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
☐ 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 10, 2024 was .
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
ONE WORLD PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Security deposits | ||||||||
| Licenses | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Dividends payable | ||||||||
| Convertible note payable, related party, current maturities | ||||||||
| Notes payable, related parties, current maturities | ||||||||
| Notes payable, net of $ | ||||||||
| Total current liabilities | ||||||||
| Notes payable, related parties, long-term portion, net of $ | ||||||||
| Total Liabilities | ||||||||
| Series A convertible preferred stock, $ par value, shares authorized; shares issued and outstanding at September 30, 2024 and December 31, 2023 | ||||||||
| Series B convertible preferred stock, $ par value, shares authorized; shares issued and outstanding at September 30, 2024 and December 31, 2023 | ||||||||
| Stockholders’ Equity (Deficit): | ||||||||
| Preferred stock, $ par value, shares authorized; shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Subscriptions payable | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated (deficit) | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
See accompanying notes to condensed consolidated 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, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross loss | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Depreciation expense | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Gain (loss) on early extinguishment of debt | ( | ) | ||||||||||||||
| Loss on deconsolidation of foreign subsidiaries | ( | ) | ( | ) | ||||||||||||
| 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 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 condensed consolidated financial statements.
| 2 |
ONE WORLD PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
| For the Three Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||
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, 2024 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||
| Series A Convertible Preferred Stock sold for cash, Director | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Cancellation of subscriptions payable | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Amended warrants | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Amortization of common stock options issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Series A convertible preferred stock dividend declared ($ per share) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||
| For the Three Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
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, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||
| Series A Convertible Preferred Stock sold for cash | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Series B preferred stock conversions | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Amortization of common stock options issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Series A convertible preferred stock dividend declared ($ per share) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Loss on foreign currency translation | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||
| 3 |
| For the Nine Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||
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, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||
| Series A Convertible Preferred Stock sold for cash, Director | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to debt modifications | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Commitment shares issued pursuant to promissory note | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Cancellation of subscriptions payable | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Amended warrants | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Relative fair value of warrants issued for loan commitment | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Amortization of common stock options issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Series A convertible preferred stock dividend declared ($ per share) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Loss on foreign currency translation | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||
| For the Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
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, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Series A Convertible Preferred Stock sold for cash | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Series A Convertible Preferred Stock issued for services | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Series B preferred stock conversions | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Commitment shares issued pursuant to promissory note | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Common stock sold for cash | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Amortization of common stock options issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Series A convertible preferred stock dividend declared ($ per share) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Gain on foreign currency translation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 4 |
ONE WORLD PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| (Gain) loss on early extinguishment of debt | ( | ) | ||||||
| Amortization of debt discounts | ||||||||
| Series A preferred stock issued for services | ||||||||
| Common stock issued for services | ||||||||
| Stock options issued for services | ||||||||
| Amended warrants | ||||||||
| Decrease (increase) in assets: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Other current assets | ( | ) | ||||||
| Other assets | ( | ) | ||||||
| Right-of-use assets | ||||||||
| Increase (decrease) in liabilities: | ||||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Deferred revenues | ( | ) | ||||||
| Lease liability | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of fixed assets | ( | ) | ||||||
| Purchase of Pétalo Pharmaceutical, SAS | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from notes payable, related parties | ||||||||
| Repayments of notes payable, related parties | ( | ) | ||||||
| Proceeds from notes payable | ||||||||
| Repayments of notes payable | ( | ) | ||||||
| Proceeds from sale of preferred and common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| Net increase in cash | ( | ) | ||||||
| Cash - beginning | ||||||||
| Cash - ending | $ | $ | ||||||
| Supplemental disclosures: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Non-cash investing and financing transactions: | ||||||||
| Dividends payable | $ | $ | ||||||
| Deposit on equipment settled with note payable | $ | $ | ||||||
| Value of debt discounts attributable to commitment shares to related parties | $ | $ | ||||||
| Value of debt discounts attributable to commitment shares | $ | $ | ||||||
| Value of debt discounts attributable to commitment warrants | $ | $ | ||||||
See accompanying notes to condensed consolidated 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. (the “Company,” “we,” “our” or “us”) was incorporated in Nevada
on September 2, 2014. On February 21, 2019, the Company entered into an Agreement and Plan of Merger with OWP Merger Subsidiary, Inc.,
a wholly-owned subsidiary, and OWP Ventures, Inc. (“OWP Ventures”), which is the parent company of One World Pharma SAS,
a Colombian Simplified Shares Company (“OWP SAS”). Pursuant to the Merger Agreement, we acquired OWP Ventures (and indirectly,
OWP SAS) by the merger of OWP Merger Subsidiary with and into OWP Ventures, with OWP Ventures being the surviving entity as our wholly-owned
subsidiary (the “Merger”). As a result of the Merger (a) holders of the outstanding capital stock of OWP Ventures received
an aggregate of shares of our common stock; (b) options to purchase shares of common stock of OWP Ventures at an exercise
price of $ automatically converted into options to purchase shares of our common stock at an exercise price of $; (c)
the outstanding principal and interest under a $
OWP
Ventures is a holding company formed in Delaware on March 27, 2018 to enter and support the cannabis industry, and on May 30, 2018,
it acquired OWP SAS. OWP SAS is a licensed cannabis cultivation, production and distribution (export) company located in
Popayán, Colombia (nearest major city is Cali). The Company had intended to be a producer of and/or source raw and processed
cannabis and hemp plant ingredients for both medical and industrial uses across the globe. The Company received licenses to
cultivate, produce and distribute the raw ingredients of the cannabis and hemp plant for medicinal, scientific and industrial
purposes. Specifically, the Company was one of the few companies in Colombia to receive all four licenses, including seed use,
cultivation of non-psychoactive cannabis, cultivation of psychoactive cannabis, and manufacturing allowing for extraction and
export. Currently, the Company owns approximately 30 acres and has a covered greenhouse built specifically to cultivate high-grade
cannabis and hemp. During the first quarter of 2022, the Company made payments of
approximately $
On December 22, 2023, OWP SAS, filed for protection under Colombian Law 1116 of 2006, which is the primary legislation governing business insolvency proceedings (restructuring and liquidation) (“Reorganization Proceedings”) in Colombia. The Reorganization Proceeds are similar to Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States, whereby the Company intended to restructure its debts and continue to operate, however, the Company amended its filing on October 1, 2024, to liquidate its assets.
