UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period 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
incorporation or organization) |
(I.R.S. Employer
Identification No.) | |
|
| |
| (Address of principal executive offices) | (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 |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
The number of shares of registrant’s common stock outstanding as of November 11, 2022 was .
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ONE WORLD PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Other assets | ||||||||
| Right-of-use assets | ||||||||
| Security deposits | ||||||||
| Fixed assets, net | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Deferred revenues | ||||||||
| Dividends payable | ||||||||
| Current portion of lease liabilities | ||||||||
| Convertible notes payable, net of $ | ||||||||
| Notes payable, current maturities | ||||||||
| Notes payable, related parties, current maturities | ||||||||
| Total current liabilities | ||||||||
| Long-term lease liability | ||||||||
| Notes payable, long-term portion | ||||||||
| Notes payable, related parties, long-term portion | ||||||||
| Total Liabilities | ||||||||
| Series A convertible preferred stock, $ par value, shares authorized; shares issued and outstanding | ||||||||
| Series B convertible preferred stock, $ par value, shares authorized; and shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively | ||||||||
| Stockholders’ Equity (Deficit): | ||||||||
| Preferred stock, $ par value, shares authorized; shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively | ||||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Subscriptions payable, consisting of shares at December 31, 2021 | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated (deficit) | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
See accompanying notes to financial statements.
| 1 |
ONE WORLD PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Depreciation expense | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Sublease income | ||||||||||||||||
| Loss on sale of fixed assets | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on early extinguishment of lease | ||||||||||||||||
| Gain on early extinguishment of debt | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive loss: | ||||||||||||||||
| Gain (loss) on foreign currency translation | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Net other comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Series A convertible preferred stock dividends declared ($ per share) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding - basic and diluted | ||||||||||||||||
| Net loss per share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Dividends declared per share of common stock | $ | $ | $ | $ | ||||||||||||
See accompanying notes to financial statements.
| 2 |
ONE WORLD PHARMA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
| For the Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| Series A Convertible | Series B Convertible | Additional | Accumulated Other | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Common Stock | Paid-In | Subscriptions | Comprehensive | Accumulated | Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Income (Loss) | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Series B convertible preferred stock sold for cash to our CEO | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Adjustment of 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 dividends declared ($ per share) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Loss on foreign currency translation | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| For the Three Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Series A Convertible | Series B Convertible | Additional | Accumulated Other | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Common Stock | Paid-In | Subscriptions | Comprehensive | Accumulated | Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Income (Loss) | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Series B convertible preferred stock sold for cash | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Series B convertible preferred stock issued as commitment fee on ELOC | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Amortization of common stock options issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Series A convertible preferred stock dividends declared ($ per share) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Gain on foreign currency translation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| 3 |
| For the Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||
Series A Convertible | Series B Convertible | Additional | Accumulated Other | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Common Stock | Paid-In | Subscriptions | Comprehensive | Accumulated | Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Income (Loss) | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| 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 dividends declared ($ per share) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Loss on foreign currency translation | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| For the Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Series A Convertible | Series B Convertible | Additional | Accumulated Other | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Common Stock | Paid-In | Subscriptions | Comprehensive | Accumulated | Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Income (Loss) | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Series B convertible preferred stock sold for cash | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Series B convertible preferred stock issued as commitment fee on ELOC | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Amortization of common stock options issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Series A convertible preferred stock dividends declared ($ per share) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Gain on foreign currency translation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
See accompanying notes to financial statements.
| 4 |
ONE WORLD PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| 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 | ||||||||
| Gain on early extinguishment of lease | ( | ) | ||||||
| Gain on early extinguishment of debt | ( | ) | ||||||
| Amortization of debt discounts | ||||||||
| Stock-based compensation | ||||||||
| Amortization of options issued for services | ||||||||
| Decrease (increase) in assets: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Other current assets | ( | ) | ||||||
| Other assets | ( | ) | ( | ) | ||||
| Right-of-use assets | ||||||||
| Security deposits | ( | ) | ( | ) | ||||
| Increase (decrease) in liabilities: | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Deferred revenues | ||||||||
| Lease liability | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Proceeds received on sale of fixed assets | ||||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds received on convertible note payable | ||||||||
| Repayment of convertible note payable | ( | ) | ||||||
| Proceeds from notes payable | ||||||||
| Repayment of notes payable | ( | ) | ||||||
| Proceeds from notes payable, related parties | ||||||||
| 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: | ||||||||
| Fair value of common shares issued for conversion of debt | $ | $ | ||||||
| Value of commitment shares issued as a debt discount | $ | $ | ||||||
| Value of warrants issued as a debt discount | $ | $ | ||||||
| Dividends payable | $ | $ | ||||||
| Initial recognition of right-of-use assets and lease liabilities | $ | $ | ||||||
See accompanying notes to financial statements.
