owned subsidiary (the “Merger”). The closing (the “Closing”) of the Merger occurred on February 21, 2019.
Immediately prior to the Closing, we were a public “shell” company with nominal assets. As of the Closing, we are no longer a public shell. As a result of the Merger, we are engaged in OWP Ventures’ business, including the business of its wholly-owned subsidiary, One World Pharma, S.A.S., a Colombian company (“OWP SAS”). On November 23, 2021, we changed our name from One World Pharma, Inc. to One World Products, Inc. through the merger of One World Products, Inc., a recently formed Nevada corporation wholly-owned by us, with and into us. This merger was effected solely to effect the change of our name, and had no effect on our officers, directors, operations, assets or liabilities.
On June 3, 2020, Isiah L. Thomas, III was appointed to serve as our Chief Executive Officer and Vice Chairman. Mr. Thomas was a 12-time NBA All Star, two-time NBA champion, and is an accomplished international business executive. In 2021, through ISIAH International, LLC, of which he is the sole member, Mr. Thomas purchased $3,000,000 of our Series B Preferred Stock in installments over a period of time ending in July 2021.
We plan to be a producer of and/or source raw and processed cannabis and hemp plant ingredients for both medical and industrial uses across the globe. The Company is a holding company and conducts its business in Colombia through OWP SAS, its wholly-owned subsidiary. OWP SAS has received licenses from the Colombian government to cultivate, produce and distribute the raw ingredients of the cannabis and hemp plant for medicinal, scientific and industrial purposes in the town of Esmeralda-Popayán, Cauca, Colombia.
On December 22, 2023, OWP SAS filed for for protection under Colombian Law 1116 of 2006, which is the primary legislation governing business insolvency proceedings (restructuring and liquidation) (“Reorganization Proceedings”) in Colombia. The Reorganization Proceeds are similar to Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States, whereby the Company intends to restructure its debts. See “Operations of OWP SAS” for additional information.
We are in the process of acquiring another Colombian subsidiary within the Bogota free trade zone, which has all requisite licenses for the cultivation, production, distribution and export of cannabis and hemp infused products, and will serve as the Company’s primary base of operations in the Colombian market. Establishing operations within the free trade zone provides favorable import/export commercial terms and taxation, and will improve logistics and the overall operating efficiencies for the Company due to the close proximity of El Dorado International Airport and the commercial, economic and cultural center of the city of Bogota itself.
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Operations of OWP SAS
We planted our first crop of cannabis in Popayán, Colombia in 2018, and began initial 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 commenced limited shipping of non-psychoactive products to customers in May of 2020. Subject to the completion of the Reorganization Proceedings, although we hold the four Colombian Licenses, we will need to obtain additional approvals from Colombian regulators before we can fully execute our business plan, particularly with respect to the sale psychoactive products. As described further under “Regulation” below,
| ● | We will need to obtain quota approvals from the Colombian authorities before we can commence commercial sale of our psychoactive products under our Cannabis Manufacturing License and Psychoactive Cultivation License; | |
| ● | We have successfully registered three non-psychoactive distinct cannabis strains and have received the certification required by Colombia’s National Registrar as of April 2020; and | |
| ● | We have been issued the sanitary registrations needed to sell our products intended for human consumption; and | |
| ● | We have successfully registered eight psychoactive distinct cannabis strains and have received the certifications required by Colombia’s National Registrar as of December 2020; and | |
| ● | We will proceed to get quota approvals for 2024. |
Our first cultivation site was located in Popayán, Colombia. Our cultivation facility encompassed approximately 30 acres and included a covered greenhouse built specifically to cultivate high-grade cannabis and hemp. In addition, we entered into agreements with a local farming co-operative that cultivated cannabis on up to approximately 140 acres of land using our seeds and propagation techniques, and sold their harvested products to us on an exclusive basis.
We employ modern propagation and cultivation techniques drawn from U.S. practices that allow us to rapidly multiply the cells of a specific plant strain to produce large numbers of genetically consistent progeny plants using our own plant tissue culture method. We believe this technique allows us to cultivate plants which are stable, robust and able to produce genetically superior cannabis and hemp derived products. We intend to have our processes and products certified as compliant with international standards, including Good Agricultural Practices (“GAP”), Good Manufacturing Practice (“GMP”) and the standards set forth in EU Pharmacopoeia, a publication that sets forth quality standards applicable to the European pharmaceutical industry.
We generated revenues since the second quarter of 2020. Between August 2021 and March 2022, we made payments of approximately $1,400,000 for the purchase of a state-of-the-art distillation machine that cleared customs and is currently located in a warehouse near Bogota. We intend to build out an extraction and production facility in the Bogota free trade zone extension, after we execute a lease for this location. The installation of this equipment makes us one of the only companies in Colombia to both hold licenses and possess the capability to extract high-quality CBD and THC oils.
For strategic and operational reasons, OWP SAS filed for protection under Colombian Law 1116 of 2006, which is the primary regulations governing Reorganization Proceedings in Colombia, on December 22, 2023. Subject to court approval, the Company intends on continuing its normal operations during the Reorganization Proceeding. Our normal operations consist or providing cannabinoids in bulk for the domestic and international markets, including the raw material for our brands and affiliate companies. At this time, the Company cannot predict the length of time of the Reorganization Proceeding. The Company has deconsolidated its foreign subsidiaries until it emerges from the Reorganization Proceedings to include the petitioning entity, OWP SAS, as well as the Company’s non-operating shell entities, Agrobase, S.A.S. and Hope Colombia, S.A.S., given the lack of independently identifiable operations. The deconsolidation resulted in a loss on deconsolidation of foreign subsidiaries in the amount of $1,564,823 for the year ended December 31, 2023.
We expect to start exporting products in 2024, including CBD flower and distillate oil, while developing white label commercial agreements with partners in Europe, USA, and Latin America. Our product pipeline may include 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. In September and December 2023, we entered into strategic partnerships with Smokiez Edibles to distribute Smokiez Gummies in Colombia and other countries in Latin America. In December 2023, we entered into a strategic partnership with Kx Family Care, which honors the legacy of Bob Marley to distribute Kx Family Care products in Colombia and other countries in Latin America. There can be no assurances that these strategic partnerships will generate revenue or be profitable for the Company.
History and Background
One World Pharma S.A.S., is a Colombian company (“OWP SAS”), incorporated on July 14, 2017 with the goal of procuring the following Colombian Licenses.
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On December 20, 2017, the Colombian Ministry of Health, by means of resolution No. 5251 of 2017, granted OWP SAS its license for the production of cannabis derivatives for domestic use and export, allowing OWP SAS to extract high tetrahydrocannabinol (“THC”) compounds (“Cannabis Manufacturing License”). This license will expire on December 20, 2027.
On December 26, 2017, the Colombian Ministry of Justice, by means of resolution No. 1087 of 2017, granted OWP SAS its license to use seeds for sowing for sale or delivery of seeds and/or for scientific research purposes, allowing for genetic and seed bank registration (“Cannabis Seed Possession License”). This license will expire on December 26, 2027.
On December 26, 2017, the Colombian Ministry of Justice, by means of resolution No. 1088 of 2017, granted OWP SAS its license to grow non-psychoactive cannabis plants (less than 1.0% THC). Under this license, OWP SAS can produce seeds for planting, deliver and make sales of the cannabis crop in order to produce cannabis derivatives and deliver and make sales of the cannabis crop for industrial purposes (“Cannabis Non-Psychoactive Cultivation License”). This license will expire on December 26, 2027.
On January 4, 2018, the Colombian Ministry of Justice, by means of resolution No. 0015 of 2018, granted OWP SAS its license to grow psychoactive cannabis plants (greater than 1.0% THC) (“Psychoactive Cultivation License”). Under this license, OWP SAS can produce seeds for planting, and deliver and make sales of the cannabis crop in order to produce cannabis derivatives. This license will expire on January 4, 2028.
Six months prior to the expiration of each of the Licenses, we can apply for successive renewals for additional five-year periods. In each renewal application, the corresponding Ministry will assess compliance with all the relevant requirements in determining whether or not to renew the License.
On March 27, 2018, OWP Ventures, Inc. was formed as a Delaware corporation for the purpose of acquiring OWP SAS.
On May 30, 2018, OWP Ventures entered into a Stock Purchase Agreement with the shareholders of OWP SAS whereby the shareholders of OWP SAS transferred their shares in OWP SAS to OWP Ventures in exchange for 10,200,000 shares of common stock of OWP Ventures.
Products
Our business involves the cultivating, processing and supplying crude cannabis oil, distillate and isolate to customer specifications. We plan to sell as a wholesaler to industrial companies making cannabis related products as well as other products through retail and other distribution channels. We also plan on supplying the hemp plant bio-mass remaining after our extraction process to industry participants that utilize hemp in the manufacture of their products. Hemp is used to make a variety of commercial and industrial products, including rope, textiles, clothing, shoes, food, paper, bioplastics, insulation and biofuel.
We have registered 25 varieties or strains of cannabis with the Colombian Ministry of Health. See “Strains of Cannabis” below. The development of these strains enables us to select mother plants and identify the concentrations of cannabinoids required for the products which we intend to distribute. The cannabis will be produced in accordance with GMP Standards. We are committed to developing final products consistent with medicinal cannabis industry standards and pharmaceutical procedures. Our products will include a variety of cannabinoids and terpenes designed to address specific medical conditions. The composition of the strains will include a wide range of THC and CBD ratios.
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Industry
Medicinal cannabis refers to the use of cannabis and its constituent cannabinoids and terpenes to treat disease or ameliorate symptoms such as pain, muscle spasticity, nausea and other indications. Cannabinoid is a blanket term covering a family of complex chemicals, both natural and man-made, that bind with cannabinoid receptors (protein molecules on the surface of cells) and effect a wide number of responses. Cannabinoid receptors in the human body are part of a system called the endocannabinoid system. This system produces chemicals called endocannabinoids, which also bind with cannabinoid receptors. Cannabinoid receptors are found in the brain and throughout the body. Scientists have found that cannabinoid receptors in the endocannabinoid system are involved in a vast array of functions in our bodies, including helping to modulate brain and nerve activity (including memory and pain), energy metabolism, heart function, the immune system and even reproduction. While there are a large number of active cannabinoids found in cannabis, the two most common currently used for medical purposes are tetrahydrocannabinol and cannabidiol. Although no clinical trials have been completed in the United States to validate the effectiveness of tetrahydrocannabinol or cannabidiol in managing disease and improving symptoms, scientific studies have identified that they, alone and/or in combination, may potentially provide treatment benefits for a large number of medical conditions. For example, tetrahydrocannabinol, a psychotropic cannabinoid, has been shown to activate pathways in the central nervous system which work to block pain signals and has shown potential to assist patients with Post Traumatic Stress Disorder (PTSD) and stimulate appetite in patients following chemotherapy. Cannabidiol, on the other hand, is non-psychotropic and has shown potential to relieve convulsion and inflammation, and is the active ingredient in Epidolex, which in June 2018 was approved by the FDA for the treatment of two rare and severe forms of epilepsy.
Regulation
Our primary active business operations are currently conducted solely within Colombia, and as such, the discussion below is limited to Colombian laws and regulations applicable to our business, which require us to hold the relevant licenses, quotas and other permits, as described below. Our activities in the United States consist of corporate administrative activities at our Las Vegas, Nevada headquarters, including accounting, finance and SEC compliance functions, and preliminary research and development activities of hemp fiber applications and products in the Detroit, Michigan area. We believe that our current activities in the United States will not subject us to regulation under the U.S. Controlled Substances Act or other applicable U.S. federal or state laws with respect to our proposed business plans. All export activities will be conducted from Colombia, and we do not intend to export any of our products to jurisdictions where such sales are not legal under local law. Accordingly, we do not currently intend to export our products to the United States to the extent such products may be subject to regulation under the U.S. Controlled Substances Act or other applicable U.S. federal or state regulations.
Regulatory Authorities
Several authorities interact in the Colombian cannabis industry. The Ministry of Health is in charge of granting the Cannabis Manufacturing and Distribution License and exercises administrative control over the production of cannabis derivatives. The Ministry of Justice, through the subsection for the Control and Supervision of Chemical Substances and Narcotic Drugs, is the competent authority for issuing the Cannabis Seeds Possession License, the Cannabis Psychoactive Cultivation License and the Cannabis Non-Psychoactive Cultivation License and for exercising administrative control over cannabis operations and cultivation. The National Narcotics Fund (“FNE”) exercises administrative and operational control over activities related to the management of psychoactive and non-psychoactive cannabis and its derivatives. The National Food and Drug Surveillance Institute (“INVIMA”) is in charge of issuing and monitoring compliance under the health and phytosanitary registrations that may be applicable to products containing cannabis derivatives. The Colombian Agricultural Institute (“ICA”) is responsible for maintaining the registry of the Genetic Pool or ¨Fuente Semillera” and the registration of cannabis seeds and strains under the “Registro Nacional de Cultivares Comerciales”.
In exercising the administrative and operational control activities discussed above the Ministry of Justice, Ministry of Health, ICA and FNE are required to coordinate their activities to the extent necessary, according to their competencies, with the Ministry of Agriculture and Rural Development through ICA, as well as with the National Police.
Licenses
Under Colombian law, there are four types of cannabis licenses that authorize different activities concerning the various stages of the production line of the medical cannabis industry: (i) the Cannabis Seeds Possession License; which is required for the domestic sale and delivery of seeds (but not export) and for scientific research purposes; (ii) the Cannabis Psychoactive Cultivation License, which is required for the production of seeds for sowing; for grain production; production of cannabis derivatives; for scientific research purposes, for storage, and for final disposal; (iii) the Cannabis Non-Psychoactive Cultivation License, which is required for the production of grain and seeds for sowing; production of cannabis derivatives; for industrial purposes; for scientific research purposes; for storage; and for final disposal; and (iv) the Cannabis Manufacturing and Distribution License, which is required for the production of cannabis derivatives for domestic use; production of cannabis derivatives for scientific research purposes; and production of cannabis derivatives for exportation. OWP SAS holds all of these licenses.
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The legal framework currently in force in Colombia regarding medical cannabis is established in Law 1787 of 2016 (the “Law”) and the Decree 613 of 2017 (the “Decree”). Cannabis licenses must be issued by the Ministry of Health or the Ministry of Justice in an estimated time of 60 days, however, in practice, this process can take between four and six months. In accordance with Colombia’s international obligations, there is a limit in the amount of Cannabis allowed for fabrication or cultivation assigned by the Colombian Government (specific crop or manufacturing quotas) that must be requested by each licensee when applying for a Cannabis Psychoactive Cultivation License or a Cannabis Manufacturing License. The activities of cultivation and manufacturing can only be started once the specific quotas have been granted to the licensee.
Duration of Licenses
The Cannabis Seeds Possession License, the Cannabis Psychoactive Cultivation License, the Cannabis Non-Psychoactive License, and the Cannabis Manufacturing and Distribution License are granted by the Ministry of Justice and/or the Ministry of Health (as applicable), when the applicant fulfills the general criteria described in Article 2.8.11.2.1.5 of the Decree, and the specific requirements for each type of license. Each of these licenses is valid for up to five years. The Ministry of Justice and the Ministry of Health (as applicable) maintain the right to monitor the activities performed by the corresponding licensee, and in the event of a breach by the licensee of the obligations and duties set forth in the Decree, the licenses may be revoked. The relevant Ministry may renew these licenses for additional and successive five-year periods. In each renewal application, the Ministry will assess compliance with all the relevant requirements in determining whether or not to renew the license.
Quotas
As described above, regulations of cannabis in Colombia provides an additional requirement applicable to the Cannabis Psychoactive Cultivation License and Cannabis Manufacturing License, which require the grant of crop and manufacturing quotas (the “Quotas”). According to Article 2.8.11.2.6.2 of the Decree, the assignment of Quotas is collectively made by the Ministry of Health, the Ministry of Justice, the ICA, the INVIMA, and the FNE.
According to Article 2.8.11.2.6.5 of the Decree, there are two types of Quotas: (i) crop quotas for psychoactive cannabis (for holders of the Cannabis Psychoactive Cultivation License) which are granted by the Ministry of Justice; and (ii) the manufacturing quotas for psychoactive cannabis (for holders of the Cannabis Manufacturing License) which are granted by the Ministry of Health.
These Quotas are requested by the licensees no later than the last calendar day of April of each year, and, if they are granted by the corresponding authority, they can only be used by the licensees during the next calendar year (for instance, if a licensee requests a specific crop Quota in March, 2018, and this Quota is granted by the Ministry of Justice, the licensee will be allowed to use the Quota from January 1, 2019 to December 31, 2019). In extraordinary events, the licensees can request a supplementary Quota that will apply to the calendar year requested (the issuance of these Quotas depends on the special circumstances defined by the Colombian governmental authorities).