In connection with the Reorganization Proceedings, OWP SAS paused production and sales of our cannabis operations in Colombia until the Court provided the Company with a plan of reorganization, at which time the Company intended to resume operations and satisfy its obligations in Colombia in accordance with the court’s plan, however, the Company now intends to have the Court liquidate its assets and pay its creditors out of the proceeds of the liquidation. As a result of these actions, OWP SAS has no revenue-producing operations. The Company’s primary operations during the fourth quarter of 2023, and to date in 2024, have consisted of activities associated with completing the Liquidation Proceedings, resolving substantial litigation, claims reconciliation, terminating operations and liquidating its assets, which primarily consist of the farm in Popayán and equipment.
| 6 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In
accordance with ASC 810-10-15, the Company has deconsolidated its foreign subsidiaries to include the petitioning entity, OWP SAS,
as well as the Company’s non-operating shell entities, Agrobase, S.A.S. and Hope Colombia, S.A.S., given the lack of
independently identifiable operations. The deconsolidation resulted in a loss on deconsolidation of foreign subsidiaries in the
amount of $
During March of 2024, the Company, through OWP Ventures, began to sell a CBD based product in the United States, called Pro-11. During the fourth quarter of 2024, the Company began to redesign the packaging and engaged a sales representative to focus greater resources on bringing this product to market.
On
May 15, 2024, OWP Ventures, Inc., acquired Pétalo Pharmaceutical, S.A.S. (“Pétalo”), a Company located in
Colombia and legally constituted as a simplified stock company that owns licenses to cultivate, produce and distribute the raw
ingredients of the cannabis and hemp plant for medicinal, scientific and industrial purposes from the free trade zone in Colombia.
Pétalo had no operations, other than obtaining four licenses, including seed use, cultivation of non-psychoactive cannabis,
cultivation of psychoactive cannabis, and manufacturing allowing for extraction and export from the free trade zone. The acquisition
was accounted for as an asset purchase, and the $
During 2024, the Company has also been developing industrial hemp solutions for the automotive market. The Company intends to focus increased efforts on research and development in this area to help the automotive industry meet its goals of achieving carbon neutral manufacturing using renewable material solutions. In October of 2024, the Company, in collaboration with partners in the automotive industry, developed hemp-based molded containers for automotive part packaging applications and received an initial order for 1,400 units of these reusable totes, designed to move and protect automotive parts through the supply chain.
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, 2023. 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.
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, 2024:
| Jurisdiction of | ||||
| Name of Entity | Incorporation | Relationship | ||
| (1) |
| (2) |
| (3) |
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.
| 7 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 Colombian 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.
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 revenues in the current period consisted of the sale of our CBD rub, and in the prior period revenues consisted entirely of the sale of seeds. The sale of seeds included multi-element arrangements whereby the Company collected 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 had a right of first refusal to purchase products resulting from the harvest.
| 8 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 December 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The guidance is effective for the Company’s fiscal years beginning after December 15, 2024, with early adoption permitted. The Company does not expect the adoption of this standard to have any material impact on its financial statements.
There are no other recently issued accounting pronouncements that the Company has yet to adopt that are expected to have a material effect on its financial position, results of operations, or cash flows.
Note 2 –Going Concern
As
shown in the accompanying condensed consolidated financial statements as of September 30, 2024, 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.
| 9 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 3 – Deconsolidation of Foreign Subsidiaries
On
December 22, 2023, our wholly-owned subsidiary, One World Products, S.A.S., a Colombian Simplified Shares Company, filed
for protection under Colombian Law 1116 of 2006, which is the primary legislation governing business insolvency proceedings (restructuring
and liquidation) (“Reorganization Proceedings”) in Colombia. The Reorganization Procedures are similar to Chapter
11 of the Bankruptcy Code in the United States, whereby the Company would restructure its debts and continue to operate. The plan of
reorganization and assessment of valid claims had not yet been determined, or approved by the court and creditors as of October 1, 2024,
when the Company amended its filing to completely liquidate the assets of the Company. OWP SAS has currently identified approximately
23 creditors, consisting of approximately $
FOREIGN SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Inventory | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Other assets | ||||||||
| Fixed assets, net | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Notes payable | ||||||||
| Intercompany liabilities owed to OWP Ventures, Inc. | ||||||||
| Total current liabilities | ||||||||
| Stockholders’ Equity (Deficit): | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated (deficit) | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
| 10 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
FOREIGN SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
| For the Three | For the Nine | |||||||
| Months Ended | Months Ended | |||||||
| September 30, | September 30, | |||||||
| 2024 | 2024 | |||||||
| Revenues | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| General and administrative | ||||||||
| Professional fees | ||||||||
| Depreciation expense | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Total other expense | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive loss: | ||||||||
| Gain on foreign currency translation | $ | $ | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
FOREIGN SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
| For the Nine | ||||
| Months Ended | ||||
| September 30, | ||||
| 2024 | ||||
| Cash flows from operating activities | ||||
| Net loss | $ | ( | ) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||
| Depreciation and amortization expense | ||||
| Decrease (increase) in assets: | ||||
| Inventory | ||||
| Other current assets | ( | ) | ||
| Other assets | ||||
| Increase (decrease) in liabilities: | ||||
| Accounts payable | ( | ) | ||
| Accrued expenses | ( | ) | ||
| Accrued interest on intercompany loans | ||||
| Net cash used in operating activities | ( | ) | ||
| Cash flows from financing activities | ||||
| Proceeds received from intercompany loan | ||||
| 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 | $ | |||
| 11 |
Note 4 – Related Party Transactions
Series A Preferred Stock Sale to Director
On
July 25, 2024, the Company received proceeds of $
Related Party Debt Repayments
On
July 26, 2024, the Company partially repaid $
On
April 22, 2024, the Company repaid an aggregate total of $
Common Stock Issued as Consideration for Related Party Debt Modifications
On
March 15, 2024, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., agreed to issue shares of common stock to officers
and directors in consideration for extending the maturity dates and terms of previously received debt financing, as listed below. The
aggregate fair value of the common stock was $
| Aggregate | ||||||||||||||
| Name | Position | Debts Extended | Shares | Fair Value | ||||||||||
| Isiah L. Thomas, III | Chairman and CEO | $ | $ | |||||||||||
| Dr. Kenneth Perego, II | Vice Chairman | |||||||||||||
| Joerg Sommer | President | |||||||||||||
| Dr. John McCabe | >5% Shareholder | |||||||||||||
| $ | $ | |||||||||||||
Common Stock Issued for Services, Related Parties
On September 25, 2024, the Company issued
shares of common stock to the Company’s Chief Financial Officer. The fair value of the shares
was $
On
July 1, 2024, the Company issued shares of common stock to Todd Peterson as a signing bonus pursuant to his appointment as the
Company’s Chief Financial Officer. The fair value of the shares was $
On
March 15, 2024, the Company issued shares of common stock to officers and directors for services provided, as listed below. The aggregate
fair value of the common stock was $
| Name | Position | Shares | Fair Value | |||||||
| Isiah L. Thomas, III | Chairman and CEO | $ | ||||||||
| Dr. Kenneth Perego, II | Vice Chairman | |||||||||
| Terry Buffalo | Director | |||||||||
| Joerg Sommer | President | |||||||||
| $ | ||||||||||
| 12 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5 – Fair Value of Financial Instruments
Under FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.
