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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2022

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to ____________

 

Commission file number: 000-56151

 

 

ONE WORLD PRODUCTS, INC.

(Exact name of registrant as specified in its charter)

 

 

Nevada   61-1744826

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

     

6605 Grand Montecito Pkwy, Suite 100,

Las Vegas, Nevada 89149

 

89149

(Address of principal executive offices)   (zip code)

 

(800) 605-3210

(Registrant’s telephone number, including area code)

 

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

 

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes ☒ No ☐

 

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

 

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

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ☐ No

 

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

 

The number of shares of registrant’s common stock outstanding as of November 11, 2022 was 67,202,907.

 

 

 

 
 

 

TABLE OF CONTENTS

 

  Page
PART I - FINANCIAL INFORMATION 1
ITEM 1.   FINANCIAL STATEMENTS (Unaudited) 1
    Condensed Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021 1
    Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited) 2
    Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited) 3
    Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (Unaudited) 5
    Notes to the Condensed Consolidated Financial Statements (Unaudited) 6
ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 21
ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 25
ITEM 4.   CONTROLS AND PROCEDURES 26
PART II - OTHER INFORMATION 26
ITEM 1.   Legal Proceedings 26
ITEM 1A.   RISK FACTORS 26
ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 26
ITEM 3.   DEFAULTS UPON SENIOR SECURITIES 26
ITEM 4.   MINE SAFETY DISCLOSURES 26
ITEM 5.   OTHER INFORMATION 26
ITEM 6.   EXHIBITS 27
    SIGNATURES 29

 

 
 

 

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  $68,621   $119,678 
Accounts receivable   31,096    19,880 
Inventory   319,220    198,595 
Other current assets   49,258    158,836 
Total current assets   468,195    496,989 
           
Other assets   

180,521

    

147,194

 
Right-of-use assets   32,357    - 
Security deposits   1,450,008    1,255,988 
Fixed assets, net   996,283    1,003,013 
           
Total Assets  $3,127,364   $2,903,184 
           
Liabilities and Stockholders’ Equity (Deficit)          
           
Current liabilities:          
Accounts payable  $739,195   $480,146 
Accrued expenses   813,314    457,762 
Deferred revenues   35,340    30,164 
Dividends payable   127,891    98,920 
Current portion of lease liabilities   17,106    - 
Convertible notes payable, net of $412,673 of debt discounts at December 31, 2021   750,000    337,327 
Notes payable, current maturities   154,455    119,274 
Notes payable, related parties, current maturities   99,500    - 
Total current liabilities   2,736,801    1,523,593 
           
Long-term lease liability   15,703    - 
Notes payable, long-term portion   700,000    - 
Notes payable, related parties, long-term portion   200,000    200,000 
           
Total Liabilities   3,652,504    1,723,593 
           
Series A convertible preferred stock, $0.001 par value, 500,000 shares authorized; 65,233 shares issued and outstanding   652,330    652,330 
Series B convertible preferred stock, $0.001 par value, 600,000 shares authorized; 262,168 and 238,501 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively   3,932,520    3,577,515 
           
Stockholders’ Equity (Deficit):          
Preferred stock, $0.001 par value, 9,200,000 shares authorized; no shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively   -    - 
Common stock, $0.001 par value, 300,000,000 shares authorized; 67,202,907 and 65,599,565 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively   67,203    65,600 
Additional paid-in capital   17,092,375    16,843,656 
Subscriptions payable, consisting of 262,066 shares at December 31, 2021   -    21,725 
Accumulated other comprehensive loss   (57,541)   (64,347)
Accumulated (deficit)   (22,212,027)   (19,916,888)
Total Stockholders’ Equity (Deficit)   (5,109,990)   (3,050,254)
           
Total Liabilities and Stockholders’ Equity (Deficit)  $3,127,364   $2,903,184 

 

See accompanying notes to financial statements.

 

1
 

 

ONE WORLD PRODUCTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

 

   2022   2021   2022   2021 
   For the Three Months Ended   For the Nine Months Ended 
   September 30,   September 30, 
   2022   2021   2022   2021 
                 
Revenues  $33,373   $7,845   $76,384   $73,450 
Cost of goods sold   23,969    7,058    54,765    14,810 
Gross profit   9,404    787    21,619    58,640 
                     
Operating expenses:                    
General and administrative   378,910    358,382    1,148,100    1,466,954 
Professional fees   95,946    153,484    380,801    679,141 
Depreciation expense   9,883    6,939    34,540    29,937 
Total operating expenses   484,739    518,805    1,563,441    2,176,032 
                     