On December 3, 2018, by means of resolution 1256 of 2018, Colombia´s Ministry of Justice granted OWP SAS a supplementary Quota for growing psychoactive mother plants; six for each of 13 varieties, for a total of 78 “mother” plants. However, before we commence the commercial sale of our psychoactive products (greater than 1% THC content), we will need to obtain Quotas from the Ministry of Health. This will require us to conduct successful agricultural characterization tests approved by and registered with the ICA/Ministry of Agriculture and Rural Development, and stabilized extracts characterization tests approved by INVIMA/Ministry of Health, of product samples grown by us under Quotas obtained from the Ministry of Justice. We have already requested from the Ministry of Health and Justice our annual Quotas for the export sale of psychoactive ingredients in 2022, and are awaiting the issuance of such Quotas in order to start our production process.
Strains of Cannabis
Strains of cannabis are registered in Colombia in two manners:
| ● | Registration of the Genetic Pool or “Fuente Semillera”: Under Article 2.8.11.11.1 of the Decree, licensed producers of cannabis had until December 31, 2018 to register the genetics of strains of cannabis with the ICA. Under this transitory article, the government allowed a limited period for licensed producers of cannabis to source genetics currently available in Colombia and register these as their “fuente semillera”. We registered 25 varieties under this article. This registration enables us to grow our own strains of cannabis as opposed to having to purchase registered strains from other licensed producers. |
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| ● | Registration Under the “Registro Nacional de Cultivares Comerciales”: Licensed producers of cannabis have to be granted a breeding/research license to be able to develop, select and trial stabilized cannabis cultivars. This registration allows licensed producers to register unique and stable varieties of cannabis for commercial production within Colombia. We were granted such license in the first quarter of 2018. Licensed producers can then request from ICA a registration trial, which is a field flowering trial with the supervision of ICA officials. The data collected in these trials can lead to registration of the cultivar in the National Registrar. Only registered varieties will be allowed to be produced commercially. We have received full registration for 3 non-psychoactive high CBD strains which have been approved for sale. We have also received permission to take 13 psychoactive THC strains through this process. In 2023, we maintained the registered varieties allowed for commercialization. |
Sanitary Registration
The commercialization of cannabis-based finished products intended for human consumption requires the issuance of sanitary registrations by the INVIMA, and in the case of products intended for animal consumption, by the ICA.
Environmental
Under Colombian law, general principles of environmental law are set out in Law 99 of 1993 and Article 9 of the National Code of Natural Resources and Protection of the Environment. These laws establish principles governing the use of natural resources, including that use must occur without causing harm to the interests of the community or of third parties. Parties that cause environmental damage while acting under the authority of a permit are responsible for incurring the costs to rectify the damage. The imposition of environmental sanctions is in addition to civil and criminal penalties that may be imposed. Environmental damage caused while a party is acting without a license constitutes a breach of Law 99 of 1993 and may lead to the imposition of sanctions, in addition to civil or criminal proceedings that may result. Parties that cause environmental damage, in addition to sanctions or penalties that apply, will also be required to carry out studies to assess the characteristics of the damage. Under Colombian law, liability for environmental damage creates a presumption of liability in case of a: (i) breach of environmental laws; (ii) environmental damage; and (iii) breach of environmental license or any other administrative act from the environmental authorities. The Environmental Authorities may investigate potential claims, authorize preventative measures, or impose sanctions on parties breaching environmental law.
Competition
The market for medicinal cannabis is characterized by unsatisfied patient demand, with few authorized producers. Although competition in the market is growing and Colombia offers an open process to apply for the licenses, we believe we are competitively positioned to satisfy the demand for medicinal cannabis given our early entry into the market, the management team’s expertise in medical product branding, marketing, quality control and domestic market relationships. In addition, the Colombian government has published for comment a draft decree that requires any applicant for any of the four Licenses to furnish evidence that it has completed the seed registration process before the ICA and obtained the corresponding technical sheet for the cannabis plants and varieties. If enacted, this new regulation will result in stricter requirements on potential competitors seeking a Colombian License.
Cultivation in Colombia has natural cost advantages. However, management believes the more sustainable competitive advantage is to create patient loyalty and brand preference, as opposed to the distribution of more homogeneous products. Domestically our competition consists of PharmaCielo, CannaVida, Empresa Colombiana de Cannabis, Khiron Life Sciences Corp., MedCan, Canopy Growth Corporation, and Clever Leaves.
Intellectual Property
Our success depends, at least in part, on our ability to protect our core technology and intellectual property. To accomplish this, we rely on trade secrets, including know-how, employee and third-party nondisclosure agreements and other contractual rights to establish and protect our proprietary rights in our technology.
Seasonality
Colombia and its vertical offering of microclimates is the ideal country for year-round growing and processing of all possible varieties of cannabis in a natural, environmentally friendly manner.
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Principal Executive Offices
Our principal executive offices are located at 6605 Grand Montecito Pkwy, Suite 100, Las Vegas, Nevada 89149. Our telephone number is (800) 605-3210. We believe our facilities are adequate to meet our current and near-term needs.
Employees
As of December 31, 2023, we had 10 full-time employees. Since inception, we have never had a work stoppage, other than due to the Covid-19 quarantine from March 2020 through May 25, 2020, and our employees are not represented by labor unions. We consider our relationship with our employees to be positive.
ITEM 1A. Risk Factors
The following important factors, and the important factors described elsewhere in this report or in our other filings with the SEC, could affect (and in some cases have affected) our results and could cause our results to be materially different from estimates or expectations. Other risks and uncertainties may also affect our results or operations adversely. The following and these other risks could materially and adversely affect our business, operations, results or financial condition.
Risks Relating to our Business
Limited Operating History
We are an early-stage company that has generated minimal revenues and we have a limited operating history upon which our business and future prospects may be evaluated. We are subject to all of the business risks and uncertainties associated with any new business enterprise in the cannabis industry, including the risk that we will not achieve our operating goals. In order for us to meet future operating requirements, we will need to successfully grow, harvest and/or sell our cannabis products. Until such time as we are able to fund our business from operations, we will be required to raise funds through various sources, including the sale of equity and debt securities, Failure to generate cash from operations and to reach profitability may adversely affect our success.
We have had a history of losses, we expect losses in the future, and there can be no assurance that we will become profitable in the future.
We have experienced operating losses on an ongoing basis. For the years ended December 31, 2023 and 2022, we incurred net losses of $3,953,321 and $3,059,477, respectively. As of such dates, we had accumulated deficits of $26,929,686 and $22,976,365, respectively. We expect our losses to continue for the foreseeable future. These continuing losses may be greater than current levels. If our revenues do not increase substantially or if our expenses exceed our expectations, we may never become profitable. Even if we do achieve profitability, we may not sustain profitability on a quarterly or annual basis in the future.
Our auditor has given us a “going concern” qualification, which questions our ability to continue as a going concern without additional financing.
Our independent certified public accountant has added an emphasis paragraph to its report on our financial statements for the year ended December 31, 2023 regarding our ability to continue as a going concern. Key to this determination is our recurring net losses, an accumulated deficit, and a working capital deficiency. In the event sales do not materialize at expected levels, management would seek additional financing or would conserve cash by further reducing expenses. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations or cause substantial dilution for our stockholders. If we are unable to obtain additional funds, our ability to carry out and implement our planned business objectives and strategies will be significantly delayed, limited or may not occur. We cannot guarantee that we will become profitable.
Our Wholly-owned Colombian Subsidiary, OWP SAS, is Operating under Court Supervision Pursuant to a Reorganization Proceeding
OWP SAS experienced significant operational and managerial challenges over the past several years, resulting in the accumulation of financial obligations of approximately $1.2 million, which are substantially past due. OWP SAS filed for protection under Colombian Law 1116 of 2006, which is the primary legislation governing business insolvency proceedings (restructuring and liquidation) (“Reorganization Proceedings”) in Colombia on December 22, 2023. There are many risks attendant to the Reorganization Proceeding, including OWP SAS’s ability to obtain approval from the court to conduct its normal business operations, maintain its cannabis licenses, satisfy its financial obligations to its creditors, the availability of operating capital during the pendency of its Restructuring Proceeding, the length of time that the Company will operate in the Reorganization Proceedings and the possibility that it may be unable to obtain any additional funding. Failure to achieve any of these objectives could have a material adverse effect on the business of the Company and OWP SAS.
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Change of Cannabis Laws, Regulations and Guidelines
Cannabis laws and regulations in Colombia and other jurisdictions where we intend to transact business are dynamic and subject to evolving interpretations which could require us to incur substantial costs associated with compliance or alter certain aspects of our business plan. Regulations may be enacted in the future that will be directly applicable to certain aspects of our cultivation, manufacturing and exporting businesses for our cannabis and hemp related products. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business. Management expects that the legislative and regulatory environment in the cannabis industry in Colombia and internationally will continue to be dynamic and will require innovative solutions to comply with this changing legal landscape in this nascent industry for the foreseeable future. Compliance with any such legislation may have a material adverse effect on our business, financial condition and results of operations.
Public opinion can also exert a significant influence over the regulation of the cannabis industry. A negative shift in the public’s perception of the cannabis industry could affect future legislation or regulation in different jurisdictions.
Reliance on Colombian Licenses, Authorizations and Quotas
Our ability to import seeds, grow, manufacture, distribute and sell cannabis and hemp in Colombia or internationally is dependent on our ability to sustain and/or obtain the necessary licenses and authorizations by certain authorities in Colombia and/or the importing jurisdiction. The licenses and authorizations are subject to ongoing compliance and reporting requirements and our ability to obtain, sustain or renew any such licenses and authorizations on acceptable terms is subject to changes in regulations and policies and to the discretion of the applicable authorities or other governmental agencies in foreign jurisdictions. Failure to comply with the requirements of the licenses or authorizations or any failure to maintain the licenses or authorizations would have a material adverse impact on our business, financial condition and operating results. In addition, Colombian regulators limit the cultivation and sale of psychoactive cannabis by quotas issued on an annual basis to licensed producers.
Although we believe that we will meet the requirements to obtain, sustain or renew the necessary licenses and authorizations, there can be no guarantee that the applicable authorities will issue these licenses or authorizations. In addition, to date we have not been issued quotas from Colombian regulatory authorities that would allow us to commence the commercial sale of psychoactive cannabis products in Colombia. Should the authorities fail to issue the necessary licenses or authorizations, including required quotas, we may be curtailed or prohibited from the production and/or distribution of cannabis and hemp or from proceeding with the development of our operations as currently proposed and our business, financial condition and results of the operation may be materially adversely affected.
Regulatory Compliance Risks
Achievement of our business objectives of becoming a producer of raw cannabis and hemp related products is contingent, in part, upon compliance with regulatory requirements enacted by applicable governmental authorities and obtaining all regulatory approvals, where necessary, for the sale of our products in Colombia and other jurisdictions where we intend to distribute and sell our products. We will incur ongoing costs and obligations related to regulatory compliance. Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. Civil or criminal fines or penalties may be imposed on us for violations of applicable laws or regulations. Vigorous enforcement of these laws could require extensive changes to our operations, increase our compliance costs or give rise to material liabilities, which could have a material adverse effect on our business, results of operations and financial condition.
Competition
There are many companies engaged in the cannabis business who we will compete with, including larger and more established companies with substantially greater marketing, financial, human and other resources than we have. These companies include PharmaCielo, CannaVida, Empresa Colombiana de Cannabis, Khiron Life Sciences Corp., MedCan, Canopy Growth Corporation, and Clever Leaves. Although we believe we are competitively positioned to be a leader in the medicinal cannabis industry given our early entry into the market, the management team’s expertise in medical product branding, marketing, quality control, and market relationships, competition in the medical cannabis industry is growing quickly. As more competitors enter the market, prices may be reduced. We believe our approach in creating brand loyalty will allow us to effectively compete in the market but there is no assurance that will be the case, and our competitors may adopt a similar or identical approach. To date, we have obtained four licenses in Colombia that authorize us to engage in cannabis activities, and there are currently few authorized Colombian producers. However, Colombia offers an open process to apply for licenses and there are no significant barriers to entry. As a result, our ability to generate revenues and earnings may be reduced as competition intensifies, thereby causing a material adverse effect on our business and financial condition.
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Ability to Establish and Maintain Bank Accounts
Many banking institutions in countries where we or our prospective customers operate will not accept payments related to the cannabis industry due to domestic laws and regulations or pressure exerted by the United States on banks with laws subject to the laws of the United States (including, the Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act)). Failure to conduct our business through normal banking channels may impede our ability to make payments for goods and services and transact business in the ordinary course. Failure to operate in normal banking channels may also increase our cost of doing business and adversely impact our business. In the event financial service providers do not accept accounts or transactions related to the cannabis industry, it is possible that we may be required to seek alternative payment solutions. If the industry was to move toward alternative payment solutions, we would have to adopt policies and protocols to manage the Company’s exposure to foreign exchange and interest rate risks. Our inability to effectively manage such risks may adversely affect our operations and financial performance.
Anti-Money Laundering Laws and Regulations
We are subject to a variety of laws and regulations within Colombia and internationally that are designed to prevent money laundering and proceeds of crime through strict financial recordkeeping. In the event that any of our investments, or any proceeds thereof, any dividends or distributions therefrom, or any profits or revenues accruing from such investments are found to be in violation of money laundering legislation or otherwise, such transactions may be viewed as proceeds of crime under applicable legislation. Money laundering laws could restrict or otherwise jeopardize our ability to declare or pay dividends, effect other distributions or subsequently cause the repatriation of such funds to the United States or to any shareholders’ jurisdiction of residence. Furthermore, while we have no current intention to declare or pay dividends on our common stock in the foreseeable future, in the event that a determination was made that the revenues from our cannabis operations could reasonably be shown to constitute proceeds of crime, we may decide or be required to suspend the declaration, and or, payment of dividends without advance notice and for an extended or indefinite period of time.
Foreign Trade Policies
Our international operations are subject to inherent risks, including changes in the regulations governing the flow of cannabis products between countries, fluctuations in cross-currency rates, discriminatory fiscal policies, unexpected changes in local regulations and laws and the uncertainty of enforcement of remedies in foreign jurisdictions. In addition, foreign jurisdictions could impose tariffs, quotas, trade barriers and other similar restrictions on our international sales and subsidize competing cannabis products. All of these risks could result in increased costs or a reduction in revenues.
United States Regulation
Although we do not believe that our limited U.S. activity will subject us to regulation under U.S. federal or state laws applicable to the sale of cannabis and marijuana products, we cannot assure you that current or future U.S. laws and regulations will not detrimentally affect our business. Local, state and federal cannabis laws and regulations in the United States are constantly changing and they are subject to evolving interpretations, which could require us to incur substantial costs associated with compliance or to alter one or more of our product or service offerings. In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our revenues, profitability, and financial condition. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.
Liability, Enforcement, Complaints, etc.
Our participation in the cannabis and hemp industries may lead to litigation, formal or informal complaints, enforcement actions, and inquiries by third parties, other companies and/or various governmental authorities against us. Litigation, complaints, and enforcement actions involving us could consume considerable amounts of financial and other corporate resources, which could have an adverse effect on our future cash flows, earnings, results of operations and financial condition.
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Legal Proceedings
From time to time, we may be a party to legal and regulatory proceedings, including matters involving governmental agencies, entities with whom we transact business and other proceedings arising in the ordinary course of business. We will evaluate our exposure to these legal and regulatory proceedings and establish reserves for the estimated liabilities in accordance with generally accepted accounting principles. Assessing and predicting the outcome of these matters involves substantial uncertainties. Unexpected outcomes in these legal proceedings, or changes in management’s evaluations or predictions and accompanying changes in established reserves, could have an adverse impact on our financial results.
Environmental Regulations
We are subject to Colombian environmental laws governing the use of natural resources, which prohibit such use that causes harm to the interests of the community or of third parties. Parties that cause environmental damage while acting under the authority of a permit and, or license, are responsible for incurring the costs to rectify the damage. The imposition of environmental sanctions in addition to civil and criminal penalties may be imposed. Environmental damage caused while a party is acting without a license may lead to the imposition of sanctions, in addition to civil or criminal proceedings. Parties that cause environmental damage, in addition to sanctions or penalties that apply, are also required to carry out studies to assess the characteristics of the damage. Colombian environmental authorities may investigate potential claims, authorize preventative measures, or impose sanctions on parties breaching environmental law. Any such measures imposed on us could have a material adverse effect on our business.
