One World Products, Inc 10-K for FY2021
One World Products, Inc. (OWPC)
About this 10-K
One World Products, Inc filed this 10-K on April 15, 2022, covering the fiscal year ended December 31, 2021 (FY2021).
Headline figures
Fiscal year ended December 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $38.26K
- down 35.8% from $59.57K a year earlier
- Net loss
- $3.78M
- compared with a net loss of $7.97M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the fiscal year ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________
Commission
file number:
(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.
| No ☐ |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
| No ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See 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.
Indicate
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
public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Yes ☐ |
The
aggregate market value of the registrant’s common stock held by non-affiliates of the registrant based upon the closing price of
$0.19 per share as of June 30, 2021 was approximately $
As of April 12, 2022, 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 Colombia”). 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. In this Form 10-K, the terms “we,” “us,” “our” and “our company” refers to One World Products, Inc. and its wholly-owned direct and indirect subsidiaries, OWP Ventures and OWP Colombia.
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 raw cannabis and hemp plant ingredients for both medical and industrial uses across the globe. We have received licenses from Colombian regulators 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 first companies in Colombia to receive licenses for seed, cultivation, extraction and export from the Colombian government (the “Licenses”).
We planted our first crop of cannabis in Popayan, 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. 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; |
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| ● | 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 Columbia’s National Registrar as of December 2020; and | |
| ● | We will proceed to get quota approvals for 2022. |
Our first cultivation site is located in Popayan, Colombia and our extraction facility will be located in the outskirts of Bogota, Colombia, in the town of Funza. Our cultivation facility encompasses approximately 30 acres and includes a covered greenhouse built specifically to cultivate high-grade cannabis and hemp. In addition, we have entered into agreements with local farming co-operatives that include small farmers and indigenous tribe members, under which they will cultivate cannabis on up to approximately 140 acres of land using our seeds and propagation techniques, and sell their harvested products to us on an exclusive basis.
We 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 currently have 120,000 square feet of covered greenhouse capacity, which we intend to increase to 160,000 square feet. We are building out our extraction and production facility and expect it to be operational before the end of 2022. During the first quarter of 2022, we made payments of approximately $1,400,000 for a state of the art distillation machine that we expect to be placed in service within our vertically integrated extraction facility during the second quarter of 2022. Once the equipment is placed in service, we will be one of the only companies in Colombia to both hold licenses and possess the capability to extract high-quality CBD and THC oils. In addition, we have a contractual relationship with a local co-operative under which they agree to assist us in cultivation at our facility.
We have received full registrations from the Instituto Colombiano Agropecuario (the “ICA”) for the full registration of 3 non-psychoactive high CBD strains and 13 proprietary high THC cannabis strains. Only registered strains may be sold under Colombian law. We are now able to start the quota process, which is required in order to commercialize THC products. We believe we will receive a supplementary quota during 2022 that will allow us to sell THC products before year end 2022.
We believe there is a large and growing market for cannabis and hemp products around the world. The market for CBD has shown particular demand and growth. We will pursue sales into this market using a direct sales force to establish direct customer relationships and distributor relationships. We will seek out customers who have large and recurring needs and demands. Countries that we intend to focus on include EU countries, the UK, Poland, Israel, and Canada. We have commenced limited initial shipments of non-psychoactive products to customers in May of 2020. However, we remain subject to numerous risks that may affect or delay future sales, including regulatory requirements imposed or that may in the future be imposed by the Colombian regulating authorities. In addition, we will need to obtain quota approval from Colombian regulators before making we can make sales of our psychoactive products.
History and Background
One World Pharma S.A.S., is a Colombian company (“OWP Colombia”), incorporated on July 14, 2017 with the goal of procuring the following Colombian Licenses.
On December 20, 2017, the Colombian Ministry of Health, by means of resolution No. 5251 of 2017, granted OWP Colombia its license for the production of cannabis derivatives for domestic use and export, allowing OWP Colombia to extract high tetrahydrocannabinol (“THC”) compounds (“Cannabis Manufacturing License”). This license will expire on December 20, 2022.
On December 26, 2017, the Colombian Ministry of Justice, by means of resolution No. 1087 of 2017, granted OWP Colombia 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, 2022.
On December 26, 2017, the Colombian Ministry of Justice, by means of resolution No. 1088 of 2017, granted OWP Colombia its license to grow non-psychoactive cannabis plants (less than 1.0% THC). Under this license, OWP Colombia 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, 2022.
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On January 4, 2018, the Colombian Ministry of Justice, by means of resolution No. 0015 of 2018, granted OWP Colombia its license to grow psychoactive cannabis plants (greater than 1.0% THC) (“Psychoactive Cultivation License”). Under this license, OWP Colombia 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, 2023.
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 Colombia.
On May 30, 2018, OWP Ventures entered into a Stock Purchase Agreement with the shareholders of OWP Colombia whereby the shareholders of OWP Colombia transferred their shares in OWP Colombia to OWP Ventures in exchange for 10,200,000 shares of common stock of OWP Ventures.
Products
We are focused on cultivating, processing and supplying crude cannabis oil, distillate and isolate to customers’ specification. We plan to sell as a wholesaler to industrial companies making cannabis related products. 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 are currently in the process of cultivating medicinal cannabis at our facility in Popayan, Colombia for a variety of medical conditions. 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.
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 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 solely of corporate administrative activities at our Las Vegas headquarters, including accounting, finance and SEC compliance functions. 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.
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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 Colombia holds all of these licenses.
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.
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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 Colombia 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. | |
| ● | 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 and anticipate the completion of such by year end 2021. |
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.
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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.
Principal Executive Offices
Our principal executive offices are located at 3471 West Oquendo Road, Suite 301, Las Vegas Nevada 89118. Our telephone number is (800) 605-3210. We believe our facilities are adequate to meet our current and near-term needs.
Employees
As of April 5, 2022, we had 31 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. To date, we have suffered recurring losses from operations and have an accumulated deficit of approximately $19,916,888 as of December 31, 2021. We are subject to all of the business risks and uncertainties associated with any new business enterprise, 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 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.
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Change of Cannabis Laws, Regulations and Guidelines
Cannabis laws and regulations 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 businesses. 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 try 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, store 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 that would allow us to commence the commercial sale of psychoactive cannabis products. 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 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 producers there. 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, whether owing 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 negatively affect 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 towards alternative payment solutions we would have to adopt policies and protocols to manage our volatility and exchange rate risk exposures. Our inability to 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 involve money laundering, financial recordkeeping and proceeds of crime. 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 back 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 declaring or paying dividends without advance notice and for an indefinite period of time.
Foreign Trade Policies
Our prospective international operations are subject to inherent risks, including changes in the regulations governing the flow of cannabis products between countries, fluctuations in currency values, 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 decreased 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, 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 do 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 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 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 the demand for licensed cannabis to be in excess of the supply being produced by the 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, they may have a material adverse effect on our business, results of operations and financial condition.
Weather, Climate Change and Risks Inherent in an Agricultural Business
Our business involves growing cannabis, 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. Further, our prospective Colombian medicinal cannabis operations will initially focus on outdoor production. 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 when only a portion of the production is damaged, our results of operations could be adversely affected because 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 and distributor of 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 products involve the risk of injury to consumers due to tampering by unauthorized third parties or product contamination. Adverse reactions resulting from human consumption of our 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 require substantial amounts of diesel and electric energy and other resources for our harvest activities and to 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 cut 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 because the economies in the developing world 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 must rely, to some extent, on the members of management who have previous experience working and conducting business in Colombia to enhance our understanding of and appreciation for the local business culture and practices in such countries. 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.
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Risks Related to Conducting Operations in Colombia
We recently were 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 will still be 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.
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
The outbreak of the COVID-19 coronavirus has negatively impacted and could continue to negatively impact our business and the global economy. In addition, the COVID-19 pandemic could negatively impact our ability to obtain financing when required.
The recent outbreak of the COVID-19 coronavirus has spread across the globe and is impacting worldwide economic activity. A pandemic, including COVID-19 or other public health epidemic, poses the risk that we or our employees, customers, and other commercial partners may be prevented from conducting business activities for an indefinite period of time, including due to the spread of the disease or shutdowns requested or mandated by governmental authorities. While it is not possible at this time to estimate the full impact that COVID-19 will have on our business, during our fiscal years ended December 31, 2021 and December 31, 2020, the Company’s cultivation operations in Colombia significantly declined due to the Colombian quarantine restrictions resulting from COVID-19. COVID-19 has also had an adverse impact on global economic conditions, which could impair our ability to raise capital when needed.
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Inability to Manage Growth
We may not be able to effectively manage our growth. Our strategy envisions growing our business. We plan to expand our production and manufacturing capability and create a distribution network on a global basis. 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:
| ● | expand our systems effectively or efficiently or in a timely manner; | |
| ● | create a distribution network | |
| ● | allocate our human resources optimally; | |
| ● | meet our capital needs; | |
| ● | identify and hire qualified employees or retain valued employees; or | |
| ● | obtain and maintain necessary licenses in relevant jurisdictions |
Our inability or failure to manage our growth and expansion effectively could harm our business and materially and adversely affect our operating results and financial condition.
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 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 OTC Markets, there is little current 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 likely to be highly volatile because for some time there will likely be a thin trading market for the stock, which causes trades of small blocks of stock to have a significant impact on the stock price.