| 5 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 – Nature of Business and Significant Accounting Policies
Nature of Business
One
World Products, Inc., formerly known as One World Pharma, Inc. (the “Company,” “we,” “our” or “us”)
was incorporated in Nevada on September 2, 2014. On February 21, 2019, we entered into an Agreement and Plan of Merger with OWP Merger
Subsidiary, Inc., our wholly-owned subsidiary, and OWP Ventures, Inc. (“OWP Ventures”), which is the parent company of One
World Pharma SAS, a Colombian company (“OWP Colombia”). Pursuant to the Merger Agreement, we acquired OWP Ventures (and indirectly,
OWP Colombia) by the merger of OWP Merger Subsidiary with and into OWP Ventures, with OWP Ventures being the surviving entity as our
wholly-owned subsidiary (the “Merger”). As a result of the Merger (a) holders of the outstanding capital stock of OWP Ventures
received an aggregate of 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 and export of non-psychoactive cannabis, cultivation and
export of psychoactive cannabis, and manufacturing allowing for extraction and export of oil. 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 consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and the rules of the Securities and Exchange Commission (SEC). Intercompany accounts and transactions have been eliminated.
The unaudited condensed consolidated financial statements of the Company and the accompanying notes included in this Quarterly Report on Form 10-Q are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the Condensed Consolidated Financial Statements have been included. Such adjustments are of a normal, recurring nature. The Condensed Consolidated Financial Statements, and the accompanying notes, are prepared in accordance with GAAP and do not contain certain information included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. The interim Condensed Consolidated Financial Statements should be read in conjunction with that Annual Report on Form 10-K. Results for the interim periods presented are not necessarily indicative of the results that might be expected for the entire fiscal year.
| 6 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the following entities, all of which were under common control and ownership at September 30, 2022:
| State of | ||||
| Name of Entity | 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.
Reclassifications
Certain reclassifications have been made to the prior years’ financial statements to conform to current year presentation. These reclassifications had no effect on previously reported results of operations or retained earnings.
Foreign Currency Translation
The functional currency of the Company is Columbian Peso (COP). The Company has maintained its financial statements using the functional currency, and translated those financial statements to the US Dollar (USD) throughout this report. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income (loss) for the respective periods.
Comprehensive Income
The Company has adopted the Financial Accounting Standards Boards (“FASB”) Accounting Standards Codification (“ASC”) 220, Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive income, its components, and accumulated balances in a full-set of general-purpose financial statements. Accumulated other comprehensive income represents the accumulated balance of foreign currency translation adjustments.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Segment Reporting
ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. The Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations.
Fair Value of Financial Instruments
The Company discloses the fair value of certain assets and liabilities in accordance with ASC 820 – Fair Value Measurement and Disclosures (ASC 820). Under ASC 820-10-05, the FASB establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses reported on the balance sheets are estimated by management to approximate fair value primarily due to the short-term nature of the instruments.
| 7 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Cash in Excess of FDIC Insured Limits
The
Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by
the Federal Deposit Insurance Corporation (FDIC) up to $
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 September 30, 2022, the Company had $
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.
The Company accounts for equity instruments issued to employees and non-employees in accordance with the provisions of ASC 718 Stock Compensation (ASC 718). All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty’s performance is complete or the date at which a commitment for performance by the counterparty to earn the equity instruments is reached because of sufficiently large disincentives for nonperformance.
The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the periods presented, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which creates an exception to the general recognition and measurement principle for contract assets and contract liabilities from contracts with customers acquired in a business combination. The new guidance will require companies to apply the definition of a performance obligation under accounting standard codification (“ASC”) Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination. Under current GAAP, an acquirer in a business combination is generally required to recognize and measure the assets it acquires and the liabilities it assumes at fair value on the acquisition date. The new guidance will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. These amendments are effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The adoption of ASU 2021-08 is not expected to have a material impact on the Company’s financial statements or related disclosures.
| 8 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity Classified Written Call Options. ASU 2021-04 addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. ASU 2021-04 is effective for fiscal years beginning after December 15, 2021 and interim periods within those fiscal years, with early adoption permitted. The adoption of ASU 2021-04 has not had a material impact on the Company’s financial statements or related disclosures.
In March 2020, the FASB issued ASU 2020-04 establishing Topic 848, Reference Rate Reform. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The adoption of ASU 2020-04 did not have a material impact on the Company’s consolidated financial statements, as we transitioned from the London Interbank Offered Rate, commonly referred to as LIBOR, to alternative references rates, as well as utilizing the aforementioned expedients and exceptions provided in ASU 2020-04.
In August 2020, the FASB issued ASU No. 2020-06, Debt–Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging–Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if converted method. The new guidance is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2021, with early adoption permitted. The adoption of ASU 2020-06 is not expected to have a material impact on the Company’s financial statements or related disclosures.
No other new accounting pronouncements, issued or effective during the period ended September 30, 2022, have had or are expected to have a significant impact on the Company’s financial statements.