The Company has certain financial instruments that must be measured under the new fair value standard. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheet as of September 30, 2024 and December 31, 2023, respectively:
| Fair Value Measurements at September 30, 2024 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Total assets | ||||||||||||
| Liabilities | ||||||||||||
| Convertible notes payable, related party | ||||||||||||
| Notes payable, related parties, net of $ | ||||||||||||
| Notes payable, net of $ | ||||||||||||
| Total liabilities | ( | ) | ||||||||||
| $ | $ | ( | ) | $ | ||||||||
| Fair Value Measurements at December 31, 2023 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Total assets | ||||||||||||
| Liabilities | ||||||||||||
| Convertible notes payable, related party | ||||||||||||
| Notes payable, related parties | ||||||||||||
| Notes payable, net of $ | ||||||||||||
| Total liabilities | ( | ) | ||||||||||
| $ | $ | ( | ) | $ | ||||||||
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, 2024 or the year ended December 31, 2023.
| 13 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6 – Inventory
Inventories
are stated at the lower of cost or net realizable value. Cost is determined on a standard cost basis that approximates the first-in,
first-out (FIFO) method. Appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors in evaluating
net realizable value. Our CBD products consist entirely of finished goods. Inventory was $
Note 7 – Security Deposits
Security
deposits consisted of refundable deposits on equipment purchases in the amount of $
Note 8 – Licenses
On
May 15, 2024, OWP Ventures, Inc., acquired Pétalo Pharmaceutical, S.A.S. (“Pétalo”), a Company located in Colombia
and legally constituted as a simplified stock company that owns licenses to cultivate, produce and distribute the raw ingredients of
the cannabis and hemp plant for medicinal, scientific and industrial purposes from the free trade zone in Colombia. Pétalo had
no operations, other than obtaining four licenses, including seed use, cultivation of non-psychoactive cannabis, cultivation of psychoactive
cannabis, and manufacturing allowing for extraction and export from the free trade zone. The Company intends to use these licenses to
establish an export business within the free trade zone. The acquisition was accounted for as an asset purchase, and the $
Note 9 – Accrued Expenses
Accrued expenses consisted of the following at September 30, 2024 and December 31, 2023, respectively:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Accrued compensation | $ | $ | ||||||
| Accrued interest | ||||||||
| $ | $ | |||||||
| 14 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 10 – Convertible Note Payable, Related Party
Convertible note payable, related party consists of the following at September 30, 2024 and December 31, 2023, respectively:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| On September 27, 2022, the Company completed the sale of a Convertible Promissory Note in the principal amount of $ | $ | $ | ||||||
| Total convertible note payable, related party | ||||||||
| Less: current maturities | ||||||||
| Convertible note payable, related party, long-term portion | $ | $ | ||||||
The
Company recorded interest expense pursuant to the stated interest rates on the convertible note, related party in the amount of $
Note 11 – Notes Payable, Related Parties
Notes payable, related parties, consists of the following at September 30, 2024 and December 31, 2023, respectively:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| On March 19, 2024, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | $ | $ | ||||||
| On March 15, 2024, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., issued an unsecured promissory note in the amount of $ | ||||||||
| On March 15, 2024, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., issued an unsecured promissory note in the amount of $ | ||||||||
| On March 15, 2024, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., issued an unsecured promissory note in the amount of $ | ||||||||
| 15 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| On March 15, 2024, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., issued an unsecured promissory note in the amount of $ | ||||||||
| On March 12, 2024, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| On March 1, 2024, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| On February 26, 2024, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| On January 29, 2024, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| On January 11, 2024, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| On January 8, 2024, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| On November 28, 2023, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| On October 11, 2023, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ |
| 16 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| On September 11, 2023, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| On August 31, 2023, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| On August 14, 2023, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| On August 5, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| On August 2, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| On June 13, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| On July 7, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| On June 3, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| On May 5, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ |
| 17 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| On May 5, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| On March 1, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| On February 15, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| On December 29, 2021, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| Total notes payable, related parties | ||||||||
| Less: unamortized debt discounts | ||||||||
| Notes payable, related parties, net of discounts | ||||||||
| Less: current maturities | ||||||||
| Notes payable, related parties, long-term portion | $ | $ |
The
Company recorded interest expense pursuant to the stated interest rates on the notes payable, related parties, in the amount of $
| 18 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 12 – Notes Payable
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
On April 19, 2024, the “Company completed the sale of a
The Note matures on
Pursuant to the Purchase Agreement with SDT, SDT received a pre-funded warrant to purchase shares of the Company’s common stock (the “Warrant”). The Warrant includes a make-whole provision, whereby, if SDT is unable to sell the Warrant Shares (as defined in the Warrant) for net proceeds equal to at least $
A portion of the proceeds were used to repay the $ | $ | $ | ||||||
|
On April 19, 2024, the “Company completed the sale of a
The Fourth AJB Note matures on
Pursuant to the Purchase Agreement with AJB, the Company paid a $ | ||||||||
|
On March 4, 2024, the Company completed the sale of a promissory note to the Sanguine Group, LLC (“Sanguine”) in the principal amount of $
Pursuant to the Purchase Agreement, the Company paid a commitment fee to Sanguine in the form of shares of the Company’s common stock (the “Commitment Fee Shares”). The Commitment Fee Shares resulted in a debt discount of $ | ||||||||
| 19 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| On August 18, 2023, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., issued an unsecured promissory note of $ | ||||||||
|
On June 23, 2023, the Company completed the sale of a Promissory Note in the principal amount of $
The Third AJB Note matured on
Pursuant to the Purchase Agreement, the Company paid a commitment fee to AJB Capital in the amount of $
In connection with the issuance of the Third AJB Note and Commitment Fee Shares, the Company entered into a Registration Rights Agreement with AJB Capital in which the Company agreed to file a registration statement with the SEC within 180 days of June 23, 2023, registering the shares of common stock issuable under the Third AJB Note and Purchase Agreement. The note was repaid on March 14, 2024 out of the proceeds received from the Sanguine Group Note. | ||||||||
| Total notes payable | ||||||||
| Less: unamortized debt discounts | ||||||||
| Notes payable, net of discounts | ||||||||
| Less: current maturities | ||||||||
| Notes payable, long-term portion | $ | $ |
| 20 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company recognized aggregate debt discounts on the notes payable to for the nine months ended September 30, 2024, as follows:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Fair value of commitment shares of common stock | $ | $ | ||||||
| Fair value of pre-funded warrants | ||||||||
| Original issue discounts | ||||||||
| Legal and brokerage fees | ||||||||
| Total debt discounts | ||||||||
| Amortization of debt discounts | ||||||||
| Unamortized debt discounts | $ | $ | ||||||
The
aggregate debt discounts of $
The
convertible note limits the maximum number of shares that can be owned by the note holder as a result of the conversions to common stock
to
The
Company recorded interest expense pursuant to the stated interest rates on the notes payable in the amount of $
The Company recognized interest expense for the nine months ended September 30, 2024 and 2023, as follows:
| September 30, | September 30, | |||||||
| 2024 | 2023 | |||||||
| Interest on convertible notes, related party | $ | $ | ||||||
| Interest on notes payable, related parties | ||||||||
| Interest on notes payable | ||||||||
| Amended warrants | ||||||||
| Amortization of debt discounts, related parties | ||||||||
| Amortization of debt discounts, common stock | ||||||||
| Amortization of debt discounts, warrants | ||||||||
| Amortization of debt discounts | ||||||||
| Total interest expense | $ | $ | ||||||
Note 13 – 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.