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Penny Stock Risk
Because our common stock is a “penny stock,” trading therein will be subject to regulatory restrictions. Our common stock is currently, and in the near future will likely continue to be, considered a “penny stock.” The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and any salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure and other requirements may adversely affect the trading activity in the secondary market for our common stock.
No Dividend Payments
We have not paid dividends in the past and we do not expect to pay dividends to holders of our common stock for the foreseeable future, and any return on investment may be limited to potential future appreciation on the value of our common stock. Our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including without limitation, our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. To the extent we do not pay dividends, our stock may be less valuable because a return on investment will only occur if and to the extent the stock price appreciates, which may never occur. In addition, shareholders must generally rely on sales of the shares they own after price appreciation as the only way to realize their investment, and if the price of our common stock does not appreciate, then there will be no return on investment.
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 52.2% 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.
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.
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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.
ITEM 1B. Unresolved Staff Comments
Not Applicable.
ITEM 2. Properties
Our principal executive offices are located at 3471 West Oquendo Rd., Suite 301, Las Vegas, Nevada 89118, Telephone No.: (800) 605-3210. Our leased premises are 3,210 square feet and are utilized for corporate business offices. Our Nevada premises are subject to a lease agreement expiring October 31, 2022. In addition, OWP Colombia leases an office and a home in Bogota under leases expiring in less than a year. On January 1, 2022, OWP Colombia commenced a ten-year warehouse lease. The leased premise is 38,750 square feet and will be used for our extraction facility. Our anticipated future lease commitments on a calendar year basis in US dollars, excluding common area maintenance fees, under non-cancelable operating leases are as follows:
| Minimum | |||
| Year Ending | Lease | ||
| December 31, | Commitments | ||
| 2022 | $ | 231,157 | |
| 2023 | 188,988 | ||
| 2024 | 194,664 | ||
| 2025 | 200,496 | ||
| 2026 | 206,508 | ||
| Thereafter | 1,129,308 | ||
| Total future minimum lease liabilities | $ | 2,151,121 | |
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
There are no material pending legal proceedings to which we are a party or to which any of our property is subject, nor are there any such proceedings known to be contemplated by governmental authorities. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.
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”. As of April 1, 2022, the closing price of our common stock was $0.09.
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, 2021 | ||||||||
| First Quarter | $ | 1.00 | $ | 0.10 | ||||
| Second Quarter | $ | 0.32 | $ | 0.27 | ||||
| Third Quarter | $ | 0.30 | $ | 0.10 | ||||
| Fourth Quarter | $ | 0.14 | $ | 0.07 | ||||
| Fiscal Year Ended December 31, 2020 | ||||||||
| First Quarter | $ | 4.65 | $ | 0.13 | ||||
| Second Quarter | $ | 0.87 | $ | 0.18 | ||||
| Third Quarter | $ | 0.54 | $ | 0.11 | ||||
| Fourth Quarter | $ | 0.16 | $ | 0.06 | ||||
As of April 1, 2022, there were approximately 112 shareholders of record of our common stock. Such number does not include any shareholders holding shares in nominee or “street name”. As of April 1, 2022, there were 65,861,631 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, 2021. 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, 2021.
| 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 | 4,742,000 | $ | 0.17 | 5,258,000 | ||||||||
| Equity compensation plans not approved by security holders(1) | 17,011,650 | 0.25 | N/A | |||||||||
| Total | 21,753,650 | $ | 0.23 | 5,258,000 | ||||||||
(1) Represents 500,000 options to purchase shares of common stock of OWP Ventures issued prior to the Merger that automatically converted into options to purchase shares of our common stock at $0.50 per share, 5,500,000 options exercisable at $0.13 per share issued outside our option plan to our CEO, Isiah Thomas, III, and a total of 9,011,650 and 2,000,000 warrants to purchase 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 Services
On December 31, 2021, the Company issued 673,582 shares of common stock, restricted in accordance with Rule 144, to the Company’s then Chief Financial Officer, Vahé Gabriel, for services provided.
Commitment Shares
On October 26, 2021, the Company paid a commitment fee to AJB Capital in the form of 1,250,000 shares of common stock, restricted in accordance with Rule 144, in connection with the issuance of the Second AJB Note (defined below).
Common Stock Issued Pursuant to the Conversion of Series A Convertible Preferred Stock
On November 15, 2021, the Company issued 3,000,000 shares of common stock, restricted in accordance with Rule 144, pursuant to the conversion of 30,000 shares of series A convertible preferred stock.
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, 2021 and 2020. 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
On February 21, 2019, we entered into the Merger Agreement with OWP Merger Sub, our wholly-owned subsidiary, and 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 Closing of the Merger occurred on February 21, 2019. As a result of the Merger (a) holders of the outstanding capital stock of OWP Ventures received an aggregate of 39,475,398 shares of our common stock; (b) options to purchase 825,000 shares of common stock of OWP Ventures at an exercise price of $0.50 automatically converted into options to purchase 825,000 shares of our common stock at an exercise price of $0.50; (c) the outstanding principal and interest under a $300,000 convertible note issued by OWP Ventures became convertible, at the option of the holder, into shares of our common stock at a conversion price equal to the lesser of $0.424 per share or 80% of the price we sell our common stock in a future “Qualified Offering”; (d) 875,000 shares of our common stock owned by OWP Ventures prior to the Merger were cancelled; and (e) OWP Ventures’ chief operating officer became our chief operating officer and two of OWP Ventures’ directors became members of our board of directors.
OWP Ventures, Inc. 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 One World Pharma S.A.S. One World Pharma S.A.S, is a licensed cannabis cultivation, production and distribution (export) company located in Popayán, Colombia (nearest major city is Cali). We plan to be a producer of raw cannabis and hemp plant ingredients for both medical and industrial uses across the globe. We have received licenses to cultivate, produce and distribute the raw ingredients of the cannabis and hemp plant for medicinal, scientific and industrial purposes. Specifically, we are one of the only companies in Colombia to receive seed, cultivation, extraction and export licenses from the Colombian government. Currently, we own approximately 30 acres and have a covered greenhouse built specifically to cultivate high-grade cannabis and hemp. In addition, we have entered into agreements with local farming co-operatives that include small farmers and indigenous tribe members, under which they will cultivate cannabis on up to approximately 140 acres of land using our seeds and propagation techniques, and sell their harvested products to us on an exclusive basis. We planted our first crop of cannabis in 2018, which we began harvesting in the first quarter of 2019 for the purpose of further research and development activities and quality control testing of the cannabis we have produced. We have been generating revenue from the sale of our seeds since the second quarter of 2020. From August 2021 through March 2022, we made payments of approximately $1,400,000 for the purchase of a state of the art distillation machine that we expect to be placed in service within our vertically integrated extraction facility during the second quarter of 2022. Once the equipment is placed in service, we will be one of the only companies in Colombia to both hold licenses and possess the capability to extract high-quality CBD and THC oils.
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.
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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 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, 2021:
| State of | ||||
| Name of Entity | Incorporation | Relationship | ||
| One World Products, Inc.(1) | Nevada | Parent | ||
| OWP Ventures, Inc.(2) | Delaware | Subsidiary | ||
| One World Pharma S.A.S.(3) | Colombia | Subsidiary | ||
| Colombian Hope, S.A.S.(4) | Colombia | Subsidiary | ||
| Agrobase, S.A.S.(5) | Colombia | Subsidiary |
| (1) | Holding company in the form of a corporation. |
| (2) | Holding company in the form of a corporation and wholly-owned subsidiary of One World Products, Inc. |
| (3) | Wholly-owned subsidiary of OWP Ventures, Inc. since May 30, 2018, located in Colombia and legally constituted as a simplified stock company registered in the Chamber of Commerce of Bogotá on July 18, 2017. Its headquarters are located in Bogotá. |
| (4) | Wholly-owned subsidiary of OWP Ventures, Inc., acquired on November 19, 2019, located in Colombia and legally constituted as a simplified stock company. This company has yet to incur any substantive income or expenses. |
| (5) | Wholly-owned subsidiary of OWP Ventures, Inc., formed on September 12, 2019, located in Colombia and legally constituted as a simplified stock company. This company has yet to incur any substantive income or expenses. |
The consolidated financial statements herein contain the operations of the wholly-owned subsidiaries listed above. The Company’s headquarters are located in Las Vegas, Nevada and substantially all of its production efforts are within Popayán, Colombia.
Foreign Currency Translation
The functional currency of the Company is Columbian Peso (“COP”). The Company has maintained its financial statements using the functional currency, and translated those financial statements to the US Dollar 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.
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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 adopted 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 $250,000, under current regulations. The Company did not have any cash in excess of FDIC insured limits at December 31, 2021, and has not experienced any losses in such accounts.
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 | 15 years | ||
| Office equipment | 5 years | ||
| Furniture and fixtures | 7 years | ||
| Equipment and machinery | 7 years | ||
| Leasehold improvements | Term of lease |
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
Effective January 1, 2018, the Company adopted 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. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured.
There was no impact on the Company’s financial statements from ASC 606 for the years ended December 31, 2021 or 2020.
Advertising Costs
The Company expenses the cost of advertising and promotions as incurred. Advertising and promotions expense was $137,915 and $143,341 for the years ended December 31, 2021 and 2020, respectively.
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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, 2021 and 2020, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.