Operating loss   (475,335)   (518,018)   (1,541,822)   (2,117,392)
                     
Other income (expense):                    
Sublease income   -    5,000    1,000    19,500 
Loss on sale of fixed assets   (9,041)   (17,563)   (9,041)   (17,563)
Gain on early extinguishment of lease   20,148    -    20,148    - 
Gain on early extinguishment of debt   -    -    121,372    - 
Interest income   -    765    41    2,323 
Interest expense   (529,915)   (137,863)   (886,837)   (347,958)
Total other expense   (518,808)   (149,661)   (753,317)   (343,698)
                     
Net loss  $(994,143)  $(667,679)  $(2,295,139)  $(2,461,090)
                     
Other comprehensive loss:                    
Gain (loss) on foreign currency translation  $2,334   $(5,500)  $6,806   $(10,919)
                     
Net other comprehensive loss  $(991,809)  $(673,179)  $(2,288,333)  $(2,472,009)
Series A convertible preferred stock dividends declared ($0.60 per share)   (9,866)   (14,403)   (28,971)   (49,246)
Net loss attributable to common shareholders  $(1,001,675)  $(687,582)  $(2,317,304)  $(2,521,255)
                     
Weighted average number of common shares outstanding - basic and diluted   66,080,317    61,662,287    65,850,852    59,712,489 
Net loss per share - basic and diluted  $(0.02)  $(0.01)  $(0.03)  $(0.04)
                     
Dividends declared per share of common stock  $0.00   $0.00   $0.00   $0.00 

 

See accompanying notes to financial statements.

 

2
 

 

ONE WORLD PHARMA, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

 

   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Payable   Income (Loss)   Deficit   (Deficit) 
   For the Three Months Ended 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   95,233   $952,330    205,169   $3,077,535    61,915,983   $61,916   $15,715,598   $-   $(58,289)  $(17,925,737)  $(2,206,512)
                                                        
Series B convertible preferred stock sold for cash to our CEO   -    -    33,333    499,995    -    -    -    -    -    -    - 
                                                        
Adjustment of common stock issued for services   -    -    -    -    (300,000)   (300)   (50,700)   -    -    -    (51,000)
                                                        
Commitment shares issued pursuant to promissory note   -    -    -    -    -    -    -    150,062    -    -    150,062 
                                                        
Exercise of cashless options   -    -    -    -    60,000    60    (60)   -    -    -    - 
                                                        
Warrants issued as a debt discount   -    -    -    -    -    -    358,017    -    -    -    358,017 
                                                        
Amortization of common stock options issued for services   -    -    -    -    -    -    183,376    -    -    -    183,376 
                                                        
Series A convertible preferred stock dividends declared ($0.60 per share)   -    -    -    -    -    -    (14,403)   -    -    -    (14,403)
                                                        
Loss on foreign currency translation   -    -    -    -    -    -    -    -    (5,500)   -    (5,500)
                                                        
Net loss   -    -    -    -    -    -    -    -    -    (667,679)   (667,679)
                                                        
Balance, September 30, 2021   95,233   $952,330    238,502   $3,577,530    61,675,983   $61,676   $16,191,828   $150,062   $(63,789)  $(18,593,416)  $(2,253,639)

 

   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   65,233   $652,330    238,501   $3,577,515    65,861,631   $65,862   $16,928,274   $-   $(59,875)  $(21,217,884)  $(4,283,623)
                                                        
Series B convertible preferred stock sold for cash   -    -    10,000    150,000    -    -    -    -    -    -    - 
                                                        
Series B convertible preferred stock issued as commitment fee on ELOC   -    -    13,667    205,005    -    -    -    -    -    -    - 
                                                        
Common stock issued for services   -    -    -    -    1,341,276    1,341    132,787    -    -    -    134,128 
                                                        
Amortization of common stock options issued for services   -    -    -    -    -    -    41,180    -    -    -    41,180 
                                                        
Series A convertible preferred stock dividends declared ($0.60 per share)   -    -    -    -    -    -    (9,866)   -    -    -    (9,866)
                                                        
Gain on foreign currency translation   -    -    -    -    -    -    -    -    2,334    -    2,334 
                                                        
Net loss   -    -    -    -    -    -    -    -    -    (994,143)   (994,143)
                                                        
Balance, September 30, 2022   65,233   $652,330    262,168   $3,932,520    67,202,907   $67,203   $17,092,375   $-   $(57,541)  $(22,212,027)  $(5,109,990)

 

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   150,233   $1,502,330    -   $-    53,085,305   $53,085   $14,103,672   $75,000   $(52,870)  $(16,132,326)  $(1,953,439)
                                                        