| 21 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 Sale to Director
On
July 25, 2024, the Company received proceeds of $
Cancellation of Series A Preferred Stock Subscriptions Payable
On July 3, 2024, a consultant agreed to forfeit shares of Series A Preferred Stock, with a fair value of $, that was previously awarded, but hadn’t yet been issued.
Preferred Stock Dividends
The
Series A Preferred Stock accrues dividends at the rate of
Note 14 – Commitments and Contingencies
Debt Commitment Obligations
The Company has entered into various forms of debt financing that require the Company to issue shares of common stock or pre-funded warrants that carry certain make-whole provisions whereby, if the debt holder is unable to sell the commitment fee shares for net proceeds equal to at least the commitment fee, the Company shall pay the shortfall in cash, or cause the issuance of additional shares of common stock, to the debt holder until the sale of which would ultimately generate total net funds equal to the commitment fee, as follows:
| Debt Holder | Commitment Shares or Warrants | Commitment Amounts | ||||
| SDT Equities Note | warrants to purchase shares of the Company’s common stock * | $ | ||||
| Fourth AJB Note | shares of the Company’s common stock | $ | ||||
| Third AJB Note | shares of the Company’s common stock | $ | ||||
| * |
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 $
| 22 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In connection with the ELOC Purchase Agreement, the Company entered into a Registration Rights Agreement with Tysadco under which the Company agreed to file a registration statement with the Securities and Exchange Commission covering the shares of common stock issuable under the ELOC Purchase Agreement and conversion of the Commitment Fee Shares (the “Registration Rights Agreement”). There have not been any advances on this arrangement to date.
Note 15 – 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 amended on October 15, 2024. As of September 30, 2024, there were shares of common stock issued and outstanding.
Common Stock Issued in Escrow Pursuant to Default Provisions of Debt Financing
On March 4, 2024, the Company issued shares of common stock in escrow pursuant to default provisions on deft financing received from the Sanguine Group. The shares were cancelled pursuant to the subsequent debt repayment on April 22, 2024.
Common Stock Issued as a Promissory Note Commitment
On
April 19, 2024, the Company paid a commitment fee to AJB Capital in the form of shares of common stock in connection with the
issuance of the Fourth AJB Note (defined above). The relative fair value of the common stock was $
On
March 19, 2024, the Company paid a commitment fee to Joerg Sommer, the Company’s President, in the form of shares of common
stock in connection with the issuance of the Second Sommer Note (defined above). The relative fair value of the common stock was $
On
March 4, 2024, the Company paid a commitment fee to The Sanguine Group, LLC in the form of shares of common stock in connection
with the issuance of the First Sanguine Note (defined above). The relative fair value of the common stock was $
Common Stock Issued as Consideration for Related Party Debt Modifications
On
March 15, 2024, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., agreed to issue shares of common stock to officers
and directors in consideration for extending the maturity dates and terms of previously received debt financing, as listed below. The
aggregate fair value of the common stock was $
| Aggregate | ||||||||||||||
| Name | Position | Debts Extended | Shares | Fair Value | ||||||||||
| Isiah L. Thomas, III | Chairman and CEO | $ | $ | |||||||||||
| Dr. Kenneth Perego, II | Vice Chairman | |||||||||||||
| Joerg Sommer | President | |||||||||||||
| Dr. John McCabe | >5% Shareholder | |||||||||||||
| $ | $ | |||||||||||||
Common Stock Issued for Services, Related Parties
On
September 25, 2024, the Company issued shares of common stock to the Company’s Chief Financial Officer. The
fair value of the shares was $
| 23 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
On July 1, 2024, the Company issued shares of common stock to Todd Peterson as a signing bonus pursuant to his appointment as the Company’s Chief Financial Officer. The fair value of the shares was $, based on the closing price of the Company’s common stock on the date of grant.
On
March 15, 2024, the Company issued shares of common stock to officers and directors for services provided, as listed below. The aggregate
fair value of the common stock was $
| Name | Position | Shares | Fair Value | |||||||
| Isiah L. Thomas, III | Chairman and CEO | $ | ||||||||
| Dr. Kenneth Perego, II | Vice Chairman | |||||||||
| Terry Buffalo | Director | |||||||||
| Joerg Sommer | President | |||||||||
| $ | ||||||||||
Common Stock Issued for Services
On
September 30, 2024, the Company issued shares of common stock to ClearThink Capital Partners, LLC, for services provided for
the period ending September 30, 2024. The fair value of the common stock was $
On
July 1, 2024, the Company issued shares of common stock in consideration of consulting services. The
fair value of the shares was $
On
June 30, 2024, the Company awarded shares of common stock to ClearThink Capital Partners, LLC, for services provided. The fair
value of the common stock was $
On
May 10, 2024, the Company issued shares of common stock in consideration of consulting services. The
fair value of the shares was $
On
March 31, 2024, the Company awarded shares of common stock to ClearThink Capital Partners, LLC, for services provided. The fair
value of the common stock was $
On
March 15, 2024, the Company issued an aggregate shares of common stock to two consultants for services provided. The aggregate
fair value of the common stock was $
On
February 9, 2024, the Company issued shares of common stock to ClearThink Capital Partners, LLC, for services provided. The fair
value of the common stock was $
Amortization of Stock-Based Compensation
A
total of $
| 24 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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.