Stock-Based Compensation
The Company accounts for equity instruments issued 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.
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.
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.
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.
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Results of Operations for the Years ended December 31, 2021 and 2020
The following table summarizes selected items from the statement of operations for the years ended December 31, 2021 and 2020.
| For the Years Ended | ||||||||||||
| December 31, | Increase / | |||||||||||
| 2021 | 2020 | (Decrease) | ||||||||||
| Revenues | $ | 38,264 | $ | 59,568 | $ | (21,304 | ) | |||||
| Cost of goods sold | 19,744 | 104,729 | (84,985 | ) | ||||||||
| Gross profit | 18,520 | (45,161 | ) | 63,681 | ||||||||
| Operating expenses: | ||||||||||||
| General and administrative | 2,924,284 | 3,960,791 | (1,666,507 | ) | ||||||||
| Professional fees | 915,217 | 3,878,006 | (2,962,789 | ) | ||||||||
| Depreciation expense | 40,321 | 33,610 | 6,711 | |||||||||
| Total operating expenses: | 3,249,822 | 7,872,407 | (4,622,585 | ) | ||||||||
| Operating loss | (3,231,302 | ) | (7,917,568 | ) | (4,686,266 | ) | ||||||
| Total other expense | (553,260 | ) | (47,592 | ) | 505,668 | |||||||
| Net loss | $ | (3,784,562 | ) | $ | (7,965,160 | ) | $ | (4,180,598 | ) | |||
Revenues
Revenues for the year ended December 31, 2021 were $38,264, compared to $59,568 during the year ended December 31, 2020, a decrease of $21,304, or 36%.
Cost of Goods Sold
Cost of goods sold for the year ended December 31, 2021 were $19,744, compared to $104,729 during the year ended December 31, 2020, a decrease of $84,985, or 81%. 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 48% for the year ended December 31, 2021, compared to negative 76% during the year ended December 31, 2020. Our prior year cost of goods sold were greater than the current year due to the learning curve associated with commencing operations.
General and Administrative Expenses
General and administrative expenses for the year ended December 31, 2021 were $2,294,284, compared to $3,960,791 for the year ended December 31, 2020, a decrease of $1,666,507, or 42%. General and administrative expenses decreased primarily due to decreased stock-based compensation. The expenses for the current period consisted primarily of compensation expenses, office rent, and travel costs, including $638,036 of stock-based compensation, of which $55,234, consisting of 673,582 shares, were issued as compensation payment in lieu of cash to our former CFO, and $582,802 of expense related to stock options that were issued to our officers. The expenses for the prior period included $2,581,933 of stock-based compensation, of which $1,100,000, consisting of 2,000,000 shares, were issued as severance pay to our former CEO, and $275,000, consisting of 500,000 shares of common stock, along with $1,206,933 of expense related to stock options that were voluntarily surrendered and cancelled at year-end was incurred in connection with the employment of Isiah Thomas as our new Chief Executive Officer in June 2020.
Professional Fees
Professional fees for the year ended December 31, 2021 were $915,217, compared to $3,878,006 during the year ended 2020, a decrease of $2,962,789, or 76%. Professional fees included non-cash stock-based compensation of $496,553 during the year ended December 31, 2021, compared to $3,167,252 during the year ended December 31, 2020, a decrease of $2,670,699, or 84%. Professional fees decreased primarily due to decreased stock-based compensation during the current period.
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Depreciation Expense
We had $40,321 of depreciation expense for the year ended December 31, 2021, compared to $33,610 of depreciation expense for the year ended December 31, 2020, an increase of $6,711, or 20%. Depreciation expense increased during the current period as additional assets have been placed in service.
Other Income (Expense)
Other expenses, on a net basis, for the year ended December 31, 2021 were $553,260, compared to other expenses, on a net basis, of $47,592 for the year ended December 31, 2020. Other expense during the year ended December 31, 2021 consisted of a loss on disposal of fixed assets of $71,487 and $511,131 of interest expense, as partially offset by $27,000 of sublease income and $2,358 of interest income. Other expenses consisted of $47,592 of interest expense for the year ended December 31, 2020.
Net Loss
Net loss for the year ended December 31, 2021 was $3,784,562, or $0.06 per share, compared to $7,965,160, or $0.16 per share, during the year ended December 31, 2020, a decrease of $4,180,598, or 52%. The net loss for the year ended December 31, 2021 included non-cash expenses consisting of $40,321 of depreciation, a $71,487 loss on disposal of fixed assets, $1,134,589 of stock-based compensation, and $511,131 of interest expense, including $456,656 on the amortization of debt discounts, for the year ended December 31, 2021. The net loss for the year ended December 31, 2020 included non-cash expenses consisting of $33,610 of depreciation, $5,749,185 of stock-based compensation, and $47,592 of interest for the year ended December 31, 2020.
Liquidity and Capital Resources
As of December 31, 2021, the Company had current assets of $644,183, consisting of cash of $119,678, accounts receivable of $19,880, inventory of $198,595 and other current assets of $306,030. The Company’s current liabilities as of December 31, 2021 were $1,523,593, consisting of $480,146 of accounts payable, $457,762 of accrued expenses, $30,164 of deferred revenue, $98,920 of dividends payable, and $456,601 of debts.
The following table summarizes our total current assets, liabilities and working capital at December 31, 2021 and 2020.
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Current Assets | $ | 644,183 | $ | 420,619 | ||||
| Current Liabilities | $ | 1,523,593 | $ | 1,702,437 | ||||
| Working Capital | $ | (879,410 | ) | $ | (1,281,818 | ) | ||
The following table summarizes our cash flows during the years ended December 31, 2021 and 2020, respectively.
| For the Year Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Net cash used in operating activities | $ | (3,728,702 | ) | $ | (1,429,112 | ) | ||
| Net cash used in investing activities | (388,001 | ) | (62,567 | ) | ||||
| Net cash provided by financing activities | 4,218,938 | 1,274,841 | ||||||
| Effect of exchange rate changes on cash | (11,477 | ) | (36,622 | ) | ||||
| Net change in cash | $ | 90,758 | $ | (253,460 | ) | |||
The increase in funds used in operating activities for the year ended December 31, 2021, compared to the year ended December 31, 2020, was primarily due to increased operations in the current year as we rebounded from the global effects of the Covid-19 pandemic.
The increase in funds used in investing activities for the year ended December 31, 2021, compared to the year ended December 31, 2020, was due primarily to increased purchases of fixed assets in the year ended December 31, 2021.
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The increase in funds provided by financing activities for the year ended December 31, 2021, compared to the year ended December 31, 2020, was due primarily to increased proceeds from the sale of our securities and debt financing received during the year ended December 31, 2021.
Satisfaction of our Cash Obligations for the Next 12 Months
As of December 31, 2021, we had $119,678 of cash on hand and negative working capital of $879,410. 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.
| 23 |
ITEM 8. Financial Statements and Supplementary Data
ONE WORLD PRODUCTS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
TABLE OF CONTENTS
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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, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, 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 15, 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.