Series B convertible preferred stock sold for cash to our CEO   -    -    203,334    3,050,010    -    -    -    -    -    -    - 
                                                        
Series B convertible preferred stock sold for cash   -    -    35,168    527,520    -    -    (25)   -    -    -    (25)
                                                        
Common stock sold for cash   -    -    -    -    750,000    750    74,250    (75,000)   -    -    - 
                                                        
Conversion of series A convertible preferred stock   (55,000)   (550,000)   -    -    5,500,000    5,500    544,500    -    -    -    550,000 
                                                        
Common stock issued for services   -    -    -    -    280,678    281    56,515    -    -    -    56,796 
                                                        
Commitment shares issued pursuant to promissory note   -    -    -    -    2,000,000    2,000    266,250    150,062    -    -    418,312 
                                                        
Exercise of cashless options   -    -    -    -    60,000    60    (60)   -    -    -    - 
                                                        
Warrants issued as a debt discount   -    -    -    -    -    -    358,017    -    -    -    358,017 
                                                        
Amortization of common stock options issued for services   -    -    -    -    -    -    837,955    -    -    -    837,955 
                                                        
Series A convertible preferred stock dividends declared ($0.60 per share)   -    -    -    -    -    -    (49,246)   -    -    -    (49,246)
                                                        
Loss on foreign currency translation   -    -    -    -    -    -    -    -    (10,919)   -    (10,919)
                                                        
Net loss   -    -    -    -    -    -    -    -    -    (2,461,090)   (2,461,090)
                                                        
Balance, September 30, 2021   95,233   $952,330    238,502   $3,577,530    61,675,983   $61,676   $16,191,828   $150,062   $(63,789)  $(18,593,416)  $(2,253,639)

 

   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   65,233   $652,330    238,501   $3,577,515    65,599,565   $65,600   $16,843,656   $21,725   $(64,347)  $(19,916,888)  $(3,050,254)
                                                        
Series B convertible preferred stock sold for cash   -    -    10,000    150,000    -    -    -    -    -    -    - 
                                                        
Series B convertible preferred stock issued as commitment fee on ELOC   -    -    13,667    205,005    -    -    -    -    -    -    - 
                                                        
Common stock issued for services   -    -    -    -    1,603,342    1,603    154,250    (21,725)   -    -    134,128 
                                                        
Amortization of common stock options issued for services   -    -    -    -    -    -    123,440    -    -    -    123,440 
                                                        
Series A convertible preferred stock dividends declared ($0.60 per share)   -    -    -    -    -    -    (28,971)   -    -    -    (28,971)
                                                        
Gain on foreign currency translation   -    -    -    -    -    -    -    -    6,806    -    6,806 
                                                        
Net loss   -    -    -    -    -    -    -    -    -    (2,295,139)   (2,295,139)
                                                        
Balance, September 30, 2022   65,233   $652,330    262,168   $3,932,520    67,202,907   $67,203   $17,092,375   $-   $(57,541)  $(22,212,027)  $(5,109,990)

 

See accompanying notes to financial statements.

 

4
 

 

ONE WORLD PRODUCTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   2022   2021 
   For the Nine Months Ended 
   September 30, 
   2022   2021 
Cash flows from operating activities          
Net loss  $(2,295,139)  $(2,461,090)
Adjustments to reconcile net loss to net cash used in operating activities:          
Bad debts expense   -    25,556 
Depreciation and amortization expense   34,540    29,937 
Loss on disposal of fixed assets   9,041    17,563 
Gain on early extinguishment of lease   (20,148)   - 
Gain on early extinguishment of debt   (121,372)   - 
Amortization of debt discounts   412,673    310,633 
Stock-based compensation   339,133    56,796 
Amortization of options issued for services   123,440    837,955 
Decrease (increase) in assets:          
Accounts receivable   (11,216)   (48,843)
Inventory   (120,625)   (259,528)
Other current assets   109,578    (69,479)
Other assets   

(33,327

)   

(32,330

)
Right-of-use assets   84,667    34,237 
Security deposits   (194,020)   (1,159,447)
Increase (decrease) in liabilities:          
Accounts payable   259,049    (271,176)
Accrued expenses   357,650    (97,380)
Deferred revenues   5,176    - 
Lease liability   (64,067)   (33,453)
Net cash used in operating activities   (1,124,967)   (3,120,049)
           
Cash flows from investing activities          
Proceeds received on sale of fixed assets   6,350    5,125 
Purchase of fixed assets   (43,201)   (273,348)
Net cash used in investing activities   (36,851)   (268,223)
           