Demand for Cannabis and Derivate Products
The global sale of cannabis and hemp products is a new industry as a result of recent legal and regulatory changes. Although we expect demand for licensed cannabis to exceed supply produced by licensed producers, there is a risk that such demand does not develop as anticipated. Further, there is a risk that the adoption rate by pharmacies to sell medical cannabis is lower than expected or that such adoption rate may take longer than anticipated. There is also a risk that the international export market for medicinal cannabis and extracts, such as CBD, CBG and CBC, will not materialize as projected or not be commercially viable. Should any of such events materialize, the result may have a material adverse effect on our business, operations and financial condition.
Weather, Climate Change and Risks Inherent in an Agricultural Business
Our business involves growing and/or sourcing cannabis and related products, which is an agricultural product. Although our medical cannabis is intended to be grown in greenhouses, hemp used as feedstock for medicinal extracts and derivatives will be grown both outdoors and in greenhouses. The occurrence of severe adverse weather conditions, especially droughts, hail, floods or frost, is unpredictable and may have a potentially devastating impact on agricultural production and may otherwise adversely affect the supply of cannabis and hemp. Adverse weather conditions may be exacerbated by the effects of climate change and may result in the introduction and increased frequency of pests and diseases. The effects of severe adverse weather conditions may reduce our yields or require us to increase our level of investment to maintain yields. Additionally, higher than average temperatures and rainfall can contribute to an increased presence of insects and pests, which could negatively affect cannabis crops. Future droughts could reduce the yield and quality of our cannabis production, which could materially and adversely affect our business, financial condition and results of operations.
The occurrence and effects of plant disease, insects and pests can be unpredictable and devastating to agriculture, potentially rendering all or a substantial portion of the affected harvests unsuitable for sale. Even if only a portion of the crop and, or, production is damaged, our results of operations could be adversely affected as all or a substantial portion of the production costs may have been incurred. Although some plant diseases are treatable, the cost of treatment can be high and such events could adversely affect our operating results and financial condition. Furthermore, if we fail to control a given plant disease and the production is threatened, we may be unable to supply our customers, which could adversely affect our business, financial condition and results of operations. There can be no assurance that natural elements will not have a material adverse effect on any such production.
Product Liability
As a manufacturer, distributor and/or seller of cannabis products designed to be ingested or inhaled by humans, we face an inherent risk of exposure to product liability claims, regulatory action and litigation if our products are alleged to have caused damages, loss or injury. In addition, the sale of our cannabis products involves the risk of injury to consumers due to tampering by unauthorized third parties or product contamination. Adverse reactions resulting from human consumption of our cannabis products alone or in combination with other medications or substances could occur. We may be subject to various product liability claims, including, among others, that our products caused injury or illness, include inadequate instructions for use or include inadequate warnings concerning health risks, possible side effects or interactions with other substances. A product liability claim or regulatory action against us could result in increased costs, could adversely affect our reputation with our clients and consumers generally, and could have a material adverse effect on our results of operations and financial condition. There can be no assurances that we will be able to obtain or maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all.
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Energy Prices and Supply
We may require substantial amounts of diesel and electric energy and other resources to harvest and transport cannabis and hemp. We rely upon third parties for our supply of energy resources used in our operations. The prices for and availability of energy resources may be subject to change or curtailment, respectively, due to, among other things, new laws or regulations, imposition of new taxes or tariffs, interruptions in production by suppliers, imposition of restrictions on energy supply by government, worldwide price levels and market conditions. If our energy supply is curtailed for an extended period of time and we are unable to find replacement sources at comparable prices, or at all, our business, financial condition and results of operations would be materially and adversely affected.
Retention and Acquisition of Skilled Personnel
We will be required to attract and retain top quality talent to compete in the marketplace. We believe our future growth and success will depend in part on our abilities to attract and retain highly skilled managerial, product development, sales and marketing, and finance personnel. There can be no assurance of success in attracting and retaining such personnel. Shortages in qualified personnel could limit our ability to be successful. At present and for the near future, we will depend upon a relatively small number of employees primarily in Colombia to develop, manufacture, market, sell and distribute our products. As the size of our business increases, we will seek to hire additional employees in other jurisdictions. Expansion of marketing and distribution of our products will require us to find, hire and retain additional capable employees who can understand, explain, market and sell our products and/or our ability to enter into satisfactory logistic arrangements to sell our products. There is intense competition for capable personnel in all of these areas and we may not be successful in attracting, training, integrating, motivating, or retaining new personnel or subcontractors for these required functions.
Emerging Market Risks
Emerging market investment generally poses a greater degree of risk than investment in more mature market economies as developing market economies are more susceptible to destabilization resulting from domestic and international developments.
Colombia’s legal and regulatory requirements in connection with companies conducting agricultural activities, banking system and controls as well as local business culture and practices are different from those in the United States. Our officers and directors must rely, to a great extent, on our local legal counsel and local consultants retained by us in order to keep abreast of material legal, regulatory and governmental developments as they pertain to and affect our business operations, and to assist us with our governmental relations. We also rely on the advice of local experts and professionals in connection with current and new regulations that develop in respect of banking, financing and tax matters. Any developments or changes in such legal, regulatory or governmental requirements or in local business practices are beyond our control and may adversely affect our business.
We also bear the risk that changes can occur to the Government in Colombia and a new government may void or change the laws and regulations that we are relying upon. Currently, there are no restrictions on the repatriation from Colombia of earnings to foreign entities and Colombia has never imposed such restrictions. However, there can be no assurance that restrictions on repatriation of earnings will not be imposed in the future. Exchange control regulations for Colombia require that any proceeds in foreign currency originated on exports of goods from Colombia be repatriated to Colombia. However, purchase of foreign currency is allowed through Colombian authorized financial entities for purposes of payments to foreign suppliers, repayment of foreign debt, payment of dividends to foreign stockholders and other foreign expenses.
Due to our location in Colombia, our business, financial position and results of operations may be affected by the general conditions of the Colombian economy, price instabilities, currency fluctuations, inflation, interest rates, regulatory changes, taxation changes, social instabilities, political unrest and other developments in or affecting Colombia, over which we do not have control.
Risks Related to Conducting Operations in Colombia
We were recently granted medicinal cannabis licenses in Colombia. Over the past 10 to 15 years, the Government of Colombia has made strides in improving the social, political, economic, legal and fiscal regimes. However, operations in Colombia remain subject to risk due to the potential for social, political, economic, legal and fiscal instability. The Government of Colombia faces ongoing problems including, but not limited to, unemployment and inequitable income distribution and unstable neighboring countries. The instability in neighboring countries could result in an influx of immigrants resulting in a humanitarian crisis and/or increased illegal activities. Colombia is also home to a number of insurgency groups and large swaths of the countryside are under guerrilla influence. In addition, Colombia experiences narcotics-related violence, a prevalence of kidnapping, extortion and thefts and civil unrest in certain areas of the country. Such instability may require us to suspend operations on our properties.
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Other risks exist relating to the conduct of business in Colombia. These risks include the future imposition of special taxes or similar charges, as well as foreign exchange fluctuations and currency convertibility and controls. Other risks of doing business in Colombia include our ability to enforce our contractual rights or the taking or nationalization of property without fair compensation, restrictions on the use of expatriates in our operations, renegotiation or nullification of existing concessions, licenses, permits and contracts, changes in taxation policies, or other matters.
The Government of Colombia recently reached a peace accord with the country’s largest guerrilla group. The Government of Colombia also entered into and dissolved formal discussions with the country’s second largest guerrilla group due to their unwillingness to cease criminal and violent crimes. There is no certainty that the agreements will be adhered to by all of the members of the guerrilla groups or that a peace agreement will be ultimately reached with the country’s second largest guerrilla group. There is a risk that any peace agreement might contain new laws or change existing laws that could have a material adverse effect on us. Furthermore, the achievement of peace with the country’s guerrilla groups could create additional social or political instability in the immediate aftermath, which could have a material adverse effect on our operations.
Global Economy
Financial and commodity markets in Colombia are influenced by the economic and market conditions in other countries, including other South American and emerging market countries and other global markets. Although economic conditions in these countries may differ significantly from economic conditions in Colombia, investors’ reactions to developments in these other countries, such as the recent developments in the global financial markets, may substantially affect the capital flows into, and the market value of securities of issuers with operations in Colombia.
Insurance Coverage
Our production is, in general, subject to different risks and hazards, including adverse weather conditions, fires, plant diseases and pest infestations, other natural phenomena, industrial accidents, labor disputes, changes in the legal and regulatory framework applicable to us, and environmental contingencies. We will endeavor to obtain appropriate insurance covering these risks in amounts sufficient to support a downturn in the sale of our products due to these potential production risks. The cost of such insurance may be high and we may not be able to obtain sufficient amount of insurance to cover these risks.
Operations in Spanish
As a result of our conducting most of our operations in Colombia, our regulatory licenses and books and records, including key documents such as material contracts and financial documentation, are principally negotiated and entered into in the Spanish language and English translations may not exist or be readily available.
General Business Risks
Inability to Manage Growth
We may not be able to effectively manage our growth as a producer, manufacturer and exporter of cannabis and hemp products. Our strategy envisions growing our business. We plan to expand our production and manufacturing capability and create a global distribution network. Any growth in or expansion of our business is likely to continue to place a strain on our management and administrative resources, infrastructure and systems. As with other growing businesses, we expect that we will need to further refine and expand our business development capabilities, our systems and processes and our access to financing sources. We also will need to hire, train, supervise and manage new employees. These processes are time consuming and expensive, will increase management responsibilities and will divert management attention. We cannot assure you that we will be able to:
| ● | cultivate and/or source cannabis material in Colombia and expand our manufacturing processes and systems in our facilities in Colombia; | |
| ● | execute and perform under our current manufacturing and distribution agreements with Smokiez Edibles and Kx Family Care; | |
| ● | raise additional capital to fund our operations; | |
| ● | identify and hire qualified employees or retain valued employees; or | |
| ● | obtain and maintain necessary licenses in relevant jurisdictions |
Our inability, or failure to effectively manage, our growth and expansion could harm our business and materially and adversely affect our operating results and financial condition.
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Speculative Forecasts
Any forecasts we provide will be highly speculative in nature and we cannot predict results in a development stage company with a high degree of accuracy. Any financial projections, especially those based on ventures with minimal operating history, are inherently subject to a high degree of uncertainty, and their ultimate achievement depends on the timing and occurrence of a complex series of future events, both internal and external to the enterprise. There can be no assurance that potential revenues or expenses we project will be accurate.
Limited Management Team
Our limited senior management team size may hamper our ability to effectively manage a publicly traded company while operating our business. Our management team has experience in the management of publicly traded companies and complying with federal securities laws, including compliance with recently adopted disclosure requirements on a timely basis. They realize it will take significant resources to meet these requirements while simultaneously working on cultivating, developing and distributing our cannabis and hemp related products. Our management will be required to design and implement appropriate programs and policies in responding to increased legal, regulatory compliance and reporting requirements, and any failure to do so could lead to the imposition of fines and penalties and harm our business.
Risks Related to our Common Stock
Limited Trading
Although prices for shares of our common stock are quoted on the OTCQB tier of the OTC Markets, there is limited trading and no assurance can be given that an active public trading market will develop or, if developed, that it will be sustained. The OTC Markets is generally regarded as a less efficient and less prestigious trading market than other national markets. There is no assurance if or when our common stock will be quoted on another more prestigious exchange or market. The market price of our common stock is may be volatile as there will likely be a limited trading market for the stock, which may cause transactions of small blocks of stock to have a disproportionate impact on the stock price.
We may issue additional stock without stockholder consent.
Our Board of Directors has authority, without action or vote of the stockholders, to issue all or part of our authorized but unissued shares. Additional shares may be issued in connection with future financing, acquisitions, employee stock plans, or otherwise. Any such issuance will dilute the percentage ownership of existing stockholders. The Board of Directors can also issue preferred stock in one or more series and fix the terms of such stock without stockholder approval. Preferred stock may include the right to vote as a series on particular matters, preferences as to dividends and liquidation, conversion and redemption rights and sinking fund provisions. The issuance of preferred stock could adversely affect the rights of the holders of common stock and reduce the value of the common stock. In addition, specific rights granted to holders of preferred stock could discourage, delay or prevent a transaction involving a change in control of our company, even if doing so would benefit our stockholders. Such issuance could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.
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Broker-dealers may be discouraged from effecting transactions in our common stock because it is considered a penny stock and is subject to the penny stock rules.
Our common stock currently constitutes “penny stock.” Subject to certain exceptions, for the purposes relevant to us, “penny stock” includes any equity security that has a market price of less than $5.00 per share. Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of 1934, as amended, impose sales practice and disclosure requirements on certain brokers-dealers who engage in certain transactions involving a “penny stock.” In particular, a broker-dealer selling penny stock to anyone other than an established customer or “accredited investor” (generally, an individual with net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse), must make a special suitability determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt. A broker-dealer is also required to disclose commissions payable to the broker-dealer and the registered representative and current quotations for the securities. Finally, a broker-dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customer’s account and information with respect to the limited market in penny stocks.
The additional sales practice and disclosure requirements imposed upon broker-dealers may discourage broker-dealers from effecting transactions in our shares, which could severely limit the market liquidity of the shares and impede the sale of our shares in the secondary market.
Because our Board of Directors does not intend to pay dividends on our common stock in the foreseeable future, stockholders may have to sell their shares of our common stock to realize a return on their investment in the company.
Holders of our common stock are entitled to receive dividends if, and when, declared by our Board of Directors out of funds legally available. To date, we have paid no dividends. Our Board of Directors does not intend to declare any dividends in the foreseeable future, but instead intends to retain all earnings, if any, for use in our business operations. Accordingly, a return on an investment in shares of our common stock may be realized only through a sale of such shares, if at all.
Control of Common Stock will Influence Decision Making
Our officers, directors and principal stockholders are able to exert significant influence over us and may make decisions that are not in the best interests of all stockholders. Our officers, directors and principal stockholders (greater than 5% stockholders) collectively own approximately 87.0% of our fully-diluted common stock. As a result of such ownership, these stockholders are able to affect the outcome of, or exert significant influence over, all matters requiring stockholder approval, including the election and removal of directors and any change in control. In particular, this concentration of ownership of our common stock could have the effect of delaying or preventing a change of control of our company or otherwise discouraging or preventing a potential acquirer from attempting to obtain control of our company. This, in turn, could have a negative effect on the market price of our common stock. It could also prevent our stockholders from realizing a premium over the market prices for their shares of our common stock.
We are an Emerging Growth Company Within the Meaning of the Securities Act.
We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, our stockholders may not have access to certain information they may deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our common stock held by non-affiliates exceeds $700 million as of the end of any second quarter of a fiscal year, in which case we would no longer be an emerging growth company as of the end of such fiscal year. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
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Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used.
Antitakeover Protections
Anti-takeover provisions may limit the ability of another party to acquire us, which could cause our stock price to decline. Our articles of incorporation, as amended, bylaws and Nevada law contain provisions that could discourage, delay or prevent a third party from acquiring us, even if doing so may be beneficial to our stockholders. In addition, these provisions could limit the price investors would be willing to pay in the future for shares of our common stock.
Increased Compliance Costs
The requirements of being a public company, including compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended, and the requirements of the Sarbanes-Oxley Act of 2002, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner. As a public company, we need to comply with laws, regulations and requirements, certain corporate governance provisions of the Sarbanes-Oxley Act of 2002, related regulations of the SEC, and requirements of the principal trading market upon which our common stock may trade, with which we are not required to comply as a private company. As a result, the combined business will incur significant legal, accounting and other expenses that a private company would not incur. Complying with these statutes, regulations and requirements will occupy a significant amount of the time of our board of directors and management, will require us to have additional finance and accounting staff, may make it more difficult to attract and retain qualified officers and members of our board of directors, particularly to serve on the audit committee, and may make some activities more difficult, time consuming and costly. We will need to:
| ● | institute a more comprehensive compliance function; | |
| ● | establish new internal policies, such as those relating to disclosure controls and procedures and insider trading; | |
| ● | design, establish, evaluate and maintain a system of internal control over financial reporting in compliance with the requirements of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board; | |
| ● | prepare and distribute periodic reports in compliance with its obligations under the federal securities laws including the Securities Exchange Act of 1934, as amended, or Exchange Act; | |
| ● | involve and retain to a greater degree outside counsel and accountants in the above activities; and | |
| ● | establish an investor relations function. |
If we are unable to accomplish these objectives in a timely and effective fashion for our business, our ability to comply with financial reporting requirements and other rules that apply to reporting companies could be impaired. If our finance and accounting personnel insufficiently support our business in fulfilling these public-company compliance obligations, or if we are unable to hire adequate finance and accounting personnel, we could face significant legal liability, which could have a material adverse effect on our financial condition and results of operations. Furthermore, if we identify any issues in complying with those requirements (for example, if our company or the independent registered public accountants identified a material weakness or significant deficiency in our company’s internal control over financial reporting), we could incur additional costs rectifying those issues, and the existence of those issues could adversely affect, our reputation or investor perceptions of our company.