April 14, 2022
| F-1 |
ONE WORLD PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Other current assets | ||||||||
| Total current 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 notes payable, net of $ | - | |||||||
| Notes payable | ||||||||
| Total current liabilities | ||||||||
| Long-term lease liability | - | |||||||
| Notes payable, related party, long-term portion | - | |||||||
| Total Liabilities | ||||||||
| Series A convertible preferred stock, $ par value, shares authorized; and shares issued and outstanding at December 31, 2021 and 2020, respectively | ||||||||
| Series B convertible preferred stock, $ par value, shares authorized; and -- shares issued and outstanding at December 31, 2021 and 2020, respectively | - | |||||||
| Convertible preferred stock value | - | - | ||||||
| Stockholders’ Equity (Deficit): | ||||||||
| Preferred stock, $ par value, shares authorized; shares issued and outstanding at December 31, 2021 and 2020, respectively | - | - | ||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding at December 31, 2021 and 2020, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Subscriptions payable, consisting of and shares at December 31, 2021 and 2020, respectively | ||||||||
| Accumulated other comprehensive 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
| 2021 | 2020 | |||||||
| For the Year Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit (loss) | ( | ) | ||||||
| Operating expenses: | ||||||||
| General and administrative | ||||||||
| Professional fees | ||||||||
| Depreciation expense | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Sublease income | - | |||||||
| Loss on disposal of fixed assets | ( | ) | - | |||||
| Interest income | - | |||||||
| Interest expense | ( | ) | ( | ) | ||||
| Total other expense | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive loss: | ||||||||
| Loss on foreign currency translation | $ | ( | ) | $ | ( | ) | ||
| Net other comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Series A convertible preferred stock declared ($ per share) | ( | ) | ( | ) | ||||
| Deemed dividend on common stock warrants, series A preferred stock | - | ( | ) | |||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of common shares outstanding - basic and fully diluted | ||||||||
| Net loss per share - basic and fully 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)
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Income (Loss) | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Series A | Series B | Accumulated | Total | |||||||||||||||||||||||||||||||||||||||||
| Convertible | Convertible | Additional | Other | Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Common Stock | Paid-In | Subscriptions | Comprehensive | Accumulated | Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Income (Loss) | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||
| Balance | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||
| Preferred stock units sold for cash | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Series B convertible preferred stock sold for cash to our CEO | ||||||||||||||||||||||||||||||||||||||||||||
| Series B convertible preferred stock sold for cash to our CEO, shares | ||||||||||||||||||||||||||||||||||||||||||||
| Series B convertible preferred stock sold for cash | ||||||||||||||||||||||||||||||||||||||||||||
| Series B convertible preferred stock sold for cash, shares | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock sold for cash | - | - | - | ( | ) | - | - | |||||||||||||||||||||||||||||||||||||
| Conversion of series A convertible preferred stock | ||||||||||||||||||||||||||||||||||||||||||||
| Conversion of series A convertible preferred stock, shares | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Commitment shares issued pursuant to promissory note | ||||||||||||||||||||||||||||||||||||||||||||
| Commitment shares issued pursuant to promissory note, shares | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of cashless options | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of cashless options, shares | ||||||||||||||||||||||||||||||||||||||||||||
| Warrants issued as a debt discount | ||||||||||||||||||||||||||||||||||||||||||||
| Amortization of common stock options issued for services | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Series A convertible preferred stock declared ($ per share) | - | - | - | - | - | - | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||||||||
| Loss on foreign currency translation | - | - | - | - | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Balance | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Series B convertible preferred stock sold for cash to our CEO | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Series B convertible preferred stock sold for cash | - | - | - | - | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||
| Common stock sold for cash | - | - | - | - | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||
| Conversion of series A convertible preferred stock | ( | ) | ( | ) | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Commitment shares issued pursuant to promissory note | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Exercise of cashless options | - | - | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Warrants issued as a debt discount | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Amortization of common stock options issued for services | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Series A convertible preferred stock dividend declared ($ per share) | - | - | - | - | - | - | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||||||||
| Loss on foreign currency translation | - | - | - | - | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Balance | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
ONE WORLD PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| 2021 | 2020 | |||||||
| For the Year Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Bad debts expense | - | |||||||
| Depreciation and amortization expense | ||||||||
| Loss on disposal of fixed assets | - | |||||||
| Amortization of debt discounts | - | |||||||
| Stock-based compensation | ||||||||
| Amortization of options issued for services | ||||||||
| Decrease (increase) in assets: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Other current 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 disposal of fixed assets | - | |||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Repayment of convertible note payable | - | ( | ) | |||||
| Proceeds from notes payable | ||||||||
| Repayment of notes payable | ( | ) | ( | ) | ||||
| Proceeds from sale of preferred and common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash | ( | ) | ( | ) | ||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash - beginning | ||||||||
| Cash - ending | $ | $ | ||||||
| Supplemental disclosures: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Non-cash investing and financing transactions: | ||||||||
| Cost of preferred shares exchanged for conversion to common stock | $ | $ | ||||||
| Value of commitment shares issued as a debt discount | $ | $ | ||||||
| Value of warrants issued as a debt discount | $ | $ | ||||||
| Dividends payable | $ | $ | ||||||
| Par value of cashless exercise of common stock options | $ | $ | ||||||
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
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, One World Pharma, Inc. (“One World Pharma”) entered into an Agreement and Plan
of Merger with OWP Merger Subsidiary, Inc., our wholly-owned subsidiary, and OWP Ventures, Inc. (“OWP Ventures”), which is
the parent company of One World Pharma SAS, a Colombian company (“OWP Colombia”). Pursuant to the Merger Agreement, we acquired
OWP Ventures (and indirectly, OWP Colombia) by the merger of OWP Merger Subsidiary with and into OWP Ventures, with OWP Ventures being
the surviving entity as our wholly-owned subsidiary (the “Merger”). As a result of the Merger (a) holders of the outstanding
capital stock of OWP Ventures received an aggregate of 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 $
OWP
Ventures is a holding company formed in Delaware on March 27, 2018 to enter and support the cannabis industry, and on May 30, 2018, it
acquired OWP Colombia. OWP Colombia is a licensed cannabis cultivation, production and distribution (export) company located in Popayán,
Colombia (nearest major city is Cali). We plan to be a producer of raw cannabis and hemp plant ingredients for both medical and industrial
uses across the globe. We have received licenses to cultivate, produce and distribute the raw ingredients of the cannabis and hemp plant
for medicinal, scientific and industrial purposes. Specifically, we are one of the few companies in Colombia to receive all four licenses,
including seed use, cultivation of non-psychoactive cannabis, cultivation of psychoactive cannabis, and manufacturing allowing for extraction
and export. Currently, we own approximately 30 acres and have a covered greenhouse built specifically to cultivate high-grade cannabis
and hemp. In addition, we have entered into agreements with local farming co-operatives that include small farmers and indigenous tribe
members, under which they will cultivate cannabis on up to approximately 140 acres of land using our seeds and propagation techniques,
and sell their harvested products to us on an exclusive basis. We began harvesting cannabis in the first quarter of 2019 for the purpose
of further research and development activities, quality control testing and extraction. We have been generating revenue from the sale
of our seeds since the second quarter of 2020. In August 2021, we paid total deposits of $
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 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.
| F-6 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2021:
Schedule of Common Control and Ownership Interest
| Name of Entity | State of Incorporation | Relationship | ||
| (1) | |
| (2) | |
| (3) | |
| (4) | |
| (5) |
The consolidated financial statements herein contain the operations of the wholly-owned subsidiaries listed above. The Company’s headquarters are located in Las Vegas, Nevada and substantially all of its production efforts are within Popayán, Colombia.
Foreign Currency Translation
The functional currency of the Company is Columbian Peso (COP). The Company has maintained its financial statements using the functional currency, and translated those financial statements to the US Dollar 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.
| F-7 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Financial Instruments
The Company adopted 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 $
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:
Schedule of Estimated Useful Lives of Fixed Assets
| 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, 2021, the Company had $
Advertising Costs
The
Company expenses the cost of advertising and promotions as incurred. Advertising and promotions expense was $
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, 2021 and 2020, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.
The Company accounts for equity instruments issued 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.
| F-8 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 Financial Accounting Standards Board (“FASB”) that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.
In August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-06, Debt–Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging–Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if converted method. The new guidance is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2021, with early adoption permitted. The adoption of ASU 2020-06 is not expected to have a material impact on the Company’s financial statements or related disclosures.
In May 2020, the SEC adopted final rules that amend the financial statement requirements for significant business acquisitions and dispositions. Among other changes, the final rules modify the significance tests and improve the disclosure requirements for acquired or to be acquired businesses and related pro forma financial information, the periods those financial statements must cover, and the form and content of the pro forma financial information. The final rules do not modify requirements for the acquisition and disposition of significant amounts of assets that do not constitute a business. The final rules were effective January 1, 2021. The Company has considered these final rules and updated its disclosures, as applicable.
In November 2019, the FASB issued ASU 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in ASU 2019-12 are part of an initiative to reduce complexity in accounting standards and simplify the accounting for income taxes by removing certain exceptions from Topic 740 and making minor improvements to the codification. ASU 2019-12 and its related amendments are effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The provisions of this update did not have a material impact on the Company’s financial position or results of operations.
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.
| F-9 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Note 3 – Related Party Transactions
Advance from Vice Chairman of the Board
On
December 29, 2021, the Company received an advance of $
Debt Repayments, Related Party
On
October 18, 2021, the Company repaid a total of $
On
September 15, 2021, the Company repaid a total of $
On
March 29, 2021, the Company repaid a total of $
Advances and Repayment to former CEO
On
various dates between May 3, 2018 and November 23, 2018, our then CEO advanced us short-term unsecured demand loans, bearing interest
at
Series A Preferred Stock Sales
On
July 10, 2020, the Company received proceeds of $
| F-10 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Series B Preferred Stock Sales
On February 7, 2021, the Company and ISIAH International, LLC (“ISIAH International”), 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 shares of the Company’s newly designated Series B Preferred Stock (“Series B Preferred Stock”), convertible into an aggregate of shares of the Company’s common stock, for a purchase price of $ per share of Preferred Stock, and an aggregate purchase price of $ million. Each share of Series B Preferred Stock has a Stated Value of $ and is convertible into common stock at a conversion price equal to $. Isiah 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 shares of Series B Preferred Stock from the Company according to the following schedule:
Schedule of Agreement to Purchase Shares of Preferred Stock
| Date | Shares | Purchase Price | ||||||
| Initial Closing Date | $ | |||||||
| February 22, 2021 | ||||||||
| March 8, 2021 | ||||||||
| March 22, 2021 | ||||||||
| April 5, 2021 | ||||||||
| April 19, 2021 | ||||||||
| May 17, 2021 | ||||||||
| June 14, 2021 | ||||||||
| July 12, 2021 | ||||||||
| Total | $ | |||||||
On
various dates in May, 2021, the Company also received total proceeds of $
Common Stock Issued for Services
On
December 31, 2021, the Company issued shares of common stock in lieu of cash compensation to its former Chief Financial Officer,
Vahé Gabriel. The aggregate fair value of the shares was $
On
December 31, 2020, the Company awarded shares of common stock to the Company’s Chairman of the Board, Dr. Ken Perego, for
services provided. The aggregate fair value of the common stock was $
On
December 31, 2020, the Company awarded shares of common stock to one of the Company’s Directors, Bruce Raben, for services
provided. The aggregate fair value of the common stock was $
On
June 3, 2020, the Company awarded shares of common stock to the Company’s Chief Executive Officer, Isiah L. Thomas III,
as a signing bonus. The aggregate fair value of the common stock was $
On
June 3, 2020, the Company awarded shares of common stock to the Company’s former Chief Executive Officer, Craig Ellins,
pursuant to a Separation Agreement. The aggregate fair value of the common stock was $
On
May 31, 2020, the Company awarded shares of common stock to the Company’s Chairman of the Board, Dr. Ken Perego, for services
provided. The aggregate fair value of the common stock was $
Common Stock Options Issued for Services
On May 28, 2021, the Company awarded options to purchase shares of common stock under the Company’s 2019 Stock Incentive Plan (the “2019 Plan”) at an exercise price equal to $ per share, exercisable over a period to the Company’s CFO and COO, Vahé Gabriel. The options vested immediately as to shares, and vest as to the remaining shares quarterly in increments over the following two quarters. 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 expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2021.
| F-11 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On
January 1, 2021, the Company awarded options to purchase shares of common stock at an exercise price equal to $ per share
to Isiah L. Thomas III, the Company’s Chief Executive Officer and Vice Chairman. The options were issued outside of the 2019 Plan
and are exercisable over a period. The options vested immediately as to shares, and vest as to the remaining
shares quarterly in increments over the following eleven quarters. The 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, 2021. As of December 31, 2021, a
total of $
On January 1, 2021, 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 the Company’s Vice Chairman of the Board, Dr. Ken Perego. The options vest in equal quarterly installments over one year. 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 expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2021.