Cash flows from financing activities          
Proceeds received on convertible note payable   750,000    - 
Repayment of convertible note payable   (750,000)   - 
Proceeds from notes payable   868,081    947,000 
Repayment of notes payable   -    (455,567)
Proceeds from notes payable, related parties   99,500    - 
Proceeds from sale of preferred and common stock   150,000    3,577,505 
Net cash provided by 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 
Cash - beginning   119,678    28,920 
Cash - ending  $68,621   $698,667 
           
Supplemental disclosures:          
Interest paid  $79,269   $33,564 
Income taxes paid  $-   $- 
           
Non-cash investing and financing transactions:          
Fair value of common shares issued for conversion of debt  $-   $1,537,750 
Value of commitment shares issued as a debt discount  $-   $418,312 
Value of warrants issued as a debt discount  $-   $358,017 
Dividends payable  $28,971   $49,246 
Initial recognition of right-of-use assets and lease liabilities  $1,535,706   $- 

 

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 39,475,398 shares of our common stock; (b) options to purchase 825,000 shares of common stock of OWP Ventures at an exercise price of $0.50 automatically converted into options to purchase 825,000 shares of our common stock at an exercise price of $0.50; (c) the outstanding principal and interest under a $300,000 convertible note issued by OWP Ventures became convertible, at the option of the holder, into shares of our common stock at a conversion price equal to the lesser of $0.424 per share or 80% of the price we sell our common stock in a future “Qualified Offering”; (d) 875,000 shares of our common stock owned by OWP Ventures prior to the Merger were cancelled; and (e) OWP Ventures’ chief operating officer became our chief operating officer and two of OWP Ventures’ directors became members of our board of directors. The Company’s headquarters are located in Las Vegas, Nevada, and all of its customers are outside of the United States. On January 10, 2019, the Company changed its name from Punto Group, Corp. to One World Pharma, Inc., and on November 23, 2021, the Company changed its name to One World Products, Inc. through the merger of One World Products, Inc., a recently formed Nevada corporation wholly-owned by the Company, with and into the Company (the “Name Change Merger”) pursuant to the applicable provisions of the Nevada Revised Statutes (“NRS”). As permitted by the NRS, the articles of merger filed with the Secretary of State of the state of Nevada to effect the Name Change Merger amended Article I of the Company’s Articles of Incorporation to change the Company’s name to “One World Products, Inc.” The Name Change Merger was effected solely to effect the change of the Company’s name, and had no effect on the Company’s officers, directors, operations, assets or liabilities.

 

OWP Ventures is a holding company formed in Delaware on March 27, 2018 to enter and support the cannabis industry, and on May 30, 2018, it acquired OWP Colombia. OWP Colombia is a licensed cannabis cultivation, production and distribution (export) company located in Popayán, Colombia (nearest major city is Cali). We plan to be a producer of raw cannabis and hemp plant ingredients for both medical and industrial uses across the globe. We have received licenses to cultivate, produce and distribute the raw ingredients of the cannabis and hemp plant for medicinal, scientific and industrial purposes. Specifically, we are one of the few companies in Colombia to receive all four licenses, including seed use, cultivation 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 $1,155,000 of the approximate total cost of $1,400,000 for the construction of a vertically integrated extraction facility designed to process the cannabis flower. Upon completion of construction, 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.

 

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
One World Products, Inc.(1)  Nevada  Parent
OWP Ventures, Inc.(2)  Delaware  Subsidiary
One World Pharma S.A.S.(3)  Colombia  Subsidiary
Colombian Hope, S.A.S.(4)  Colombia  Subsidiary
Agrobase, S.A.S.(5)  Colombia  Subsidiary

 

(1) Holding company in the form of a corporation.
(2) Holding company in the form of a corporation and wholly-owned subsidiary of One World Products, Inc.
(3) Wholly-owned subsidiary of OWP Ventures, Inc. since May 30, 2018, located in Colombia and legally constituted as a simplified stock company registered in the Chamber of Commerce of Bogotá on July 18, 2017. Its headquarters are located in Bogotá.
(4) Wholly-owned subsidiary of OWP Ventures, Inc., acquired on November 19, 2019, located in Colombia and legally constituted as a simplified stock company. This company has yet to incur any substantive income or expenses.
(5) Wholly-owned subsidiary of OWP Ventures, Inc., formed on September 12, 2019, located in Colombia and legally constituted as a simplified stock company. This company has yet to incur any substantive income or expenses.

 

The consolidated financial statements herein contain the operations of the wholly-owned subsidiaries listed above. The Company’s headquarters are located in Las Vegas, Nevada and substantially all of its production efforts are within Popayán, Colombia.