Note 2 –Going Concern
As
shown in the accompanying condensed consolidated financial statements as of September 30, 2022, our balance of cash on hand was $
In the event sales do not materialize at the expected rates, management would seek additional financing and would attempt to conserve cash by further reducing expenses. There can be no assurance that we will be successful in achieving these objectives; therefore, without sufficient financing it would be unlikely for the Company to continue as a going concern.
The condensed consolidated financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. The condensed consolidated financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. Our ability to scale production and distribution capabilities and further increase the value of our brands, is largely dependent on our success in raising additional capital.
Note 3 – Fair Value of Financial Instruments
Under FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.
| 9 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company has certain financial instruments that must be measured under the new fair value standard. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheet as of September 30, 2022 and December 31, 2021, respectively:
| Fair Value Measurements at September 30, 2022 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Right-of-use asset | ||||||||||||
| Total assets | ||||||||||||
| Liabilities | ||||||||||||
| Lease liabilities | ||||||||||||
| Convertible notes payable | ||||||||||||
| Notes payable | ||||||||||||
| Notes payable, related parties | ||||||||||||
| Total liabilities | ( | ) | ( | ) | ||||||||
| $ | $ | ( | ) | $ | ( | ) | ||||||
| Fair Value Measurements at December 31, 2021 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Total assets | ||||||||||||
| Liabilities | ||||||||||||
| Convertible notes payable, net of $ | ||||||||||||
| Convertible notes payable | ||||||||||||
| Total liabilities | ( | ) | ||||||||||
| $ | $ | ( | ) | $ | ||||||||
There were no transfers of financial assets or liabilities between Level 1, Level 2 and Level 3 inputs for the nine months ended September 30, 2022 or the year ended December 31, 2021.
| 10 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4 – Inventory
Inventories are stated at the lower of cost or net realizable value. Cost is determined on a standard cost basis that approximates the first-in, first-out (FIFO) method. Appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors in evaluating net realizable value. Our cannabis products consist of cannabis flower grown in-house, along with produced extracts. Inventory consisted of the following at September 30, 2022 and December 31, 2021, respectively.
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Raw materials | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| Less obsolescence | ( | ) | ( | ) | ||||
| Total inventory | $ | $ | ||||||
Note 5 – Other Current Assets
Other current assets included the following as of September 30, 2022 and December 31, 2021, respectively:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Prepaid expenses | $ | $ | ||||||
| Deferred cost of goods sold | ||||||||
| Other receivables | ||||||||
| Total | $ | $ | ||||||
Note 6 – Other Assets
Other assets consist entirely of a $
Note 7 – Security Deposits
Security deposits included the following as of September 30, 2022 and December 31, 2021, respectively:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Utility deposits | $ | $ | ||||||
| Refundable deposit on equipment purchase | ||||||||
| Down payment on distillation equipment | ||||||||
| Security deposits on leases held in Colombia | ||||||||
| Security deposit on office lease | ||||||||
| $ | $ | |||||||
| 11 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 8 – Fixed Assets
Fixed assets consist of the following at September 30, 2022 and December 31, 2021, respectively:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Land | $ | $ | ||||||
| Buildings | ||||||||
| Office equipment | ||||||||
| Furniture and fixtures | ||||||||
| Equipment and machinery | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
On
August 15, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., sold its office furniture and equipment with a
net book value of $
Depreciation
and amortization expense totaled $
Note 9 – Accrued Expenses
Accrued expenses consisted of the following at September 30, 2022 and December 31, 2021, respectively:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Accrued payroll | $ | $ | ||||||
| Accrued withholding taxes and employee benefits | ||||||||
| Accrued ICA fees and contributions | ||||||||
| Accrued interest | ||||||||
| $ | $ | |||||||
| 12 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 10 – Leases
The
Company leased its
The
Company also leases a residential premise under a non-cancelable real property lease agreement that commenced on September 1, 2021 and
expires on August 31, 2024, at a monthly lease term of
The
Company leases another residential premise under a non-cancelable real property lease agreement that commenced on June 1, 2022 and expires
on May 30, 2024, at a monthly lease term of
In addition, the Company leases its corporate offices and operational facility in Colombia under short-term non-cancelable real property lease agreements that expire within a year. The Company doesn’t have any other office or equipment leases that would require capitalization. The office lease contains provisions requiring payment of property taxes, utilities, insurance, maintenance and other occupancy costs applicable to the leased premise. In the locations in which it is economically feasible to continue to operate, management expects to enter into a new lease upon expiration. The extraction facility lease contained provisions requiring payment of property taxes, utilities, insurance, maintenance and other occupancy costs applicable to the leased premise. As the Company’s leases do not provide implicit discount rates, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.