On January 1, 2021, 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 Bruce Raben, the Company’s former Interim Chief Financial Officer and a Director of the Company. The options vest in equal quarterly installments over one year. 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 expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2021.
On June 3, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal to $ per share to Isiah L. Thomas III, the Company’s Chief Executive Officer and Vice Chairman. The options were issued outside of the Company’s 2019 Plan and are exercisable over a period. The options vest as to shares immediately, as to shares 120 days following the issuance of the option (the “Second Vesting Date”), and as to the remaining shares vesting quarterly over the three years following the Second Vesting Date. 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 being expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2020. On December 31, 2020, the options were voluntarily surrendered and cancelled.
On May 31, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal to $ per share to the Company’s Chairman of the Board, Dr. Ken Perego. The options vest as to shares immediately, with the remaining shares vesting quarterly over the following , beginning October 1, 2020. 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 being expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2020. On December 31, 2020, the options were voluntarily surrendered and cancelled.
On May 31, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal to $ per share to Bruce Raben, one of the Company’s Directors. The options vest as to shares immediately, with the remaining shares vesting quarterly over the following , beginning October 1, 2020. 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 being expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2020. On December 31, 2020, the options were voluntarily surrendered and cancelled.
| F-12 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 – Fair Value of Financial Instruments
Under FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.
The Company has certain financial instruments that must be measured under the new fair value standard. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balances sheet as of December 31, 2021 and 2020:
Schedule of Valuation of Financial Instruments at Fair Value on a Recurring Basis
| Level 1 | Level 2 | Level 3 | ||||||||||
| Fair Value Measurements at December 31, 2021 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Right-of-use-asset | ||||||||||||
| Total assets | - | - | ||||||||||
| Liabilities | ||||||||||||
| Convertible notes payable, net of $ | - | - | ||||||||||
| Convertible notes payable | - | - | ||||||||||
| Lease liabilities | ||||||||||||
| Notes payable | ||||||||||||
| Total liabilities | - | ( | ) | - | ||||||||
| Total assets and liabilities | $ | $ | ( | ) | $ | |||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Fair Value Measurements at December 31, 2020 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Right-of-use-asset | - | - | ||||||||||
| Total assets | - | |||||||||||
| Liabilities | ||||||||||||
| Lease liabilities | - | - | ||||||||||
| Notes payable | - | - | ||||||||||
| Total liabilities | - | ( | ) | ( | ) | |||||||
| Total assets and liabilities | $ | $ | ( | ) | $ | ( | ) | |||||
There were no transfers of financial assets or liabilities between Level 1 and Level 2 inputs for the years ended December 31, 2021 or 2020.
| F-13 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 – Major Customers and Accounts Receivable
The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, as follows:
For the year ended December 31, 2021, four customers
accounted for
At December 31, 2021, one customer accounted for
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, 2021 and 2020, respectively.
Schedule of Inventory
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Raw materials | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| Inventory gross | ||||||||
| Less obsolescence | ( | ) | ( | ) | ||||
| Total inventory | $ | $ | ||||||
Note 7 – Other Current Assets
Other current assets included the following as of December 31, 2021 and 2020, respectively:
Schedule of Other Current Assets
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| VAT tax receivable | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Deferred cost of goods sold | - | |||||||
| Other receivables | ||||||||
| Total | $ | $ | ||||||
Note 8 – Security Deposits
Security deposits included the following as of December 31, 2021 and 2020, respectively:
Schedule of Security Deposits
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Utility deposits | $ | $ | ||||||
| Refundable deposit on equipment purchase | ||||||||
| Down payment on distillation equipment | - | |||||||
| Security deposits on leases held in Colombia | ||||||||
| Security deposit on office lease | ||||||||
| Security deposits | $ | $ | ||||||
| F-14 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 – Fixed Assets
Fixed assets consist of the following at December 31, 2021 and 2020, respectively:
Schedule of Fixed Assets
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Land | $ | $ | ||||||
| Buildings | ||||||||
| Office equipment | ||||||||
| Furniture and fixtures | ||||||||
| Equipment and machinery | ||||||||
| Construction in progress | - | |||||||
| Fixed assets, gross | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Construction in progress consisted of equipment and capital improvements on the Popayán farm that were not placed in service until the year ended December 31, 2021.
On
November 30, 2021, the Company disposed of a building that was damaged in a storm at the Popayán farm.
On
July 27, 2021, the Company sold a truck previously used at the Popayán farm. The Company received proceeds of $
On
July 1, 2021, the Company disposed of equipment used at the Popayán farm that is no longer in service.
Depreciation
and amortization expense totaled $
Note 10 – Accrued Expenses
Accrued expenses consisted of the following at December 31, 2021 and 2020, respectively:
Schedule of Accrued Expenses
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Accrued payroll | $ | $ | ||||||
| Accrued withholding taxes and employee benefits | ||||||||
| Accrued ICA fees and contributions | ||||||||
| Accrued interest | ||||||||
| $ | $ | |||||||
Note 11 – 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 $
| F-15 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 – Leases
The Company’s 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 subject to the recently adopted ASU 2016-02. In the locations in which it is economically feasible to continue to operate, management expects that lease options will be exercised. The Company’s corporate office is under a real property lease that contains a one-time renewal option for an additional 36 months that was amended to enable the Company to extend the lease for 12 months instead of 36 months. The Company is reasonably certain that it will not extend the lease beyond its extended term of October 31, 2022. The office lease contains provisions requiring payment of property taxes, utilities, insurance, maintenance and other occupancy costs applicable to the leased premise. As the Company’s leases do not provide an implicit discount rate, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.
The components of lease expense were as follows:
Schedule of Components of Lease Expense
| For the | ||||
| Year Ended | ||||
| December 31, | ||||
| 2021 | ||||
| Operating lease cost: | ||||
| Amortization of assets | $ | |||
| Interest on lease liabilities | ||||
| Total lease cost | $ | |||
Supplemental cash flow and other information related to leases was as follows:
Schedule of Supplemental Cash Flow Related to Leases
| For the | ||||
| Year Ended | ||||
| December 31, | ||||
| 2021 | ||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||
| Operating cash flows used for operating leases | $ | |||
Note 13 – Convertible Note Payable
Convertible note payable consists of the following at December 31, 2021 and 2020, respectively:
Schedule of Convertible Note Payable
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| $ | $ | |||||||
| On September 24, 2021, the Company completed the sale of a (i) Promissory Note in the
principal amount of $ The Note matures on Pursuant to the Purchase Agreement, the Company paid a commitment fee to AJB Capital in the amount of $ The obligations of the Company to AJB Capital under the Note and the Purchase Agreement are secured by a lien on the Company’s assets pursuant to a Security Agreement between the Company and AJB Capital. | $ | $ | ||||||
| Total convertible notes payable | ||||||||
| Less: unamortized debt discounts | ||||||||
| Convertible note payable, net of discounts | $ | $ | ||||||
| F-16 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company recognized debt discounts for the years ended December 31, 2021 and 2020, as follows:
Schedule of Convertible Debt Discounts
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Fair value of | $ | $ | ||||||
| Fair value of warrants to purchase | - | |||||||
| Original issue discounts | - | |||||||
| Legal and brokerage fees | - | |||||||
| Total debt discounts | - | |||||||
| 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 pursuant to the stated interest rates on the convertible notes in the amount of $
Note 14 – Notes Payable
Notes payable consists of the following at December 31, 2021 and 2020, respectively:
Schedule of Notes Payable
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| $ | $ | |||||||
| On December 29, 2021, the Company received an advance of $ | $ | $ | ||||||
| On January 20, 2021, the Company completed the sale of a Promissory Note in the principal amount of $ | ||||||||
The First AJB Note carried interest at a rate of
Pursuant to the Purchase Agreement, the Company paid a commitment fee to AJB Capital in the amount of $ | ||||||||
| On February 3, 2020, the Company, through its wholly-owned subsidiary, One World Pharma SAS, received an advance of | ||||||||
| On December 16, 2020, the Company received an advance of $ | ||||||||
| On October 28, 2020, the Company received an advance of $ | ||||||||
| On September 14, 2020, the Company received an advance of $ | ||||||||
On May 4, 2020, the Company, through its wholly-owned subsidiary OWP Ventures, Inc., borrowed $
Under the Payroll Protection Program, the Company was eligible for loan forgiveness up to the full amount of the PPP Note and any accrued interest. The forgiveness amount was equal to the amount that the Company spent during the 24-week period beginning May 4, 2020 on payroll costs, payment of rent on any leases in force prior to February 15, 2020 and payment on any utility for which service began before February 15, 2020. The maximum amount of loan forgiveness for non-payroll expenses was | ||||||||
| Total notes payable | ||||||||
| Less: current maturities | ||||||||
| Notes payable, long-term potion | $ | $ | ||||||
| F-17 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company recorded interest expense in the amount of $
The Company recognized interest expense for the year ended December 31, 2021 and 2020, respectively, as follows:
Schedule of Interest Expenses
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Interest on convertible notes | $ | $ | ||||||
| Interest on notes payable | ||||||||
| Amortization of debt discounts | - | |||||||
| Amortization of stock-based debt discounts | - | |||||||
| Interest on accounts payable | ||||||||
| Total interest expense | $ | $ | ||||||
Note 15 – 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
shares of Series A Preferred Stock were sold during the year ended December 31, 2021.