 

Reclassifications

 

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

 

Foreign Currency Translation

 

The functional currency of the Company is Columbian Peso (COP). The Company has maintained its financial statements using the functional currency, and translated those financial statements to the US Dollar (USD) throughout this report. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income (loss) for the respective periods.

 

Comprehensive Income

 

The Company has adopted the Financial Accounting Standards Boards (“FASB”) Accounting Standards Codification (“ASC”) 220, Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive income, its components, and accumulated balances in a full-set of general-purpose financial statements. Accumulated other comprehensive income represents the accumulated balance of foreign currency translation adjustments.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

 

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 $250,000, under current regulations. The Company did not have any cash in excess of FDIC insured limits at September 30, 2022, and has not experienced any losses in such accounts.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. The Company’s sales to date have primarily consisted of the sale of seeds. These sales include multi-element arrangements whereby the Company collects 50% of the sale upon delivery of the sales, and the remaining 50% upon the completion of the harvest, whether the seeds result in a successful crop, or not. In addition, the Company has a right of first refusal to purchase products resulting from the harvest. At 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.

 

Basic and Diluted Loss Per Share

 

The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the periods presented, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.

 

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 $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.

 

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:

 

   Level 1   Level 2   Level 3 
   Fair Value Measurements at September 30, 2022 
   Level 1   Level 2   Level 3 
Assets            
Cash  $68,621   $-   $- 
Right-of-use asset   -    -    32,357 
Total assets   68,621    -    32,357 
Liabilities               
Lease liabilities   -    -    32,809 
Convertible notes payable   -    750,000    - 
Notes payable   -    854,455    - 
Notes payable, related parties   -    299,500    - 
Total liabilities   -    (1,903,955)   (32,809)
Total assets and liabilities  $68,621   $(1,903,955)  $(452)

 

   Level 1   Level 2   Level 3 
   Fair Value Measurements at December 31, 2021 
   Level 1   Level 2   Level 3 
Assets            
Cash  $119,678   $-   $- 
Total assets   119,678    -    - 
Liabilities               
Convertible notes payable, net of $412,673 of debt discounts   -    337,327    - 
Convertible notes payable   -    319,274    - 
Total liabilities   -    (656,601)   - 
Total assets and liabilities  $119,678   $(656,601)  $- 

 

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  $22,236   $31,233 
Work in progress   115,061    81,182 
Finished goods   201,307    108,246 
Inventory gross   338,604    220,661 
Less obsolescence   (19,384)   (22,066)
Total inventory  $319,220   $198,595 

 

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  $26,428   $29,366 
Deferred cost of goods sold   22,830    19,470 
Other receivables   -    110,000 
Total  $49,258   $158,836 

 

Note 6 – Other Assets

 

Other assets consist entirely of a $180,521 and $147,194 VAT receivable at September 30, 2022 and December 31, 2021, respectively, which will be returned upon the successful export of the products purchased in which the taxes were originally paid.

 

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  $-   $1,090 
Refundable deposit on equipment purchase   50,000    50,000 
Down payment on distillation equipment   1,399,412    1,155,000 
Security deposits on leases held in Colombia   596    35,869 
Security deposit on office lease   -    14,029 
Security deposits  $1,450,008   $1,255,988 

 

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  $138,248   $138,248 
Buildings   473,971    473,971 
Office equipment   30,902    56,502 
Furniture and fixtures   6,494    34,409 
Equipment and machinery   423,548    383,829 
Fixed assets, gross   1,073,163    1,086,959 
Less: accumulated depreciation   (76,880)   (83,946)
Total   $996,283   $1,003,013 

 

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 $15,391 for gross proceeds of $6,350, resulting in a loss on the disposal of fixed assets of $9,041, which represented the proceeds received, less the net book value at the time of disposal.

 

Depreciation and amortization expense totaled $34,540 and $29,937 for the nine months ended September 30, 2022 and 2021, respectively.

 

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  $514,133   $261,044 
Accrued withholding taxes and employee benefits   28,505    9,162 
Accrued ICA fees and contributions   172,629    129,856 
Accrued interest   98,047    57,700 
Accrued expenses  $813,314   $457,762 

 

12
 

 

ONE WORLD PRODUCTS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 10 – Leases

 

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

 

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

 

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

 

In addition, the Company leases its corporate offices and operational facility in Colombia under short-term non-cancelable real property lease agreements that expire within a year. The Company doesn’t have any other office or equipment leases that would require capitalization. The office lease contains provisions requiring payment of property taxes, utilities, insurance, maintenance and other occupancy costs applicable to the leased premise. In the locations in which it is economically feasible to continue to operate, management expects to enter into a new lease upon expiration. The extraction facility lease contained provisions requiring payment of property taxes, utilities, insurance, maintenance and other occupancy costs applicable to the leased premise. As the Company’s leases do not provide implicit discount rates, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.