The components of lease expense were as follows:
| For the Nine | ||||
| Months Ended | ||||
| September 30, | ||||
| 2022 | ||||
| Operating lease costs: | ||||
| Amortization of assets | $ | |||
| Interest on lease liabilities | ||||
| Lease payments on short term leases | ||||
| Total lease cost | $ | |||
Supplemental balance sheet information related to leases was as follows:
| September 30, | ||||
| 2022 | ||||
| Operating leases: | ||||
| Operating lease assets | $ | |||
| Current portion of operating lease liabilities | $ | |||
| Noncurrent operating lease liabilities | ||||
| Total operating lease liabilities | $ | |||
| Weighted average remaining lease term: | ||||
| Operating leases | ||||
| Weighted average discount rate: | ||||
| Operating leases | % | |||
| 13 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Supplemental cash flow and other information related to leases was as follows:
| For the Nine | ||||
| Months Ended | ||||
| September 30, | ||||
| 2022 | ||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||
| Operating cash flows used for operating leases | $ | |||
| Early extinguishment of lease: | ||||
| Lease liability terminated | ||||
| Right-of use asset terminated | ( | ) | ||
| Gain on early extinguishment of lease | ||||
| Leased assets obtained in exchange for lease liabilities: | ||||
| Total operating lease liabilities | $ | |||
Future minimum annual lease commitments under non-cancelable operating leases are as follows at September 30, 2022:
| Operating | ||||
| Leases | ||||
| 2022 (for the three months remaining) | $ | |||
| 2023 | ||||
| 2024 | ||||
| Total minimum lease payments | ||||
| Less interest | ||||
| Present value of lease liabilities | ||||
| Less current portion | ||||
| Long-term lease liabilities | $ | |||
| 14 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 11 – Convertible Notes Payable
Convertible notes payable consists of the following at September 30, 2022 and December 31, 2021, respectively:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| On September 27, 2022, the Company completed the sale of a Convertible Promissory Note in the principal amount of $ | $ | $ | ||||||
|
On September 24, 2021, the Company completed the sale of a (i) Promissory Note in the principal amount of $
The Note matured 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. The note was repaid on September 27, 2022. | ||||||||
| Total convertible notes payable | ||||||||
| Less: unamortized debt discounts | ||||||||
| Convertible note payable, net of discounts | $ | $ | ||||||
The Company recognized aggregate debt discounts on the convertible notes and notes payable to AJB Capital for the nine months ended September 30, 2022 and the year ended December 31, 2021, as follows:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| 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
Company recorded interest expense pursuant to the stated interest rates on the convertible note in the amount of $
| 15 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 12 – Notes Payable
Notes payable consists of the following at September 30, 2022 and December 31, 2021, respectively:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| On September 15, 2022, the Company, through its wholly-owned subsidiary, One World
Pharma, SAS, received proceeds of | $ | $ | ||||||
| On June 13, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ |
| |||||||
| On June 17, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received
proceeds of | ||||||||
| On May 31, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received
proceeds of | ||||||||
| On May 30, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received a non-interest bearing loan of | ||||||||
| On April 29, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received a non-interest bearing loan of | ||||||||
| On March 1, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| On February 15, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
On 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 portion | $ | $ | ||||||
The
Company recorded interest expense pursuant to the stated interest rates on the notes payable in the amount of $
| 16 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 13 – Notes Payable, Related Party
Notes payable, related party, consists of the following at September 30, 2022 and December 31, 2021, respectively:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| On August 5, 2022, the Company received an advance of $ | $ | $ | ||||||
| On August 2, 2022, the Company received an advance of $ | ||||||||
| On July 7, 2022, the Company received an advance of $ | ||||||||
| On June 3, 2022, the Company received an advance of $ | ||||||||
| On May 5, 2022, the Company received an advance of $ | ||||||||
| On May 5, 2022, the Company received an advance of $ | ||||||||
| On December 29, 2021, the Company received an advance of $ | ||||||||
| Total notes payable. related party | ||||||||
| Less: current maturities | ||||||||
| Notes payable, related party, long-term portion | $ | $ | ||||||
The
Company recorded interest expense pursuant to the stated interest rates on the notes payable, related party, in the amount of $
| 17 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company recognized interest expense for the nine months ended September 30, 2022 and 2021, as follows:
| September 30, | September 30, | |||||||
| 2022 | 2021 | |||||||
| Interest on convertible notes | $ | $ | ||||||
| Interest on notes payable | ||||||||
| Interest on notes payable, related parties | ||||||||
| Finance cost on equity line of credit | ||||||||
| Amortization of debt discounts | ||||||||
| Amortization of debt discounts, common stock | ||||||||
| Amortization of debt discounts, warrants | ||||||||
| Series B preferred stock issued as a commitment on an ELOC | ||||||||
| Common stock issued as a commitment on the 2nd AJB Note | ||||||||
| Interest on accounts payable | ||||||||
| Total interest expense | $ | $ | ||||||
Note 14 – 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, as amended on August 2, 2022.