Risks Relating to Our Agreements with Tysadco Partners, LLC
The sale of our common stock to Tysadco may cause dilution, and the sale of the shares of common stock acquired by Tysadco, or the perception that such sales may occur, could cause the price of our common stock to fall.
Pursuant to a Purchase Agreement, Tysadco has committed to purchase up to an aggregate of $10,000,000 of our common stock. The shares that may be sold pursuant to the Purchase Agreement in the future may be sold by us to Tysadco at our discretion from time to time, commencing three years from February 9, 2024, the date the SEC declared the registration statement effective. The per share purchase price for the shares that we may sell to Tysadco under the Purchase Agreement will fluctuate based on the price of our common stock, and will be equal to 88% of the of the lowest daily volume weighted average price of our common stock during the period of 10 trading days beginning five trading days preceding the day we deliver the applicable put notice to Tysadco. Depending on market liquidity at the time, sales of shares of common stock to Tysadco may cause the trading price of our common stock to fall.
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We generally have the right to control the timing and amount of any sales of our shares to Tysadco, except that, pursuant to the Purchase Agreement, we may not sell shares to Tysadco if the sale would result in its beneficial ownership of more than 4.99% of our outstanding common stock. Tysadco may ultimately purchase all, some or none of the shares of our common stock that may be sold pursuant to the Purchase Agreement and, after it has acquired shares, Tysadco may sell all, some or none of those shares. Therefore, sales to Tysadco by us could result in substantial dilution to the interests of other holders of our common stock. Additionally, the sale of a substantial number of shares of our common stock to Tysadco, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.
Tysadco will pay less than the then-prevailing market price for our common stock for purchases under the Purchase Agreement.
The common stock to be issued to Tysadco pursuant to the Purchase Agreement will be purchased at a 12% discount to the lowest volume weighted average price of our common stock during the during the period of 10 trading days beginning five trading days preceding the day we deliver the applicable put notice to Tysadco. Tysadco has a financial incentive to sell our common stock immediately upon receiving the shares to realize the profit equal to the difference between the discounted price and the market price. If Tysadco sells the shares, the price of our common stock could decrease. If our stock price decreases, Tysadco may have a further incentive to sell the shares of our common stock that it holds. These sales may have a further impact on our stock price.
We may not be able to put to Tysadco all $10,000,000 of shares available under the Purchase Agreement.
The Purchase Agreement provides for the purchase by Tysadco of up to $10,000,000 of shares of our common stock. Our ability to draw down funds and sell shares under the Purchase Agreement requires the satisfaction of a number of conditions, including that the registration statement of which this prospectus is a part be declared effective by the SEC and continue to be effective at the time of the put, as well as Tysadco’s compliance with its obligations under the Purchase Agreement. Accordingly, there can be no guarantee that we will be able to draw down all or any portion of the $10,000,000 available to us under the Purchase Agreement.
ITEM 1B. Unresolved Staff Comments
Not Applicable.
ITEM 1C. CYBERSECURITY
Risk Management and Strategy
We periodically assess risks from cybersecurity threats, and monitor our information systems for potential vulnerabilities. However, to date, given the small size of our company and the nature of our operations, our reliance on information systems has been limited to the use of standard off-the-shelf software (such as Google, QuickBooks and Microsoft Office) and the use by our employees of standard personal computers. Accordingly, management has not implemented any formal process for assessing, identifying, and managing risks from cybersecurity threats.
Risks from cybersecurity threats have, to date, not materially affected us, our business strategy, results of operations or financial condition. We discuss how cybersecurity incidents could materially affect us in our risk factor disclosures in Item 1A of this Annual Report on Form 10-K.
Governance
As discussed above, given the nature of our current operations and our experience to date, we do not currently perceive cybersecurity as a particularly significant risk to our business. Accordingly, we have not tasked our Board of Directors with any additional cybersecurity oversight duties, or designated any committee of the Board of Directors to specifically oversee cybersecurity risks to our business.
ITEM 2. Properties
Our principal executive offices are located at 6605 Grand Montecito Pkwy., Suite 100, Las Vegas, NV 89149, Telephone No.: (800) 605-3210. Our leased premises are shared and are utilized for corporate business offices. Our Nevada premises are subject to a month-to-month lease agreement.
We believe that our current facilities are adequate for our current needs. We intend to secure new facilities or expand existing facilities as necessary to support future growth. We believe that suitable additional space will be available on commercially reasonable terms as needed to accommodate our operations.
ITEM 3. Legal Proceedings
Due to challenging economic conditions, OWP SAS filed for protection under Colombian Law 1116 of 2006, which is the primary legislation governing business insolvency proceedings (restructuring and liquidation) (“Reorganization Proceedings”) in Colombia on December 22, 2023. As of December 31, 2023, OWP SAS is involved in a total of 23 separate lawsuits for various civil and labor disputes in the municipal civil courts in Colombia, in the Cities of Bogota, Cali. Funza and Popayán. If the civil courts rule against OWP SAS, we estimate the potential liability from these claims is approximately $310,000. However, this is only an estimate, and our potential liability could be greater.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
There is a limited public market for our common stock. Shares of our common stock trade on the over-the-counter market and are quoted on the OTCQB tier of the OTC Markets under the symbol “OWPC”.
The following table sets forth, for the fiscal quarters indicated, the high and low bid information for our common stock, as reported on the OTC Markets. The following quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
| High | Low | |||||||
| Fiscal Year Ended December 31, 2023 | ||||||||
| First Quarter | $ | 0.13 | $ | 0.05 | ||||
| Second Quarter | $ | 0.10 | $ | 0.05 | ||||
| Third Quarter | $ | 0.12 | $ | 0.06 | ||||
| Fourth Quarter | $ | 0.10 | $ | 0.02 | ||||
| Fiscal Year Ended December 31, 2022 | ||||||||
| First Quarter | $ | 0.14 | $ | 0.08 | ||||
| Second Quarter | $ | 0.24 | $ | 0.07 | ||||
| Third Quarter | $ | 0.19 | $ | 0.09 | ||||
| Fourth Quarter | $ | 0.13 | $ | 0.07 | ||||
As of May 13, 2024, there were approximately 77 shareholders of record of our common stock. Such number does not include any shareholders holding shares in nominee or “street name”. As of May 13, 2024, there were 104,329,919 shares of common stock outstanding on record.
Dividends
We have not declared or paid any dividends on our common stock since our inception and do not anticipate paying dividends for the foreseeable future. The payment of dividends is subject to the discretion of our board of directors and depends, among other things, upon our earnings, our capital requirements, our financial condition, and other relevant factors. We intend to reinvest any earnings in the development and expansion of our business. Any cash dividends in the future to common shareholders will be payable when, as and if declared by our board of directors, based upon the board’s assessment of our financial condition and performance, earnings, need for funds, capital requirements, prior claims of preferred stock to the extent issued and outstanding, and other factors, including income tax consequences, restrictions and applicable laws. There can be no assurance, therefore, that any dividends on our common stock will ever be paid.
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Equity Compensation Plan Information
This following table provides information about shares our common stock that may be issued under our options outstanding at December 31, 2023. Other than individual options outstanding reflected in the table below, we did not have any shares authorized for issuance under equity plans at December 31, 2023.
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||||||
| (a) | (b) | (c) | ||||||||||
| Equity compensation plans approved by security holders | 5,392,000 | $ | 0.15 | 4,608,000 | ||||||||
| Equity compensation plans not approved by security holders (1) | 19,511,650 | 0.24 | N/A | |||||||||
| Total | 21,753,650 | $ | 0.23 | 5,258,000 | ||||||||
(1) Represents options to purchase 5,500,000 shares of common stock at a per share exercise price of $0.13 issued outside of our option plan to our CEO, Isiah L. Thomas, III, and warrants to purchase a total of 12,011,650 and 2,000,000 shares of common stock at $0.25 and $0.50 per share, respectively.
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.
Recent Sales of Unregistered Securities
Common Stock Issued for Series B Preferred Stock Conversions
On November 16, 2023, a shareholder converted 10,000 shares of Series B Preferred Stock into 1,000,000 shares of common stock, restricted in accordance with Rule 144, to Tysadco Partners, LLC.
Common Stock Sales
On October 2, 2023, the Company sold 1,000,000 shares of common stock, restricted in accordance with Rule 144, to an accredited investor for proceeds of $100,000.
Common Stock Issued as Consideration on Debt Financing
On December 7, 2023, the Company issued 269,261, restricted in accordance with Rule 144, to AJB Capital as consideration on debt financing.
Common Stock Issued for Services
On November 21, 2023, the Company issued 250,000 shares of common stock, restricted in accordance with Rule 144, to a consultant for services provided.
On October 4, 2023, the Company issued 572,083 shares of common stock, restricted in accordance with Rule 144, to ClearThink Capital Partners, LLC, for services provided.
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 6. Selected Financial Data
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion summarizes the significant factors affecting the operating results, financial condition, liquidity and cash flows of the Company for the fiscal years ended December 31, 2023 and 2022. The discussion and analysis that follows should be read together with the section entitled “Forward Looking Statements” and our financial statements and the notes to the financial statements included elsewhere in this annual report on Form 10-K.
Except for historical information, the matters discussed in this section are forward looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond the Company’s control. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report.
Overview
We plan to be a producer of and/or source raw and processed cannabis and hemp plant ingredients for both medical and industrial uses across the globe. The Company is a holding company and conducts its business in Colombia through OWP SAS, its wholly-owned subsidiary. OWP SAS has received licenses from the Colombian government to cultivate, produce and distribute the raw ingredients of the cannabis and hemp plant for medicinal, scientific and industrial purposes in the town of Esmeralda-Popayán, Cauca, Colombia.
We are in the process of acquiring another Colombian subsidiary within the Bogota free trade zone, which has all requisite licenses for the cultivation, production, distribution and export of cannabis and hemp infused products, and will serve as the Company’s primary base of operations in the Colombian market. Establishing operations within the free trade zone provides favorable import/export commercial terms and taxation, and will improve logistics and the overall operating efficiencies for the Company due to the close proximity of El Dorado International Airport and the commercial, economic and cultural center of the city of Bogota itself.
OWP SAS owns approximately 30 acres and has a covered greenhouse built specifically to cultivate high-grade cannabis and hemp. In addition, we entered into agreements with a local farming co-operative, 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 harvested 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 generated revenues since the second quarter of 2020. Between August 2021 and March 2022, we made payments of approximately $1,400,000 for the purchase of a state-of-the-art distillation machine that cleared customs and is currently located in a warehouse near Bogota. We intend to build out an extraction and production facility in the Bogota free trade zone adjacent to El Dorado International Airport in Bogota after we execute a lease for this location. Once the extraction equipment is placed in service, we will be one of the few companies in Colombia to both hold licenses and possess the capability to extract high-quality CBD and THC oils.
Due to challenging economic conditions and under prior management, OWP SAS experienced significant operational and managerial challenges in 2022 and 2023, resulting its accumulation of financial obligations of approximately $1.2 million, which are substantially past due. Without adequate resources and in an effort to forestall the imposition of interest, late charges, fines and any court-mandated order(s) to cease operations, OWP SAS filed for protection under Colombian Law 1116 of 2006, which is the primary legislation governing business insolvency proceedings (restructuring and liquidation) (“Reorganization Proceedings”) in Colombia on December 22, 2023. During the Reorganization Proceeding, management intends to satisfy OWP SAS’s continuing financial obligations through the negotiation and/or settlement with creditors and the Colombian governmental authorities. Subject to court approval, the Company intends to continue normal operations, which consists of providing cannabinoids in bulk for the domestic and international markets, including the raw material for our brands and affiliate companies. At this time, the Company cannot predict the length of time of the Reorganization Proceeding. The Company has deconsolidated its foreign subsidiaries until it emerges from the Reorganization Proceedings to include the petitioning entity, OWP SAS, as well as the Company’s non-operating shell entities, Agrobase, S.A.S. and Hope Colombia, S.A.S., given the lack of independently identifiable operations. The deconsolidation resulted in a loss on deconsolidation of foreign subsidiaries in the amount of $1,564,823 for the year ended December 31, 2023.
We expect to start exporting products in 2024, including CBD flower and distillate oil. Our product pipeline may include 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 and white label commercial agreements with partners in Europe, USA, and Latin America. We recently entered into strategic partnerships with Smokiez Edibles in Colombia and Stephen Marley’s Kx Family Care. There can be no assurances that these strategic partnerships will generate revenues or be profitable for the Company.
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Critical Accounting Policies
The establishment and consistent application of accounting policies is a vital component of accurately and fairly presenting our financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”), as well as ensuring compliance with applicable laws and regulations governing financial reporting. While there are rarely alternative methods or rules from which to select in establishing accounting and financial reporting policies, proper application often involves significant judgment regarding a given set of facts and circumstances and a complex series of decisions.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”). All references to Generally Accepted Accounting Principles (“GAAP”) are in accordance with The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the Hierarchy of Generally Accepted Accounting Principles.
These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein.
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 December 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)(6) | Colombia | Subsidiary | ||
| Colombian Hope, S.A.S.(4)(6) | Colombia | Subsidiary | ||
| Agrobase, S.A.S.(5)(6) | 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. |
| (6) | Deconsolidated subsidiary post-petition for reorganization under Colombian Law 1116 of 2006 on December 22, 2023. The operations prior to December 22, 2023 have been included in the Consolidated Financial Statements for the Year Ended December 31, 2023, but the assets and liabilities of the subsidiaries have been deconsolidated and omitted from the Balance Sheet for the Year Ended December 31, 2023. |
The consolidated financial statements herein contain the operations of the wholly-owned subsidiaries listed above. The Company’s headquarters are located in Las Vegas, Nevada and substantially all of its production efforts are within Popayán, Colombia.
Foreign Currency Translation
The functional currency of the Company is Colombian Peso (“COP”). The Company has maintained its financial statements using the functional currency, and translated those financial statements to the US Dollar 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.
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Comprehensive Income
The Company has adopted 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.
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.
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.
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.
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 years ended December 31, 2023 and 2022, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.
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Results of Operations for the Years ended December 31, 2023 and 2022
The following table summarizes selected items from the statement of operations for the years ended December 31, 2023 and 2022.
| For the Years Ended | ||||||||||||
| December 31, | Increase / | |||||||||||
| 2023 | 2022 | (Decrease) | ||||||||||
| Revenues | $ | 7,589 | $ | 125,662 | $ | (118,073 | ) | |||||
| Cost of goods sold | 173,122 | 300,757 | (127,635 | ) | ||||||||
| Gross loss | (165,533 | ) | (175,095 | ) | (9,562 | ) | ||||||
| Operating expenses: | ||||||||||||
| General and administrative | 1,289,656 | 1,587,017 | (297,361 | ) | ||||||||
| Professional fees | 591,416 | 431,737 | 159,679 | |||||||||
| Depreciation expense | 34,266 | 42,287 | (8,021 | ) | ||||||||
| Total operating expenses: | 1,915,338 | 2,061,041 | (145,703 | ) | ||||||||
| Operating loss | (2,080,871 | ) | (2,236,136 | ) | (155,265 | ) | ||||||
| Total other expense | (1,872,450 | ) | (823,341 | ) | 1,049,109 | |||||||
| Net loss | $ | (3,953,321 | ) | $ | (3,059,477 | ) | $ | (670,979 | ) | |||
Revenues
Revenues for the year ended December 31, 2023 were $7,589, compared to $125,662 during the year ended December 31, 2022, a decrease of $118,073, or 94%. Revenues decreased as we transitioned to new management at our operating facility.
Cost of Goods Sold
Cost of goods sold for the year ended December 31, 2023 were $173,122, compared to $300,757 during the year ended December 31, 2022, a decrease of $127,635, or 42%. Cost of goods sold consists primarily of labor, depreciation and maintenance on cultivation and production equipment, and supplies consumed in our operations. Our gross margins were approximately negative 2,181% for the year ended December 31, 2023, compared to negative 139% during the year ended December 31, 2022. Costs of goods sold decreased as we transitioned to new management at our operating facility.