 

The components of lease expense were as follows:

 

   For the Nine 
   Months Ended 
   September 30, 
   2022 
Operating lease costs:     
Amortization of assets  $93,011 
Interest on lease liabilities   76,251 
Lease payments on short term leases   31,999 
Total lease cost  $201,261 

 

Supplemental balance sheet information related to leases was as follows:

 

   September 30, 
   2022 
Operating leases:     
Operating lease assets  $32,357 
      
Current portion of operating lease liabilities  $17,106 
Noncurrent operating lease liabilities   15,703 
Total operating lease liabilities  $32,809 
      
Weighted average remaining lease term:     
Operating leases   1.75 years 
      
Weighted average discount rate:     
Operating leases   6.75%

 

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  $64,067 
      
Early extinguishment of lease:     
Lease liability terminated   1,438,830 
Right-of use asset terminated   (1,418,682)
Gain on early extinguishment of lease   20,148 
      
Leased assets obtained in exchange for lease liabilities:     
Total operating lease liabilities  $1,535,706 

 

Future minimum annual lease commitments under non-cancelable operating leases are as follows at September 30, 2022:

 

   Operating 
   Leases 
     
2022 (for the three months remaining)  $4,653 
2023   19,016 
2024   11,335 
Total minimum lease payments   35,004 
Less interest   2,195 
Present value of lease liabilities   32,809 
Less current portion   17,106 
Long-term lease liabilities  $15,703 

 

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

On September 24, 2021, the Company completed the sale of a (i) Promissory Note in the principal amount of $750,000 (the “Second AJB Note”) to AJB Capital Investments LLC (“AJB Capital”), (ii) a three-year warrant to purchase 1,500,000 shares of the Company’s common stock at an initial exercise price of $0.25 per share, and (iii) a three-year warrant to purchase 2,000,000 shares of the Company’s common stock at an initial exercise price of $0.50 per share, for an aggregate purchase price of $705,000, pursuant to a Securities Purchase Agreement between the Company and AJB Capital (the “Purchase Agreement”). The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 197% and a call option value of $0.1053 and $0.1001, respectively, was $358,017, based on and was amortized as a debt discount over the life of the loan. The Company received net proceeds of $678,750 after deductions of debt discounts, consisting of $45,000 pursuant to an original issue discount, $15,000 of legal fees and $11,250 of brokerage fees.

 

The Note matured on September 24, 2022 (the “Maturity Date”), bore interest at a rate of 8% per annum, and, following an event of default only, was convertible into shares of the Company’s common stock at a conversion price equal to the lesser of 90% of the lowest trading price during (i) the 20 trading day period preceding the issuance date of the note, or (ii) the 20 trading day period preceding date of conversion of the Note. The Note was also subject to covenants, events of defaults, penalties, default interest and other terms and conditions customary in transactions of this nature.

 

Pursuant to the Purchase Agreement, the Company paid a commitment fee to AJB Capital in the amount of $250,000 (the “Commitment Fee”) in the form of 1,250,000 shares of the Company’s common stock (the “Commitment Fee Shares”). During the six month period following the six month anniversary of the closing date, AJB Capital was entitled to be issued additional shares of common stock of the Company to the extent AJB Capital’s sale of the Commitment Fee Shares has resulted in net proceeds in an amount less than the Commitment Fee. The Commitment Fee Shares resulted in a debt discount of $150,062 that was amortized over the life of the loan.

 

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.
   -    750,000 
           
Total convertible notes payable   750,000    750,000 
Less: unamortized debt discounts   -    412,673 
Convertible note payable, net of discounts  $750,000   $337,327 

 

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 3,250,000 commitment shares of common stock  $418,312   $418,312 
Fair value of warrants to purchase 3,500,000 shares of common stock   358,017    358,017 
Original issue discounts   53,700    53,700 
Legal and brokerage fees   39,300    39,300 
Total debt discounts   869,329    869,329 
Amortization of debt discounts   869,329    456,656 
Unamortized debt discounts  $-   $412,673 

 

The aggregate debt discounts of $869,329, for the year ended December 31, 2021, were amortized over the life of the loan using the straight-line method, which approximated the effective interest method. The Company recorded finance expense in the amount of $412,673 and $310,633 on the amortization of these discounts for the nine months ended September 30, 2022 and 2021, respectively.