Outstanding Options
Options to purchase an aggregate total of shares of common stock at a weighted average strike price of $, exercisable over a weighted average life of years were outstanding as of September 30, 2024.
The
Company recognized a total of $ and $ of compensation expense during the nine months ended September 30, 2024 and 2023,
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 17 – Warrants
Outstanding Warrants
Warrants
to purchase an aggregate total of
Amendment of Warrants
On
September 17, 2024, the Board approved the extension of warrants previously awarded to AJB Capital Investments LLC as part of debt financing
that originated on September 24, 2021, whereby the Company’s originally issued warrants consisting of, (i) a -year warrant
to purchase
Series A Preferred Stock Sale to Director
On
July 25, 2024, the Company received proceeds of $
Warrants Issued for Debt Financing
On
April 19, 2024, the Company completed the sale of a (i) Promissory Note in the principal amount of $
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ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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, 2024, and the year ended December 31, 2023, 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, 2024, 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, 2024 and December 31, 2023, 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, noting no reportable event, except as follows:
Liquidation Proceeding
Effective October 1, 2024, the Company’s Colombian subsidiary, One World Pharma S.A.S. (“OWP Colombia”), entered into a liquidation proceeding pursuant to Colombian Law 1116 of 2006, under which the creditors of a company can request “judicial liquidation” of such company. The proceeding is expected to last approximately one year. The proceeding was submitted to the Superintendent of Corporations of Colombia as a substitute to the reorganization proceedings previously filed on December 22, 2023.
The operations of OWP Colombia have previously been deconsolidated. As such, we do not expect the judicial liquidation to have a significant impact to the Company’s financial statements.
Increase in Authorized Common Stock
On October 15, 2024, the holders of a majority of the voting power of the Company approved an increase in the number of authorized shares of common stock to billion shares.
Designation of Series C Special Preferred Stock
On October 10, 2024, the Company filed with the State of Nevada a Certificate of Designation (the “Certificate of Designation”), which established a Series C Special Preferred Stock. There follows a summary of the rights, preferences, powers, restrictions and limitations of the Series C Special Preferred Stock:
Section 1. Designation, Amount and Par Value. The series of Preferred Stock shall be designated as Series C Special Preferred Stock (the “Series C Special Preferred Stock”) and the number of shares so designated shall be One Hundred (100). Each share of the Series C Special Preferred Stock shall have a par value of $.
Section 2. Fractional Shares. The Series C Special Preferred Stock may not be issued in fractional shares.
Section 3. Voting Rights. The holders of the Series C Special Preferred Stock shall, as a class, have rights in all matters requiring shareholder approval to a number of votes equal to two (2) times the sum of:
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ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(a) The total number of shares of common stock which are issued and outstanding at the time of any election or vote by the shareholders; plus
(b) The number of votes allocated to shares of Preferred Stock issued and outstanding of any other class that shall have voting rights.
Section 4. Dividends. The Series C Special Preferred Stock shall not be entitled to any dividends.
Section 5. Liquidation. Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of Series C Special Preferred Stock shall not be entitled to any payment.
Section 6. Conversion. The Series C Special Preferred Stock shall have no rights of conversion.
Section 7. Protection Provisions. So long as any shares of Series C Special Preferred Stock are outstanding, the Company shall not, without first obtaining the unanimous written consent of the holders of Series C Special Preferred Stock, alter or change the rights, preferences or privileges of the Series C Special Preferred Stock so as to affect adversely the holders of Series C Special Preferred Stock.
Section 8. Waiver. Any of the rights, powers or preferences of the holders of the Series C Special Preferred Stock may be waived by the affirmative consent or vote of the holders of at least a majority of the shares of Series C Special Preferred Stock then outstanding.
Section 9. No Other Rights or Privileges. Except as specifically set forth herein, the holder(s) of the shares of Series C Special Preferred Stock shall have no other rights, privileges or preferences with respect to the Series C Special Preferred Stock.
Issuance of Series C Special Preferred Stock
Effective
November 8, 2024, the Company entered into an Exchange Agreement (the “Thomas Agreement”) with Isiah L. Thomas, III, the
Company’s Chairman and Chief Executive Officer, pursuant to which the Company issued shares of Series C Special Preferred Stock
in consideration of Mr. Thomas’ forgiveness of $
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| 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, 2023 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
We plan to be a producer of and/or source raw and processed cannabis and hemp plant ingredients for both medical and industrial uses across the globe. The Company is a holding company and conducts its business in Colombia through OWP SAS, its wholly-owned subsidiary. OWP SAS has received licenses from the Colombian government to cultivate, produce and distribute the raw ingredients of the cannabis and hemp plant for medicinal, scientific and industrial purposes in the town of Esmeralda-Popayán, Cauca, Colombia.
We are in the process of acquiring another Colombian subsidiary within the Bogota free trade zone, which has all requisite licenses for the cultivation, production, distribution and export of cannabis and hemp infused products, and will serve as the Company’s primary base of operations in the Colombian market. Establishing operations within the free trade zone provides favorable import/export commercial terms and taxation, and will improve logistics and the overall operating efficiencies for the Company due to the close proximity of El Dorado International Airport and the commercial, economic and cultural center of the city of Bogota itself.
OWP SAS owns approximately 30 acres and has a covered greenhouse built specifically to cultivate high-grade cannabis and hemp. In addition, we entered into agreements with a local farming co-operative, under which they will cultivate cannabis on up to approximately 140 acres of land using our seeds and propagation techniques, and sell their harvested products to us on an exclusive basis. We planted our first crop of cannabis in 2018, which we harvested in the first quarter of 2019 for the purpose of further research and development activities and quality control testing of the cannabis we have produced.
We have generated revenues since the second quarter of 2020. Between August 2021 and March 2022, we made payments of approximately $1,400,000 for the purchase of a state-of-the-art distillation machine that cleared customs and is currently located in a warehouse near Bogota. We intend to build out an extraction and production facility in the Bogota free trade zone adjacent to El Dorado International Airport in Bogota after we execute a lease for this location. Once the extraction equipment is placed in service, we will be one of the few companies in Colombia to both hold licenses and possess the capability to extract high-quality CBD and THC oils.