General and Administrative Expenses
General and administrative expenses for the year ended December 31, 2023 were $1,289,656, compared to $1,587,017 for the year ended December 31, 2022, a decrease of $297,361, or 19%. General and administrative expenses decreased primarily due to decreased salaries and wages and lease expenses in Colombia over the comparative period, as we transitioned to new management. The expenses for the current period consisted primarily of compensation expenses, office rent, and travel costs, including $207,233 of stock-based compensation, which consisted $89,850 of common stock and $117,383 of stock options that were issued to our officers. The expenses for the prior period consisted primarily of compensation expenses, office rent, and travel costs, including $117,388 of stock-based compensation, which consisted entirely of expense related to stock options that were issued to our officers. Stock-based compensation increased by $89,845, or 77%, for the year ended December 31, 2023, compared to the year ended December 31, 2022.
Professional Fees
Professional fees for the year ended December 31, 2023 were $591,416, compared to $431,737 during the year ended 2022, an increase of $159,679, or 37%. Professional fees included non-cash stock-based compensation of $278,353, consisting of $243,987 of common stock and $34,366 of stock options expense, during the year ended December 31, 2023, compared to $47,232, consisting entirely of stock options expense, during the year ended December 31, 2022, an increase of $231,121, or 489%. Professional fees increased primarily due to increased stock-based compensation during the current period.
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Depreciation Expense
We had $34,266 of depreciation expense for the year ended December 31, 2023, compared to $42,287 of depreciation expense for the year ended December 31, 2022, a decrease of $8,021, or 19%. Depreciation expense decreased due to the prior year disposal of office equipment.
Other Income (Expense)
Other expenses, on a net basis, for the year ended December 31, 2023 were $1,872,450, compared to other expenses, on a net basis, of $823,341 for the year ended December 31, 2022. Other expense during the year ended December 31, 2023 consisted of a loss on disposal of fixed assets of $3,290, a loss of $1,564,823 on the deconsolidation of our foreign subsidiaries, and $308,741 of interest expense, including $19,603 on shares of common stock issued as commitment fees to AJB Capital on debt financing arrangements, as partially offset by a gain of $4,397 on the early extinguishment of leases and $7 of interest income. Other expenses for the year ended December 31, 2022 consisted of a loss on disposal of fixed assets of $9,041, and $956,858 of interest expense, including $339,133 on shares of series B preferred stock and common stock issued as commitment fees to Tysadco Partners on debt financing arrangements, as partially offset by $1,000 of sublease income, a gain on early extinguishment of leases of $20,148, a gain on forgiveness of PPP loan of $121,372 and $38 of interest income.
Net Loss
Net loss for the year ended December 31, 2023 was $3,953,321, or $0.05 per share, compared to $3,059,477, or $0.05 per share, during the year ended December 31, 2022, an increase of $893,844, or 29%. The net loss for the year ended December 31, 2023 included non-cash expenses consisting of $34,266 of depreciation, a $3,290 loss on disposal of fixed assets, a loss of $1,564,823 on the deconsolidation of our foreign subsidiaries, $505,189 of stock-based compensation, and $308,741 of interest expense, including $55,539 on the amortization of debt discounts and $19,603 on shares of common stock issued as commitment fees to AJB Capital on debt financing arrangements. The net loss for the year ended December 31, 2022 included non-cash expenses consisting of $42,287 of depreciation, a $9,041 loss on disposal of fixed assets, $503,753 of stock-based compensation, and $956,858 of interest expense, including $412,673 on the amortization of debt discounts and $339,133 on shares of series B preferred stock and common stock issued as commitment fees to Tysadco Partners on debt financing arrangements.
Liquidity and Capital Resources
As of December 31, 2023, the Company had current assets of $13,882, consisting of cash of $726 and other current assets of $13,156. The Company’s current liabilities as of December 31, 2023 were $3,872,111, consisting of $528,645 of accounts payable, $939,368 of accrued expenses, $196,734 of dividends payable, a convertible note payable to a related party in the amount of $750,000, and $1,457,364 of debts, including $1,146,500 owed to related parties.
The following table summarizes our total current assets, liabilities and working capital at December 31, 2023 and 2022.
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Current Assets | $ | 13,882 | $ | 123,467 | ||||
| Current Liabilities | $ | 3,872,111 | $ | 2,227,435 | ||||
| Working Capital | $ | (3,858,229 | ) | $ | (2,103,968 | ) | ||
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The following table summarizes our cash flows during the years ended December 31, 2023 and 2022, respectively.
| For the Year Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (1,194,131 | ) | $ | (1,380,483 | ) | ||
| Net cash used in investing activities | (5,046 | ) | (36,851 | ) | ||||
| Net cash provided by financing activities | 1,059,500 | 1,317,581 | ||||||
| Effect of exchange rate changes on cash | 131,046 | (8,909 | ) | |||||
| Cash removed in deconsolidated foreign subsidiaries | (1,659 | ) | - | |||||
| Net change in cash | $ | (10,290 | ) | $ | (108,662 | ) | ||
The decrease in funds used in operating activities for the year ended December 31, 2023, compared to the year ended December 31, 2022, was primarily due to decreased operations in the current year as capital resources tightened.
The decrease in funds used in investing activities for the year ended December 31, 2023, compared to the year ended December 31, 2022, was due primarily to decreased purchases of fixed assets in the year ended December 31, 2023.
The decrease in funds provided by financing activities for the year ended December 31, 2023, compared to the year ended December 31, 2022, was due primarily to $558,081 of decreased net debt financing proceeds received, as partially offset by $300,000 of increased proceeds received from the sale of our securities during the year ended December 31, 2023.
Satisfaction of our Cash Obligations for the Next 12 Months
As of December 31, 2023, we had $726 of cash on hand and negative working capital of $3,858,229. On April 19, 2024, we raised approximately $1.47 million from the sale of convertible notes in the amount of $1.6 million to two accredited investors, which included the issuance of 2 million shares as a commitment fee to one investor and a pre-funded warrant to purchase 8,666,667 shares of our common stock to the other investor, of which approximately $620,000 was used to partially pay off outstanding debts. We do not currently have sufficient funds to fund our operations at their current levels for the next twelve months. As we implement our cannabis cultivation business and attempt to expand operational activities, we expect to continue to experience net negative cash flows from operations in amounts not now determinable, and will be required to obtain additional financing to fund operations. Our ability to continue as a going concern is dependent upon our ability to raise additional capital and to achieve sustainable revenues and profitable operations. Since inception, we have raised funds primarily through the sale of equity securities. We will need, and are currently seeking, additional funds to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations or cause substantial dilution for our stockholders. If we are unable to obtain additional funds, our ability to carry out and implement our planned business objectives and strategies will be significantly delayed, limited or may not occur. We cannot guarantee that we will become profitable. Even if we achieve profitability, given the competitive and evolving nature of the industry in which we operate, we may not be able to sustain or increase profitability and our failure to do so would adversely affect our business, including our ability to raise additional funds.
The accompanying consolidated financial statements appearing in this 10-K have been prepared assuming that we will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we 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.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
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ITEM 8. Financial Statements and Supplementary Data
ONE WORLD PRODUCTS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
TABLE OF CONTENTS
| 25 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of One World Products, Inc. and subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of One World Products, Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, and the related consolidated statements of operations and comprehensive loss, consolidated stockholders’ equity (deficit) and consolidated cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Convertible Preferred Stock
As discussed in Note 17, the Company has complex financial instruments due to the issued and outstanding preferred stock, resulting in the classification of the financial instruments outside of permanent equity due to the terms of the instruments. Given the factors, the related audit effort in evaluating management’s judgments in determining the appropriate classification was extensive and required a high degree of auditor judgment.
We tested the Company’s classification of the financial instruments by examining and evaluating the agreements along with management’s evaluation of the key terms and management’s disclosure of the transactions.
/s/
We have served as the Company’s auditor since 2018.
May 22, 2024
| F-1 |
ONE WORLD PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Other assets | ||||||||
| Right-of-use assets | ||||||||
| Security deposits | ||||||||
| Fixed assets, net | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Deferred revenues | ||||||||
| Dividends payable | ||||||||
| Current portion of lease liabilities | ||||||||
| Convertible note payable, related party, current maturities | ||||||||
| Notes payable, related parties, current maturities | ||||||||
| Notes
payable, net of $ | ||||||||
| Total current liabilities | ||||||||
| Long-term lease liability | ||||||||
| Convertible note payable, related party | ||||||||
| Notes payable, related parties, long-term portion | ||||||||
| Total Liabilities | ||||||||
| Series A convertible preferred stock, $par value, shares authorized; and shares issued and outstanding at December 31, 2023 and 2022, respectively | ||||||||
| Series B convertible preferred stock, $par value, shares authorized; and shares issued and outstanding at December 31, 2023 and 2022, respectively | ||||||||
| Stockholders’ Equity (Deficit): | ||||||||
| Preferred stock, $ par value, shares authorized; shares issued and outstanding at December 31, 2023 and 2022, respectively | ||||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding at December 31, 2023 and 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Subscriptions payable | ||||||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Accumulated (deficit) | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-2 |
ONE WORLD PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross loss | ( | ) | ( | ) | ||||
| Operating expenses: | ||||||||
| General and administrative | ||||||||
| Professional fees | ||||||||
| Depreciation expense | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Sublease income | ||||||||
| Loss on sale of fixed assets | ( | ) | ( | ) | ||||
| Gain on early extinguishment of lease | ||||||||
| Gain on early extinguishment of debt | ||||||||
| Loss on deconsolidation of foreign subsidiaries | ( | ) | ||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Total other expense | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive loss: | ||||||||
| Gain on foreign currency translation | $ | $ | ||||||
| Net other comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Series A convertible preferred stock declared ($per share) | ( | ) | ( | ) | ||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of common shares outstanding - basic and diluted | ||||||||
| Net loss per share - basic and diluted | $ | ) | $ | ) | ||||
| Dividends declared per share of common stock | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
ONE WORLD PRODUCTS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
Series A Convertible Preferred Stock | Series B Convertible Preferred Stock | Common Stock | Additional Paid-In | Subscriptions | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Income (Loss) | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Series A convertible preferred stock sold for cash | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Series B convertible preferred stock sold for cash | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Series B convertible preferred stock issued as commitment fee on ELOC | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Amortization of common stock options issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Series A convertible preferred stock dividends declared ($per share) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Gain on foreign currency translation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Series A convertible preferred stock sold for cash | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Series A Convertible Preferred Stock issued for services | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Series B preferred stock conversions | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Commitment shares issued pursuant to promissory note | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Common stock sold for cash | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Amortization of common stock options issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Series A convertible preferred stock dividends declared ($per share) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Gain on foreign currency translation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
ONE WORLD PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Loss on disposal of fixed assets | ||||||||
| Gain on early extinguishment of lease | ( | ) | ( | ) | ||||
| Gain on early extinguishment of debt | ( | ) | ||||||
| Loss on deconsolidation of foreign subsidiaries | ||||||||
| Amortization of debt discounts | ||||||||
| Series A preferred stock issued for services | ||||||||
| Common stock issued for services | ||||||||
| Stock options issued for services | ||||||||
| Decrease (increase) in assets: | ||||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Other current assets | ||||||||
| Other assets | ( | ) | ( | ) | ||||
| Right-of-use assets | ||||||||
| Security deposits | ( | ) | ||||||
| Increase (decrease) in liabilities: | ||||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Deferred revenues | ( | ) | ( | ) | ||||
| Lease liability | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Proceeds received on sale of fixed assets | ||||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds received on convertible note payable | ||||||||
| Repayment of convertible note payable | ( | ) | ||||||
| Proceeds from notes payable, related parties | ||||||||
| Proceeds from notes payable | ||||||||
| Proceeds from sale of preferred and common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| Cash removed in deconsolidated foreign subsidiaries | ( | ) | ||||||
| Net increase (decrease) in cash | ( | ) | ( | ) | ||||
| Cash - beginning | ||||||||
| Cash - ending | $ | $ | ||||||
| Supplemental disclosures: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Non-cash investing and financing transactions: | ||||||||
| Dividends payable | $ | $ | ||||||
| Initial recognition of right-of-use assets and lease liabilities | $ | $ | ||||||
| Deposit on equipment settled with note payable | $ | $ | ||||||
| Accounts payable settled with exchange of equipment | $ | $ | ||||||
| Value of debt discounts attributable to commitment shares | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Nature of Business and Significant Accounting Policies
Overview
On December 22, 2023, our wholly-owned subsidiary, One World Products, S.A.S., a Colombian Simplified Shares Company, (“OWP SAS,” or “the Debtors”), filed for protection under Colombian Law 1116 of 2006, which is the primary legislation governing business insolvency proceedings (restructuring and liquidation) (“Reorganization Proceedings”) in Colombia. The Reorganization Proceeds are similar to Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States, whereby the Company intends to restructure its debts and continue to operate.
In connection with the Reorganization Proceedings, we paused production and sales of our cannabis operations in Colombia until the Court provides the Company with a plan of reorganization, at which time the Company intends to resume operations and satisfy its obligations in Colombia in accordance with the court’s plan. Furthermore, we continued our aggressive cost-cutting actions that included significant personnel reductions. As a result of these actions, OWP SAS has no revenue-producing operations. The Company’s primary operations during the fourth quarter of 2023, and to date in 2024, have consisted of activities associated with completing the Reorganization Proceedings, resolving substantial litigation, claims reconciliation, and preparing for emergence from Reorganization Proceedings as contemplated in the yet to be determined, Proposed Plan.
Upon the date that the Proposed Plan, which is yet to be determined and remains subject to court approval, becomes effective (the “Effective Date”), and subject to the effectiveness of the Proposed Plan, it is contemplated that the near term operations of the Company (also referred to as the “Post-Effective Date Debtors”) will consist of (a) claims administration under the Proposed Plan, (b) addressing the litigation, (c) prosecuting, pursuing, compromising, settling, or otherwise disposing of other retained causes of action, (d) defending the Company against any counterclaims, (e) attempting to realize value, if any, from our assets and (f) satisfying other regulatory requirements.
In the future, the Post-Effective Date Debtors expect to explore potential business opportunities, including strategic partnerships, including those designed to maximize the Debtor’s assets, including restoration of the Company’s cannabis operations. No assurance can be made that the Proposed Plan will become effective or that we will be successful in prosecuting any claim or cause of action or that any strategic alternative will be identified and/or would result in profitable operations.
In
accordance with ASC 810-10-15, the Company has deconsolidated its foreign subsidiaries until it emerges from the Reorganization Proceedings
to include the petitioning entity, OWP SAS, as well as the Company’s non-operating shell entities, Agrobase, S.A.S. and Hope Colombia,
S.A.S., given the lack of independently identifiable operations. The deconsolidation resulted in a loss on deconsolidation of foreign
subsidiaries in the amount of $
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 SAS”). Pursuant to the Merger Agreement, we acquired OWP Ventures (and indirectly, OWP SAS) 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 shares of our common stock; (b) options to purchase
shares of common stock of OWP Ventures at an
exercise price of $automatically converted into options to purchase
shares of our common stock at an exercise price
of $;
(c) the outstanding principal and interest under a $
| F-6 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 SAS. OWP SAS 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 and/or source raw and processed 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 cooperatives 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
generated revenue since the second quarter of 2020. During the first quarter of 2022, we made payments of approximately $
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”). All references to Generally Accepted Accounting Principles (“GAAP”) are in accordance with The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the Hierarchy of Generally Accepted Accounting Principles.
These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein.
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 December 31, 2023:
| State of | ||||
| Name of Entity | Incorporation | Relationship | ||
| (1) | |
| (2) | |
| (3) | |
| (4) | |
| (5) | |
| (6) |
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.
| F-7 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Foreign Currency Translation
The functional currency of the Company is Colombian Peso (COP). The Company has maintained its financial statements using the functional currency, and translated those financial statements to the US Dollar 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 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.
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 Measurements and Disclosures (ASC 820). ASC 820 defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:
| - | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
| - | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
| - | Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement. |
The carrying value of cash, accounts receivable, accounts payables and accrued expenses 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 $
| F-8 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Fixed Assets
Fixed assets are stated at the lower of cost or estimated net recoverable amount. The cost of property, plant and equipment is depreciated using the straight-line method based on the lesser of the estimated useful lives of the assets or the lease term based on the following life expectancy:
| Buildings | ||
| Office equipment | ||
| Furniture and fixtures | ||
| Equipment and machinery | ||
| Leasehold improvements |
Repairs and maintenance expenditures are charged to operations as incurred. Major improvements and replacements, which have extended the useful life of an asset, are capitalized and depreciated over the remaining estimated useful life of the asset. When assets are retired or sold, the cost and related accumulated depreciation and amortization are eliminated and any resulting gain or loss is reflected in operations.