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 Issuances
shares of Series A Preferred Stock were issued during the nine months ending September 30, 2022.
Preferred Stock Dividends
The
Series A Preferred Stock accrues dividends at the rate of
Series B Preferred Stock Issuances
On
September 1, 2022, the Company and Tysadco Partners, LLC (“Tysadco”), entered into a Securities Purchase Agreement (the
“Purchase Agreement”) under which Tysadco agreed to purchase from the Company, shares
of the Company’s Series B Preferred Stock for a purchase price of $per
share of Series B Preferred Stock, and an aggregate purchase price of $.
On September 12, 2022, Tysadco purchased the first shares
of Series B Preferred Stock under the Purchase Agreement for $
| 18 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 15 – Commitments and Contingencies
Equity Line of Credit
On
September 1, 2022, the Company entered into a Purchase Agreement (the “ELOC Purchase Agreement”) with Tysadco Partners, LLC
(“Tysadco”). Pursuant to the ELOC Purchase Agreement, Tysadco has agreed to purchase from the Company, from time to time
upon delivery by the Company to Tysadco of “Request Notices,” and subject to the other terms and conditions set forth in
the ELOC Purchase Agreement, up to an aggregate of $
In connection with the ELOC Purchase Agreement, the Company entered into a Registration Rights Agreement with Tysadco under which the Company agreed to file a registration statement with the Securities and Exchange Commission covering the shares of common stock issuable under the ELOC Purchase Agreement and conversion of the Commitment Fee Shares (the “Registration Rights Agreement”).
Note 16 – Changes in Stockholders’ Equity
Common Stock
The Company is authorized to issue an aggregate of shares of common stock with a par value of $. As of September 30, 2022, there were shares of common stock issued and outstanding.
Common Stock Issued on Subscriptions Payable
On March 29, 2022, the Company issued shares of common stock on a Subscriptions Payable for the December 1, 2021 award of common stock to COR IR for services.
Common Stock Issued as a Promissory Note Commitment
As
disclosed in Note 11 above, the Company paid a commitment fee to AJB Capital of $
Amortization of Stock-Based Compensation
A total of $ of stock-based compensation expense was recognized from the amortization of options to purchase common stock over their vesting period during the nine months ended September 30, 2022.
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.
| 19 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The
Company recognized a total of $, and $ of compensation expense during the nine months ended September 30, 2022 and 2021,
respectively, related to common stock options issued in the prior year to Officers, Directors, and Employees that are being amortized
over the implied service term, or vesting period, of the options. The remaining unamortized balance of these options is $
Note 18 – Income Taxes
The Company accounts for income taxes under FASB ASC 740-10, which requires use of the liability method. FASB ASC 740-10-25 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences.
For
the nine months ended September 30, 2022, and the year ended December 31, 2021, 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 September 30, 2022, the Company had approximately $
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 September 30, 2022 and December 31, 2021, respectively.
In accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions.
Note 19 – Subsequent Events
The Company evaluates events that have occurred after the balance sheet date through the date these financial statements were issued.
Sale of Series B Preferred Stock
On
October 12, 2022, the Company sold the second tranche of
shares of Series B Preferred Stock to Tysadco for proceeds of $
Commitment for the Sale of Series B Preferred Stock
On
October 3, 2022, the Company and ISIAH International, LLC (“ISIAH International”), an entity in which the Company’s
CEO, Isiah L. Thomas, III, is the sole member, entered into a securities purchase agreement under which ISIAH International has agreed
to purchase from the Company an aggregate of shares of the Company’s Series B Preferred Stock (the “Series B Shares”),
initially convertible into an aggregate of three million three hundred thirty three thousand three hundred () shares of the
Company’s common stock, for a total purchase price of $
Extraction Facility Lease
On October 1, 2022, the Company entered into a five-year non-cancelable
property lease, with an automatic five-year extension, for a new extraction facility with combined office space, at a monthly lease term
of
| 20 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended December 31, 2021 and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our financial statements and the notes to the financial statements included elsewhere in this Form 10-Q.
The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guarantees of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Forward-looking statements speak only as of the date of this quarterly report. You should not put undue reliance on any forward-looking statements. We strongly encourage investors to carefully read the factors described in the Form 10-K in the section entitled “Risk Factors” for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. We assume no responsibility to update the forward-looking statements contained in this quarterly report on Form 10-Q. The following should also be read in conjunction with the unaudited Financial Statements and notes thereto that appear elsewhere in this report.