 

The Company recorded interest expense pursuant to the stated interest rates on the convertible note in the amount of $43,899 for the nine months ended September 30, 2022.

 

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 55,488,000 COP, or approximately $12,243, on a loan with a face value of 70,000,000 COP, or approximately $15,445, from an individual pursuant to an unsecured promissory note, bearing interest at 4% per month, or 48% per annum, due on demand. The debt discount of $3,202 was expensed as finance costs at the time of origination.  $15,445   $- 
           
On June 13, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $100,000 from an individual pursuant to an unsecured promissory note, maturing on January 1, 2024, that carries an 8% interest rate.   100,000  

 

 

- 
           
On June 17, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received proceeds of 230,400,000 COP, or approximately $55,821, on a loan with a face value of 240,000,000 COP, or approximately $58,147, from an individual pursuant to an unsecured promissory note, bearing interest at 4% per month, or 48% per annum, due on demand. The debt discount of $2,326 was expensed as finance costs at the time of origination. The face value of the note has been adjusted by $5,191 due to foreign currency translation adjustments.   52,956    - 
           
On May 31, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received proceeds of 314,640,000 COP, or approximately $76,231, on a loan with a face value of 360,000,000 COP, or approximately $87,220, from an individual pursuant to promissory note, security by equipment, bearing interest at 2.1% per month, or 25% per annum, maturing on November 28, 2022. The debt discount of $10,990 was expensed as finance costs at the time of origination. The face value of the note has been adjusted by $7,786 due to foreign currency translation adjustments.   79,434    - 
           
On May 30, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received a non-interest bearing loan of 20,000,000 COP, or approximately $4,846, from an individual pursuant to an unsecured promissory note, due on demand. The face value of the note has been adjusted by $433 due to foreign currency translation adjustments.   4,413    - 
           
On April 29, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received a non-interest bearing loan of 10,000,000 COP, or approximately $2,423, from an individual pursuant to an unsecured promissory note, due on demand. The face value of the note has been adjusted by $216 due to foreign currency translation adjustments.   2,207    - 
           
On March 1, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $400,000 from an individual pursuant to an unsecured promissory note, maturing on January 1, 2024, that carries an 8% interest rate.   400,000    - 
           
On February 15, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $200,000 from an individual pursuant to an unsecured promissory note, maturing on January 1, 2024, that carries an 8% interest rate.   200,000    - 
           

On May 4, 2020, the Company, through its wholly-owned subsidiary OWP Ventures, Inc., borrowed $119,274 from Customers Bank (“Lender”), pursuant to a Promissory Note issued by OWP Ventures to Lender (the “PPP Note”). The loan was made pursuant to the Payroll Protection Program established as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Note carried interest at 1.00% per annum, payable monthly beginning December 4, 2020, and was due on May 4, 2022. The PPP Note could have been repaid at any time without penalty.

 

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 40% of the amount of the PPP Note. A total of $121,372, consisting of $119,274 of principal and $2,098 of interest, was forgiven on February 11, 2022.

   -    119,274 
           
Total notes payable   854,455    119,274 
Less: current maturities   154,455    119,274 
Notes payable, long-term portion  $700,000   $- 

 

The Company recorded interest expense pursuant to the stated interest rates on the notes payable in the amount of $51,345 and $8,434 for the nine months ended September 30, 2022 and 2021, respectively.

 

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

 

The Company recorded interest expense pursuant to the stated interest rates on the notes payable, related party, in the amount of $13,538 for the nine months ended September 30, 2022.

 

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  $43,899   $21,120 
Interest on notes payable   51,345    8,434 
Interest on notes payable, related parties   13,538    - 
Finance cost on equity line of credit   15,000    - 
Amortization of debt discounts   50,753    24,288 
Amortization of debt discounts, common stock   106,894    273,594 
Amortization of debt discounts, warrants   255,026    12,751 
Series B preferred stock issued as a commitment on an ELOC   

205,005

    - 
Common stock issued as a commitment on the 2nd AJB Note   

134,128

    - 
Interest on accounts payable   11,249    7,771 
Total interest expense  $886,837   $347,958 

 

Note 14 – Convertible Preferred Stock

 

Preferred Stock

 