On
various dates between April 14, 2020 and October 28, 2020, the Company received total proceeds of $
Series A Preferred Stock Conversions
On November 15, 2021, a shareholder converted shares of Series A Preferred Stock into shares of common stock.
On April 6, 2021, a shareholder converted shares of Series A Preferred Stock into shares of common stock.
On March 24, 2021, a shareholder converted shares of Series A Preferred Stock into shares of common stock. The shares of common stock were subsequently issued on April 7, 2021.
On January 26, 2021, a shareholder converted shares of Series A Preferred Stock into shares of common stock.
On January 12, 2021, a shareholder converted shares of Series A Preferred Stock into shares of common stock.
| F-18 |
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 February 7, 2021, the Company and ISIAH International entered into a Securities Purchase Agreement under which ISIAH International agreed to purchase from the Company, on the dates provided for in the Purchase Agreement, an aggregate of shares of the Company’s newly designated Series B Preferred Stock, convertible into an aggregate of shares of common stock, for a purchase price of $ per share of Preferred Stock, and an aggregate purchase price of $ million. Each share of Series B Preferred Stock has a Stated Value of $ and is convertible into common stock at a conversion price equal to $. Isiah 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 shares of Series B Preferred Stock from the Company according to the following schedule:
| Date | Shares | Purchase Price | ||||||
| Initial Closing Date | $ | |||||||
| February 22, 2021 | ||||||||
| March 8, 2021 | ||||||||
| March 22, 2021 | ||||||||
| April 5, 2021 | ||||||||
| April 19, 2021 | ||||||||
| May 17, 2021 | ||||||||
| June 14, 2021 | ||||||||
| July 12, 2021 | ||||||||
| Total | $ | |||||||
In
addition to the shares sold to ISIAH International, the Company received total proceeds of $
No shares of Series B Preferred Stock were sold during the year ended December 31, 2020.
Note 16 – 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 15 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, 2021, there were shares of common stock issued and outstanding.
Common Stock Options Exercised
On July 26, 2021, a total of shares of common stock were issued upon exercise on a cashless basis of options to purchase shares of common stock at a price $ per share.
Common Stock Sales
No shares of common stock were sold during the year ended December 31, 2021.
On
November 27, 2020, the Company sold an aggregate of shares of common stock at a price of $ per share for total cash proceeds
of $
| F-19 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Common Stock Issued on Subscriptions Payable
On
January 6, 2020, the Company issued shares of common stock that were purchased on December 31, 2019 at $ per share for proceeds
of $
Common Stock Issued as a Promissory Note Commitment
As
disclosed in Note 14 above, the Company paid a commitment fee to AJB Capital of $
Also,
as disclosed in Note 13, above, the Company paid a commitment fee to AJB Capital in the form of
Common Stock Issued for Services, Employees and Consultants
On
May 25, 2021, the Company awarded a total of shares of common stock pursuant for consulting services to two individuals. The
aggregate fair value of the shares was $
On
August 20, 2019,
On
June 1, 2021, the Company entered into a new agreement with COR and issued another shares of common stock to COR. The
fair value of the shares was $
On
December 31, 2020, the Company awarded shares of common stock to a consultant for services performed. The aggregate fair value
of the common stock was $
On
September 21, 2020, the Company awarded shares of common stock to a consultant for services performed. The aggregate fair value
of the common stock was $
On
July 1, 2020, the Company awarded an aggregate of shares of common stock to four employees and consultants for services provided.
The aggregate fair value of the common stock was $
On
June 3, 2020, the Company awarded shares of common stock to a consultant for services performed. The aggregate fair value of
the common stock was $
On
various dates between January 4, 2020 and May 31, 2020, the Company awarded an aggregate of shares of common stock to ten employees
and consultants for services provided. The aggregate fair value of the common stock was $
| F-20 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Common Stock Issued for Services, Officers and Directors
On
December 31, 2021, the Company issued shares of common stock in lieu of cash compensation to its former Chief Financial Officer,
Vahé Gabriel. The aggregate fair value of the shares was $
On
December 31, 2020, the Company awarded shares of common stock to the Company’s Chairman of the Board, Dr. Ken Perego, for
services provided. The aggregate fair value of the common stock was $
On
December 31, 2020, the Company awarded shares of common stock to one of the Company’s Directors, Bruce Raben, for services
provided. The aggregate fair value of the common stock was $
On
June 3, 2020, the Company awarded shares of common stock to the Company’s Chief Executive Officer, Isiah L. Thomas III,
as a signing bonus. The aggregate fair value of the common stock was $
On
June 3, 2020, the Company awarded shares of common stock to the Company’s former Chief Executive Officer, Craig Ellins,
pursuant to a Separation Agreement. The aggregate fair value of the common stock was $
On
May 31, 2020, the Company awarded shares of common stock to the Company’s Chairman of the Board, Dr. Ken Perego, for services
provided. The aggregate fair value of the common stock was $
Note 17 – Common Stock Options
Stock Incentive Plan
On February 12, 2020, the Company’s stockholders approved our 2019 Stock Incentive Plan (the “2019 Plan”), which had been adopted by the Company’s Board of Directors (the “Board”) as of December 10, 2019. The 2019 Plan provides for the issuance of up to 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
May 28, 2021, 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 the Company’s CFO and COO, Vahé Gabriel. The options vested
immediately as to shares, and vest as to the remaining shares quarterly in increments over the following two
quarters. 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 expensed over the vesting period, resulting in $
On
May 25, 2021, 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 advisory board members. 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, 2021. As of December 31, 2021, a total of $
On
January 1, 2021, the Company awarded options to purchase shares of common stock at an exercise price equal to $ per share
to Isiah L. Thomas III, the Company’s Chief Executive Officer and Vice Chairman. The options were issued outside of the 2019 Plan
and are exercisable over a period. The options vested immediately as to shares, and vest as to the remaining
shares quarterly in increments over the following eleven quarters. The 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, 2021. As of December 31, 2021, a
total of $
| F-21 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On
January 1, 2021, 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 the Company’s Chairman of the Board, Dr. Ken Perego. The options vest
in equal quarterly installments over one year. 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 expensed over the vesting period, resulting in $
On
January 1, 2021, 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 Bruce Raben, one of the Company’s Directors. The options vest in equal
quarterly installments over one year. 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 expensed over the vesting period, resulting in $
On
January 1, 2021, 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 seven consultants and employees. The options vest in equal quarterly
installments over one year. 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 were expensed over the vesting period, resulting in $
On
December 31, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal
to $ per share to a consultant. The options vest in equal quarterly installments over the following year. 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
expensed over the vesting period, resulting in $
On
December 31, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal
to $ per share to a consultant. The options vest in equal quarterly installments over the following year. 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
expensed over the vesting period, resulting in $
On
December 31, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal
to $ per share to a consultant. The options vest in equal quarterly installments over the following year. 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
expensed over the vesting period, resulting in $
On July 1, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal to $ per share to a consultant. The options are exercisable over a period. The options vested quarterly over six months. 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 expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2020.
On July 1, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal to $ per share to a consultant. The options were exercisable over a period. The options will vest quarterly over three years. 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 being expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2020. On December 31, 2020, the options were voluntarily surrendered and cancelled.
On July 1, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal to $ per share to a consultant for Advisory Board services. The options are exercisable over a period. The options will vest quarterly over one year. The 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 $ and $ of stock-based compensation expense during the years ended December 31, 2021 and 2020, respectively.
| F-22 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On June 3, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal to $ per share to Isiah L. Thomas III, the Company’s Chief Executive Officer and Vice Chairman. The options were issued outside of the Company’s 2019 Plan and are exercisable over a period. The options vest as to shares immediately, as to shares 120 days following the issuance of the option (the “Second Vesting Date”), and as to the remaining shares vesting quarterly over the three years following the Second Vesting Date. 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 being expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2020. On December 31, 2020, the options were voluntarily surrendered and cancelled.