Overview
Through our wholly-owned subsidiary, One World Pharma S.A.S, a licensed cannabis cultivation, production and distribution (export) company located in Popayán, Colombia (nearest major city is Cali). We plan to be a producer of raw cannabis and hemp plant ingredients for both medical and industrial uses across the globe. We have received licenses to cultivate, produce and distribute the raw ingredients of the cannabis and hemp plant for medicinal, scientific and industrial purposes. Specifically, we are one of the only companies in Colombia to receive seed, cultivation, extraction and export licenses from the Colombian government. Currently, we own approximately 30 acres and have a covered greenhouse built specifically to cultivate high-grade cannabis and hemp. In addition, we have entered into agreements with local farming co-operatives that include small farmers and indigenous tribe members, under which they will cultivate cannabis on up to approximately 140 acres of land using our seeds and propagation techniques, and sell their harvested products to us on an exclusive basis. We planted our first crop of cannabis in 2018, which we began harvesting in the first quarter of 2019 for the purpose of further research and development activities and quality control testing of the cannabis we have produced. We have been generating revenue from the sale of our seeds since the second quarter of 2020. From August 2021 through March 2022, we made payments of approximately $1,400,000 for the purchase of a state of the art distillation machine that we expect to be placed in service within our vertically integrated extraction facility during the fourth 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. We terminated our lease on September 30, 2022, and plan to install the equipment at a new extraction facility when the equipment clears Customs in the fourth quarter of 2022. We entered into a 5-year lease on the new location on October 1, 2022, where we will combine our office and extraction facilities into the same building. The new facility is approximately half the cost of the former, and already contains the necessary electrical and epoxy floors, which will significantly reduce our tenant improvement costs.
| 21 |
Results of Operations for the Three Months Ended September 30, 2022 and 2021:
The following table summarizes selected items from the statement of operations for the three months ended September 30, 2022 and 2021.
| Three Months Ended September 30, | Increase / | |||||||||||
| 2022 | 2021 | (Decrease) | ||||||||||
| Revenues | $ | 33,373 | $ | 7,845 | $ | 25,528 | ||||||
| Cost of goods sold | 23,969 | 7,058 | 16,911 | |||||||||
| Gross profit | 9,404 | 787 | 8,617 | |||||||||
| Operating expenses: | ||||||||||||
| General and administrative | 378,910 | 358,382 | 20,528 | |||||||||
| Professional fees | 95,946 | 153,484 | (57,538 | ) | ||||||||
| Depreciation expense | 9,883 | 6,939 | 2,944 | |||||||||
| Total operating expenses: | 484,739 | 518,805 | (34,066 | ) | ||||||||
| Operating loss | (475,335 | ) | (518,018 | ) | (42,683 | ) | ||||||
| Total other expense | (518,808 | ) | (149,661 | ) | 369,147 | |||||||
| Net loss | $ | (994,143 | ) | $ | (667,679 | ) | $ | 326,464 | ||||
Revenues
Revenues during the three months ended September 30, 2022 were $33,373, compared to $7,845 during the three months ended September 30, 2021, an increase of $25,528, or 325%. Revenues increased as we continued to shift our focus toward producing and selling CBD and THC oils.
Cost of Goods Sold
Cost of goods sold for the three months ended September 30, 2022 were $23,969, compared to $7,058 for the three months ended September 30, 2021, an increase of $16,911, or 240%. Cost of goods sold consists primarily of labor, agricultural raw materials, depreciation and overhead.
General and Administrative Expenses
General and administrative expenses for the three months ended September 30, 2022 were $378,910, compared to $358,382 during the three months ended September 30, 2021, an increase of $20,528, or 6%. The expenses for the current period consisted primarily of compensation expenses, office rent, and travel costs. General and administrative expenses increased primarily due to increased salaries and wages and lease expenses in Colombia over the prior year. General and administrative expenses included non-cash, stock-based compensation of $29,347 and $72,334 during the three months ended September 30, 2022 and 2021, respectively.
Professional Fees
Professional fees for the three months ended September 30, 2022 were $95,946, compared to $153,484 during the three months ended September 30, 2021, a decrease of $57,538, or 37%. Professional fees included non-cash, stock-based compensation of $11,833 and $60,042 during the three months ended September 30, 2022 and 2021, respectively. Professional fees decreased primarily due to decreased stock-based compensation during the current period.
Depreciation Expense
Depreciation expense for the three months ended September 30, 2022 was $9,883, compared to $6,939 during the three months ended September 30, 2021, an increase of $2,944, or 42%. Depreciation expense increased due to additional operational assets placed in service during the current period.
Other Income (Expense)
Other expenses, on a net basis, for the three months ended September 30, 2022 were $518,808, compared to other expenses, on a net basis, of $149,661 during the three months ended September 30, 2021, an increase in net expenses of $369,147, or 284%. Other expenses consisted of $529,915 of interest expense, including $109,969 of stock-based finance costs on the amortization of debt discounts, $339,133 of stock-based commitment fees on debt and equity financing, and a loss on the sale of fixed assets of $9,041, as partially offset by a gain of $20,148 on the early extinguishment of our extraction facility lease in Colombia, for the three months ended September 30, 2022, compared to $137,863 of interest expense, including $116,312 of stock-based finance costs on the amortization of debt discounts, and a loss on disposal of fixed assets of $17,563, as offset by $5,000 of sublease income on sublet office space and $765 of interest income during the three months ended September 30, 2021.