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 December 31, 2023, the Company didn’t have any deferred revenues or deferred cost of goods sold outstanding.
Advertising Costs
The
Company expenses the cost of advertising and promotions as incurred. Advertising and promotions expense was $
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.
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 years ended December 31, 2023 and 2022, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.
Income Taxes
The Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.
| F-9 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Uncertain Tax Positions
In accordance with ASC 740, “Income Taxes” (“ASC 740”), the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing authorities based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These standards also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
Various taxing authorities periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions. In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established, is audited and fully resolved. The Company has not yet undergone an examination by any taxing authorities.
The assessment of the Company’s tax position relies on the judgment of management to estimate the exposures associated with the Company’s various filing positions.
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 July 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-03 to amend various SEC paragraphs in the Accounting Standards Codification to primarily reflect the issuance of SEC Staff Accounting Bulletin No. 120. ASU No. 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock.” ASU 2023-03 amends the ASC for SEC updates pursuant to SEC Staff Accounting Bulletin No. 120; SEC Staff Announcement at the March 24, 2022 Emerging Issues Task Force (“EITF”) Meeting; and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. These updates were immediately effective and did not have a material impact on our financial statements.
There are no other recently issued accounting pronouncements that the Company has yet to adopt that are expected to have a material effect on its financial position, results of operations, or cash flows.
Note 2 – Going Concern
As
shown in the accompanying financial statements, the Company had $
The 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.
| F-10 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 – Deconsolidation of Foreign Subsidiaries
On
December 22, 2023, our wholly-owned subsidiary, One World Products, S.A.S., a Colombian Simplified Shares Company, filed
for protection under Colombian Law 1116 of 2006, which is the primary legislation governing business insolvency proceedings
(restructuring and liquidation) (“Reorganization Proceedings”) in Colombia. The Reorganization Proceeds are
similar to Chapter 11 of the Bankruptcy Code in the United States, whereby the Company intends to restructure its debts and continue
to operate. The plan of reorganization and assessment of valid claims has not yet been determined, or approved by the court and
creditors, as necessary. OWP SAS has currently identified approximately 23 creditors, consisting of approximately $
FOREIGN SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
| December 31, | ||||
| 2023 | ||||
| Assets | ||||
| Current assets: | ||||
| Cash | $ | |||
| Inventory | ||||
| Other current assets | ||||
| Total current assets | ||||
| Other assets | ||||
| Fixed assets, net | ||||
| Total Assets | $ | |||
| Liabilities and Stockholders' Equity (Deficit) | ||||
| Current liabilities: | ||||
| Accounts payable | $ | |||
| Accrued expenses | ||||
| Notes payable | ||||
| Intercompany liability owed to OWP Ventures, Inc. | ||||
| Total current liabilities | ||||
| Stockholders’ Equity (Deficit): | ||||
| Accumulated (deficit) | ( | ) | ||
| Total Stockholders’ Equity (Deficit) | ( | ) | ||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | |||
Note 4 – Related Party Transactions
Expense Reimbursements Owed to Officers and Directors
As
of December 31, 2023, the Company owed a total of $
| F-11 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Compensation Commitments and Common Stock Awards
As
of December 31, 2023, the Company owed a total of $
$
$
$
$
Note 5 – 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.
| F-12 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balances sheet as of December 31, 2023 and 2022:
| Fair Value Measurements at December 31, 2023 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Total assets | ||||||||||||
| Liabilities | ||||||||||||
| Convertible notes payable, related party | ||||||||||||
| Notes payable, related parties | ||||||||||||
| Notes
payable, net of $ | ||||||||||||
| Total liabilities | ( | ) | ||||||||||
| $ | $ | ( | ) | $ | ||||||||
| Fair Value Measurements at December 31, 2022 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Right-of-use asset | ||||||||||||
| Total assets | ||||||||||||
| Liabilities | ||||||||||||
| Lease liabilities | ||||||||||||
| Convertible notes payable | ||||||||||||
| Notes payable, related parties | ||||||||||||
| Notes payable | ||||||||||||
| Total liabilities | ( | ) | ( | ) | ||||||||
| $ | $ | ( | ) | $ | ( | ) | ||||||
There were no transfers of financial assets or liabilities between Level 1 and Level 2 inputs for the years ended December 31, 2023 or 2022.
Note 6 – 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 December 31, 2023 and 2022, respectively.
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| Less obsolescence | ( | ) | ||||||
| Total inventory | $ | $ | ||||||
| F-13 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 – Other Current Assets
Other current assets included the following as of December 31, 2023 and 2022, respectively:
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Prepaid expenses | $ | $ | ||||||
| Deferred cost of goods sold | ||||||||
| Total | $ | $ | ||||||
Note 8 – Other Assets
Other
assets consist entirely of $
Note 9 – Security Deposits
Security deposits included the following as of December 31, 2023 and 2022, respectively:
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Refundable deposit on equipment purchase | $ | $ | ||||||
| Down payment on distillation equipment | ||||||||
| Security deposits on leases held in Colombia | ||||||||
| $ | $ | |||||||
Note 10 – Fixed Assets
Fixed assets consist of the following at December 31, 2023 and 2022, respectively:
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Land | $ | $ | ||||||
| Buildings | ||||||||
| Office equipment | ||||||||
| Furniture and fixtures | ||||||||
| Equipment and machinery | ||||||||
| Less: accumulated depreciation | ( | ) | ||||||
| Total | $ | $ | ||||||
On
October 1, 2023, the Company, through its wholly-owned subsidiary, One World Pharma, S.A.S., disposed of furniture and fixtures that
were abandoned. No proceeds were received on the disposal, resulting in a loss on disposal of fixed assets of $
On
October 1, 2023, the Company, through its wholly-owned subsidiary, One World Pharma, S.A.S., sold a truck previously used at the Popayán
farm. The Company received proceeds of $
On
August 15, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., sold its office furniture and equipment with a
net book value of $
Depreciation
and amortization expense totaled $
| F-14 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 – Accrued Expenses
Accrued expenses consisted of the following at December 31, 2023 and 2022, respectively:
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Accrued payroll | $ | $ | ||||||
| Accrued withholding taxes and employee benefits | ||||||||
| Accrued ICA fees and contributions | ||||||||
| Accrued interest | ||||||||
| $ | $ | |||||||
Note 12 – Deferred Revenues
Arrangements
with customers include multiple deliverables, consisting of an initial delivery of seeds and a contingent portion of the sale that is
dependent on the customers future harvest of the seeds. Deferred revenues associated with these multiple-element arrangements were $
Note 13 – Leases
On
April 28, 2023, the Company leased commercial property for its extraction facility under a commercial lease contract at a monthly lease
rate of
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.
Terminated Leases
The
Company leased its
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
The
Company also leased a residential premise under a non-cancelable real property lease agreement that commenced on September 1, 2021 that
was to expire on August 31, 2024, at a monthly lease term of
The
Company leased 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
| F-15 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of lease expense were as follows:
| For the Year Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Operating lease cost: | ||||||||
| Amortization of right-of-use assets | $ | $ | ||||||
| Interest on lease liabilities | ||||||||
| Lease payments on short term leases | ||||||||
| Total operating lease cost | $ | $ | ||||||
Supplemental balance sheet information related to leases was as follows:
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Operating lease: | ||||||||
| Operating lease assets | $ | $ | ||||||
| Current portion of operating lease liabilities | $ | |||||||
| Noncurrent operating lease liabilities | ||||||||
| Total operating lease liability | $ | $ | ||||||
| Weighted average remaining lease term: | ||||||||
| Operating leases | None | |||||||
| Weighted average discount rate: | ||||||||
| Operating lease | % | % | ||||||
Supplemental cash flow and other information related to operating leases was as follows:
| For the Year Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows used for operating leases | $ | $ | ||||||
| Early extinguishment of lease: | ||||||||
| Lease liabilities terminated | $ | $ | ||||||
| Right-of use assets terminated | ( | ) | ( | ) | ||||
| Gain on early extinguishment of lease | $ | $ | ||||||
| Leased assets obtained in exchange for lease liabilities: | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| F-16 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 – Convertible Note Payable, Related Party
Convertible note payable, related party consists of the following at December 31, 2023 and 2022, respectively:
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| On September
27, 2022, the Company completed the sale of a Convertible Promissory Note in the principal amount of $ | $ | $ | ||||||
| Total convertible note payable, related party | ||||||||
| Less: current maturities | ||||||||
| Convertible note payable, related party, long-term portion | $ | $ | ||||||
Aggregate
debt discounts of $
The
convertible note limits the maximum number of shares that can be owned by the note holder as a result of the conversions to common stock
to
The
Company recorded interest expense pursuant to the stated interest rates on the convertible notes in the amount of $
Note 15 – Notes Payable, Related Parties
Notes payable, related parties, consists of the following at December 31, 2023 and 2022, respectively:
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| On November
28, 2023, the Company received an advance of $ | $ | $ | ||||||
| On October 11, 2023, the
Company received an advance of $ | ||||||||
| On September 11, 2023,
the Company received an advance of $ | ||||||||
| On August 31, 2023, the
Company received an advance of $ | ||||||||
| On August 14, 2023, the
Company received an advance of $ | ||||||||
| On August 5, 2022, the
Company received an advance of $ | ||||||||
| On August 2, 2022, the
Company received an advance of $ | ||||||||
| On June 13, 2022, the Company,
through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| On July 7, 2022, the Company
received an advance of $ | ||||||||
| On June 3, 2022, the Company
received an advance of $ | ||||||||
| On May 5, 2022, the Company
received an advance of $ | ||||||||
| On May 5, 2022, the Company
received an advance of $ | ||||||||
| On March 1, 2022, the Company,
through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| On February 15, 2022, the
Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| On
December 29, 2021, the Company received an advance of $ | ||||||||
| Total notes payable, related party | ||||||||
| Less: current maturities | ||||||||
| Notes payable, related party, long-term portion | $ | $ | ||||||
The
Company recorded interest expense pursuant to the stated interest rates on the notes payable, related parties, in the amount of $
| F-17 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16 – Notes Payable
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| On August 18,
2023, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., issued an unsecured promissory note of $ | $ | $ | ||||||
| On June 23, 2023, the Company
completed the sale of a Promissory Note in the principal amount of $ The Third AJB Note matures on Pursuant to the Purchase Agreement, the Company paid a commitment fee to AJB Capital in the amount of $ 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. | ||||||||
| On September 15, 2022,
the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received proceeds of | ||||||||
| On June 17, 2022, the Company,
through its wholly-owned subsidiary, One World Pharma, SAS, received proceeds of | ||||||||
| On May 31, 2022, the Company,
through its wholly-owned subsidiary, One World Pharma, SAS, received proceeds of | ||||||||
| On May 30, 2022, the Company,
through its wholly-owned subsidiary, One World Pharma, SAS, received a non-interest bearing loan of | ||||||||
| On
April 29, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received a non-interest bearing loan of
| ||||||||
| Total notes payable | ||||||||
| Less: unamortized debt discounts | ||||||||
| Notes payable, net of discounts | ||||||||
| Less: current maturities | ||||||||
| Notes payable, long-term portion | $ | $ | ||||||
The Company recognized aggregate debt discounts on the notes payable to AJB Capital for the year ended December 31, 2023, as follows:
| December 31, | ||||
| 2023 | ||||
| Fair value
of | $ | |||
| Original issue discounts | ||||
| Legal and brokerage fees | ||||
| Total debt discounts | ||||
| Less: Amortization of debt discounts | ||||
| Unamortized debt discounts | $ | |||
The
aggregate debt discounts of $
The
convertible note limits the maximum number of shares that can be owned by the note holder as a result of the conversions to common stock
to
The
Company recorded interest expense on the stated interest of notes payable in the amount of $
| F-18 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company recognized interest expense for the year ended December 31, 2023 and 2022, respectively, as follows:
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Interest on convertible notes, related party | $ | $ | ||||||
| Interest on notes payable | ||||||||
| Interest on notes payable, related parties | ||||||||
| Amortization of debt discounts on convertible notes | ||||||||
| Amortization of debt discounts on convertible notes, common stock | ||||||||
| Amortization of debt discounts on convertible notes, warrants | ||||||||
| Finance cost on equity line of credit, issuances of series B preferred stock | ||||||||
| Finance cost on equity line of credit, issuances of common stock | ||||||||
| Finance cost on equity line of credit | ||||||||
| Interest on accounts payable | ||||||||
| Total interest expense | $ | $ | ||||||
Note 17 – Convertible Preferred Stock
Preferred Stock
The
Company has authorized shares of $par value “blank check” preferred
stock, of which shares have been designated Series A Preferred
Stock and shares have been designated Series B Preferred
Stock.
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 April 3, 2023, the Company received total proceeds from four accredited investors of $
On
various dates between December 20, 2022 and December 21, 2022, the Company received total proceeds of $
Series A Preferred Stock Payable, Consultants
On
July 1, 2023, the Company was obligated to issue shares of series A preferred stock in consideration
of consulting services. The fair value of the shares was $
Series A Preferred Stock Issued for Services, Consultants
On
January 1, 2023, the Company issued shares of series A preferred stock in consideration
of consulting services. The fair value of the shares was $
| F-19 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Preferred Stock Dividends
The
Series A Preferred Stock accrues dividends at the rate of
Series B Preferred Stock Sales
On
September 1, 2022, the Company and Tysadco Partners, LLC (“Tysadco”), entered into a Securities Purchase Agreement (the “Purchase
Agreement”) under which Tysadco agreed to purchase from the Company, shares of the Company’s Series B Preferred
Stock for a purchase price of $per share of Series B Preferred Stock, and an
aggregate purchase price of $.
On September 12, 2022, Tysadco purchased the first shares of Series B Preferred Stock under the
Purchase Agreement for $
Series B Preferred Stock Issuances
On November 16, 2023, a shareholder converted shares of Series B Preferred Stock into shares of common stock, in accordance with the terms of the agreement, therefore there was no gain or loss recognized on the conversion.
On September 12, 2023, a shareholder converted shares of Series B Preferred Stock into shares of common stock, in accordance with the terms of the agreement, therefore there was no gain or loss recognized on the conversion.
On July 7, 2023, a shareholder converted shares of Series B Preferred Stock into shares of common stock, in accordance with the terms of the agreement, therefore there was no gain or loss recognized on the conversion.
Note 18 – 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 $
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.
Contingent Compensation
On
August 22, 2023, the Company entered into an advisor agreement with an individual to provide consulting and business advisory services
to the Company. Pursuant to the agreement, the Company has agreed to compensate the consultant a fee of $
| F-20 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On
May 23, 2023, the Company appointed Joerg Sommer to be the Company’s President. In connection
with his appointment, the Company entered into an offer letter with Mr. Sommer (the “Offer Letter”) under which he will initially
be paid an annual base salary of $
$
$
$
$
To date, the Company has not received gross proceeds pursuant to the Qualified Offering terms.
Note 19 – Stockholders’ Equity
Preferred Stock
The Company has authorized shares of $par value “blank check” preferred stock, of which shares have been designated Series A Preferred Stock and shares have been designated Series B Preferred Stock, See Note 17 above for a description of the features and issuances of the Series A Preferred Stock and Series B Preferred Stock.
Common Stock
The Company is authorized to issue an aggregate of shares of common stock with a par value of $. As of December 31, 2023, there were shares of common stock issued and outstanding.
Common Stock Sales
On
October 2, 2023, the Company sold shares of common stock at a price of $per share for total cash proceeds of $
On
February 14, 2023, the Company sold shares of common stock at a price of $per share for total cash proceeds of $
Common Stock Issued on Subscriptions Payable
On March 29, 2022, the Company issued shares of common stock on a Subscriptions Payable for the December 1, 2021 award of common stock to COR IR for services.
Common Stock Issued as a Promissory Note Commitment
On
June 23, 2023, the Company paid a commitment fee to AJB Capital in the form of shares of common stock in connection with the
issuance of the Third AJB Note (defined above). The aggregate fair value of the common stock was $
Pursuant to the Second AJB Note, which was repaid on September 27, 2022, the Company, AJB Capital was entitled to be issued additional shares of common stock of the Company to the extent AJB Capital’s sale of their previously issued commitment fee shares resulted in net proceeds in an amount less than the defined commitment fee. As a result, the Company issued an additional shares of common stock to AJB Capital on September 15, 2022. The fair value of the shares was $, based on the closing price of the Company’s common stock on the date of grant. In addition, the Company issued another commitment shares to AJB Capital on December 7, 2023, with a fair value of $, based on the closing traded price on the date of grant.