On May 31, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal to $ per share to the Company’s Chairman of the Board, Dr. Ken Perego. The options vest as to shares immediately, with the remaining shares vesting quarterly over the following two years, beginning October 1, 2020. 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 being expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2020. On December 31, 2020, the options were voluntarily surrendered and cancelled.
On May 31, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal to $ per share to Bruce Raben, one of the Company’s Directors. The options vest as to shares immediately, with the remaining shares vesting quarterly over the following two years, beginning October 1, 2020. 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 being expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2020. On December 31, 2020, the options were voluntarily surrendered and cancelled.
On May 31, 2020, the Company awarded options to purchase an aggregate shares of the Company’s Common Stock at an exercise price equal to $ per share to six consultants and employees. The options vest as to shares immediately, with the remaining shares vesting quarterly over the following three years, beginning October 1, 2020. 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 being expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2020. On December 31, 2020, the options were voluntarily surrendered and cancelled.
On
May 31, 2020, the Company awarded options to purchase an aggregate shares of the Company’s Common Stock at an exercise
price equal to $ per share to two consultants. The options vest as to shares immediately, with the remaining shares
vesting quarterly over the following three years, beginning October 1, 2020. The 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 $ and $ of stock-based compensation expense during the years ended December 31, 2021 and 2020, respectively.
As of December 31, 2021, a total of $
Common Stock Options Exercised
On July 26, 2021, a total of shares of common stock were issued upon exercise on a cashless basis of options to purchase shares of common stock at a price $ per share.
Schedule of Option Exercise Price Range
| 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-23 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Schedule of Option Activity
| Weighted | ||||||||
| Average | ||||||||
| Number | Exercise | |||||||
| of Shares | Prices | |||||||
| Balance, December 31, 2019 | $ | |||||||
| Options granted | ||||||||
| Options exercised | ( | ) | ( | ) | ||||
| Balance, December 31, 2020 | ||||||||
| Options granted | ||||||||
| Options exercised | ( | ) | ( | ) | ||||
| Balance, December 31, 2021 | $ | |||||||
| Exercisable, December 31, 2021 | $ | |||||||
Note 18 – Common Stock Warrants
Warrants
to purchase a total of
On
September 24, 2021, the Company completed the sale of a (i) Promissory Note in the principal amount of $
On
various dates between April 14, 2020 and October 28, 2020, the Company received total proceeds of $
The following is a summary of information about our warrants to purchase common stock outstanding at December 31, 2021.
Schedule of Warrants to Purchase Common Stock Outstanding
| 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:
Schedule of Fair value Assumption of Warrants
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Average risk-free interest rates | % | % | ||||||
| Average expected life (in years) | ||||||||
| Volatility | % | % | ||||||
| F-24 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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:
Schedule of Warrants Activity
| Weighted | ||||||||
| Average | ||||||||
| Number | Exercise | |||||||
| of Shares | Prices | |||||||
| Balance, December 31, 2019 | $ | |||||||
| Warrants granted | ||||||||
| Balance, December 31, 2020 | ||||||||
| Warrants granted | ||||||||
| Balance, December 31, 2021 | $ | |||||||
| Exercisable, December 31, 2021 | $ | |||||||
Note 19 – Commitments and Contingencies
Legal Contingencies
There are no material pending legal proceedings to which we are a party or to which any of our property is subject, nor are there any such proceedings known to be contemplated by governmental authorities. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.
Note 20 - 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, 2021 and 2020, 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, 2021, the Company had approximately $
The
provision (benefit) for income taxes for the years ended December 31, 2021 and 2020 were assuming a
Schedule of Effective Income Tax Rate
| 2021 | 2020 | |||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Federal statutory income tax rate | % | % | ||||||
| State income taxes | - | % | - | % | ||||
| Change in valuation allowance | ( | )% | ( | )% | ||||
| Net effective income tax rate | - | - | ||||||
| F-25 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the Company’s deferred tax asset are as follows:
Schedule of Deferred Tax Asset
| 2021 | 2020 | |||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| 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, 2021 and 2020, respectively.
In accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions.
Note 21 – Subsequent Events
Debt Financing
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 $
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 for services.
Lease Commitment
On January 1, 2022, OWP Colombia entered into
a lease for a warehouse over a -year term. The leased premise is
| F-26 |
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, 2021 (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, 2021, 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, 2021. 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, 2021, 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.
| 25 |
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 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. Other Information
None.
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 Thomas, III | 60 | Chief Executive Officer, Chairman of the Board | ||
| Dr. Kenneth Perego, II | 52 | Vice Chairman of the Board | ||
| Bruce Raben | 68 | Director | ||
| Timothy Woods | 55 | Chief Financial Officer |
Biographies
Set forth below are brief accounts of the business experience of each director and executive officer of the Company.
Isiah 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.
| 26 |
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.
Bruce Raben was a director of OWP Ventures prior to the Merger and was appointed to our Board of Directors pursuant to the Merger Agreement. Mr. Raben is the Managing Member of Hudson Capital Advisors BD, LLC, a registered broker dealer that he founded in 2004. Mr. Raben also serves on the board of directors of Digipath, Inc., a cannabis testing laboratory. Mr. Raben has been an investment banker, merchant banker and private investor for approximately 30 years. Starting in 1979 at Drexel Burnham Lambert, he worked on many leveraged buyouts and recapitalizations including Mattel Toys, SFN Co.’s, Magma Copper, Warnaco, Mellon Bank and John Fairfax. Mr. Raben then went on to co-found the Corporate Finance Department at Jeffries & Co. in 1990. Mr. Raben opened a west coast office for CIBC’s high yield finance and merchant banking activities in 1996. Mr. Raben received his A.B. from Vassar College in 1975 and his MBA from Colombia University in 1979. We believe that Mr. Raben’s investment banking and financial 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.
Family Relationships
None.
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, 2021, 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.
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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, 2021 and 2020 to Isiah Thomas, III, our Chief Executive Officer (our “Named Executive Officer”), who was our only executive officer that received total compensation in excess of $100,000 during 2021.
| Name and | Fiscal | Stock | Option | |||||||||||||||||
| Financial Position | Year | Salary | Awards(2) | Awards(3) | Total | |||||||||||||||
| Isiah Thomas, III, | 2021 | $ | 120,000 | (1) | $ | - | $ | 645,624 | (4) | $ | 765,624 | |||||||||
| Chief Executive Officer and Chairman | 2020 | $ | 70,000 | (1) | $ | 275,000 | $ | - | $ | 345,000 | ||||||||||
| (1) | Consists of $120,000 and $70,000 of accrued salary for the years ended December 31, 2021 and 2020, respectively, not yet paid. |
| (2) | The aggregate fair value of the common stock awarded based on the closing price of the Company’s common stock on the date of grant. |
| (3) | Excludes options granted in 2020 and voluntarily surrendered on December 31, 2020. |
| (4) | On January 1, 2021, we granted Mr. Thomas the option to purchase 5,500,000 shares of common stock at an exercise price of $0.13 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 192% and a call option value of $0.1174, was $645,624. |
Director Compensation
The following table summarizes the compensation paid or accrued by us to our directors that are not Named Executive Officers for the year ended December 31, 2021.
| Name | Fees Earned or Paid in Cash | Option Awards(1) | All other Compensation | Total | ||||||||||||
| Dr. Kenneth Perego, II | $ | - | $ | 40,943 | $ | - | $ | 40,943 | ||||||||
| Bruce Raben (2) | $ | - | $ | 55,565 | $ | - | $ | 55,565 | ||||||||
(1) On January 1, 2021, we granted Dr. Perego the option to purchase 350,000 shares of common stock at an exercise price of $0.13 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 192% and a call option value of $0.1170, was $40,943. On January 1, 2021, we granted Mr. Raben the option to purchase 475,000 shares of common stock at an exercise price of $0.13 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 192% and a call option value of $0.1170, was $55,565.
(2) Includes payments received during 2021 for service as our Interim Chief Financial Officer.
Directors 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.