Net Loss
Net loss for the three months ended September 30, 2022 was $994,143, or $0.02 per share, compared to $667,679, or $0.01 per share, during the three months ended September 30, 2021, an increase of $326,464, or 49%. The net loss increased primarily due to increased stock-based compensation, primarily related to the issuance of 1,341,276 shares of common stock, valued at $134,128, and 13,667 shares of Series B Preferred stock, valued at $205,005, during the current period.
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Results of Operations for the Nine Months Ended September 30, 2022 and 2021:
The following table summarizes selected items from the statement of operations for the nine months ended September 30, 2022 and 2021.
| Nine Months Ended September 30, | Increase / | |||||||||||
| 2022 | 2021 | (Decrease) | ||||||||||
| Revenues | $ | 76,384 | $ | 73,450 | $ | 2,934 | ||||||
| Cost of goods sold | 54,765 | 14,810 | 39,955 | |||||||||
| Gross profit | 21,619 | 58,640 | (37,021 | ) | ||||||||
| Operating expenses: | ||||||||||||
| General and administrative | 1,148,100 | 1,466,954 | (318,854 | ) | ||||||||
| Professional fees | 380,801 | 679,141 | (298,340 | ) | ||||||||
| Depreciation expense | 34,540 | 29,937 | 4,603 | |||||||||
| Total operating expenses: | 1,563,441 | 2,176,032 | (612,591 | ) | ||||||||
| Operating loss | (1,541,822 | ) | (2,117,392 | ) | (575,570 | ) | ||||||
| Total other expense | (753,317 | ) | (343,698 | ) | 409,619 | |||||||
| Net loss | $ | (2,295,139 | ) | $ | (2,461,090 | ) | $ | (165,951 | ) | |||
Revenues
Revenues during the nine months ended September 30, 2022 were $76,384, compared to $73,450 during the nine months ended September 30, 2021, an increase of $2,934, or 4%. Revenues increased slightly as we continued to shift our focus toward producing and selling oils.
Cost of Goods Sold
Cost of goods sold for the nine months ended September 30, 2022 were $54,765, compared to $14,810 for the nine months ended September 30, 2021, an increase of $39,955, or 270%. Cost of goods sold consists primarily of labor, agricultural raw materials, depreciation and overhead.
General and Administrative Expenses
General and administrative expenses for the nine months ended September 30, 2022 were $1,148,100, compared to $1,466,954 during the nine months ended September 30, 2021, a decrease of $318,854, or 22%. The expenses for the current period consisted primarily of compensation expenses, office rent, and travel costs. General and administrative expenses decreased primarily due to decreased stock-based compensation over the prior year. General and administrative expenses included non-cash, stock-based compensation of $88,041 and $510,468 during the nine months ended September 30, 2022 and 2021, respectively.
Professional Fees
Professional fees for the nine months ended September 30, 2022 were $380,801, compared to $679,141 during the nine months ended September 30, 2021, a decrease of $298,340, or 44%. Professional fees included non-cash, stock-based compensation of $35,399 and $384,283 during the nine months ended September 30, 2022 and 2021, respectively. Professional fees decreased primarily due to decreased stock-based compensation during the current period.
Depreciation Expense
Depreciation expense for the nine months ended September 30, 2022 was $34,540, compared to $29,937 during the nine months ended September 30, 2021, an increase of $4,603, or 15%. Depreciation expense increased as additional equipment was placed in service.
Other Income (Expense)
Other expenses, on a net basis, for the nine months ended September 30, 2022 were $753,317, compared to other expenses, on a net basis, of $343,698 during the nine months ended September 30, 2021, an increase in net expenses of $409,619, or 119%. Other expenses consisted of $886,837 of interest expense, including $361,921 of stock-based finance costs on the amortization of debt discounts, $339,133 of stock-based commitment fees on debt and equity financing, and a loss on the sale of fixed assets of $9,041, as partially offset by a gain of $20,148 on the early extinguishment of our extraction facility lease in Colombia, $1,000 of sublet income on our office space, a gain on early extinguishment of debt of $121,372 on the forgiveness of a PPP Loan and $41 of interest income, for the nine months ended September 30, 2022, compared to $347,958 of interest expense, including $286,345 of stock-based finance costs on the amortization of debt discounts, and a loss on disposal of fixed assets of $17,563, as offset by $19,500 of sublease income on sublet office space and $2,323 of interest income during the nine months ended September 30, 2021.
Net Loss
Net loss for the nine months ended September 30, 2022 was $2,295,139, or $0.03 per share, compared to $2,461,090, or $0.04 per share, during the nine months ended September 30, 2021, a decrease of $165,951, or 7%. The net loss decreased primarily due to decreased stock-based compensation during the current period.