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Due to challenging economic conditions and under prior management, OWP SAS experienced significant operational and managerial challenges in 2022 and 2023, resulting its accumulation of financial obligations of approximately $1.2 million, which are substantially past due. Without adequate resources and in an effort to forestall the imposition of interest, late charges, fines and any court-mandated order(s) to cease operations, OWP SAS filed for protection under Colombian Law 1116 of 2006, which is the primary legislation governing business insolvency proceedings (restructuring and liquidation) (“Reorganization Proceedings”) in Colombia on December 22, 2023.On October 1, 2024, the Company amended its filing with the Court to change from a Reorganization Proceeding to a liquidation of its assets, primarily consisting of the farm in Popayán and equipment. The Company has deconsolidated its foreign subsidiaries to include the petitioning entity, OWP SAS, as well as the Company’s non-operating shell entities, Agrobase, S.A.S. and Hope Colombia, S.A.S., given the lack of independently identifiable operations. The deconsolidation resulted in a loss on deconsolidation of foreign subsidiaries in the amount of $242,631 and $1,564,823 for the nine months ended September 30, 2024 and the year ended December 31, 2023, respectively.
On May 15, 2024, OWP Ventures, Inc., acquired Pétalo Pharmaceutical, S.A.S. (“Pétalo”), a Company located in Colombia and legally constituted as a simplified stock company that owns licenses to cultivate, produce and distribute the raw ingredients of the cannabis and hemp plant for medicinal, scientific and industrial purposes from the free trade zone in Colombia. Pétalo had no operations, other than obtaining four licenses, including seed use, cultivation of non-psychoactive cannabis, cultivation of psychoactive cannabis, and manufacturing allowing for extraction and export from the free trade zone. The Company intends to establish an export business within the free trade zone using these licenses.
We expect Pétalo to start exporting products in 2024, including CBD flower and distillate oil. Our product pipeline may include premium coffee certified by the Colombian National Coffee Federation infused with CBD, teas infused with CBD and a series of wellness products, including sports CBD energy drinks for optimum performance, CBD facial and body creams for anti-inflammatory and anti-aging use and white label commercial agreements with partners in Europe, USA, and Latin America. We recently entered into strategic partnerships with Smokiez Edibles in Colombia and Stephen Marley’s Kx Family Care. There can be no assurances that these strategic partnerships will generate revenues or be profitable for the Company.
During 2024, the Company has also been developing industrial hemp solutions for the automotive market. The Company intends to focus increased efforts on research and development in this area to help the automotive industry meet its goals of achieving carbon neutral manufacturing using renewable material solutions. In October of 2024, the Company, in collaboration with partners in the automotive industry, developed hemp-based molded containers for automotive part packaging applications and received an initial order for 1,400 units of these reusable totes, designed to move and protect automotive parts through the supply chain.
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Results of Operations for the Three Months Ended September 30, 2024 and 2023:
The following table summarizes selected items from the statement of operations for the three months ended September 30, 2024 and 2023.
| Three Months Ended September 30, | Increase / | |||||||||||
| 2024 | 2023 | (Decrease) | ||||||||||
| Revenues | $ | 1,517 | $ | 5,906 | $ | (4,389 | ) | |||||
| Cost of goods sold | 310 | 767 | (457 | ) | ||||||||
| Gross profit | 1,207 | 5,139 | (3,932 | ) | ||||||||
| Operating expenses: | ||||||||||||
| General and administrative | 203,242 | 142,464 | 60,778 | |||||||||
| Professional fees | 169,596 | 236,139 | (66,543 | ) | ||||||||
| Depreciation expense | - | 9,274 | (9,274 | ) | ||||||||
| Total operating expenses: | 372,838 | 387,877 | (15,039 | ) | ||||||||
| Operating loss | (371,631 | ) | (382,738 | ) | (11,107 | ) | ||||||
| Total other expense | (362,968 | ) | (67,568 | ) | 295,400 | |||||||
| Net loss | $ | (734,599 | ) | $ | (450,306 | ) | $ | 284,293 | ||||
Revenues
Revenues during the three months ended September 30, 2024 were $1,517, compared to $5,906 during the three months ended September 30, 2023, a decrease of $4,389, or 74%. Revenues during the current period were generated by sales of our CBD product, while revenues from the comparative period were attributable to sales of cannabis seeds by OWP SAS.
Cost of Goods Sold
Cost of goods sold for the three months ended September 30, 2024 were $310, compared to $767 for the three months ended September 30, 2023, a decrease of $457, or 60%. Cost of goods sold for our CBD product consists primarily of finished goods sold, while costs of goods related to our cannabis seeds in the prior period consisted primarily of labor, agricultural raw materials, depreciation and overhead. Costs of goods sold decreased as we transitioned to the sale of CBD products and sales decreased. Our profit margin during the three months ended September 30, 2024 was 80%, compared to 87% for the three months ended September 30, 2023.
General and Administrative Expenses
General and administrative expenses for the three months ended September 30, 2024 were $203,242, compared to $142,464 during the three months ended September 30, 2023, an increase of $60,778, or 43%. 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 in the current period, and lease expenses in Colombia incurred in the prior period that weren’t recognized in the current period, as we transitioned to new management and shifted our focus to operations within the United States. General and administrative expenses included non-cash, stock-based compensation of $26,250 and $29,347 during the three months ended September 30, 2024 and 2023, respectively.
Professional Fees
Professional fees for the three months ended September 30, 2024 were $169,596, compared to $236,139 during the three months ended September 30, 2023, a decrease of $66,543, or 28%. Professional fees included non-cash, stock-based compensation of $21,564 and $147,367 during the three months ended September 30, 2024 and 2023, respectively. Professional fees increased primarily due to increased stock-based compensation issued to consultants during the current period.
Depreciation Expense
Depreciation expense for the three months ended September 30, 2024 was $-0-, compared to $9,274 during the three months ended September 30, 2023, a decrease of $9,274. Depreciation expense decreased due to the deconsolidation of OWP SAS at December 22, 2023.
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Other Income (Expense)
Other expenses, on a net basis, for the three months ended September 30, 2024 were $362,968, compared to other expenses, on a net basis, for the three months ended September 30, 2023 of $67,568, an increase in net expenses of $295,400, or 437%. Other expenses consisted of a $22,359 loss on deconsolidation of foreign subsidiaries and $340,609 of interest expense, including $147,756 of stock-based finance costs on the amortization of debt discounts for the three months ended September 30, 2024, compared to $67,571 of interest expense, including $12,684 of stock-based finance costs on the amortization of debt discounts, as partially offset by $3 of interest income for the three months ended September 30, 2023.