Common Stock Issued for Services, Employees and Consultants
On
November 21, 2023, the Company issued shares of common stock to a consultant for services
provided. The aggregate fair value of the common stock was $
On
October 4, 2023, the Company issued shares of common stock to ClearThink Capital
Partners, LLC, for services provided. The aggregate fair value of the common stock was $
| F-21 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On
September 18, 2023, the Company issued shares of common stock to ClearThink Capital
Partners, LLC, for services provided. The aggregate fair value of the common stock was $
Common Stock Issued for Services, Officers and Directors
On
June 15, 2023, the Company issued shares of common stock to the Company’s
President, Joerg Sommer, for services provided. The aggregate fair value of the common stock was $
Amortization of Stock-Based Compensation
A
total of $
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 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.
Common Stock Options Issued for Services
On
November 29, 2023, the Company awarded options to purchase an aggregate shares of common stock under the 2019 Plan at
an exercise price equal to $per share, exercisable over a period to three consultants. The options vest
in equal quarterly installments over two years. The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility
rate of %
and a call option value of $,
was $.
The options are being expensed over the vesting period, resulting in $of stock-based compensation expense during the
year ended December 31, 2023. As of December 31, 2023, a total of $
On August 22, 2023, the Company awarded options to purchase shares of common stock under the 2019 Plan at an exercise price equal to $per share, exercisable over a period to a consultant. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $, was $. The options were fully vested, resulting in $of stock-based compensation expense during the year ended December 31, 2023.
Common Stock Options Expired
On January 1, 2023, options to purchase a total of shares of common stock at a price $per share expired.
On January 28, 2022, options to purchase a total of shares of common stock at a price $per share expired.
| Shares Underlying | |||||||||||||||||||||
| Shares Underlying Options Outstanding | Options Exercisable | ||||||||||||||||||||
| Weighted | |||||||||||||||||||||
| Shares | Average | Weighted | Shares | Weighted | |||||||||||||||||
| Underlying | Remaining | Average | Underlying | Average | |||||||||||||||||
| Range of | Options | Contractual | Exercise | Options | Exercise | ||||||||||||||||
| Exercise Prices | Outstanding | Life | Price | Exercisable | Price | ||||||||||||||||
| $ | - $ | years | $ | $ | |||||||||||||||||
| F-22 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| Weighted | ||||||||
| Average | ||||||||
| Number | Exercise | |||||||
| of Shares | Prices | |||||||
| Balance, December 31, 2021 | $ | |||||||
| Options granted | ||||||||
| Options exercised | ( | ) | ( | ) | ||||
| Balance, December 31, 2022 | ||||||||
| Options granted | ||||||||
| Options expired | ( | ) | ( | ) | ||||
| Balance, December 31, 2023 | $ | |||||||
| Exercisable, December 31, 2023 | $ | |||||||
Note 21 – Common Stock Warrants
Warrants
to purchase a total of
Warrants Granted
On
April 3, 2023, the Company received proceeds of $
On
January 27, 2023, the Company received proceeds of $
On
January 9, 2023, the Company received proceeds of $
On
January 4, 2023, the Company received proceeds of $
On
December 21, 2022, the Company received proceeds of $
On
December 20, 2022, the Company received proceeds of $
| F-23 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of information about our warrants to purchase common stock outstanding at December 31, 2023.
| Shares Underlying | |||||||||||||||||||||
| Shares Underlying Warrants Outstanding | Warrants Exercisable | ||||||||||||||||||||
| Weighted | |||||||||||||||||||||
| Shares | Average | Weighted | Shares | Weighted | |||||||||||||||||
| Range of | Underlying | Remaining | Average | Underlying | Average | ||||||||||||||||
| Exercise | Warrants | Contractual | Exercise | Warrants | Exercise | ||||||||||||||||
| Prices | Outstanding | Life | Price | Exercisable | Price | ||||||||||||||||
| $ | -$ | years | $ | $ | |||||||||||||||||
The fair value of each warrant grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants under the fixed option plan:
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Average risk-free interest rates | % | % | ||||||
| Average expected life (in years) | ||||||||
| Volatility | % | % | ||||||
The
weighted average fair value of warrants granted with exercise prices at the current fair value of the underlying stock was approximately
$
The following is a summary of activity of outstanding common stock warrants:
| Weighted | ||||||||
| Average | ||||||||
| Number | Exercise | |||||||
| of Shares | Prices | |||||||
| Balance, December 31, 2021 | $ | |||||||
| Warrants granted | ||||||||
| Balance, December 31, 2022 | ||||||||
| Warrants granted | ||||||||
| Balance, December 31, 2023 | $ | |||||||
| Exercisable, December 31, 2023 | $ | |||||||
Note 22 - Income Tax
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 years ended December 31, 2023 and 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 December 31, 2023, the Company had approximately $
| F-24 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The
provision (benefit) for income taxes for the years ended December 31, 2023 and 2022 were assuming a
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Federal statutory income tax rate | % | % | ||||||
| State income taxes | % | % | ||||||
| Change in valuation allowance | ( | )% | ( | )% | ||||
| Net effective income tax rate | ||||||||
The components of the Company’s deferred tax asset are as follows:
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carry forwards | $ | $ | ||||||
| Net deferred tax assets before valuation allowance | $ | $ | ||||||
| Less: Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax assets | $ | $ | ||||||
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 December 31, 2023 and 2022, respectively.
In accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions.
Note 23 – Subsequent Events
Debt Financing
SDT and AJB Promissory Notes
On
April 19, 2024, the “Company completed the sale of a
The
Notes mature on
Pursuant
to the Purchase Agreement with SDT, SDT received a pre-funded warrant to purchase shares of the Company’s common stock (the
“Warrant”). The Warrant includes a make-whole provision, whereby, if SDT is unable to sell the Warrant Shares (as defined
in the Warrant) for net proceeds equal to at least $
Pursuant
to the Purchase Agreement with AJB, the Company paid a $
| F-25 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Sanguine Group Promissory Note
On
March 4, 2024, the Company completed the sale of a promissory note to the Sanguine Group, LLC (“Sanguine”) in the principal
amount of $
Debt Financing, Related Parties
On
March 19, 2024, the Company received proceeds of $
On
various dates between January 8, 2024 and March 12, 2024, the Company received aggregate proceeds of $
On
various dates between January 8, 2024 and March 12, 2024, the Company received aggregate proceeds of $
On
March 1, 2024, the Company received proceeds of $
On
January 29, 2024, the Company received proceeds of $
Common Stock Issued as Consideration for Related Party Debt Modifications
On
March 15, 2024, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., agreed to issue shares of common stock to officers
and directors in consideration for extending the maturity dates and terms of previously received debt financing, as listed below. The
aggregate fair value of the common stock was $
| Aggregate | ||||||||||||||
| Name | Position | Debts Extended | Shares | Fair Value | ||||||||||
| Isiah L. Thomas, III | Chairman and CEO | $ | $ | |||||||||||
| Dr. Kenneth Perego, II | Vice Chairman | |||||||||||||
| Joerg Sommer | President | |||||||||||||
| Dr. John McCabe | >5% Shareholder | |||||||||||||
| $ | $ | |||||||||||||
Common Stock Issued as a Promissory Note Commitment
On
April 19, 2024, the Company paid a commitment fee to AJB Capital in the form of shares of common stock in connection with the
issuance of the Fourth AJB Note (defined above). The relative fair value of the common stock was $
| F-26 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On
March 19, 2024, the Company paid a commitment fee to Joerg Sommer, the Company’s President, in the form of shares of common stock in connection with the
issuance of the Second Sommer Note (defined above). The relative fair value of the common stock was $
On
March 4, 2024, the Company paid a commitment fee to The Sanguine Group, LLC in the form of shares of common stock in connection with the
issuance of the First Sanguine Note (defined above). The relative fair value of the common stock was $
Common Stock Issued for Services, Consultants
On
May 10, 2024, the Company issued shares of common stock in consideration of consulting
services. The fair value of the shares was $
On
May 10, 2024, the Company issued shares of common stock to ClearThink Capital
Partners, LLC, for services provided. The fair value of the common stock was $
On
March 15, 2024, the Company issued shares of common stock to officers and directors for services provided, as listed below. The aggregate
fair value of the common stock was $
| Name | Position | Shares | Fair Value | |||||||
| Isiah L. Thomas, III | Chairman and CEO | $ | ||||||||
| Dr. Kenneth Perego, II | Vice Chairman | |||||||||
| Terry Buffalo | Director | |||||||||
| Joerg Sommer | President | |||||||||
| $ | ||||||||||
On
March 15, 2024, the Company issued an aggregate shares of common stock to two consultants for
services provided. The aggregate fair value of the common stock was $
On
February 9, 2024, the Company issued shares of common stock to ClearThink Capital
Partners, LLC, for services provided. The fair value of the common stock was $
| F-27 |
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
ITEM 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Principal Executive Officer and our Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2023 (the “Evaluation Date”). 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 December 31, 2023, our Principal Executive Officer and Principal Financial Officer, concluded that, as of such date, our disclosure controls and procedures were not effective at the reasonable assurance level.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has conducted, with the participation of our Principal Executive Officer and our Principal Accounting Officer, an assessment, including testing of the effectiveness, of our internal control over financial reporting as of Evaluation Date. Management’s assessment of internal control over financial reporting was conducted using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013 Framework).
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 Framework). Based on this assessment, Management identified the following three material weaknesses that have caused management to conclude that, as of December 31, 2023, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level:
1. We do not have a formal policy or written procedures for the approval, identification and reporting of related-party transactions. Our controls are not adequate to ensure that all material transactions and developments with related parties will be properly identified, approved and reported. In our assessment of our disclosure controls and procedures, management evaluated the impact of our failure to have policies and procedures for the identification, approval and reporting of related-party transactions and has concluded that the control deficiency that resulted represented a material weakness.
2. We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act. In our assessment of our disclosure controls and procedures, management evaluated the impact of our failure to have written documentation of our internal controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
3. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. In our assessment of our disclosure controls and procedures, management evaluated the impact of our failure to have segregation of duties and has concluded that the control deficiency that resulted represented a material weakness.
To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
Remediation of Material Weaknesses
To remediate the material weakness in our documentation, evaluation and testing of internal controls we plan to engage a third-party firm to assist us in remedying this material weakness once resources become available.
We also intend to remedy our material weakness with regard to insufficient segregation of duties by hiring additional employees in order to segregate duties in a manner that establishes effective internal controls once resources become available.
Changes in Internal Control over Financial Reporting
There have been no 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 fourth fiscal quarter of 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. Other Information
None.
| 26 |
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
Set forth below are the present directors and executive officers of the Company. There are no arrangements or understandings between any of the directors, officers and other persons pursuant to which such person was selected as a director or an officer.
| Name | Age | Position | ||
| Isiah L. Thomas, III | 62 | Chief Executive Officer, Chairman of the Board | ||
| Dr. Kenneth Perego, II | 54 | Vice Chairman of the Board | ||
| Terry Buffalo | 59 | Director | ||
| Timothy Woods | 57 | Chief Financial Officer | ||
| Joerg Sommer | 57 | President |
Biographies
Set forth below are brief accounts of the business experience of each director and executive officer of the Company.
Isiah L. Thomas, III has been our Chief Executive Officer since June 2020, and our Chairman of the Board since December 2021. Mr. Thomas has also 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. We believe that Mr. Thomas’s business experience qualifies him to serve as our chairman and CEO.
Dr. Kenneth Perego, II was a director of OWP Ventures prior to the Merger and was appointed to our Board of Directors pursuant to the Merger Agreement, before being appointed Vice Chairman of the Board on December 7, 2021. He has been a practicing urologic surgeon in private practice since 2001 with an emphasis in urologic oncology and reconstructive urology. He has a strong clinical background in research and is focused on new drug discovery. We believe that Dr. Perego’s medical experience qualifies him to serve as our director.
Terry Buffalo was appointed to serve as a director of One World Products on September 1, 2022. Mr. Buffalo established Buffalo Cannabis Advisors in 2022 and currently serves as its President, was the Chief Executive Officer and a director of American Cannabis Company from 2015 to 2021, and was the Chief Executive of First Midwest Securities, Inc. from 2002 to 2013. Prior to that, Mr. Buffalo was the President of American Investment Services from 1997 to 2002. In addition, Mr. Buffalo currently serves on the advisory board of Element Apothec since 2020. We believe that Mr. Buffalo’s investment banking and cannabis management experience qualifies him to serve as our director.
Timothy Woods was appointed to serve as the Company’s Chief Financial Officer on February 14, 2022. From 2015 until his appointment as our Chief Financial Officer, Mr. Woods served as the Director of Business Development and General Sales Manager of Lithia Motors, Inc., one of the largest automotive retailers in the United States. Prior to his tenure with Lithia Motors, Mr. Woods was the Chief Financial Officer of Spend Consciously, a technology-based start-up. Mr. Woods also served as the Chief Financial Officer and energy services division Vice President of Finance for WGL Holdings Inc., providing high-level financial functions and advanced reporting, including the generation of quarterly and annual SEC filings, Sarbanes-Oxley compliance, and benefit plans. Earlier in his career, Mr. Woods was VP of Finance for Freddie Mac; a divisional CFO & North American controller for Stanley Works; and assistant global controller for General Electric’s Lighting Division. Mr. Woods holds a Bachelor of Business Administration in Accounting from Cleveland State University and is a graduate of the GE Financial Management program. He has achieved multiple honors, including being named “Business Leader of the Year” by the National Association of Black Accountants.
| 27 |
Joerg Sommer was appointed to serve as the Company’s President on May 23, 2023. Mr. Sommer served on the Company’s Advisory Board from August 2020 through May 23, 2023, and as a consultant to the Company from January 2021 to June 2022. Since July 2022, Mr. Sommer has been the Managing Partner of peach ventures management GmbH, an investor in energy and mobility startups based in Berlin, Germany, and since November 2021, he has served as a Venture Partner of bmp Ventures AG, a venture capital investment firm based in Berlin, Germany. Previously, Mr. Summer was the Chief Operating Officer of StreetScooter of Aachen, German, from March 2019 until February 2020; and the Chief Operating Officer of Chanje Energy Inc. of Los Angeles, CA, from March 2017 until February 2019. Prior to February 2019, Mr. Sommer held various top management positions in the automotive industry with Mercedes, Renault Group and Volkswagen Group in Europe and in the US. Mr. Sommer holds a Masters of Business Administration (M.B.A.) from the MIT Sloan School of Management, and dual Masters of Mechanical Engineering and Business Administration from Technische Universität Berlin.
Family Relationships
There are no family relationships among any of our directors or executive officers.
Board Committees and Audit Committee Financial Expert
We do not currently have a standing audit, nominating or compensation committee of the board of directors, or any committee performing similar functions. Our board of directors performs the functions of audit, nominating and compensation committees. No member of our board of directors qualifies as an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K promulgated under the Securities Act.
Director Nominations
As of December 31, 2023, we did not affect any material changes to the procedures by which our shareholders may recommend nominees to our board of directors. We have not established formal procedures by which security holders may recommend nominees to the Company’s board of directors.
Code of Ethics
We have adopted a code of ethics that applies to our principal executive officers, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of our code of ethics may be obtained free of charge by contacting us at the address or telephone number listed on the cover page hereof.
Delinquent Section 16(a) Reports
The were no persons who, at any time during the fiscal year ended December 31, 2023, was a director, executive officer, or beneficial owner of more than 10% of our common stock that failed to file on a timely basis reports required by Section 16(a) of the Exchange Act during the most recent fiscal year, except for one late filing of a Form 3, and a late Form 4, reporting fifty transactions, by Dr. John McCabe, a beneficial owner of more than 10%, and a late filing of a Form 3, and late Form 4, reporting two transactions, by Dr. Kenneth, Perego, II.
| 28 |
ITEM 11. Executive Compensation
Summary Compensation Table
The following summary compensation table sets forth the aggregate compensation we paid or accrued during the fiscal years ended December 31, 2023 and 2022 to Isiah L. Thomas, III, our Chief Executive Officer, Timothy Woods, our Chief Financial Officer, and Joerg Sommer, our President (together, our “Named Executive Officers”), that received total compensation in excess of $100,000 during 2023.
| Name and | Fiscal | Option | ||||||||||||
| Financial Position | Year | Salary | Awards1 | Total | ||||||||||
| Isiah L. Thomas, III, | 2023 | $ | 120,000 | (1) | $ | - | $ | 120,000 | ||||||
| Chief Executive Officer and Chairman | 2022 | $ | 120,000 | (1) | $ | - | $ | 120,000 | ||||||
| Timothy Woods, | 2023 | $ | 90,000 | (2) | $ | - | $ | 90,000 | ||||||
| Chief Financial Officer | 2022 | $ | 78,750 | (2) | $ | - | $ | 78,750 | ||||||
| Joerg Sommer, | 2023 | $ | 41,000 | (3) | $ | 89,850 | (4) | $ | 130,850 | |||||
| President | ||||||||||||||
(1) Consists of $120,000 and $120,000 of accrued salary for the years ended December 31, 2023 and 2022, respectively, not yet paid.