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Liquidity and Capital Resources
The following is a summary of the Company’s cash flows provided by (used in) operating, investing, financing activities and effect of exchange rate changes on cash for the nine months ended September 30, 2022 and 2021:
| 2022 | 2021 | |||||||
| Operating Activities | $ | (1,124,967 | ) | $ | (3,120,049 | ) | ||
| Investing Activities | (36,851 | ) | (268,223 | ) | ||||
| Financing Activities | 1,117,581 | 4,068,938 | ||||||
| Effect of Exchange Rate Changes on Cash | (6,820 | ) | (10,919 | ) | ||||
| Net Increase (Decrease) in Cash | $ | (51,057 | ) | $ | 669,747 | |||
Net Cash Used in Operating Activities
During the nine months ended September 30, 2022, net cash used in operating activities was $1,124,967, compared to net cash used in operating activities of $3,120,049 for the nine months ended September 30, 2021. The cash used in operating activities was primarily attributable to our net loss.
Net Cash Used in Investing Activities
During the nine months ended September 30, 2022, net cash used in investing activities was $36,851, compared to net cash used in investing activities of $268,223 for the nine months ended September 30, 2021. The cash used in investing activities consisted of purchases of fixed assets, as partially offset by proceeds received on the sale of fixed assets.
Net Cash Provided by Financing Activities
During the nine months ended September 30, 2022, net cash provided by financing activities was $1,117,581, compared to net cash provided by financing activities of $4,068,938 for the nine months ended September 30, 2021. The current period consisted of $1,717,581 of proceeds received on debt financing and $150,000 of proceeds received on the sale of preferred stock, as partially offset by $750,000 of repayments on debt, compared to $947,000 of proceeds received on debt financing and $3,577,505 received on the sale of preferred and common stock, less debt repayments of $455,567, during the nine months ended September 30, 2021.
Ability to Continue as a Going Concern
As of September 30, 2022, our balance of cash on hand was $68,621, and we had negative working capital of $2,268,606 and an accumulated deficit of $22,212,027. We are too early in our development stage to project future revenue levels, and may not be able to generate sufficient funds to sustain our operations for the next twelve months. Accordingly, we may need to raise additional cash to fund our operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
In the event sales do not materialize at the expected rates, management would seek additional financing and would attempt to conserve cash by further reducing expenses. There can be no assurance that we will be successful in achieving these objectives; therefore, without sufficient financing it would be unlikely for the Company to continue as a going concern.
The condensed consolidated financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. The condensed consolidated financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. Our ability to scale production and distribution capabilities and further increase the value of our brands, is largely dependent on our success in raising additional capital.
Off-Balance Sheet Arrangements
We have no outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
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Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the presentation of our financial condition and results of operations and require management’s subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments.
While our significant accounting policies are more fully described in notes to our consolidated financial statements appearing elsewhere in this Form 10-Q, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we used in the preparation of our financial statements.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. 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 September 30, 2022, the Company had $35,340 of deferred revenues and $22,830 of deferred cost of goods sold, as included in other current assets on the balance sheet, that are expected to be recognized upon the customers’ completion of their future harvests.
Inventory
Inventories are stated at the lower of cost or net realizable value. Cost is determined on a standard cost basis that approximates the first-in, first-out (FIFO) method. Appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors in evaluating net realizable value. Our cannabis products consist of cannabis flower grown in-house, along with produced extracts.
Stock-Based Compensation
The Company accounts for equity instruments issued to employees and non-employees in accordance with the provisions of ASC 718 Stock Compensation (ASC 718). All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty’s performance is complete or the date at which a commitment for performance by the counterparty to earn the equity instruments is reached because of sufficiently large disincentives for nonperformance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item
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ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2022. 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 September 30, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There have been no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) or in other factors that occurred during the period of our evaluation or subsequent to the date we carried out our evaluation which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any system of controls and procedures will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to any legal or administrative proceedings that we believe, individually or in the aggregate, would be likely to have a material adverse effect on our financial condition or results of operations.
ITEM 1A. RISK FACTORS
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following issuances of equity securities by the Company during the three month period ended September 30, 2022 were exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Regulation D thereunder:
Commitment Fee Shares
On September 15, 2022, the Company paid a commitment fee to AJB Capital in the form of 1,341,276 shares of common stock, restricted in accordance with Rule 144, in connection with the issuance of the Second AJB Note (defined above).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. Exhibits
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* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: November 14, 2022 | |
| One World Products, Inc. | |
| /s/ Isiah L. Thomas III | |
| Isiah L. Thomas III | |
| Chief Executive Officer | |
| (Principal Executive Officer) | |
| /s/ Timothy Woods | |
| Timothy Woods | |
| Chief Financial Officer | |
| (Principal Financial Officer) |
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