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ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth, as of March 31, 2022, 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., 3471 W. Oquendo Rd., Suite 301, Las Vegas, Nevada 89118:
| Series A | Series B | |||||||||||||||||||||||
| Common Stock | Preferred Stock | Preferred Stock | ||||||||||||||||||||||
| Name of Beneficial Owner(1) | Number of Shares | % of Class(2) | Number of Shares | % of Class | Number of Shares | % of Class | ||||||||||||||||||
| Officers and Directors: | ||||||||||||||||||||||||
| Isiah Thomas, III, Chairman and CEO(3) | 24,250,000 | 27.1 | % | - | - | 200,000 | 85.5 | % | ||||||||||||||||
| Dr. Kenneth Perego II, Vice Chairman(4) | 11,100,000 | 16.4 | % | 11,000 | 16.9 | % | - | - | ||||||||||||||||
| Bruce Raben, Director(5) | 1,550,000 | 2.3 | % | - | - | - | - | |||||||||||||||||
| Directors and Officers as a Group (3 persons) | 37,233,400 | 40.3 | % | - | - | - | - | |||||||||||||||||
| 5% Shareholders | ||||||||||||||||||||||||
| ISIAH International, LLC(3) | 20,000,000 | 23.3 | - | - | 200,000 | 85.5 | % | |||||||||||||||||
| Solid Bridge Investments, LLC(6) | 7,000,000 | 10.6 | % | - | - | - | - | |||||||||||||||||
| Craig Ellins(7) | 3,968,397 | 6.0 | % | - | - | - | - | |||||||||||||||||
* 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 65,861,631 shares of common stock 238,501 and shares of Series B Preferred Stock outstanding as of March 31, 2022. 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, 2022, 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 3,750,000 shares of common stock that may be acquired under an option to purchase 5,500,000 shares of common stock at an exercise price of $0.13 per share that vested (i) 2,750,000 Option Shares on January 1, 2021, and (ii) as to the remaining 2,750,000 Options Shares, in 11 quarterly installments of 250,000 Option Shares beginning on April 1, 2021, exercisable until January 1, 2031 Also includes 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 to purchase 350,000 shares of common stock at an exercise price of $0.13 per share, exercisable until January 1, 2031. Also, includes 550,000 shares of common stock that may be acquired under a warrant to purchase 550,000 shares of common stock at an exercise price of $0.25 over a five year period beginning on July 10, 2020. 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 475,000 shares of common stock that may be acquired under an option to purchase 475,000 shares of common stock at an exercise price of $0.13 per share, exercisable until January 1, 2031. Also, includes 200,000 of shares of common stock held by The Raben Education Trust, of which Mr. Raben is the co-trustee. |
| (6) | The principals of Solid Bridge Investments, Inc. are Carlos Andres de Fex Gomez and Gloria Veronica Serna Diez, who founded OWP Colombia and were its principal shareholders prior to the sale of OWP Colombia to OWP Ventures. |
| (7) | Based solely on a Schedule 13D filed by Craig Ellins with the SEC on September 30, 2021. |
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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.
On December 29, 2021, the Company received an advance of $200,000 from Dr. Kenneth Perego, II, M.D., our Vice Chairman of the Board, pursuant to an unsecured promissory note due January 1, 2024 that carried an 8% interest rate.
On September 14, 2020, the Company received an advance of $26,000 from Dr. Kenneth Perego, II, M.D., our Vice Chairman of the Board, 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 Thomas, III
On December 16, 2020, the Company received an advance of $125,000 from Mr. Isiah Thomas, III, our Chairman of the Board, pursuant to an unsecured demand note that carried a 6% interest rate. A total of $130,610, consisting of $125,000 of principal and $5,610 of interest, was repaid on September 15, 2021
On October 28, 2020, the Company received an advance of $50,000 from Mr. Isiah Thomas, III, our Chairman of the Board, pursuant to an unsecured demand note that carried a 6% interest rate. A total of $52,918, consisting of $50,000 of principal and $2,918 of interest, was repaid on October 19, 2021.
Series A Preferred Stock Sale to Dr. Kenneth Perego, II, M.D.
On July 10, 2020, the Company received proceeds of $110,000 from the sale of 11,000 units to the Company’s Chairman of the Board, Dr. Ken Perego. Each unit consisted of one share of Series A Preferred Stock and five-year warrants to purchase 50 shares of common stock at an exercise price of $0.25 per share. The proceeds received were allocated between the preferred stock and warrants on a relative fair value basis.
| 30 |
Series B Preferred Stock Sales to Isiah Thomas, III
On February 7, 2021, the Company and ISIAH International, LLC (“ISIAH International”), 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 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.
Director Independence
Our board of directors currently consists of Isiah Thomas, III, our Chief Executive Officer and Chairman, Dr. Kenneth Perego, II, our Vice Chairman, and Bruce Raben. 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 Bruce Raben are “independent” in accordance with the NASDAQ Global 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, 2021 and 2020.
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, | ||||||||
| 2021 | 2020 | |||||||
| Audit fees(1) | $ | 48,325 | $ | 37,850 | ||||
| Audit related fees | - | - | ||||||
| Tax fees | - | - | ||||||
| All other fees | - | - | ||||||
| Total | $ | 48,325 | $ | 37,850 | ||||
(1) Audit fees were principally for audit services and work performed in the review of the Company’s quarterly reports on Form 10-Q
| 31 |
PART IV
ITEM 15. Exhibits and Financial Statement Schedules
| 32 |
* Filed herewith.
| 33 |
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: April 14, 2022 | ||
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) | April 14, 2022 | ||
| /s/ Timothy Woods | Chief Financial Officer | April 14, 2022 | ||
| Timothy Woods | (Principal Financial Officer) | |||
/s/ Dr. Kenneth Perego, II |
Vice Chairman of the Board | April 14, 2022 | ||
| Dr. Kenneth Perego, II | ||||
/s/ Bruce Raben |
Director | April 14, 2022 | ||
| Bruce Raben |
| 34 |
EXHIBIT 10.1
PROMISSORY NOTE
| $200,000 | Las Vegas, Nevada | |
| Maturity: January 1, 2024 | December 29, 2021 |
FOR VALUE RECEIVED, OWP VENTURES, INC., a Delaware corporation (“Borrower”), hereby promises to pay to the order of Dr. Kenneth Perego, II, M.D. (the “Payee”), with an address at 228 Riverside Lane, Natchez, LA 71456, upon Maturity at January 1, 2024, the principal sum of TWO HUNDRED THOUSAND DOLLARS ($200,000), together with all interest that has accrued thereon from the date hereof in accordance with the terms of this Promissory Note (this “Note”).
The outstanding principal amount of this Note shall bear interest at a rate of eight percent (8%) per annum, based on a year of 365 or 366 days, as applicable, for the number of days actually elapsed, until the date on which the last payment of principal and interest under this Note shall have been paid.
This Note may be prepaid, in whole or in part, at any time or from time to time, without premium or penalty. All payments made on this Note shall be applied first to interest accrued to the date of the payment, then to other amounts which may then be due hereunder (other than principal), and then to the outstanding principal amount of this Note.
All payments or prepayments of principal and interest and other sums due pursuant to this Note shall be made by check to Payee at its address set forth above, or in immediately available funds by wire transfer to Payee’s account at such bank as Payee shall have previously designated to Borrower.
Whenever any payment to be made hereunder shall be due on a Saturday, Sunday or public holiday under the laws of the State of Nevada, such payment may be made on the next succeeding business day and such extension of time shall be included in the computation of payment of interest hereunder.
| 1 |
Borrower hereby waives presentment, demand for payment, notice of dishonor, protest and notice of protest of this Note. No waiver of any provision of this Note, or any agreement or instrument evidencing or providing security for this Note, made by agreement of Payee and any other person or party, shall constitute a waiver of any other terms hereof, or otherwise release or discharge the liability of Borrower under this Note. No failure to exercise and no delay in exercising, on the part of Payee, any right, power or privilege under this Note shall operate as a waiver thereof nor shall simple or partial exercise of any right, power or privilege preclude any other or further exercise thereof, or the exercise of any other power, right or privilege. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies provided by law.
Any provision of this Note that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
This Note is governed by and to be construed in accordance with the laws of the State of Nevada without regard to its doctrine of conflict of laws. Borrower, by its execution hereof (i) agrees that any legal suit, action or proceeding arising from or related to this Note may be instituted in a state or federal court located in the State of Nevada; (ii) waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding; and (iii) irrevocably submits to the jurisdiction of any such court in any such suit, action or proceeding.
| OWP VENTURES, INC. | ||
| By: | /s/ Isiah L. Thomas, III | |
| Name: | Isiah L. Thomas, III | |
| Title: | Chief Executive Officer | |
| 2 |
EXHIBIT 10.2
EXHIBIT 21.1
Subsidiaries
| State/Country of | ||
| Subsidiary | Incorporation | |
| OWP Ventures, Inc.(1) | Delaware | |
| One World Pharma, S.A.S.(2) | Bogotá Colombia | |
| Colombian Hope, S.A.S.(2) | Bogotá Colombia | |
| Agrobase, S.A.S.(2) | Bogotá Colombia |
(1)Wholly-owned subsidiary of One World Pharma, Inc. subsequent to merger on February 21, 2019
(2)Wholly-owned subsidiary of OWP Ventures, Inc.
EXHIBIT 31.1
ONE WORLD Products, INC.
CERTIFICATIONS PURSUANT TO
RULE 13A-14(A) OR RULE 15D-14(A),
AS ADOPTED PURSUANT TO
RULE 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Isiah L. Thomas, III, certify that:
1. I have reviewed this Form 10-K of One World Products, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| /s/ Isiah L. Thomas, III | |
| Isiah L. Thomas, III | |
| Chief Executive Officer |
Dated: April 14, 2022
EXHIBIT 31.2
ONE WORLD Products, INC.
CERTIFICATIONS PURSUANT TO
RULE 13A-14(A) OR RULE 15D-14(A),
AS ADOPTED PURSUANT TO
RULE 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Timothy Woods, certify that:
1. I have reviewed this Form 10-K of One World Products, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| /s/ Timothy Woods | |
| Timothy Woods | |
| Chief Financial Officer |
Dated: April 14, 2022
EXHIBIT 32.1
ONE WORLD PRODUCTS, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of One World Products, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Isiah L. Thomas, III, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Isiah L. Thomas, III | |
|
Isiah L. Thomas, III | |
| Date: April 14, 2022 | Principal Executive Officer |
EXHIBIT 32.2
ONE WORLD PRODUCTS, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of One World Products, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Timothy Woods, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Timothy Woods | |
|
Timothy Woods | |
| Date: April 14, 2022 | Principal Financial Officer |