(2) Consists of $78,750 and $90,000 of accrued salary for the years ended December 31, 2023 and 2022, respectively, not yet paid. Mr. Woods’ employment agreement provides for an annual base salary of $90,000.
(3) Consists of $41,000 of accrued salary owed to Mr. Sommer from his appointment date in April 2023 through December 31, 2023, not yet paid. Mr. Sommer’s employment agreement provides for an annual base salary of $60,000.
(4) On June 15, 2023, we awarded Mr. Sommer 1,500,000 shares of common stock. The fair value of the common stock was $89,850, based on the closing stock price on the grant date. The amounts reflected in this column represent the aggregate grant date fair value of options, computed in accordance with ASC Topic 718.
Outstanding Equity Awards at Fiscal Year End
As of December 31, 2023, our Named Executive Officers had outstanding unexercised options as set forth below.
| Name | Number of securities underlying unexercised options (#) exercisable | Number of securities underlying unexercised options (#) unexercisable | Option Exercise Price ($) | Option Expiration Date ($) (2) | ||||||||||
| Isiah L. Thomas, III | 5,500,000 | - | $ | 0.13 | June 30, 2030 | |||||||||
| Timothy Woods | - | - | - | N/A | ||||||||||
| Joerg Sommer | - | - | - | N/A | ||||||||||
On January 21, 2021, the Company granted Mr. Thomas options to purchase 5,500,000 shares of our common stock, with half of the options vesting immediately on the grant date and the remaining 2,750,000 options vesting quarterly in increments of 250,000 options per quarter.
Director Compensation
The Company’s non-employee directors, Dr. Perego and Mr. Buffalo, did not receive any compensation for serving as directors during the year ended December 31, 2023.
However, they are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors.
As of December 31, 2023, Dr. Perego held options to acquire 350,000 shares and, Mr. Buffalo did not own any outstanding options. As of December 31, 2023, no directors held any outstanding restricted stock units or other stock awards.
| 29 |
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth, as of March 31, 2024, certain information with regard to the record and beneficial ownership of the Company’s common stock by (i) each person known to the Company to be the record or beneficial owner of 5% or more of the Company’s common stock, (ii) each director of the Company, (iii) each of the named executive officers, and (iv) all executive officers and directors of the Company as a group. The address of each of our directors and executive officers named in the table is c/o One World Products, Inc., 6605 Grand Montecito Pkwy., Suite 100, Las Vegas, NV 89149:
| Common Stock | Series A Preferred Stock | Series B Preferred Stock | Percent of Combined | |||||||||||||||||||||||||
| Name of Beneficial Owner(1) | Number of Shares | % of Class(2) | Number of Shares | % of Class | Number of Shares | % of Class | Voting Power(6) | |||||||||||||||||||||
| Officers and Directors: | ||||||||||||||||||||||||||||
| Isiah L. Thomas, III, Chairman and CEO(3) | 26,000,000 | 24.7 | % | - | - | 200,000 | 83.9 | % | 17.7 | % | ||||||||||||||||||
| Dr. Kenneth Perego II, Vice Chairman(4) | 11,100,000 | 13.6 | % | 11,000 | 11.0 | % | - | - | 55.3 | % | ||||||||||||||||||
| Joerg Sommer, President | 1,500,000 | 1.9 | % | - | - | - | - | 1.3 | % | |||||||||||||||||||
| Timothy Woods, Chief Financial Officer | - | - | - | - | - | - | - | |||||||||||||||||||||
| Terry L. Buffalo, Director | - | - | - | - | - | - | - | |||||||||||||||||||||
| Directors and Officers as a Group (4 persons) | 38,600,000 | 36.0 | % | - | - | - | - | 74.2 | % | |||||||||||||||||||
| 5% Shareholders | ||||||||||||||||||||||||||||
| ISIAH International, LLC(3) | 26,000,000 | 24.7 | % | - | - | 200,000 | 83.9 | % | 17.7 | % | ||||||||||||||||||
| Dr. John McCabe(5) | 15,000,180 | 18.8 | % | 3,000 | 3.0 | % | 20,000 | 8.4 | % | 12.8 | % | |||||||||||||||||
* less than 1%
| (1) | Except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock owned by such person. |
| (2) | Percentage of beneficial ownership is based upon 79,827,618 shares of common stock, 99,733 shares of Series A Preferred Stock and 238,501 and shares of Series B Preferred Stock outstanding as of December 31, 2023. For each named person, this percentage includes common stock that the person has the right to acquire either currently or within 60 days of March 31, 2024, including through the exercise of an option; however, such common stock is not deemed outstanding for the purpose of computing the percentage owned by any other person. |
| (3) | Includes 5,500,000 shares of common stock that may be acquired upon exercise of a vested option, and 20,000,000 shares of common stock that may be acquired upon conversion of Series B Preferred Stock currently held by Isiah International, LLC. Mr. Thomas is the sole member and Chief Executive Officer of ISIAH International. |
| (4) | Includes 7,000,000 shares of common stock held by CB Medical, LLC, of which Dr. Kenneth Perego, II is the controlling member. Includes 350,000 shares of common stock that may be acquired under an option, and 550,000 shares of common stock that may be acquired under a warrant. In addition, includes 11,000 shares of Series A Preferred Stock, convertible into 1,100,000 shares of common stock with each share of preferred carrying 50 voting rights. |
| (5) | Includes 150,000 shares of common stock that may be acquired upon exercise of a vested warrant, and 300,000 shares of common stock that may be acquired upon conversion of Series A Preferred Stock, and 2,000,000 shares of common stock that may be acquired upon conversion of Series B Preferred Stock. The address for Mr. McCabe is 160 Kincaid Lane, Boyce, LA 71409. |
| (6) | Each share of common stock is entitled to one vote per share, and 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. |
| 30 |
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
Certain Relationships and Related Party Transactions
Other than the transactions described below, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or will be a party:
| ● | in which the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years; and | |
| ● | in which any director, executive officer, stockholders who beneficially owns more than 5% of our common stock or any member of their immediate family had or will have a direct or indirect material interest. |
Advances by and repayments to Dr. Kenneth Perego, II, M.D., our Vice Chairman of the Board
On September 11, 2023, the Company received an advance of $52,000 from Dr. Kenneth Perego, II, M.D., our Vice Chairman of the Board, pursuant to an unsecured promissory note due on demand that carried a 10% interest rate.
On August 31, 2023, the Company received an advance of $4,000 from Dr. Kenneth Perego, II, M.D., pursuant to an unsecured promissory note due on demand that carried a 6% interest rate.
On August 14, 2023, the Company received an advance of $6,000 from Dr. Kenneth Perego, II, M.D., pursuant to an unsecured promissory note due on demand that carried a 6% interest rate.
On August 5, 2022, the Company received an advance of $50,000 from Dr. Kenneth Perego, II, M.D., pursuant to an unsecured promissory note due on demand that carried a 6% interest rate.
On July 7, 2022, the Company received an advance of $5,000 from Dr. Kenneth Perego, II, M.D., pursuant to an unsecured promissory note due on demand that carried a 6% interest rate.
On May 5, 2022, the Company received an advance of $20,000 from Dr. Kenneth Perego, II, M.D., pursuant to an unsecured promissory note due on demand that carried a 6% interest rate.
On December 29, 2021, the Company received an advance of $200,000 from Dr. Kenneth Perego, II, M.D., pursuant to an unsecured promissory note due January 1, 2024 that carried an 8% interest rate.
On September 14, 2020, the Company received an advance of $26,000 from Dr. Kenneth Perego, II, M.D., pursuant to an unsecured demand note that carried a 6% interest rate. A total of $27,201, consisting of $26,000 of principal and $1,201 of interest, was repaid on March 29, 2021.
Advances by and Repayments to Isiah L. Thomas, III, our Chairman of the Board and CEO
On August 2, 2022, the Company received an advance of $4,500 from Isiah L. Thomas, III, our Chairman of the Board and CEO, pursuant to an unsecured promissory note due on demand that carried a 6% interest rate.
On June 3, 2022, the Company received an advance of $10,000 from Isiah L. Thomas, III pursuant to an unsecured promissory note due on demand that carried a 6% interest rate.
On May 5, 2022, the Company received an advance of $10,000 from Isiah L. Thomas, III pursuant to an unsecured promissory note due on demand that carried a 6% interest rate.
On October 19, 2021, a total of $52,918, consisting of $50,000 of principal and $2,918 of interest, was repaid to Mr. Isiah L. Thomas, III in settlement of a demand note that had originated on October 28, 2020.
On September 15, 2021, a total of $130,610, consisting of $125,000 of principal and $5,610 of interest, was repaid to Mr. Isiah L. Thomas, III in settlement of a demand note that had originated on December 16, 2020.
| 31 |
Series B Preferred Stock Sales to Isiah L. Thomas, III
On February 7, 2021, the Company and ISIAH International, LLC (“ISIAH International”), an entity controlled by Isiah L. Thomas, our CEO and Chairman of the Board, entered into a Securities Purchase Agreement (the “Purchase Agreement”) under which ISIAH International agreed to purchase from the Company, on the dates provided for in the Purchase Agreement, an aggregate of 200,000 shares of the Company’s newly designated Series B Preferred Stock (“Series B Preferred Stock”), convertible into an aggregate of 20,000,000 shares of the Company’s common stock, for a purchase price of $15 per share of Preferred Stock, and an aggregate purchase price of $3 million. Each share of Series B Preferred Stock has a Stated Value of $15 and is convertible into common stock at a conversion price equal to $0.15. Isiah L. Thomas, the Company’s Chief Executive Officer, is the sole member and Chief Executive Officer of ISIAH International. Pursuant to the Purchase Agreement, ISIAH International purchased the 200,000 shares of Series B Preferred Stock from the Company according to the following schedule:
| Date | Shares | Purchase Price | ||||||
| Initial Closing Date | 16,666 | $ | 249,990 | |||||
| February 22, 2021 | 16,667 | 250,005 | ||||||
| March 8, 2021 | 16,667 | 250,005 | ||||||
| March 22, 2021 | 16,667 | 250,005 | ||||||
| April 5, 2021 | 16,666 | 249,990 | ||||||
| April 19, 2021 | 16,667 | 250,005 | ||||||
| May 17, 2021 | 33,334 | 500,010 | ||||||
| June 14, 2021 | 33,333 | 499,995 | ||||||
| July 12, 2021 | 33,333 | 499,995 | ||||||
| Total | 200,000 | $ | 3,000,000 | |||||
On various dates in May, 2021, the Company also received total proceeds of $50,010 from the sale of an aggregate of 3,334 shares of Series B Preferred Stock at a price of $15 per share to trusts whose beneficiaries are adult children of Isiah L. Thomas, III. Mr. Thomas disclaims beneficial ownership of the shares held by these trusts.
Debt and Common Stock Issued to Joerg Sommers
On October 5, 2023, the Company received an advance of $25,000 from Joerg Sommers, our President, pursuant to an unsecured promissory note due on demand that carried a 6% interest rate.
On June 15, 2023, the Company issued 1,500,000 shares of common stock to the Company’s President, Joerg Sommer, for services provided. The aggregate fair value of the common stock was $89,850, based on the closing price of the Company’s common stock on the date of grant.
Debt and Common Stock Issued to Dr. John McCabe
On September 27, 2022, the Company received an advance of $750,000 from Dr. John McCabe, pursuant to an unsecured convertible promissory note that carried an 8% interest rate, maturing on September 16, 2024, and convertible into shares of the Series B Preferred Stock of the Company at any time at a price per share of Series B Stock of $15.00 per share. The promissory note was cancelled on March 15, 2024 in exchange for a new promissory note, bearing interest at 7% per annum, maturing on March 1, 2027.
On June 13, 2022, the Company received an advance of $100,000 from Dr. John McCabe, pursuant to an unsecured promissory note that carried an 8% interest rate, which matured on January 1, 2024. The promissory note was cancelled on March 15, 2024 in exchange for a new promissory note, bearing interest at 7% per annum, maturing on March 1, 2027.
On March 1, 2022, the Company received an advance of $400,000 from Dr. John McCabe, pursuant to an unsecured promissory note that carried an 8% interest rate, which matured on January 1, 2024. The promissory note was cancelled on March 15, 2024 in exchange for a new promissory note, bearing interest at 7% per annum, maturing on March 1, 2027.
On February 15, 2022, the Company received an advance of $200,000 from Dr. John McCabe, pursuant to an unsecured promissory note that carried an 8% interest rate, which matured on January 1, 2024. The promissory note was cancelled on March 15, 2024 in exchange for a new promissory note, bearing interest at 7% per annum, maturing on March 1, 2027.
On February 14, 2023, the Company sold 3,000,000 shares of common stock at a price of $0.10 per share to Dr. John McCabe, a greater than 10% stockholder, for total proceeds of $300,000.
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Director Independence
Our board of directors currently consists of Isiah L. Thomas, III, our Chief Executive Officer and Chairman, Dr. Kenneth Perego, II, our Vice Chairman, and Terry Buffalo. As an executive officer, Mr. Thomas does not qualify as “independent” under standards of independence set forth by national securities exchanges. Our Board of Directors has determined that Dr. Kenneth Perego, II and Terry Buffalo are “independent” in accordance with the NASDAQ Capital Market’s requirements. As our common stock is currently quoted on the OTCQB, we are not currently subject to corporate governance standards of listed companies.
ITEM 14. Principal AccountING Fees And Services
M&K CPAS, PLLC was the Company’s independent registered public accounting firm for the years ended December 31, 2023 and 2022.
Audit and Non-Audit Fees
The following table sets forth fees billed by our auditors during the last two fiscal years for services rendered for the audit of our annual financial statements and the review of our quarterly financial statements, services by our auditors that are reasonably related to the performance of the audit or review of our financial statements and that are not reported as audit fees, services rendered in connection with tax compliance, tax advice and tax planning, and all other fees for services rendered.
| Years Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Audit fees(1) | $ | 66,300 | $ | 56,775 | ||||
| Audit related fees | - | - | ||||||
| Tax fees | - | - | ||||||
| All other fees | - | - | ||||||
| Total | $ | 66,300 | $ | 56,775 | ||||
(1) Audit fees were principally for audit services and work performed in the review of the Company’s quarterly reports on Form 10-Q.
All of the 2023 and 2022 services described above were approved by the Board of Directors in accordance with the SEC rule that requires audit committee pre-approval of audit and non-audit services provided by the Company’s independent registered public accounting firm. The Board of Directors has considered whether the provisions of such services, including non-audit services, is compatible with maintaining M&K CPAS, PLLC ‘s independence and has concluded that it is independent.
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PART IV
ITEM 15. Exhibits and Financial Statement Schedules
* Filed herewith.
+ Compensatory plan or agreement.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| ONE WORLD PRODUCTS, INC. | ||
| (Registrant) | ||
| By: | /s/ Isiah L. Thomas III | |
| Isiah L. Thomas, III | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ Timothy Woods | |
| Timothy Woods | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) | ||
| Dated: May 22, 2024 | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant, and in the capacities and on the dates indicated:
| Signature | Title | Date | ||
| /s/ Isiah L. Thomas, III | Chief Executive Officer and Chairman | |||
| Isiah L. Thomas, III | (Principal Executive Officer) | May 22, 2024 | ||
| /s/ Timothy Woods | Chief Financial Officer | May 22, 2024 | ||
| Timothy Woods | (Principal Financial Officer) | |||
| /s/ Dr. Kenneth Perego, II | Vice Chairman of the Board | May 22, 2024 | ||
| Dr. Kenneth Perego, II | ||||
| /s/ Terry Buffalo | Director | May 22, 2024 | ||
| Terry Buffalo |
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