Net Loss
Net loss for the three months ended September 30, 2024 was $734,599, or $0.01 per share, compared to $450,306, or $0.01 per share, during the three months ended September 30, 2023, an increase of $284,293, or 63%. The net loss increased primarily due to increased interest expense on debt financing.
Results of Operations for the Nine Months Ended September 30, 2024 and 2023:
The following table summarizes selected items from the statement of operations for the nine months ended September 30, 2024 and 2023.
| Nine Months Ended September 30, | Increase / | |||||||||||
| 2024 | 2023 | (Decrease) | ||||||||||
| Revenues | $ | 3,053 | $ | 8,082 | $ | (5,029 | ) | |||||
| Cost of goods sold | 588 | 1,866 | (1,278 | ) | ||||||||
| Gross profit | 2,465 | 6,216 | (3,751 | ) | ||||||||
| Operating expenses: | ||||||||||||
| General and administrative | 552,874 | 907,595 | (354,721 | ) | ||||||||
| Professional fees | 971,934 | 413,651 | 558,283 | |||||||||
| Depreciation expense | - | 25,578 | (25,578 | ) | ||||||||
| Total operating expenses: | 1,524,808 | 1,346,824 | 177,984 | |||||||||
| Operating loss | (1,522,343 | ) | (1,340,608 | ) | 181,735 | |||||||
| Total other expense | (1,778,337 | ) | (172,766 | ) | 1,605,571 | |||||||
| Net loss | $ | (3,300,680 | ) | $ | (1,513,374 | ) | $ | 1,787,306 | ||||
Revenues
Revenues during the nine months ended September 30, 2024 were $3,053, compared to $8,082 during the nine months ended September 30, 2023, a decrease of $5,029, or 62%. Revenues during the current period were generated by sales of our CBD product, while revenues from the comparative period were attributable to sales of cannabis seeds by OWP SAS.
Cost of Goods Sold
Cost of goods sold for the nine months ended September 30, 2024 were $588, compared to $1,866 for the nine months ended September 30, 2023, a decrease of $1,278, or 68%. Cost of goods sold for our CBD product consists primarily of finished goods sold, while costs of goods related to our cannabis seeds in the prior period consisted primarily of labor, agricultural raw materials, depreciation and overhead. Costs of goods sold decreased as we transitioned to the sale of CBD products and sales decreased. Our profit margin during the nine months ended September 30, 2024 was 81%, compared to 77% for the nine months ended September 30, 2023.
General and Administrative Expenses
General and administrative expenses for the nine months ended September 30, 2024 were $552,874, compared to $907,595 during the nine months ended September 30, 2023, a decrease of $354,721, or 39%. 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 salaries and wages and lease expenses in Colombia over the comparative period, as we transitioned to new management and shifted our focus to operations within the United States. General and administrative expenses included non-cash, stock-based compensation of $59,250 and $177,891 during the nine months ended September 30, 2024 and 2023, respectively.
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Professional Fees
Professional fees for the nine months ended September 30, 2024 were $971,934, compared to $413,651 during the nine months ended September 30, 2023, an increase of $558,283, or 135%. Professional fees included non-cash, stock-based compensation of $577,072 and $207,011 during the nine months ended September 30, 2024 and 2023, respectively. Professional fees increased primarily due to increased stock-based compensation issued to consultants during the current period.
Depreciation Expense
Depreciation expense for the nine months ended September 30, 2024 was $-0-, compared to $25,578 during the nine months ended September 30, 2023, a decrease of $25,578. Depreciation expense decreased due to the deconsolidation of OWP SAS at December 22, 2023.
Other Income (Expense)
Other expenses, on a net basis, for the nine months ended September 30, 2024 were $1,778,337, compared to other expenses, on a net basis, of $172,766 during the nine months ended September 30, 2023, an increase in net expenses of $1,605,571, or 929%. Other expenses consisted of an early extinguishment of debt in the amount of $724,086 related to common stock issued to related parties as commitment shares on debt modifications, a $242,631 loss on deconsolidation of foreign subsidiaries, and $811,620 of interest expense, including $349,731 of stock-based finance costs on the amortization of debt discounts for the nine months ended September 30, 2024, compared to $177,169 of interest expense, including $12,684 of stock-based finance costs on the amortization of debt discounts, as partially offset by a gain on early extinguishment of debt of $4,397 on the termination of long term leases and $6 of interest income for the nine months ended September 30, 2023.
Net Loss
Net loss for the nine months ended September 30, 2024 was $3,300,680, or $0.03 per share, compared to $1,513,374, or $0.02 per share, during the nine months ended September 30, 2023, an increase of $1,787,306, or 118%. The net loss increased primarily due to stock-based compensation, the fair value of common stock issued to related parties as commitment shares on debt modifications and interest expense.
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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, 2024 and 2023:
| 2024 | 2023 | |||||||
| Operating Activities | $ | (1,010,268 | ) | $ | (1,043,238 | ) | ||
| Investing Activities | (75,000 | ) | (5,046 | ) | ||||
| Financing Activities | 1,208,500 | 874,500 | ||||||
| Effect of Exchange Rate Changes on Cash | (42,328 | ) | 172,920 | |||||
| Net Increase (Decrease) in Cash | $ | 80,904 | $ | (864 | ) | |||
Net Cash Used in Operating Activities
During the nine months ended September 30, 2024, net cash used in operating activities was $1,010,268, compared to net cash used in operating activities of $1,043,238 for the nine months ended September 30, 2023. 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, 2024, net cash used in investing activities was $75,000, compared to net cash used in investing activities of $5,046 for the nine months ended September 30, 2023. The cash used in investing activities during the current period was for the $75,000 purchase of a subsidiary in Colombia, compared to the prior period, which consisted entirely of purchases of fixed assets.
Net Cash Provided by Financing Activities
During the nine months ended September 30, 2024, net cash provided by financing activities was $1,208,500, compared to net cash provided by financing activities of $874,500 for the nine months ended September 30, 2023. The current period consisted of $150,000 of proceeds received on the sale of preferred stock and $2,075,500 of proceeds received on debt financing, as partially offset by $1,017,000 of debt repayments, compared to $250,000 of proceeds received on the sale of preferred stock, $300,000 from the sale of common stock, $262,500 of proceeds received on debt financing and $62,000 of proceeds received on debt financing received by related parties during the nine months ended September 30, 2023.
Ability to Continue as a Going Concern
As of September 30, 2024, our balance of cash on hand was $81,630, and we had negative working capital of $3,154,500 and an accumulated deficit of $30,230,366. 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 will 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.
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.