The Company has 10,000,000 authorized shares of $0.001 par value “blank check” preferred stock, of which 500,000 shares have been designated Series A Preferred Stock and 600,000 shares have been designated Series B Preferred Stock, as amended on August 2, 2022. The shares of Series A Preferred Stock and Series B Preferred Stock are each currently convertible into one hundred (100) shares of the Company’s common stock. The Series A Preferred Stock accrues dividends at the rate of 6% per annum, payable in cash as and when declared by the Board or upon a liquidation. The shares of Series B Preferred Stock are not entitled to dividends, other than the right to participate in dividends payable to holders of common stock on an as-converted basis. As of September 30, 2022, there were 65,233 and 262,168 shares of Series A Preferred Stock and Series B Preferred Stock, respectively, issued and outstanding. The Series A and B Preferred Stock are presented as mezzanine equity on the balance sheet due because they carry a stated value of $10 and $15 per share, respectively, and a deemed liquidation clause, which entitles the holders thereof to receive proceeds thereof in an amount equal to the stated value per share, plus any accrued and unpaid dividends, before any payment may be made to holders of common stock. Each share of Preferred Stock carries a number of votes equal to the number of shares of common stock into which such Preferred Stock may then be converted. The Preferred Stock generally will vote together with the common stock and not as a separate class.

 

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

 

Series A Preferred Stock Issuances

 

No 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 6% per annum, payable in cash as and when declared by the Board or upon a liquidation. The Company recognized $28,971 and $34,843 for the nine months ended September 30, 2022 and 2021, respectively. A total of $127,891 of dividends had accrued as of September 30, 2022.

 

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, 20,000 shares of the Company’s Series B Preferred Stock for a purchase price of $15 per share of Series B Preferred Stock, and an aggregate purchase price of $300,000. On September 12, 2022, Tysadco purchased the first 10,000 shares of Series B Preferred Stock under the Purchase Agreement for $150,000. The Company paid $15,000 out of the proceeds of the investment to Garden State Securities, Inc. as financing costs. In addition, pursuant to the ELOC Purchase Agreement, the Company issued Tysadco 13,667 shares of the Company’s Series B Preferred Stock as commitment fee shares. The fair value of the shares was $205,005, based on recent sales prices of the Company’s Series B Preferred Stock on the date of grant.

 

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 $10,000,000 of the Company’s common stock. The purchase price of the shares of common stock to be purchased under the Purchase Agreement will be equal to 88% of the lowest daily “VWAP” during the period of 10 trading days beginning five trading days preceding the applicable Request. Each purchase under the Purchase Agreement will be in a minimum amount of $25,000 and a maximum amount equal to the lesser of (i) $1,000,000 and (ii) 500% of the average daily trading value of the common stock over the seven trading days preceding the delivery of the applicable Request Notice.

 

In connection with the ELOC Purchase Agreement, the Company entered into a Registration Rights Agreement with Tysadco under which the Company agreed to file a registration statement with the Securities and Exchange Commission covering the shares of common stock issuable under the ELOC Purchase Agreement and conversion of the Commitment Fee Shares (the “Registration Rights Agreement”).

 

Note 16 – Changes in Stockholders’ Equity

 

Common Stock

 

The Company is authorized to issue an aggregate of 300,000,000 shares of common stock with a par value of $0.001. As of September 30, 2022, there were 67,202,907 shares of common stock issued and outstanding.

 

Common Stock Issued on Subscriptions Payable

 

On March 29, 2022, the Company issued 262,066 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 $250,000 in the form of 1,250,000 shares of the Company’s common stock (“Commitment Fee Shares”) in connection with the issuance of the Second AJB Note, which was repaid on September 27, 2022. During the six month period following the six-month anniversary of the closing date, AJB Capital was entitled to be issued additional shares of common stock of the Company to the extent AJB Capital’s sale of the Commitment Fee Shares has resulted in net proceeds in an amount less than the Commitment Fee. As a result, the Company issued an additional 1,341,276 shares of common stock to AJB Capital on September 15, 2022. The fair value of the shares was $134,128, based on the closing price of the Company’s common stock on the date of grant.

 

Amortization of Stock-Based Compensation

 

A total of $123,440 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.

 

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 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.

 

19
 

 

ONE WORLD PRODUCTS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

The Company recognized a total of $123,440, and $70,077 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 $179,241 as of September 30, 2022.

 

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 $9,480,000 of federal net operating losses. The net operating loss carry forwards, if not utilized, will begin to expire in 2025.

 

Based on the available objective evidence, including the Company’s history of its loss, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets at 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 10,000 shares of Series B Preferred Stock to Tysadco for proceeds of $150,000. The Company paid $15,000 out of the proceeds of the investment to Garden State Securities, Inc. as financing costs.

 

Commitment for the Sale of Series B Preferred Stock

 

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

 

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 29,000,000 COP plus VAT and administration fees, or approximately $6,300, with annual escalation of lease payments equal to the Consumer Price Index, plus 2%.

 

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,