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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 revenues in the current period consisted of the sale of our CBD rub, and in the prior period revenues consisted entirely of the sale of seeds. The sale of seeds included multi-element arrangements whereby the Company collected 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 had a right of first refusal to purchase products resulting from the harvest.
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 and CBD derived products.
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
| 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, 2024. 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. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective as of September 30, 2024.
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.
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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, 2024 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:
Common Stock Issued for Services
On September 25, 2024, the Company issued 250,000 shares of common stock, restricted in accordance with Rule 144, to the Company’s Chief Financial Officer for services provided.
On September 30, 2024, the Company issued 278,811 shares of common stock, restricted in accordance with Rule 144, to ClearThink Capital Partners, LLC, for services provided.
On August 7, 2024, the Company issued 231,840 shares of common stock, restricted in accordance with Rule 144, to ClearThink Capital Partners, LLC, for services provided.
On July 1, 2024, the Company issued 250,000 shares of common stock, restricted in accordance with Rule 144, to the Company’s Chief Financial Officer as a signing bonus.
On July 1, 2024, the Company issued 200,000 shares of common stock, restricted in accordance with Rule 144, to a consultant for services provided.
Issuance of Series C Special Preferred Stock
Subsequent to September 30, 2024, effective November 8, 2024, the Company issued 100 shares of its Series C Special Preferred Stock in exchange for $486,512 of accrued salary of its Chief Executive Officer.
In connection with the above security issuances, we did not pay any underwriting discounts or commissions. None of the sales of securities described or referred to above was registered under the Securities Act. In making the sales without registration under the Securities Act, we relied upon one or more of the exemptions from registration contained in Section 4(2) of the Securities Act, and in Regulation D promulgated under the Securities Act. No general solicitation or advertising was used in connection with the sales.
All of these transactions described above were exempt from registration in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended, as a transaction by an issuer not involving a public offering. We did not pay any underwriting discounts or commissions in any of these transactions. The recipients of securities in each of these transactions represented their intention to acquire these securities for investment only and not with a view to offer or sell, in connection with any distribution of the securities, and appropriate legends were affixed to the share certificates and instruments issued in such transactions.
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| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
| ITEM 5. | OTHER INFORMATION |
Bankruptcy
Effective October 1, 2024, the Company’s Colombian subsidiary, One World Pharma S.A.S. (“OWP Colombia”), entered into a liquidation proceeding pursuant to Colombian Law 1116 of 2006, under which the creditors of a company can request “judicial liquidation” of such company. The proceeding is expected to last approximately one year. The proceeding was submitted to the Superintendent of Corporations of Colombia as a substitute to the reorganization proceedings previously filed on December 22, 2023.
The operations of OWP Colombia have previously been deconsolidated. As such, we do not expect the judicial liquidation to have a significant impact to the Company’s financial statements.
Amendment to Articles of Incorporation – Certificate of Designation of Series C Special Preferred Stock
On October 10, 2024, the Company filed with the State of Nevada a Certificate of Designation (the “Certificate of Designation”), which established a Series C Special Preferred Stock. There follows a summary of the rights, preferences, powers, restrictions and limitations of the Series C Special Preferred Stock:
Section 1. Designation, Amount and Par Value. The series of Preferred Stock shall be designated as Series C Special Preferred Stock (the “Series C Special Preferred Stock”) and the number of shares so designated shall be One Hundred (100). Each share of the Series C Special Preferred Stock shall have a par value of $0.001.
Section 2. Fractional Shares. The Series C Special Preferred Stock may not be issued in fractional shares.
Section 3. Voting Rights. The holders of the Series C Special Preferred Stock shall, as a class, have rights in all matters requiring shareholder approval to a number of votes equal to two (2) times the sum of:
(a) The total number of shares of common stock which are issued and outstanding at the time of any election or vote by the shareholders; plus
(b) The number of votes allocated to shares of Preferred Stock issued and outstanding of any other class that shall have voting rights.
Section 4. Dividends. The Series C Special Preferred Stock shall not be entitled to any dividends.
Section 5. Liquidation. Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of Series C Special Preferred Stock shall not be entitled to any payment.
Section 6. Conversion. The Series C Special Preferred Stock shall have no rights of conversion.
Section 7. Protection Provisions. So long as any shares of Series C Special Preferred Stock are outstanding, the Company shall not, without first obtaining the unanimous written consent of the holders of Series C Special Preferred Stock, alter or change the rights, preferences or privileges of the Series C Special Preferred Stock so as to affect adversely the holders of Series C Special Preferred Stock.
Section 8. Waiver. Any of the rights, powers or preferences of the holders of the Series C Special Preferred Stock may be waived by the affirmative consent or vote of the holders of at least a majority of the shares of Series C Special Preferred Stock then outstanding.
Section 9. No Other Rights or Privileges. Except as specifically set forth herein, the holder(s) of the shares of Series C Special Preferred Stock shall have no other rights, privileges or preferences with respect to the Series C Special Preferred Stock.
Exchange Agreement
Effective November 8, 2024, the Company entered into an exchange agreement (the “Thomas Agreement”) with Isiah L. Thomas, III, the Company’s Chairman and Chief Executive Officer, pursuant to which the Company issued 100 shares of Series C Special Preferred Stock in consideration of Mr. Thomas’ forgiveness of $486,512 of accrued salary owed to him. The consummation of the Thomas Agreement resulted in Mr. Thomas acquiring voting control of the Company.
Submission of Matters to a Vote of Security Holders
On October 15, 2024, the holders of a majority of the voting power of the Company approved an increase in the number of authorized shares of common stock to 1 billion shares.
Change in Control
Effective November 8, 2024, there occurred a change in control of the Company. On such date, pursuant to the Thomas Agreement, the Company’s Chairman and Chief Executive Officer, Isiah L. Thomas, III, acquired all of the outstanding shares of the Company’s Series C Special Preferred Stock, which securities provide Mr. Thomas voting control of the Company. The consideration paid by Mr. Thomas for the shares of Series C Special Preferred Stock was Mr. Thomas’ forgiveness of $486,512 in accrued salary owed to him. As a class, the Series C Special Preferred Stock possesses 66.67% voting power of the Company.
No changes in Company management were made in connection with the Thomas Agreement.
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| ITEM 6. | Exhibits |
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* Filed herewith.
+ Compensatory plan or agreement.
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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, 2024 | |
| One World Products, Inc. | |
| /s/ Isiah L. Thomas III | |
| Isiah L. Thomas III | |
| Chief Executive Officer | |
| (Principal Executive Officer) | |
| /s/ Todd Peterson | |
| Todd Peterson | |
| Chief Financial Officer | |
| (Principal Financial Officer) |
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